Nelson questions Dodd-Frank tax loophole

Bill NelsonSen. Bill Nelson (D-Fla.) is concerned that a provision in the Dodd-Frank Act that provides a tax benefit to many derivatives investors could create new tax avoidance strategies.

The provision was added at the last minute to the law and has become examined by both the Senate Finance Committee, of which Nelson is a member, and the House Ways and Means Committee, according to

The provision exempted many types of derivatives, including credit default swaps, from rules against tax shelters adopted by Congress in 1981.

The original language in Dodd-Frank included tightened regulatory oversight of such derivatives but companies that use derivatives for hedging successfully pressured Congress to exempt many substantial categories of derivative contracts from the 1981 tax-shelter rules, reports.

Nelson sent Tom Barthold, the chief of staff of the Joint Committee on Taxation, a letter on Tuesday sttating that the exemption “raises questions about whether the government is protecting the interests of the people.”

In the letter, Nelson asked Barthold to address the issue during his testimony on Wednesday to both the House Ways and Means Committee and the Senate Finance Committee.

Among the questions Nelson wants to hear answers to, include, “Who would be likely beneficiaries, and how significant are the individual potential tax savings?”

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