Navendu P. Vasavada

Taxation of U.S. Investment Partnerships and Hedge Funds (eBook, PDF)

Accounting Policies, Tax Allocations, and Performance Presentation

• Format: PDF

Produktbeschreibung

A new, lucid approach to the formulation of accounting policies for tax reporting Unraveling the layers of complexity surrounding the formulation of accounting policies for tax reporting, Taxation of US Investment Partnerships and Hedge Funds: Accounting Policies, Tax Allocations and Performance Presentation enables your corporation to implement sound up-front accounting and tax policies in order to reduce the overall cost of CFO and legal functions within a U.S. Investment partnership. * Understand the pitfalls and optimize across legitimate policies that are consistent with the IRS regulations * Presents a clear roadmap for accounting, tax policies, tax filing and performance presentation for US investment partnerships and hedge funds Providing tremendous understanding to a complex topic, Taxation of US Investment Partnerships and Hedge Funds is guaranteed to demystify the inner workings of the formulation of accounting policies for tax reporting.

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Produktdetails

• Verlag: John Wiley & Sons
• Seitenzahl: 304
• Erscheinungstermin: 12. Juli 2010
• Englisch
• ISBN-13: 9780470642566
• Artikelnr.: 38186480

Autorenporträt

NAVENDU P. VASAVADA, PHD, has held the positions of investment manager of large institutional investors, manager of private hedge funds, an economic analyst, and writer-at-large. He was formerly a senior investment manager at Aetna Inc. for over a decade, serving as head of quantitative research, risk manager, mortgage securities analyst, and equity/fixed income derivatives quant. He holds a PhD from Wharton, preceded by an engineering MS from the University of Pennsylvania and PGDBA from IIM-A, India.

