Goldman Sachs Vows To End Tax Loss Harvesting Schemes

Goldman Sachs says it aims to provide “best-in-class investment advice to clients, consistent with both the letter and the spirit of all applicable tax laws and regulations.”

Photo Insert: The bank was quick to say it would change its practices after a media report claimed it had helped ex-Microsoft boss Steve Ballmer subvert at least the spirit of US laws against so-called “wash sales.”

But the bank was quick to say it would change its practices after a media report claimed it had helped ex-Microsoft boss Steve Ballmer subvert at least the spirit of US laws against so-called “wash sales.” Stephen Foley wrote Financial Times.

Investors are familiar with the idea of tax loss harvesting: Selling underperforming stock to book a loss that can be offset against capital gains elsewhere, thus cutting the overall tax bill.

It’s common practice to prune a few losers before the end of the tax year. But you can’t simply buy the same stock back and still claim the deduction. It really has to be kicked out of your portfolio.

In February, ProPublica reported that Ballmer, through his account at Goldman, had sold shares in the dual-listed giants Shell and BHP, then replaced them on the same day with identical amounts of the other class of the companies’ shares, and claimed a chunky deduction.

Under US law, a “wash sale” is defined as one where the investor makes a “substantially identical” purchase within 30 days. Goldman told the FT it would halt repurchase transactions involving dual-class shares and had alerted clients to the “mistake.”

A spokesperson said the affected trades were very small in number. Ballmer told ProPublica that he would amend his tax filings

But the biggest impact from ProPublica’s investigation may not be the tweaks to Goldman clients’ tax filings. It may instead be the spotlight it shines on the explosive growth of tax harvesting strategies.

The use of dual-class share replacements was a tiny part of what Goldman’s traders achieved for Ballmer, who netted an extraordinary $579 million in tax loss harvesting over five years, according to ProPublica’s calculations.

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