Bloomberg- The Internal Revenue Service has begun an inquiry into suspected tax abuses at hedge funds and private- equity firms after determining many firm partners don’t file returns and may haveimproperly characterized transactions.
The tax-collection agency is studying whether funds improperly structured stock swaps to avoid withholding taxes, whether they dictated loan terms to banks before agreeing to buy loan portfolios, and whether they improperly classified income as capital gains to take advantage of the lower rate.
“The Service seeks to identify any areas of possible non- compliance in the income tax reporting of hedge fund and private equity fund investors and managers, as well as possible non- compliance in the reporting of withholding obligations,” the IRS said in an e-mailed statement to Bloomberg.
The IRS action comes as many lawmakers say hedge funds and buyout firms are too lightly taxed. The House Ways and Means Committee today is poised to approve legislation that would more than double the tax on profits fund managers receive for investment services, called carried interest.
