Monday, September 17, 2007

Legality of derivatives for tax avoidance questioned

The Wall Street Journal provides an inside look in today' s paper at the evolution of derivatives as a way for hedge funds with off-shore operations to cut taxes, using the work of Lehman Brothers Holdings as a case study.

"Internal Lehman emails reviewed by the Journal reveal bankers searching for the line between smart tax planning and improper tax avoidance. In the end, according to the emails and to people familiar with Lehman's business, the bankers and their lawyers concluded that it was a business worth pursuing," the Wall Street Journal says.

The Journal reported in July that the Internal Revenue Service is seeking information from Lehman and Citigroup Inc. about certain trades. Other firms expect to receive similar inquiries.