Earlier this year, the U.S. Tax Court issued a decision that provided insight on when a person engaged in trading securities would be deemed a “trader” as opposed to an “investor.”  The distinction is important in the hedge fund space: Investors in “trader funds” are able to deduct a greater portion of the fund’s expenses on their personal income tax returns.  Generally, expenses passed through to investors from an “investor fund” are capped at two percent of the investor’s adjusted gross income, while expenses passed through by a “trader fund” are fully deductible against hedge fund income by investors.  See “What Critical Issues Must Hedge Fund Managers Understand to Inform Their Preparation of Schedules K-1 for Distribution to Their Investors?,” Hedge Fund Law Report, Vol. 6, No. 11 (Mar. 14, 2013).  This article summarizes the factual background of the case, including a discussion of the taxpayer’s trading activities, the Court’s legal analysis and its decision.  See also “U.S. Tax Court Decision Considering ‘Investor’ vs. ‘Trader’ Status Could Impact the Tax Status of Hedge Funds and the Deductibility of Fund Expenses by Hedge Fund Investors,” Hedge Fund Law Report, Vol. 6, No. 40 (Oct. 17, 2013).