"Wall Street firms have long sought to use financial alchemy to save clients a bundle on their tax bills. Now, one of the Street's cleverest strategies is coming under scrutiny.
The strategy arose a few years ago, a time when lots of U.S. companies were paying fat dividends. Wall Street sensed a golden business opportunity: sell their hedge-fund clients on ways to make those dividends even fatter by avoiding taxes on them.
Bankers at Lehman Brothers Holdings Inc. pitched an enticing product. By using a complex financial tool called derivatives, hedge funds with offshore operations could reap the benefits of owning big-dividend U.S. stocks without actually owning them. The result: no dividend-tax bite. Different versions of the strategy cropped up all over Wall Street.
Hedge funds were thrilled. The Internal Revenue Service apparently wasn't. Federal tax authorities are seeking information about the trades from Lehman and Citigroup Inc., The Wall Street Journal reported in July, and other firms are btracing for similar inquiries."
Complete article can be found here:
http://online.wsj.com/article/SB118998876153829237.html
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