This article discusses strategies in which taxpayers use derivatives to attain better tax treatment for hedge fund investments. In response to an early planning strategy, Congress enacted the constructive ownership rule of Section 1260. This measure's success has proved surprising, given the similarity of section 1260 to the constructive sale rule of section 1259; the latter rule, which targets a different use of derivatives in tax planning, has proved easy to avoid. Theoretically, either rule can be avoided through relatively modest changes in economic return. While this strategy is common for section 1259, it is much more difficult for section 1260 because securities dealers cannot supply the necessary derivative. Instead, taxpayers have sought tax-advantaged hedge fund returns through strategies involving insurance and offshore corporations.