The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Schedule K-1

  • From Vol. 6 No.11 (Mar. 14, 2013)

    What Critical Issues Must Hedge Fund Managers Understand to Inform Their Preparation of Schedules K-1 for Distribution to Their Investors?

    Most hedge funds are taxed as partnerships and therefore pass through items of income, gains and losses to their fund investors, rather than facing taxation on such items at the partnership level.  As a result, hedge fund managers are responsible for preparing and distributing to their investors a Schedule K-1 to Form 1065, which shows an investor’s share of a fund’s income, gains, losses, credits and other items for each tax year that must be reported to the Internal Revenue Service on the investor’s individual income tax return.  Nonetheless, preparation of this schedule can present a litany of challenges which can confound many hedge fund managers.  Moreover, preparation of K-1s cannot be entirely outsourced to an accounting firm; a manager must understand what the accounting firm is doing and be able to evaluate its work.  Recognizing the complexity and importance of this topic, a recent webinar provided a top-level refresher course on the tax considerations that influence the structuring of hedge funds and addressed numerous issues involved in the preparation of Schedule K-1, such as the difference between “trader funds” and “investor funds,” and allocation and adjustment rules that have tax consequences for hedge fund investors.  This article summarizes key takeaways from that program.

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  • From Vol. 5 No.12 (Mar. 22, 2012)

    IRS Introduces New Disclosure, Consent and Notice Procedures to Govern the Electronic Delivery of 2011 Schedules K-1 by Partnerships, Including Many Hedge Funds and Hedge Fund Managers

    On February 13, 2012, the Internal Revenue Service (IRS) issued new procedures for partnerships to provide Schedules K-1 to their partners electronically.  Among other things, the new procedures introduce rigorous consent and disclosure procedures that govern the electronic delivery of Schedules K-1 by partnerships, including limited partnerships, such as many hedge funds and hedge fund managers.  As such, hedge funds and hedge fund managers that wish to provide electronic delivery of their Schedules K-1 to fund investors or partners in the management company, respectively, should promptly and carefully evaluate the new procedures and their potential impact on the processes they are currently following to obtain consent to electronic delivery of such Schedules K-1.  In a guest article, Roger Wise and Kenneth Wear, Partner and Associate, respectively, at K&L Gates LLP, discuss the mechanics and implications of the new K-1 procedures.

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  • From Vol. 4 No.4 (Feb. 3, 2011)

    IRS Enhancing Its Scrutiny of Tax Shelter Disclosures by Hedge Funds

    In late 2010, the IRS Office of Chief Counsel issued a memorandum indicating that some common “protective” disclosures that are made by hedge funds and other investment partnerships are inadequate.  This could result in significant penalties for a fund as well as its investors.  In a guest article, Joseph Pacello, a Tax Partner at Rothstein Kass, discusses: the legal and accounting background of the IRS memorandum, including relevant tax disclosure requirements; the IRS Office of Chief Counsel’s analysis in the memorandum; penalties for failure to properly disclose a reportable transaction; and the likely impact of the IRS memorandum for both funds of funds and direct trading funds.

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