IRS Ends "Basket Options": Effect on Hedge Funds?

In July, the IRS officially classified "basket options" as "listed transactions" and required retro-active reporting back to 2011. These "options" were used to convert short term capital gains taxes on trades into long term capital gains, which is about 1/2 the tax rate.

Reports indicate that several hedge funds, mostly high frequency trading (HFT) firms, were big users.

Will the possibility of paying back taxes and being taxed at a higher rate going forward damage this industry? Or is it simply the case of things going back to the way they were a few years ago (profit declines 15%, perhaps, but no big deal)?

Article from pionline (Pensions and Investments), July 9 2015:
"IRS ends hedge funds’ basket options"

Basket options used by hedge funds to convert short-term capital gains to long-term ones no longer will be allowed, the IRS said.

In notices posted on its website Wednesday, the IRS declared basket options to be listed transactions, meaning ones used for tax avoidance. “The contract allows the taxpayer to trade the securities referenced in the contract while the contract purportedly remains open … Consequently, option treatment is not warranted, and the income deferral and conversion to long-term capital gain is improper,” said one of two related IRS
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Basket options were the subject of a Senate hearing in July 2014 that focused on their use by Renaissance Technologies and other hedge funds offering the strategy to banks.