Financial derivatives are a leading source of corporate tax noncompliance. Experts claim the legal patchwork of derivatives taxation encourages the development of tax planning strategies, while the Internal Revenue Service (IRS) Concedes it is “falling farther and farther behind” financial innovation. Although it is clear from government reports, anecdotes, and academic studies that companies can avoid tax with derivatives, no study directly examines the economic tax effects of these financial instruments.
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