Skip to comments.The Tax-Dodge Derivative (How to beat IRS with hedge funds)
Posted on 09/14/2008 4:20:34 AM PDT by TigerLikesRooster
The Tax-Dodge Derivative
Anita Raghavan 09.11.08, 6:55 PM ET
While Lehman Brothers was fighting for its life in the markets today, it was also battling in a Senate panel's hearing on whether the company and others created a set of financial products whose primary purpose is to dodge taxes owned on U.S. stock dividends.
The "most compelling" reason for entering into dividend-related stock swaps are the tax savings, Highbridge Capital Management Treasury and Finance Director Richard Potapchuk told the Senate's Permanent Subcommittee on Investigations. Lehman Brothers , Morgan Stanley and Deutsche Bank are among the companies behind the products.
"Without those tax savings, a lot of those swaps would not have occurred," said Potapchuk, whose firm saved 100 million dollars in withholding taxes through these trades.
Three hedge funds alone--Highbridge, Angelo Gordon and Maverick Capital--saved a total of nearly $240 million in taxes through controversial derivatives and stock loan trades that helped offshore investment vehicles sidestep taxes on U.S. stock dividends. That's a small fraction of the billions of dollars in taxes that investigators estimate are lost through these types of trades.
(Excerpt) Read more at forbes.com ...
Tax avoidance is not tax evasion. There is an assumption of guilt in the article which doesn’t actually exist in real life. You don’t like the practice? Change the law. But if your new law is some complex liberal monstrosity designed to let government keep it’s hands on the reigns of power, someone somewhere is going to figure a way around it and we’re all going to go around with this again. That’s how it goes... and it’s how we got here in the first place.
"He warned securities companies not to take comfort in the so-called Wall Street rule that holds that if the IRS allows controversial products to go unchallenged, it effectively amounts to an "approved loophole."
The IRS determines what is tax evasion and what is a loophole. The courts side with the IRS 99% of the time. These people should look before they leap. Does anybody sell tax insurance?
In the end something will probably be negotiated, a new law will be written, and in a year or so someone in the industry will figure a way around that law too.
It's a constant state.
If it's perfectly legal, it's "tax minimization" not "tax evasion." The latter implies illegality.
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