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I.R.S. Cracks Down on Hedge Fund Tax Strategy

nytimes.com

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Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#121

Post by jsprogrammer »

tghw wrote: post #78
jsprogrammer wrote: post #52

Earlier quoted context omitted.

The fiction is to believe that 'a legal construct (perhaps multilayered) that groups ownership of real assets and/or obligations of real people' is an entity.

You're basically saying that contracts are fictional. Try entering into a contract, then behaving as if it's fictional by ignoring your responsibilities in the contract, and you will quickly find out how real they are.

>You're basically saying that contracts are fictional.

Nope (although, that may be true, in some sense), I am not saying that. I am saying the thing many refer to as an 'entity', as in, 'the corporate entity', is a fictional thing. It has no real, inherent or independent physical existence apart from the people that choose to represent it.

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#122

Post by jsprogrammer »

s73v3r wrote: post #109
jsprogrammer wrote: post #34

Earlier quoted context omitted.

"Trading an asset" What exactly are you trading? Bits in a database that mark ownership of a fraction of a fictional entity?

"What exactly are you trading?" Part ownership of a company. To say anything else is to show yourself to be completely naive.

All 'assets' that are traded are not necessarily part ownership of a company. Some are pure voting rights. Some are rights to dividends. Some are rights to loan payments.

To believe that all assets are 'part ownership of a company' is not only naive, but incorrect and delusional.

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#123

Post by JoshTriplett »

Frondo wrote: post #112
JoshTriplett wrote: post #90

Earlier quoted context omitted.

> This will happen regardless, as tax rates have nowhere to go but up in the USA (considering trillions in unfunded liabilities). Because when you've run up a giant pile of debt, the response should be "get and spend more money" rather than "spend less"? > Civilization. That's exactly what taxes pay for. As long as we're being snarky: product not as advertised, cost inflated well over initial agreement, return policy…

So get involved with the political process and work to make it better. It's so easy to get into local and state politics, and that's the stuff that has the biggest influence over your life. I don't get why more people don't do this!

Getting involved with politics is a life-consuming activity, especially if you want to actually change anything.

My state, unlike most in the US and unlike the US federal government, at least has a requirement that all tax issues must be voted on by the general public rather than just passed by the legislature and signed by the governor.

The federal government, however, is the largest source of both taxes and onerous regulations, the most challenging and time-consuming to get involved with, and the most resistant to change.

(This is, oddly, a larger-scale version of the same problem Wikipedia has or many other organizations have: whoever has the most time to waste can be the most successful creating and thriving in a bureaucracy, winning by sheer volume rather than by merit. Or, alternatively: anyone who would want the job shouldn't have it, and anyone who should have the job wouldn't want it.)

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#124

Post by tsotha »

socialist_coder wrote: post #111
kbenson wrote: post #96

Earlier quoted context omitted.

Do any people doing them by hand actually make these investments directly, or do they use intermediaries? Is it that hard to require the intermediaries provide end of year reports? I don't think this level of extra computational burden is a good counter-argument against more sane tax policies in this day and age.

Your stock broker or investment manager should be doing all this for you. Normally you receive end of year tax documents and all you do is copy some numbers from them onto your tax return. It's pretty easy but it could definitely be even more automated. Maybe some stock brokers or weird investments don't do this? I would hate having to do all that stuff by hand.

If you've held a position for long enough it may have been purchased before brokers were required to keep track. Your broker may not have enough information to provide the cost basis.

I have a couple small positions I've held for more than 20 years now. At this point it will be more trouble to deal with the taxes than they're worth, so I'll probably just hold onto them and let my heirs deal with it.

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#125

Post by tsotha »

ISL wrote: post #56
DannyBee wrote: post #28

Earlier quoted context omitted.

1. In the US, the supreme court has repeatedly held that the ex-post-facto clause only applies to criminal laws (See Calder v. Bull, which was decided in 1798). This is actually consistent with the history of the clause (It was understood to apply to criminal laws. Motions were made to change the wording to say it also applied to civil cases, they were turned down) 2. This is not a law, and may not even be administra…

If the IRS doesn't think I've paid my taxes, I can go to prison. Doesn't that make this particular case a criminal one?

