Ten Steps That Hedge Fund Managers Can Take to Maximize the Tax Deductibility of Settlement Payments (Part Two of Two)

Tax structuring is a concept more often associated with business transactions than with legal settlements.  But in a recent presentation, Shearman & Sterling partner Lawrence M. Hill highlighted the fundamental role of tax in the net economics of legal settlements.  Informed tax structuring can dramatically reduce the dollars that go out the door in a legal settlement, and tax counsel (like litigation counsel) can powerfully affect the economics of settlements.  In his presentation, Hill discussed ten specific strategies that private fund managers and other business entities can use to maximize the tax deductibility of legal settlements.  This article – the second in a two-part series – describes those ten strategies in detail.  The first article in this series offered a comprehensive overview of the law governing taxation of settlements.  For private fund managers, understanding these principles and implementing them during settlement negotiations can conserve resources, preserve reputation, save time, limit the use of directors and officers and other insurance and avoid the use of indemnification and exculpation provisions in governing documents.

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