IRS said to probe derivatives trades

Federal tax authorities are asking Citigroup and Lehman for information to see if complex derivatives trades help hedge funds avoid taxes, according to the Wall Street Journal.

July 19 2007: 4:00 AM EDT

LONDON (CNNMoney.com) -- The Internal Revenue Service is seeking information from Citigroup and Lehman Brothers to determine whether they helped hedge funds with trades designed to avoid taxes, the Wall Street Journal reported Thursday.

The requests for information relate to the use of derivatives by offshore investors, the newspaper said, citing people familiar with the matter.

Derivative trades involve securities firms buying stocks from offshore hedge fund clients and in return paying them the return of the stocks and any dividends they generate, it said.

With these trades, hedge funds don't have to pay the taxes on the dividend since the fund doesn't technically hold the stock, the Journal said.

A Citigroup (Charts, Fortune 500) spokesman told the newspaper that the banking giant is cooperating with the IRS and answering any questions. Spokespeople for Lehman (Charts, Fortune 500) and the IRS declined to comment to the Journal. Top of page

Making it through an IRS tax audit
Sponsors
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2012 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2012 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2012. All rights reserved. Most stock quote data provided by BATS.
© 2012 Cable News Network. A Time Warner Company. All Rights Reserved. Terms under which this service is provided to you. Privacy Policy. Ad choices .
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2012 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2012 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2012. All rights reserved. Most stock quote data provided by BATS.
© 2012 Cable News Network. A Time Warner Company. All Rights Reserved. Terms under which this service is provided to you. Privacy Policy. Ad choices .