Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

nytimes.com

Post reply on HN
Print view View original

51–60 of 136 posts

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

#51

Post by tanderson92 »

dragonwriter wrote: post #38
tanderson92 wrote: post #32

Earlier quoted context omitted.

> Interpretation isn't law, so in any legal dispute over the > IRS actions under the current interpretation, the law which > would be controlling is not retroactive. This is to me a very weak argument (not that I disagree that this may be the standard that is applied in practice). If the Congress passed a law saying "the IRS can set tax code as it sees fit" and the IRS proceeds to levy taxes all the way back to 1980…

> If the Congress passed a law saying "the IRS can set tax code as it sees fit" Then this would be an unconstitutional delegation of legislative authority to the executive. [0] Rendering the consideration of whether any executive action under it would constitute an ex post facto law moot -- if Congress purports to delegate enough power to the executive that retroactive executive action under it would be an ex post fa…

> Then this would be an unconstitutional delegation of legislative authority to the executive

And yet this is what we seem to be experiencing in this case, where the IRS can make a policy interpretation retroactively to the tune of $6 billion for a single taxpayer. Your source indicates that congress allows the IRS to decide tax policy, but since tax evasion is itself a crime it seems to indirectly violate the ex post facto law prohibition.

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

#52

Post by jsprogrammer »

leereeves wrote: post #46
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?

Not a 'fictional' entity; a legal construct (perhaps multilayered) that groups ownership of real assets and/or obligations of real people.

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.

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

#53

Post by jsprogrammer »

marvin wrote: post #48
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?

There is nothing fictional about the ownership of a fraction of a profitable enterprise. This shouldn't be more difficult than the concept of negative numbers, or any other useful non-physical concept. Ditto for options or any other construct that has a mathematical or market-based value.

>There is nothing fictional about the ownership of a fraction of a profitable enterprise.

Please read more carefully. I never claimed any such thing.

'fictional' modifies 'entity', not 'ownership'.

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

#54

Post by dragonwriter »

JoshTriplett wrote: post #30
pcurve wrote: post #14

Maybe all cap gains should just be taxed at the same rate. 1 year threshold his so artificial.

There's a massive difference between the long-term and short-term gains rates. And, hedge fund folks aside, long-term capital gains are also the taxes that apply to retirees drawing income from years of investments. Raising those rates would cause serious problems for folks who have already done all their financial planning and investing, and cannot afford to pay higher taxes.

> And, hedge fund folks aside, long-term capital gains are also the taxes that apply to retirees drawing income from years of investments. Raising those rates would cause serious problems for folks who have already done all their financial planning and investing

Raise them prospectively based on the date of asset purchase, starting some specified time after the date the change is adopted. Problem solved.

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

#55

Post by marvin »

gnopgnip wrote: post #39
Tycho wrote: post #35

Earlier quoted context omitted.

That's completely incorrect... the chances of a fund having that record through luck alone are astronomically low.

Survivorship bias. The funds that do not have great records are eventually closed leaving only the ones that are successful

So presumably, there is a 75% chance that the Medallion fund will lose money (hedge fund = zero sum) for the first time ever, during the next few years. I don't think this interpretation of the maths is correct.

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

#56

Post by ISL »

DannyBee wrote: post #28
ISL wrote: post #3

U.S. Constitution, Article I, Section 9: No Bill of Attainder or ex post facto Law shall be passed. How does that square with the article's "The new I.R.S. guidance will be retroactive, applying to all transactions as far back as Jan. 1, 2011." ?

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?

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

#57

Post by dragonwriter »

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?

> If the IRS doesn't think I've paid my taxes, I can go to prison.

No, if the IRS doesn't think you've paid your taxes, they can attempt to collect the unpaid taxes.

OTOH, if the Department of Justice can prove in a criminal prosecution that you've violated the criminal provisions of the tax law, you can go to prison. If the IRS thinks you've done that (which is different from just not paying your taxes), they can refer you to the DoJ for prosecution.

This change to IRS guidance doesn't change the criminal provisions of the tax law that would apply were the government to prosecute you, therefore, the change is not a change to criminal law, retroactive or otherwise.

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

#58

Post by dragonwriter »

tanderson92 wrote: post #51
dragonwriter wrote: post #38

Earlier quoted context omitted.

> If the Congress passed a law saying "the IRS can set tax code as it sees fit" Then this would be an unconstitutional delegation of legislative authority to the executive. [0] Rendering the consideration of whether any executive action under it would constitute an ex post facto law moot -- if Congress purports to delegate enough power to the executive that retroactive executive action under it would be an ex post fa…

> Then this would be an unconstitutional delegation of legislative authority to the executive And yet this is what we seem to be experiencing in this case, where the IRS can make a policy interpretation retroactively to the tune of $6 billion for a single taxpayer. Your source indicates that congress allows the IRS to decide tax policy, but since tax evasion is itself a crime it seems to indirectly violate the ex pos…

> And yet this is what we seem to be experiencing in this case

No, Congress passing a law saying that "IRS can set taxes at any level they want" is not what we are seeing.

If you want to argue that the actual laws Congress has passed are unconstitutional delegations, please, point to the specific laws, and make that argument.

> but since tax evasion is itself a crime it seems to indirectly violate the ex post facto law prohibition.

Evasion is a different thing than non-payment. No act that occurred in the past that was not evasion when it occurred becomes evasion as a result of this change in application.

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

#59

Post by dragonwriter »

tanderson92 wrote: post #36
gohrt wrote: post #15

Earlier quoted context omitted.

but OP's concerns don't matter. The Constitution's concerns matter. "Battery" is a crime. If the state decides that "smacking someone's back" meets the definition of battery, they can prosecute people who committed that act before the clarification, as long as a judge finds their interpretation to be consistent with the wording of the law. Law is not computer code that fully specifies a simulation in advance.

I would set up the situation more like the state passing a law saying that an agency, call it the Battery Protection Agency (BPA), can decide what constitutes battery. Then the BPA decides in 2015 that verbal abuse and insults constitutes battery, and prosecutors proceed to arrest people for insults going back 5 years before the BPA's 2015 decision. The parallels to the IRS case should be obvious, and the above hypot…

> The parallels to the IRS case should be obvious

Please point the specific provision(s) of law parallel to the one in your hypothetical, both as to the unlimited discretion and as to the discretion to decide what constitutes criminal punishment.

Because I don't think the parallels are at all obvious.

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

#60

Post by auntienomen »

gnopgnip wrote: post #39
Tycho wrote: post #35

Earlier quoted context omitted.

That's completely incorrect... the chances of a fund having that record through luck alone are astronomically low.

Survivorship bias. The funds that do not have great records are eventually closed leaving only the ones that are successful

You haven't done the math.

Let me illustrate: We'll assume that trading returns have a binary distribution. Traders win or lose with equal probability. This is not a great model, but it's good for making ballpark estimates, because it overestimates the odds of a track record like Renaissances.

RenTec's Medallion fund has not had a down year in the past 25. The odds of this are at most 1 in 33 million, using our binary model. Survivorship bias does not begin to explain this; there have not been anything resembling 33 million hedge funds over the course of history. I think 30000 hedge funds is a fairly generous estimate.

Exercise: Suppose Medallion's returns are at least a standard deviation above zero, every year. Calculate the odds of this happening.

Post reply on HN