Hedge Fund Tax Cheats

Heartfelt letter:

Representative Heather Wilson

U.S. Congress, House of Representatives

Washington, DC

Dear Rep. Wilson

This is from the Wall Street Journal 9.14.07. I hope you are one of the lawmakers working on this. We have to close all the loopholes in paying taxes, for the good of the country.

• The Situation: U.S. lawmakers are examining a tax perk enjoyed by hedge funds.

• Background: Many of these funds lend money like banks but, unlike traditional lenders, often don't pay taxes on the profits.

• Consensus? While some tax lawyers say these transactions are proper, others argue that many variants are legally dubious.

Hedge funds, which control liquid pools of capital with little regulatory oversight, are a growing presence in the lending business. They increasingly take part in lending syndicates with traditional banks, often indirectly, and also make direct loans, frequently to riskier or smaller companies that may have difficulty obtaining traditional financing. Indeed, the additional liquidity provided by hedge funds has helped contribute to the boom of easy credit that is now coming to a halt.

"Clever ways"

But many hedge funds have found clever ways to avoid paying U.S. corporate income taxes on the profits from this business. They do this by using offshore affiliates and transactions designed to take advantage of a murky area in the tax law that differentiates between lending and investing activities.

While some tax lawyers contend that these types of transactions are proper, others argue that many variants are legally dubious and that tax laws should be changed to clarify what is permissible. It isn't clear how much the current tax treatment of hedge-fund lending could be costing the U.S. Treasury, but it is likely in the billions of dollars.

Please, clarify and demand fair tax payment from those funds making huge money from our citizens. It is their sacred duty to be honest in paying their taxes.

Signed Scooter inHer District

Big funds and their computer models have depressed the value of America's greatest company stocks in this nutso market. The very least they can do is pay their taxes!