[Congressional Record Volume 145, Number 64 (Wednesday, May 5, 1999)]
[House]
[Pages H2642-H2643]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  CONSTRUCTIVE OWNERSHIP TRANSACTIONS

  (Mr. NEAL of Massachusetts asked and was given permission to address 
the House for 1 minute and to revise and extend his remarks.)
  Mr. NEAL of Massachusetts. Mr. Speaker, today I am introducing 
legislation to shut down a tax avoidance scheme available only to a few 
wealthy and sophisticated investors. Under current law, if one invests 
in a hedge fund they pay tax every year and those profits are taxed at 
a higher short-term capital gains rate, but if one places that same 
money in a derivative wrapped around a hedge fund, they pay tax only at 
the end of the contract and are taxed at a lower long-term capital 
gains rate.
  My bill states that if an investor indirectly owns a financial asset 
like a hedge fund through a derivative, he cannot get more long-term 
capital gain than if he owned the investment directly. In addition, 
there is an interest charge to offset the additional benefit of 
deferral.

[[Page H2643]]

                              {time}  1030

  This tax shelter is not available to average workers or even to 
average investors. It is available only to the very wealthy, so that 
they can avoid paying taxes.
  It is important to shut down these tax shelters as we uncover them. 
Otherwise, we undermine the faith people have in our voluntary tax 
system. The Committee on Ways and Means is looking at tax shelters this 
year. This should be the number one issue on our list.

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