JEFFREY S. BORTNICK

Fund managers may be required to file Treasury International Capital (“TIC”) Form SHL, Report of Foreign-Residents’ Holdings of U.S. Securities, Including Selected Money Market Instruments (SHL (2019)) by August 30, 2019, based on the fair value of certain U.S. securities determined as of June 28, 2019, issued to foreign persons. This newsletter focuses on the…

Section 475(f) of the Internal Revenue Code of 1986, as amended, provides that a trader in securities or commodities can make elections to “mark-to-market” their securities and/or commodities and treat increases or decreases in value as ordinary. A fund must be a trader, and not an investor, in order to be able to make a…

This newsletter is a brief follow-up to our recent year-end tax newsletter. Click here for our year-end newsletter. Since our 2018 year-end newsletter was distributed, the stock market has been very volatile and decreased significantly (although the market was up a lot today, December 26th, fortunately). Many funds may have significant unrealized losses. This newsletter…

Following tax reform, there is a restriction on the deductibility of business expenses. Under the new “excess business loss” rules, trade or business expenses are not deductible to the extent they exceed trade or business income. (Provided that taxpayers filing joint returns are allowed to deduct up to $500,000 of such excess expenses, and other…

On June 21, 2018, the United States Court of Appeals for the Fifth Circuit issued a mandate that officially vacated the Department of Labor’s advice fiduciary rule, which generally had gone into effect for investments made on or after June 9, 2017. For discussion of the Fifth Circuit’s March 15th, 2018, decision to vacate the…

On May 31, 2018, Connecticut enacted the “Act Concerning Connecticut’s Response to Federal Tax Reform”. Among other things, the Act imposes a 6.99% tax on certain pass-through entities (which, prior to the Act, were not subject to any Connecticut entity-level income tax). This tax may have significant implications for fund managers and other businesses with…

Given the recent attention in the media on investing in hedge funds without paying taxes on current income, it seems well timed to revisit the basic elements of insurance dedicated funds for the sake of the fund manager that might be interested in adding such a product to their platform in order to attract new…

The Cayman Islands Department for International Tax Cooperation (“DITC”) has announced that the Cayman AEOI Portal (for Common Reporting Standard (“CRS”) and US FATCA reporting) will be taken offline on Friday, June 1, 2018, at 12:00 noon. The statutory deadline for 2017 CRS and US FATCA reports remains May 31, 2018.  The DITC intends for…

On March 15, 2018, in a two-to-one decision, the United States Court of Appeals for the 5th Circuit overturned a district court decision and vacated the Department of Labor’s ERISA advice fiduciary rule, which had gone into effect in June 2017. For our prior newsletter on the DOL’s advice fiduciary rule, please click here. The…

Section 475(f) of the Internal Revenue Code of 1986, as amended, provides that a trader in securities or commodities can make elections to “mark-to-market” their securities and/or commodities and treat increases or decreases in value as ordinary. A fund must be a trader, and not an investor, in order to be able to make a…

On March 1, 2018, Notice 2018-18 was released, announcing that the Department of the Treasury and the Internal Revenue Service (the “IRS”) intend to issue regulations providing guidance on the application of Section 1061 of the Internal Revenue Code, which relates to the taxation of carried interest. The Notice further announced that the regulations will…

–Year-end planning should be Considered– The tax legislation, which passed Congress and is expected to be signed by the President shortly, includes a new section of the Internal Revenue Code which is entitled “Partnership Interests Held in Connection with Performance of Services.” This section (Section 1061) changes the taxation of “carried interests” in certain circumstances,…

Year-end has always been a time for tax planning and we send our clients our year-end tax planning newsletter on an annual basis. Tax planning for this year-end, however, is even more important (and more complex and more uncertain) because of the proposed tax changes. The proposed tax legislation is extremely complex and introduces new…

