Abuse of Structured Financial Products: Misusing Basket Options to Avoid Taxes and Leverage Limits
Testimony Before the U.S. Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs
Document date: July 22, 2014
Released online: July 22, 2014
In this testimony before the Senate Permanent Subcommittee on Investigations, Steve Rosenthal describes how two hedge funds, with the help of two investment banks, purported to convert short-term trading profits into long-term capital gains with derivatives—which lowered the tax rate on their gains from 35% to 15% (the difference in rates for short-term and long-term gains for most of the years in question). He explains why he believes the funds stretched the tax law to achieve their goal. He also recommends legislation to address the misuse of derivatives more comprehensively.
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