An unnamed offshore fund engaged in certain lending and underwriting activities in the U.S. through an independent investment manager.  The fund asked the IRS whether its activities constituted a “trade or business” in the U.S., such that its U.S. income that was effectively connected to that trade or business would be subject to U.S. income tax.  The IRS’ Office of Chief Counsel issued a memorandum (Chief Counsel Advice Memorandum) in response to that inquiry addressing: (1) when an offshore hedge fund is deemed to be engaged in a U.S. trade or business; and (2) the application to offshore hedge funds of the safe harbors for “trading in stocks or securities.”  This article provides a detailed discussion of the Chief Counsel Advice Memorandum.  For a discussion of another Chief Counsel Advice Memorandum relating to the U.S. tax implications of offshore lending, see “Implications of Recent IRS Memorandum on Loan Origination Activities for Offshore Hedge Funds that Invest in U.S. Debt,” Hedge Fund Law Report, Vol. 2, No. 41 (Oct. 15, 2009).