Reminder: Upcoming Deadline for the Common Reporting Standard As indicated in our newsletter sent on June 9th, the deadline for Common Reporting Standard (CRS) notification is Friday, June 30, 2017. Any Cayman Islands funds that have not completed the required notification on the Cayman Islands AEOI Portal must do so by Friday, June 30, 2017.…

Upcoming Deadlines for Cayman Islands Funds (Including Cayman Master Funds) June 30, 2017 Notification: U.S. FATCA and Common Reporting Standard U.S. FATCA notification to the Cayman Islands Tax Information Authority (the “Cayman TIA”) is required for entities that have not previously notified the Cayman TIA and entities that need to update an existing notification (for…

What Hedge Fund Managers Should Do Now In April 2016, the Department of Labor (“DOL”) released regulations that expanded the definition of an “advice fiduciary” with respect to plans covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and IRAs and other plans covered by Section 4975 of the Internal Revenue…

On April 7, 2017, the Department of Labor officially delayed, until June 9, 2017, the applicability date of regulations that would change the definition of an “advice fiduciary” for plans covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or Section 4975 of the Internal Revenue Code of 1986, as amended.…

In April 2016, the Department of Labor (“DOL”) released regulations that, among other things, modify the definition of an “advice fiduciary” for plans covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The new definition also applies to IRAs and other non-ERISA plans which are subject to Section 4975 of the…

Fund managers may be required to file Treasury International Capital (“TIC”) Form SHC, Report of U.S. Ownership of Foreign Securities, Including Selected Money Market Instruments for 2016 by March 3, 2017, based on the fair value of foreign assets determined as of December 31, 2016. Form SHC is a Treasury form which seeks to gather…

A Section 475(f) election might be beneficial for a fund experiencing losses in 2017 or possibly where a fund has significant net unrealized losses coming into 2017. Not as well known is that a section 475(f) election might also be beneficial where a fund is experiencing gains or has significant unrealized net gains coming into…

This newsletter briefly highlights certain tax issues and planning that hedge fund managers should consider (or reconsider) before year-end. 1. Trump Presidency. With the election of Donald Trump as President, year-end tax planning is “business as usual” – that is, generally accelerating deductions and deferring income since rates are not expected to increase in 2017.…

In General Section 871(m) of the U.S. Internal Revenue Code of 1986, as amended, was enacted in 2010 and imposes a 30% U.S. withholding tax (subject to reduction by an applicable tax treaty) on dividend equivalent amounts paid (or deemed paid) on certain swaps and equity linked instruments referencing U.S. equities if the long party…

OVERVIEW This newsletter serves as our annual reminder of the requirement to file Reports of Foreign Bank and Financial Accounts (“FBARs”) where applicable. For calendar year 2015, FBARs are required to be filed on or before June 30, 2016. The form (which was known as Form TD F 90-22.1 before 2015) is known as FinCEN…

Upcoming Deadlines for Cayman Islands Funds (Including Cayman Master Funds) June 10, 2016, Notification: (extended from April 30, 2016) U.S. FATCA and U.K. FATCA Cayman Notification A Cayman fund (including a Cayman master fund) is required to notify the Cayman Islands Tax Information Authority (“TIA”) (via the Cayman portal) that it is a reporting financial…

Self-employment tax is imposed on individuals’ trade or business income. Net investment income tax (“NIIT”) generally applies to high-income individuals’ investment income. Both taxes generally apply to income earned directly or through flow-through entities, and for most fund managers are applied at a marginal rate of 3.8% (although the self-employment tax has a lower effective…

A Section 475(f) election might help ease the pain for taxable investors in a fund experiencing losses in 2016 or possibly where a fund has significant unrealized losses coming into 2016. Specifically, Section 475(f) provides that a trader in securities or commodities can make elections to “mark-to-market” their securities and/or commodities and treat increases or…

On December 18, 2015, Congress passed the Protecting Americans from Tax Hikes Act of 2015 (“PATH”), the permanent “extenders” legislation. Included among the provisions are many potentially significant changes affecting REITs and foreign investment in U.S. real property through REITs. This newsletter highlights a few of the provisions. REIT Spinoffs Disallowed The extenders bill would…

