CME Group Members May Have Underreported Tax Income, IRS Says

Monday, 16 January 2012 09:16 PM

Jan. 16 (Bloomberg) -- 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. 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).

--With assistance from Andrew Harris in Chicago. Editors: Fred Strasser, Joe Schneider

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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Monday, 16 January 2012 09:16 PM
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