U.S. Income Taxation of New Financial Products

Posted: 13 Jan 2007


This paper discusses the response of the US federal income tax to financial innovation. Income taxation in the US and elsewhere has traditionally relied on distinction, such as the difference between fixed and contingent returns, that can be undermined by new financial products. The principal tax law responses to innovative products have been: (1) transactional analysis, which aggregates or disaggregates new transactions to conform them to existing legal categories, (2) taxation of changes in market value, rather than realization events, (3) taxation based on an assumed formula, and (4) anti-avoidance administrative procedures.

Keywords: Derivatives, options, corporate tax, financial innovation

JEL Classification: H24, H25

Suggested Citation

Warren, Alvin C., U.S. Income Taxation of New Financial Products. Journal of Public Economics, Vol. 88, 2004, Available at SSRN: https://ssrn.com/abstract=956379

Alvin C. Warren (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser Hall 308
Cambridge, MA 02138
United States

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