Offers Tax Professionals Readily Applicable, Fresh Definition of “Substantially Identical”
G2 FinTech, provider of tax compliance and regulatory software for the investment management community, has today announced the publication of Using Market Risk Concepts to Refactor Tax Shelters, the firm’s latest white paper on tax analyses and cost basis calculations. This paper discusses how market risk concepts can be used to clarify and modify the ambiguous language behind the tax code pertaining to tax shelters, including wash sales, straddles, constructive sales, qualified dividends and short sales. The paper specifically addresses two key concepts that are absolutely critical to any comprehensive and accurate portfolio tax analysis: “substantially identical” and “offsetting position.” It offers a more concrete, alternative definition of the current, ill-defined term “substantially identical.” The paper also discusses the commonalities between “substantially identical” and “offsetting position” and proposes that these concepts be combined into a single term.
Using Market Risk Concepts to Refactor Tax Shelters offers compliance officers and tax professionals guidelines for using risk concepts to determine what qualifies as a “substantially identical” security or an “offsetting position.” In addition, this paper can also help risk professionals arbitrate on tax questions regarding what does and does not constitute “substantially identical” and “offsetting position.” These guidelines are meant to help practitioners streamline the process behind determining which transactions the IRS will or will not scrutinize and, accordingly, which losses will or will not be disallowed for purposes of calculating tax liabilities.
George Michaels, CEO of G2 FinTech, comments, “We believe that the process of tax compliance can be made far easier and more straightforward. The current, vague language in the tax code makes compliance an unnecessarily arduous task. Nearly everyone, from the alternative investment community to wealth management, to high-net worth individuals, hedge funds and mutual funds grapples with what the IRS considers a “substantially identical” security or an “offsetting position.” Our white paper offers a common language that can be used to consolidate these two enigmatic terms. We are actively proposing this simplification of the tax code for everyone’s benefit.”
Using Market Risk Concepts to Refactor Tax Shelters is available for free through G2 FinTech’s Cost Basis Advisory web page. A practical resource for the tax and accounting community, this page is updated regularly to address real-world cost basis challenges affecting fund administrators, prime brokers and their hedge fund clients. Related white papers include: Tax Implications of Straddles, Qualified Dividend Income and Wash Sale Implications of Short Sales.