IRS Cracks Down on Trust Fund Abuses
The Internal Revenue Service is no one's favorite part of the federal government, even among its
employees. The fact is the taxman has been an unpopular figure since the first king expropriated the first
subjects wealth in the grand protection racket that is called government. Yet, in the civilized 21st century,
most have accepted as true Benjamin Franklin's statement that death and taxes are then only inevitables in
this life. Death can never be fair, while taxes can. And the IRS should get at least two cheers for a recent
move to stop the rich from stealing from the rest of American society.
The culprit is the Common Trust Fund, a vehicle that allows banks to pools customers assets, thereby
creating economies of scale and increasing the efficiency of the capital invested. They pay no tax, but
gains are assigned to investors for tax purposes -- which seems fair enough to investors and
non-investors alike.
The abuse, which has led to a $15 million fine as a settlement by one of the big accounting firms, comes
when investors engage in off-setting currency transactions. In other words, buying pounds or euros for
dollars and then trading them back. But, a new "investors" would join the fund after the first leg of the
trade, and claim the second leg as a loss, which could then be used to offset real gains elsewhere. As
Woodie Guthrie would say, "some men rob you with a gun, and some with a fountain pen."
The IRS has not made these CTFs illegal because they are clearly of use to honest investors and bankers.
Instead, those who promote CTFs and those who invest in them are now required to inform the IRS that
they do so. The knowledge that one is being watched always deters a great many, especially white-collar
crooks. So, Hooray, Hooray for the IRS.