Included as a revenue offset in the budget legislation (H.R. 1314) signed by President Obama are provisions that simplify the procedure for the Internal Revenue Service to audit and collect adjustments from partnerships. The new rules, which are generally effective beginning 2018, permit the IRS to send the bill for a prior year’s tax deficiency to the partnership, which would then have the obligation to pay the deficiency, unless the partnership elects an alternative payment procedure. The alternative payment procedure permits partnerships to pass the adjustments and related taxes back to the applicable partners, who will pay this additional tax in the year they are notified of the deficiency and will not be required to amend their prior years’ federal returns. (Partners will still be obligated to report the adjustments on amended state tax returns, unless the applicable state adopts similar procedures.) The details for making this election will be set forth in forthcoming US Treasury regulations.
Continue Reading IRS Issues New Partnership Audit Procedures

On September 22, the Securities and Exchange Commission proposed a comprehensive package of rule reforms designed to enhance effective liquidity risk management by open-end funds, including mutual funds and exchange-traded funds (ETFs). Under the proposal, mutual funds and ETFs would be required to implement liquidity risk management programs and enhance disclosure regarding fund liquidity and redemption practices. The proposal is designed to better ensure investors can redeem their shares and receive their assets in a timely manner.
Continue Reading SEC Proposes Liquidity Management Rules for Mutual Funds and ETFs

On September 14, the Internal Revenue Service (IRS) issued final regulations under Internal Revenue Code Section 851 clarifying that control groups under the regulated investment company (RIC) rules may consist of two entities (i.e., the RIC and one subsidiary), rather than two levels of entities, settling a decades-long debate. The IRS also issued Rev. Proc. 2015-45, 2015-39 IRB 1, which provides a safe harbor for fund of funds structures.
Continue Reading IRS Addresses RIC Asset Diversification Requirements

The deadline to report US accounts by offshore funds that are organized in Model 2 Intergovernmental Agreement (IGA) jurisdictions, such as Bermuda, as required by Foreign Account Tax Compliance Act (FATCA), is quickly approaching. The first report by such funds on IRS Form 8966 is due by March 31. However, an automatic 90-day extension is

On December 8, the Securities and Exchange Commission sanctioned a computer programmer for operating two online exchanges that traded securities using virtual currencies without registering them as broker-dealers or stock exchanges. The programmer, Ethan Burnside, operated the two exchanges through his company, BTC Trading Corp., from August 2012 to October 2013. Account holders were able to purchase securities in virtual currency businesses using bitcoins on BTC Virtual Stock Exchange and using litecoins on LTC-Global Virtual Stock Exchange. The exchanges were not registered as broker-dealers but solicited the public to open accounts and trade securities. The exchanges also were not registered as stock exchanges but enlisted issuers to offer securities to the public for purchase and sale. Burnside also offered shares in LTC-Global Virtual Stock Exchange itself, as well as interests in a separate Litecoin mining venture, LTC-Mining, in exchange for virtual currencies. The SEC charged Burnside with willful violations of Sections 5(a) and 5(c) of the Securities Act of 1933 and Burnside and BTC Trading Corp. with willful violations of Sections 5 and 15(a) of the Securities Exchange Act of 1934. Burnside cooperated with the SEC’s investigation and settled, paying more than $68,000 in profits plus interest and a penalty. The SEC also barred Burnside from the securities industry.
Continue Reading SEC Sanctions Operator of Unregistered Virtual Currency Exchanges

On December 5, the New York State Department of Taxation and Finance (DTF) issued the memorandum “Tax Department Policy on Transactions Using Convertible Virtual Currency.” The memorandum clarified that under New York law, convertible virtual currency (such as bitcoin) is considered “intangible property,” which is not subject to sales tax. Therefore, the purchase or sale

On May 2, the Internal Revenue Service issued a notice (Notice 2014-33) providing for a transition period for enforcing the withholding rules of the Foreign Account Tax Compliance Act (FATCA) and extending the period by which investment funds need to have FATCA procedures in place for entity investors. Pursuant to the notice:

  • Years 2014 and

The Cayman Islands announced on March 15 that it intends to enter into a Model 1 Intergovernmental Agreement (IGA) with the Internal Revenue Service for Foreign Account Tax Compliance Act (FATCA) compliance purposes. Accordingly, hedge funds and private equity funds that operate in the Cayman Islands will not have to enter into FATCA agreements with

On January 18, the Treasury Department issued final regulations under the Foreign Account Tax Compliance Act (FATCA). The final regulations incorporate the FATCA guidance that the Internal Revenue Service (IRS) has issued since proposed FATCA regulations were issued last February, as well as certain comments received regarding the proposed FATCA regulations.Continue Reading FATCA Regulations Are Finalized

The Internal Revenue Service this week released Announcement 2012-42 (the Announcement), which postpones until 2014 the need for foreign hedge funds and private equity funds to request Foreign Account Tax Compliance Act (FATCA) information and documentation from their investors. In effect, the IRS has delayed implementation of the FATCA tax reporting rules until 2014. The