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CME Group Members May Have Underreported Tax Income, IRS Says

U.S. tax authorities are seeking
records from the parent company of the Chicago Mercantile
Exchange as part of a probe into whether some members failed to
comply with tax laws and underreported income.

The Internal Revenue Service is pursuing documents from CME
Group Inc. (CME)
regarding anyone who held an interest in an exchange
seat, membership or trading privilege with the company and
leased, subleased or rented it to others, according to court
papers filed on Jan. 13 in U.S. District Court in Chicago.

“There is a reasonable basis for believing that such group
or class of persons may fail, or may have failed, to comply with
one or more provisions of the internal revenue laws,” the IRS
said in the filing.

The IRS said it had determined that 12 people it didn’t
identify underreported tax liabilities because of how they
treated income derived from leasing or renting their exchange
seats. The agency also said it had reason to believe “many
more” taxpayers were in the same situation.

The IRS said the 12 had misclassified the income as
“passive activity income,” which allowed them to offset
passive activity losses, resulting in underreporting of tax
liability, according to the filing.

A message left with CME Group’s corporate communications
department after normal business hours wasn’t immediately
returned.

CME Group, which was created by the 2007 merger of the
Chicago Mercantile Exchange and the Chicago Board of Trade, in
2008 acquired NYMEX Holdings Inc., the parent of the New York
Mercantile Exchange, and purchased 90 percent of Dow Jones
Indexes in 2010. Records from NYMEX and Dow Jones Indexes are
not being sought at this time, according to the court documents.

The case is In the Matter of the Tax Liabilities of John
Does
, 1:12-cv-277, U.S. District Court, Northern District of
Illinois (Chicago).

To contact the reporter on this story:
Chris Dolmetsch in New York at
cdolmetsch@bloomberg.net.

To contact the editor responsible for this story:
Michael Hytha at mhytha@bloomberg.net.

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