Market Timing: IRS Edition

Alert

Tax Legislation Limits Future Deferrals,
Penalizes Future Side Pocket
Incentive Fees from Offshore Funds
On Oct. 3, 2008, the Emergency Economic Stabilization Act of 2008 (H.R. 1424) was signed into law. The Act, among other things, eliminates the ability of most cash-basis taxpayers to defer compensation earned from many non-U.S. corporations (including offshore hedge funds) and certain partnerships comprised primarily of persons non-taxable in the United States ("nonqualified entities"). The legislation is effective for compensation attributable to services performed after Dec. 31, 2008. [Emphasis in original.]

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High water marks being what they are, finding creative new ways to bury tax-deferred income is probably not going to be the biggest challenge facing many non-U.S. corporations (including offshore hedge funds) and certain partnerships comprised primarily of persons non-taxable in the United States.

Schulte Roth & Zabel Client Alert
Oct. 7 2008