The Cayman Islands government just released new individual and entity self-certification forms, which were developed for purposes of compliance with U.S. FATCA, U.K. FATCA and the Common Reporting Standard (“CRS”). Under U.S. FATCA and U.K. FATCA, Cayman funds are required to identify investors that are “specified U.S. persons” or “specified U.K. persons” and to report…

On November 2, 2015, new partnership audit rules were enacted as part of The Bipartisan Budget Act of 2015. The new audit rules could have a significant impact on partnerships generally and on investment partnerships in particular. The new rules were enacted because the IRS and Congress felt that the current audit rules, referred to…

This newsletter briefly highlights certain tax issues and planning that hedge fund managers should consider (or reconsider) before year-end. Tax rates are scheduled to remain the same in 2016. 1.  Federal Income Tax Rates in 2015 and 2016.      Long-term capital gains and qualified dividend income:    25%*      Ordinary income:    44.6%*      (*includes effect of net income investment tax and 3%…

The Bureau of Economic Analysis (BEA) Form BE-180, the 2014 Benchmark Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons, is due by November 1, 2015 (30 or 60 day extensions may be obtained), and may apply to many hedge fund managers. The purpose of Form BE-180 is for the BEA…

As part of the 2015 New York State corporate tax reform, significant changes were made to the definition of investment capital under Article 9-A (Corporate Tax) of the New York Tax Law. Income from investment capital (generally, stocks held for more than a year) is subject to preferential treatment in New York State and New…

On September 18, 2015, the IRS issued Notice 2015-66 announcing its intent to amend FATCA regulations to extend timelines for certain transition rules and to reduce certain compliance burdens on withholding agents by modifying the rules for grandfathered obligations. Most importantly, withholding on gross proceeds will not be required until January 1, 2019 (extended from…

On September 17, 2015, the IRS issued final regulations (the “Final Regulations”) requiring withholding on certain dividend equivalent payments beginning January 1, 2017. (Please see our prior newsletter regarding the delay of imposing withholding on dividend equivalents.) The Final Regulations reflect some important changes suggested in comments to the IRS following the issuance of the…

The tax benefits of making investments through private placement life insurance (“PPLI”), including investments in hedge funds, are very significant (i.e., the potential elimination of income tax and possibly estate tax as well). For information on the tax benefits and risks of PPLI click here to see the chapter written by partner Jeff Bortnick from…

OVERVIEW This newsletter serves as our annual reminder of the requirement to file Reports of Foreign Bank and Financial Accounts (“FBARs”). For calendar year 2014, FBARs are required to be filed on or before June 30, 2015. The form, which was formerly known as Form TD F 90-22.1, is now known as FinCEN Report 114.…

The Cayman Islands Tax Information Authority (the “TIA”) has recently extended the deadline to register on its AEOI Portal. The deadline is now May 29, 2015. The original deadline was March 31st, but has been extended several times. Cayman Islands funds must also report certain information, including name, address, TIN, and account balance, on specified…

Senior counsel for the Treasury Office of Tax Legislative Counsel announced today that the effective date for proposed regulations regarding U.S. withholding tax on dividend equivalent payments (e.g., payments on certain equity swaps or other derivatives referencing U.S. equity securities) has been postponed for one year from January 1, 2016, to January 1, 2017. As…

This legal update highlights certain important upcoming FATCA compliance deadlines for Cayman Islands funds (i.e., offshore standalone funds, offshore feeder funds, and offshore master funds). Register with the Cayman Islands on or before April 30, 2015. Each Cayman Islands fund must register with the Cayman Islands on or before April 30, 2015. Funds must register…

Overview On September 5, 2014, the IRS released a Chief Counsel Advice (ILM 201436049), which discusses the application of self-employment tax to members of a limited liability company providing investment management services. The CCA concludes that all members of the limited liability company (the “LLC”) are subject to self-employment tax on their distributive shares of…