As part of Practising Law Institute's (PLI) one-hour briefing, Winston & Strawn tax partner Mitch Moetell, based in the firm's New York office, presented "IRS Hedge Fund Audits: Hot Button Issues and Practical Guidance."
Mr. Motell discussed "hot button" issues the IRS has been raising in recent hedge fund audits, as well as the rights and obligations of hedge fund operators under the partnership audit rules.
Specific topics covered in this presentation included:
- The substantive tax issues that have attracted IRS attention with respect to hedge funds, including "effectively connected income" loan origination issues, dividend withholding taxes, management compensation issues, the status of a fund as a "trader" or an "investor," and the "straddle," "wash sale" and other technical tax rules affecting securities trading
- The IRS's increased tendency to assert tax penalties, and the traps and issues that exist for hedge fund partnerships in this area
- Practical considerations in managing an IRS hedge fund audit under the partnership audit rules