Beware: Basket options could land you in hot water with IRS

Businesses and individuals have long pursued strategies to protect their assets from heavy tax burdens. The Internal Revenue Service, however, is constantly searching for strategies that may be skirt the line of what is legal. If the IRS comes after a strategy that you use, it may be wise to work with a tax attorney to ensure you and your assets are protected.

The most recent crackdown on a tax strategy is focused on so-called basket options. The basket options are being used primarily by hedge funds as protection from federal taxes. The IRS, however, called basket options tax shelters and told hedge funds that any use of them must be reported.

Why is the crackdown on basket options happening now? The IRS estimates that the hedge funds that benefit from them have avoided billions of dollars in federal taxes. In short, the IRS wants what it believes it is owed.

Guidance from the Senate Finance Committee prompted the crackdown. Now, hedge funds using basket options are required to report them -- and the new rule is retroactive through 2011.

Different interpretations of federal tax law can lead to varying strategies to avoid taxes. While some have stated that they believed basket options were compliant with the law, clearly the IRS thinks otherwise.

If you are unsure of a strategy or find yourself facing consequences after using a strategy the IRS does not approve of, working with an experienced tax law attorney is a good way to protect yourself and your best interests. The right lawyer can help minimize the impact on you and your assets.

Source: Reuters, "Update 2-U.S. IRS cracks down on hedge funds' tax strategy," July 9, 2015

No Comments

Leave a comment
Comment Information
Email Our Team

Contact Us to Get Started Today

Located in the Washington, D.C area, we serve clients in the District of Columbia, Maryland and Northern Virginia, as well as across the country and overseas. For a free initial consultation, call 202-381-1261 or complete our brief online form.

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Six Convenient Office Locations in and around the DC Metropolitan Area

Washington, D.C.
1629 K Street NW, Suite 300
Washington, D.C. 20006

Phone: 202-618-1873
Fax: 888-235-8405
Washington Law Office Map

Columbia Office
10440 Little Patuxent Parkway, Suite 300
Columbia, MD 21044

Phone: 410-497-5947
Fax: 888-235-8405
Columbia Law Office Map

Annapolis Office
839 Bestgate Road
Suite 400
Annapolis, MD 21401

Phone: 410-497-5947
Fax: 888-235-8405
Annapolis Law Office Map

Fairfax Office
8280 Willow Oaks Corporate Drive
Suite 600
Fairfax, VA 22031

Phone: 703-621-7169
Fax: 888-235-8405
Fairfax Law Office Map

Rockville Office
199 E. Montgomery Avenue
Suite 100
Rockville, MD 20850

Phone: 240-599-5009
Fax: 888-235-8405
Rockville Law Office Map

Baltimore Office
400 East Pratt Street
8th Floor
Baltimore, MD 21202

Phone: 443-743-3381
Fax: 888-235-8405
Baltimore Law Office Map