Editing Hedge fund (section)

===Basket options===
{{blockquote|source=|Deutsche Bank and Barclays created special options accounts for hedge fund clients in the banks' names and claimed to own the assets, when in fact the hedge fund clients had full control of the assets and reaped the profits. The hedge funds would then execute trades – many of them a few seconds in duration – but wait until just after a year had passed to exercise the options, allowing them to report the profits at a lower long-term capital gains tax rate.| Alexandra Stevenson. July 8, 2015. ''[[The New York Times]]''}}

The US [[Senate Permanent Subcommittee on Investigations]] chaired by [[Carl Levin]] issued a 2014 report that found that from 1998 and 2013, hedge funds avoided billions of dollars in taxes by using basket options. The [[Internal Revenue Service]] began investigating [[Renaissance Technologies]]<ref name="NYT_2015_dec_30">{{cite news | url=https://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html?emc=edit_na_20151229&nlid=50121183&ref=headline&_r=0 | title=For the Wealthiest, a Private Tax System That Saves Them Billions: The very richest are able to quietly shape tax policy that will allow them to shield billions in income | work=The New York Times | date=29 December 2015 | access-date=31 December 2015 | author1=Scheiber, Noam | author2=Cohendec, Patricia | archive-url=https://web.archive.org/web/20170709065645/https://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html?emc=edit_na_20151229&nlid=50121183&ref=headline&_r=0 | archive-date=9 July 2017 | url-status=live | df=dmy-all }}</ref> in 2009, and Levin criticized the IRS for taking six years to investigate the company. Using basket options Renaissance avoided "more than $6 billion in taxes over more than a decade".<ref name="NYT_2015_07"/>

{{blockquote|source=|These banks and hedge funds involved in this case used dubious structured financial products in a giant game of 'let's pretend,' costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation.|[[Carl Levin]]. 2015. Senate Permanent Subcommittee on Investigations}}

A dozen other hedge funds along with Renaissance Technologies used [[Deutsche Bank]]'s and [[Barclays]]' basket options.<ref name="NYT_2015_07">{{cite news | url=https://www.nytimes.com/2015/07/09/business/dealbook/irs-cracks-down-on-hedge-fund-tax-strategy.html?action=click&contentCollection=Economy&module=RelatedCoverage&region=Marginalia&pgtype=article | title=I.R.S. Cracks Down on Hedge Fund Tax Strategy | work=The New York Times | date=8 July 2015 | access-date=31 December 2015 | author=Stevenson, Alexandra | archive-url=https://web.archive.org/web/20160103012026/http://www.nytimes.com/2015/07/09/business/dealbook/irs-cracks-down-on-hedge-fund-tax-strategy.html?action=click&contentCollection=Economy&module=RelatedCoverage&region=Marginalia&pgtype=article | archive-date=3 January 2016 | url-status=live | df=dmy-all }}</ref> Renaissance argued that basket options were "extremely important because they gave the hedge fund the ability to increase its returns by borrowing more and to protect against model and programming failures".<ref name="NYT_2015_07"/> In July 2015, the United States Internal Revenue claimed hedge funds used basket options "to bypass taxes on short-term trades". These basket options will now be labeled as listed transactions that must be declared on tax returns, and a failure to do would result in a penalty.<ref name="NYT_2015_07"/>