Insider Trading and IRC Section 6103(e)

• In Event: JLTR Conference Part II

Abstract

Corporate returns are generally confidential and not disclosed to the public. However, IRC Section 6103(e) provides that corporate shareholders, who meet a one-percent ownership criterion, can request from the IRS a copy of the corporate tax return. In this paper, we discuss the legislative history of Code Section 6103 and its precursors which provide for disclosure of tax returns. We then provide examples of the valuable proprietary information that is included in corporate tax returns. Next, we discuss the evolution of insider trading laws and argue that the information content of a corporate tax return is such that it provides material non-public information that is not readily available in annual reports or other public documents filed with the SEC. We conclude by arguing that the actions of a shareholder who requests and receives the corporate return and who subsequently makes purchases and/or sales of corporate stock should constitute illegal insider trading.

Authors

• Roby Sawyers, North Carolina State University

• David L. Baumer, North Carolina State University

• Wade M. Chumney, Georgia Institute of Technology