It's only a criminal matter if the IRS thinks you broke the law deliberately. If it's the result of crappy record keeping or something you didn't understand they'll usually tack on some penalties and interest and call it a day.

I know a guy who didn't even file for five or six years. Eventually he got a lawyer and made a deal which had him paying some fraction of his original tax liability.

They'll put you in jail if you make them, but they don't really want to put you in jail. They just want your money.

Oh, this guy? After getting his sweet deal he didn't actually pay them. I think he may end up in jail.

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#126

Post by Maarten88 »

logfromblammo wrote: post #50
discardorama wrote: post #24

> The fund [Medallion] has earned an average annual return of more than 35 percent for two decades. OK, can someone explain this? Most people say that "you can't beat the market in the long term", "market is efficient", etc. So how can these people have done so well over more than 20 years??

There are several plausible hypotheses. My personal favorite is, "They trade on non-public information, and use a complex trade algorithm for the purposes of plausible deniability." Another is, "They got lucky." Another likely one is "The reporter did not calculate average annual return correctly." One that I find dubious: "They actually are that good at investing." For giggles: "They are using hedge funds to launder…

Or maybe they move the most successful trades from client's funds into this employee fund, and move the unsuccessful ones out to client's funds?

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#127

Post by Frondo »

JoshTriplett wrote: post #123
Frondo wrote: post #112

Earlier quoted context omitted.

So get involved with the political process and work to make it better. It's so easy to get into local and state politics, and that's the stuff that has the biggest influence over your life. I don't get why more people don't do this!

Getting involved with politics is a life-consuming activity, especially if you want to actually change anything. My state, unlike most in the US and unlike the US federal government, at least has a requirement that all tax issues must be voted on by the general public rather than just passed by the legislature and signed by the governor. The federal government, however, is the largest source of both taxes and onerous…

Yes, it is life-consuming. Anyone who wants to get into politics is getting into something that'll affect a lot of people's lives. It should take a lot of effort. If it were easy, our world (or the part of it that government touches, which is most of it) would be chaotic.

As for "anyone who would want the job shouldn't have it," that's cute to some, but to me it's a tired thought-terminating cliche. It says "it's ok to be cynical, hur hur, and complain without doing anything about it," but does that get us any further?

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#128

Post by logfromblammo »

Maarten88 wrote: post #126
logfromblammo wrote: post #50

Earlier quoted context omitted.

There are several plausible hypotheses. My personal favorite is, "They trade on non-public information, and use a complex trade algorithm for the purposes of plausible deniability." Another is, "They got lucky." Another likely one is "The reporter did not calculate average annual return correctly." One that I find dubious: "They actually are that good at investing." For giggles: "They are using hedge funds to launder…

Or maybe they move the most successful trades from client's funds into this employee fund, and move the unsuccessful ones out to client's funds?

Oh, I like that one too, but how would they cover their asses in the event of an audit? Retroactive accounting?

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#129

Post by Tycho »

refurb wrote: post #106
Tycho wrote: post #42

I think the most interesting part is not the tax, but this: The options also were attractive because they limited the risk of loss to the amount paid for each option, Renaissance said. “No other investment structure of which we are aware provides both high leverage and loss protection,” Renaissance said.

Anyone else find this kind of "scammy" sounding? How can they have a 35% average annual return over the past 25 years and guarantee that you won't take a loss at all? Reminds me of Madoff.

I think the most likely explanation is that they were just shifting all the tail risk to DB and Barclays, who didn't know any better or thought the portfolios would never experience losses beyond the option premium.

Re: I.R.S. Cracks Down on Hedge Fund Tax Strategy

#130

Post by tghw »

jsprogrammer wrote: post #121
tghw wrote: post #78

Earlier quoted context omitted.

You're basically saying that contracts are fictional. Try entering into a contract, then behaving as if it's fictional by ignoring your responsibilities in the contract, and you will quickly find out how real they are.

>You're basically saying that contracts are fictional. Nope (although, that may be true, in some sense), I am not saying that. I am saying the thing many refer to as an 'entity', as in, 'the corporate entity', is a fictional thing. It has no real, inherent or independent physical existence apart from the people that choose to represent it.

There's no fundamental difference between a corporate entity and a contract. Just because it has no physical manifestation doesn't mean it's a fiction.
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