U.S. Studies Derivatives That Let Investors ‘Game’ Tax Rules

U.S. lawmakers seeking to overhaul the Internal Revenue Code are examining how derivatives and other financial products can be used to exploit the tax system.

Financial instruments, including exchange-traded notes and options, are susceptible to manipulation, according to a report by the nonpartisan Joint Committee on Taxation. Taxpayers can structure transactions to defer income, accelerate deductible losses and take advantage of lower capital gains rates.