When the Internal Revenue Service (IRS) raided the offices of hedge fund manager and investment advisor Chris Sacca, it raised a lot of questions.
What exactly was the IRS doing?
Who was getting money?
How many people were involved?
What is this supposed to mean for taxpayers?
Here’s the transcript of a September 15, 2018 hearing before the House Ways and Means Committee.
Rep. Joe Barton (R-TX): What are your concerns about this, sir?
IRS Commissioner Steve Miller: I think that the concern is we have been looking at hedge funds that have been involved in these tax-free accounts, that have gotten money from hedge funds.
So, you know, you can get money from any number of different sources, and I think the problem is, if there is a hedge fund that’s doing this, the IRS is going to want to look at it.
We are looking at a number of hedge funds and the number one question that they have is, “Do you have a way to make sure that people that are investing in these hedge funds are actually doing something that is paying taxes?”
We’re not saying that you can’t do that, but we want to know that that’s what is happening.
Rep: How many hedge funds do you have that are doing this?
IRS: As of today, we have approximately $400 million of hedge funding.
Rep.: So, $400.
Rep, what are you hearing?
Miller: We are not aware of any hedge funds currently doing hedge fund activity.
I think we’ve got about $1.3 billion in hedge fund funds.
Rep Barton: That’s not a lot.
Miller: That is a very small number of entities, I think.
Rep; I mean, it’s not even $400,000,000.
Miller says there are a number that are being used for tax-exempt purposes.
But there are many more, and we need to know how they’re doing it.
Rep Barton: You know, I don’t want to be the first person who comes out here and says, “Oh, you guys are all bad,” because I want to say that this is an incredibly important issue.
But you know what, we need people to be transparent.
What you are doing is taking your money out of a fund, and you are not providing it to the fund.
What is happening is you are allowing the hedge funds to have these hedge fund accounts, and then, you may as well go ahead and use those funds.
The IRS is saying, “Well, we’re not making any money on that.”
Rep Barton, who was in the room at the time, said, “I mean, if this was a tax-deductible account, we would know what to do.”
He added, “We’re getting into the middle of the hedge fund game.”
Miller: We’re certainly trying to do that.
We’re just not sure of that.
Rep Boesing: If there is tax-deferred account, you have to report it.
You have to tell us where the money is going, and how you’re paying taxes.
Rep Miller: No, we don’t.
Rep Sacca: I don;t understand why you are taking money out, because we are getting the money out.
Rep Biden: You’re taking the money and giving it to hedge funds?
Rep Miller, after the hearing: I would say it’s a hedge-fund account.
Rep Jankowsky: Hedge fund account?
Rep Barton responded to Barton’s comments by saying, “… you have not identified a hedge funds or hedge funds in your report.”
Rep Miller said, “[The] IRS has been making it clear that this will not be used for hedge funds.”
Rep. Barton: The IRS has not identified any hedge fund or hedge fund in my report.
It will be used to fund other things.
Rep Issa: I know that.
I’m just saying that I don?t know where it is going.
What are you doing, Steve Miller, and why is this going on?
Rep. Miller replied, “Let me put it this way.
We know that hedge funds have been very profitable in the last decade.
And, you just put a hedge into the hedge- fund game, and people want to invest in that hedge fund.
But we want people to understand that you are paying taxes on that hedge, and if there are hedge funds out there, they are going to have to make a profit on that.
And you will see the tax burden on the hedge that you’re taking out of your account rise, but you won?t see the hedge money that you?re paying in.”
Rep Issa also raised concerns about a tax exemption for certain types of income.
The Chairman asked, “When are you going to make the public aware that hedge- funds have had a big tax advantage