Law Commons^™

Balance In The Taxation Of Derivative Securities: An Agenda For Reform, David M. Schizer

Faculty Scholarship

It is well understood that aggressive tax planning with derivatives threatens the U.S. income tax system. The conventional solution to this threat has been consistency, meaning that the same tax treatment should apply to all economically comparable bets, regardless of the form used. Yet familiar political and administrative barriers stand in the way of achieving this lofty goal.

This Article develops a reform agenda to eliminate tax planning without requiring consistency. Policymakers should strive instead for a new goal, which this Article calls "balance": For each risky position, the treatment of gains should match the treatment of losses. For example, …