Inhaltsangabe

Preface xiii
Chapter 1 The Arcane World of Hedge Funds and Investment Partnerships 1
What Is a "Hedge Fund"? 1
U.S. Venture Partnerships 3
Types of U.S. Hedge Fund Entities and the U.S. Tax Code 4
Organizing a Typical U.S. Hedge Fund 6
Investor Clienteles in Hedge Funds 10
Foreign Investors in a U.S. Hedge Fund 14
Offshore Funds 14
U.S. Investors in Offshore Funds 17
U.S. Investors in Swiss Bank Accounts 19
U.S. Investors in Madoff-Like Managed U.S. Trading Accounts 23
Size of the Global Hedge Fund Industry 25
Fund-of-Funds 28
Incentives of the Hedge Fund Manager and Investors 30
Valuation of a Hedge Fund Management Company 31
Economies of Scale in Hedge Funds 33
Chapter 2 The Structure of Hedge Funds 35
Organizing a Typical Offshore Hedge Fund 35
Master-Feeder Structuring of Onshore/Offshore Arms: Organizing a Hedge Fund
for Clienteles 39
U.S. Withholding Agent for U.S. Withholding Taxes on Foreign Investors 44
Chapter 3 Hedge Fund Fees 47
Starting Point: The Partnership Agreement 47
Fund Valuation at Discrete Opening Time Points 48
Calculation of Fixed Fees 49
Calculation of Performance Fees 55
Claw-Back Provision: Performance Fee Returned to Limited Partners 66
Representation of a Fund's Net Asset Value (NAV) per Share 71
Black-Scholes Formula Valuation of Performance Fees 74
Chapter 4 Hedge Fund Accounting and Tax Filing 79
Partnership Accounting for U.S. Funds 79
IRS Tax Return Filings for U.S. Hedge Funds 80
Financial Statements for Hedge Funds and Venture Funds 85
Interim Valuation: The Core of a Hedge Fund's Accounting Operation 93
Books of Account and Financial Statements for Hedge Funds 96
Audit of an Offshore Fund 97
Audit of a U.S. Fund 98
Capital Account Audit for Both Offshore and U.S. Funds 99
Chapter 5 Partner Tax Allocations in U.S. Partnerships 101
U.S. Tax Allocation Rules Governing U.S. Partnerships 101
Tax Components of U.S. Investment Partnership Income 103
Fixed Fees: Income to the General Partner and Expense to the Limited
Partners 107
Generalizing the Allocation Formula to Other Components of Income 108
Tax Basis of Partner's Investment in a U.S. Partnership 109
Accountants' Terminology 113
Tax Allocations of Realized and Unrealized Income to Partners 113
The Tax Allocation Method of Layering 115
Tax Allocation of Interest 118
Tax-Exempt Interest Income, Line 18a 120
Similar Calculation for Tax Allocation of Dividends, Investment Expense,
Foreign Tax Paid 121
Tax Allocation of Fixed Fees Paid by Limited Partners 121
Tax Allocation of Guaranteed Payments (of Fixed Fees) to the General
Partner 122
Reporting Subcomponents of Interest Income and Dividends 122
Tax Consequences of Shorting 123
Short Positions: Tax Treatment of Equity Dividends or Bond Coupons Claimed
as Interest Expense 123
Distributions from Partnerships Owned 124
Chapter 6 Tax Allocations of Realized Gains by Layering 127
Tax Allocation of Unrealized and Realized Capital Gains Using the Method of
Layering 127
Ignoring Ambiguity #1 with Layering 132
Work-Around to Fix Ambiguity #2, the Fatal Flaw with Layering 133
Chapter 7 Partial and Full Netting Methods 137
The Methods of Aggregation or Netting 137
Partial Netting 138
Full Netting 141
Measures of Book-Tax Disparity across Partners 142
Formulating the Problem for Optimal Partner Tax Allocations under Full
Netting 143
Formulating the Problem for Optimal Partner Tax Allocations under Partial
Netting 146
Solving the Convex Optimization Problem of Tax Allocation 148
Chapter 8 Comparative Tax Consequences of Layering and Netting Methods 153
Which Is the Better Method for Allocation of Realized Gains: Layering, Full
Netting, or Partial Netting? 153
Layering Examples Showing Earlier Tax Payment 154
Full Netting Examples Showing Tax Postponement 158
Chapter 9 Tax Efficiency of Hedge Funds 161
Tax Efficiency Considerations for Offshore Hedge Funds 161
Tax Preference Ordering for U.S. Investors 163
More Attractive Tax Items to U.S. Investors 167
Less Attractive Tax Items to U.S. Investors 169
An Exception: Special Tax Preference for Gains from U.S. Exchange-Traded
Futures Contracts 170
Ambiguities in Tax Preference 170
Tax Efficiency Steps for U.S. Hedge Funds 170
A Structure for Tax-Exempt U.S. Entities to Recover Foreign Taxes 173
Chapter 10 Hedge Fund Performance and Risk Presentation 175
Performance Presentation: CFA Institute GIPS Verification 175
Calculation of Hedge Fund Returns for Performance Presentation 179
Facilitating Historical Risk and Return Review for Investors Using GIPS
Guidelines 183
Chapter 11 Mutual Funds and Venture Funds Compared to Hedge Funds 191
Tax Return Filing of U.S. Partnerships Is an Involved Task 191
Comparison with Tax Allocations Made by Mutual Funds 191
U.S. Venture Partnerships (Silicon Valley Venture Funds) 196
Chapter 12 Epilogue 203
Economic Accounting Is a Common Denominator for U.S. and Offshore Funds 203
Tax Return Filing of U.S. Partnerships Is an Involved Task 204
Calculating Partner Allocations Is Most of a U.S. Partnership's Tax
Accounting Effort 204
Layering and Netting Methodologies for Tax Allocation of Capital Gains 205
Example of Tax Allocation of Capital Gains by Full and Partial Netting in a
100-Partner Setting 205
Tilting Tax Allocations According to Tax Preferences 206
The Crown Jewel: Automated Tax Allocation of All Items of Income 206
The End of an Era of Layering 207
Appendix 1 Excerpts of Key U.S. Statutes Discussed in Chapter 1 That Govern
U.S. and Offshore Hedge Funds Venture Funds 209
Appendix 2 Methodology and Implementation Example of Full Netting 229
Appendix 3 Methodology and Implementation Example of Partial Netting 253
Appendix 4 Nonabusive Tilting of Tax Allocations According to Tax
Preferences 259
Appendix 5 Eliminating Layering Entirely, by Allocating Dividends,
Interest, Capital Gains, and Expenses in One Step 267
Index 277