Taxation

Tax risk is at the top of MFA's agenda. MFA is working to provide clarity on a wide range of potential repercussions that would affect investors should revisions to longstanding partnership tax rules change.

MFA leads an aggressive lobbying initiative that includes building coalitions with other industry organizations:

• MFA’s continues to build on its longstanding relationships with staff from Treasury, House Ways & Means Committee, Senate Finance Committee and the Joint Committee on Taxation.
• MFA works with Treasury and the IRS to promote clarity on rules regarding tax exempt entities, hedge fund lending activities, and the tax treatment of credit default swaps.
• MFA successfully received guidance from Treasury on rules such as the nonqualified deferred compensation arrangements. (Section 409A).
• MFA's Tax Committee meets monthly to help shape MFA's legislative initiatives with respect to pending and potential taxation issues and to foster a greater understanding of the implications of the taxation of the industry.

The latest industry news, as well as MFA's Tax Committee and association activities with respect to tax issues includes:

2.4.2010		MFA submitted a letter to the Massachusetts Department of Revenue seeking assistance to clarify the Department’s audit guidelines for determining when investment management is a trade or business for the purposes of Massachusetts tax law. MFA sought this clarification because of the increased uncertainty among our Massachusetts members regarding the appropriate standards to use when determining whether their investment management activities are properly regarded as constituting a trade or business.
12.8.2009		MFA submitted a letter to the House Leadership, Ways and Means Committee Chairman Charlie Rangel (D-NY) and all Ways and Means Committee Members regarding the Tax Extenders Act of 2009 (H.R. 4213), which includes revenue offsets that would change the tax treatment of carried interest and provisions included in the “Foreign Account Tax Compliance Act of 2009” (H.R. 3933). In the letter, MFA cautioned that the tax extenders legislation could result in serious and negative consequences for U.S. capital markets, job growth and capital formation. In addition, the letter put forth MFA’s position with respect to the “Let Wall Street Pay for the Restoration of Main Street Act of 2009” (H.R. 4191), which would impose a transaction tax on all financial transactions. As stated in the letter, such a tax would significantly jeopardize our economy’s ability to recover.
11.5.2009		MFA submitted a written statement in connection with the House Ways & Means Subcommittee on Select Revenue Measures’ hearing, "Foreign Bank Account Reporting and Tax Compliance" held on November 5, 2009. In the written statement, MFA expressed its strong support for the efforts in Congress and the Obama administration to provide regulators with the authority needed to detect and prevent tax evasion and non- compliance with U.S. tax laws by U.S. persons holding investment assets in offshore accounts, which includes the recently introduced "Foreign Account Tax Compliance Act of 2009" (H.R. 3933). MFA also recommended that Congress should further examine and amend certain measures in the legislative proposals in order to avoid unintended and detrimental consequences to U.S.-based hedge fund managers.
10.5.2009		MFA submitted a letter to the IRS in response to IRS Notice 2009-62, which requests comments and recommendations concerning the compliance requirements for Reports of Foreign Bank and Financial Accounts (commonly referred to as “FBAR”). In our letter, we identify several issues relating to FBAR compliance and request guidance on how FBAR rules might apply to investments in hedge funds and similar private investment funds.
8.3.2009		MFA submitted a letter to Treasury, the IRS and FinCEN on FBAR compliance concerns, requesting that Treasury and the IRS take prompt action to resolve: (1) whether a hedge fund or other private investment fund organized outside of the United States constitutes a “financial account” for FBAR purposes; and (2) if so, a variety of collateral issues arising under FBAR. In addition, in the letter, MFA provided its support of a procedural recommendation made by the Tax Section of the New York State Bar Association for a one-year moratorium on FBAR filings not related to a “traditional financial accounts” (as defined in the letter).
6.19.2009		MFA submitted a letter to the IRS Commissioner regarding FBAR compliance concerns in light of the upcoming filing deadline and statements made by IRS officials during a recent presentation to industry associations. The letter requests that the IRS (1) provide temporary relief in advance of the filing deadline, and (2) issue formal guidance in response to MFA’s prior submissions, which sought clarity on a number of issues, including whether offshore hedge funds are “financial accounts” for FBAR compliance purposes.
5.13.2009		MFA submitted a letter as a follow up to its meeting on April 7 with officials from the IRS to discuss compliance issues faced by private investment funds when filing a Foreign Bank and Financial Accounts Report (FBAR). The letter summarizes all of the points that were raised during the meeting and requests that the IRS issue temporary guidance to assist hedge funds in complying with the rules and instructions for FBARs.
3.26.2009		MFA submits a letter to the Australian Treasury requesting they support legislative and regulatory relief to eliminate the uncertainties in the application of certain Australian tax laws as they apply to many foreign investment funds, including those managed by many MFA members. In the letter, MFA emphasized that these uncertainties potentially act as an ongoing impediment to foreign investment in Australian capital markets.
8.29.2008		MFA submitted a comment letter to the Department of the Treasury and Internal Revenue Service regarding Temporary Regulation TD 9407, which, among other things, changes the automatic extension filing deadline for partnership tax returns from October 15th to September 15th. In MFA’s letter, MFA requests that the deadline revert back to October 15th because the new deadline will make accurate reporting exceedingly difficult for alternative investment partnerships due to the shorten timeframe in which they have to complete their tax-reporting process.
8.20.2008		MFA sent a comment letter to the Financial Accounting Standards Board (FASB), requesting that FASB adopt a rule exempting hedge funds and certain other private investment funds from FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.109 (FIN 48). Click here for a copy of MFA’s August 20, 2008 letter. The recent letter sent to FASB makes reference to an earlier MFA letter sent on January 12, 2007 to FASB, requesting the postponement of the effective date of FIN 48 because of significant uncertainty in the implementation of FIN 48 by private investment funds. Click here for a copy of MFA’s January 12, 2007 letter.
6.10.2008		MFA sent a letter to Senate Republicans expressing our concerns regarding H.R. 6049, which is titled the Energy and Tax Extenders Act of 2008 and proposes to, among other things, temporarily extend many expiring tax provisions of the Internal Revenue Code by eliminating the deferral of taxation of certain compensation that U.S.-based hedge fund professionals invest in their firms’ offshore funds.
5.15.2008		MFA sent a letter to House Ways & Means Committee Chairman Charles Rangel (D-NY) expressing our concerns regarding H.R. 6049, which is titled the Energy and Tax Extenders Act of 2008 and proposes to, among other things, temporarily extend many expiring tax provisions of the Internal Revenue Code by eliminating the deferral of taxation of certain compensation that U.S.-based hedge fund professionals invest in their firms’ offshore funds.
4.9.2008		MFA has sent a letter to the Internal Revenue Service (IRS) and Treasury requesting guidance on the tax treatment of the acquisition and restructuring of distressed debt by non-U.S. funds