The IRS is telling its field agents to be on the lookout for cases where banks are using equity swap transactions as a way for their offshore clients to avoid taxes.
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The IRS is particularly concerned that offshore hedge funds and foreign investors may be using the equity swaps as a way to disguise their ownership of shares and thereby avoid paying withholding taxes on stock dividends, according to
The SEC has also been making an effort to regulate the transactions, and Congress may give it that authority if it ever manages to pass a financial regulatory reform bill with actual teeth in it. In the meantime, the IRS field agents will be on the prowl for the transactions.
That effort could net them a substantial chunk of tax revenue, as the market for equity-linked swaps and forwards is estimated to be around $1.7 trillion.