The Internal Revenue Service has requested data from Citigroup Inc. and Lehman Brothers Holdings Inc. to determine whether complex derivatives trades they put together for hedge-fund and other clients were set up primarily to avoid taxes, the Wall Street Journal reported today.
Citigroup and Lehman Brothers have received "information document requests" (IDRs) from the IRS relating to the use of derivatives to avoid withholding taxes on U.S. stock dividends, according to the Journal.
The story noted that the IRS inquiry comes as the agency conducts "a broader inquiry into a practice that is common among some securities firms, which for years have pitched clients on these transactions using names such as 'yield enhancement,' 'dividend arbitrage' and 'tax efficiency' trades."
Congress also is looking at tax advantages taken by wealthy entities, such as private-equity firms -- and the individuals who profit from them to determine whether changes in tax laws are needed to close loopholes that allow them to pay less taxes than they should.
