Looming Tax Inversion Crackdown Has Hedge Funds Worried

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According to tax lawyer Robert Wellen, a partner at Ivins, Phillips & Barker in Washington, the lack of information about the Treasury Department’s looming crackdown on the practice of corporate tax inversion is driving hedge funds into a tizzy. Wellen says the funds are desperate for clues about the Treasury Department’s announced crackdown on corporate inversions, the foreign merger deals that reduce companies’ U.S. taxes. He goes on to say the huge number of queries on the subject over the last few weeks is unprecedented in his 40-year career.

“It was completely from no place that these people called us,” noted Wellen, whose practice includes two top Treasury Department tax lawyers among its alumni. “These folks were really trying to get whatever insights they could, from whoever they could”, Wellen told Robert Schmidt and Richard Rubin of Bloomberg Businessweek.

Tax inversion- Hedge funds worried about merger-related investments

Hedge fund managers and the analysts that work for them are becoming increasingly worried about the looming policy regulations to be promulgated by the Treasury Dept. regarding tax inversions.The hedge funds are concerned about the billions of dollars of trades they’ve placed on merger-related deals, and want advance notice if the new regulations could potentially unravel deals they’ve already made.

Tax inversion – Becoming a matter of “political calculus”

Uncertainty regarding the Treasury’s plans has kept the topic in the political spotlight. President Obama has criticized companies for making these kind of deals on several occasions as November’s congressional elections draw closer. Democrat on Capitol Hill are pointing to inversions as an example of corporate behavior that hurts the average taxpayer. Not surprisingly, Congress is at a standstill on a Democratic bill that would end the practice.

“It’s a political calculus right now” for the administration, explained Stephen Myrow, managing partner of Beacon Policy Advisors LLC, an independent research firm in Washington. Myrow says he’s been advising many clients on the tax inversion debate.

Myrow and other analysts highlight that all of the current information-seeking activity illustrates the difficulty of balancing the administration’s policy goal of preventing inversions with election-year politics.

“On the one hand, by maximizing the uncertainty of regulatory action, they are trying to freeze the announcement of any further deals,” continued Myrow, a former Treasury Department employee. “On the other hand, once the administration shows their cards, they risk opening the floodgates” to additional mergers.

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