Washington, D.C. – Senate Finance Committee Ranking Member Ron Wyden, D-Ore., called on the Treasury Department and Internal Revenue Service (IRS) to crack down on a tax avoidance scheme known as tax-aware long-short investing which is growing in popularity and shielding billions in wealth from federal taxes.
“I am alarmed by the exponential growth of these long-short accounts and the blatant tax-motivated nature of the strategy,” Wyden wrote. “Something must be done to protect the integrity of our federal income tax system and stop wealthy Americans from treating their tax bills as optional. I am concerned with the growing prevalence of these tricks that wealthy, sophisticated investors are using to inappropriately slash their tax rates, and I support the use of existing agency authority to crack down on these abuses.”
This tax avoidance strategy has exploded in recent years, growing 18,900 percent from just $1 billion invested to an estimated $190 billion invested over the past five years, according to recent reporting. The scheme allows ultra-wealthy investors to create massive tax losses on paper without facing real economic risk, allowing them to offset capital gains and slash overall tax rates.
The letter, sent to Treasury Secretary Scott Bessent and acting head of the IRS Frank Bisignano, comes in response to a recent guidance package that suggests a willingness to address several abusive investment strategies but falls short of what is needed. Wyden urged Treasury and the IRS to use their existing authority to crack down on these schemes by:
- Designating long-short strategies as a “listed transaction,” allowing the IRS to collect information, identify participating taxpayers, and impose penalties for failure to disclose the scheme.
- Applying existing “straddle rules” to the strategy to prevent taxpayers from inappropriately claiming a tax loss when there is an unrecognized gain that minimizes actual economic risk.
The text of the letter is here.
A web version of this release is here.
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