What are the techniques of sale?

Is the IRS able to examine the individual trades & techniques of capital allocators?

• Are capital allocators required to furnish to the IRS the purchase & sale of individual positions, or just the profit/loss of the aggregate of them?  This question is for multiple purposes.  e.g., would Bernie Madoff have had to claim to take specific individual trading positions that the IRS could have examined without a special solicitation/audit?  Could the IRS examine James Simons' individual trades (Simons has a proprietary system which allows consistently profitable arbitrage) to learn his techniques?

• Answer:

  The IRS has the legal authority to force you give them any financial document they think is relevant for the purpose of enforcing tax laws.  So yes, if they wanted you to give them all the trade records, they could. Except that they don't want to.  The IRS only cares about net positions (i.e. how much you made or lost at the end of the year), for them to ask for detailed trade records would be a waste of your time and a waste of their time.  They don't care how Simmons made his money, they just care that he reports it.