Tax Implications of Private Fund Activities for Non-U.S. Investors After Ya Global

On Nov. 15, 2023, the U.S. Tax Court ruled that a fund was engaged in a U.S. trade or business based on the activities of its investment manager and was subject to the mark-to-market accounting rules of Sec. 475. This holding raises a number of issues and concerns for tax counsel, private funds, and managers. Counsel must identify these issues and implement strategies to minimize adverse tax consequences in light of the tax court ruling.

U.S. tax law provides several different withholding requirements for foreign partners, depending on the type of income the partnership receives and the manner in which the partnership conducts its activities. For partnerships engaged in a trade or business, income earned in connection with such business typically will be deemed effectively-connected income, which generates unique reporting and withholding duties for the U.S. partnership.

In YA Global Investments L.P. v. Commissioner, the fund manager collected fees from portfolio companies in connection with the fund's investments, but when filing the U.S. tax return, the fund took the position that the fund was not engaged in a U.S. trade or business and did not withhold taxes under Section 1446 on any income that was effectively connected with its U.S. trade or business and allocable to any foreign partners. The tax court ruled that the fund manager's activities were attributed to the fund and therefore engaged in a U.S. trade or business through its fund manager.

Tax counsel and advisers must go beyond the basics and understand the foundation of the holding and plan accordingly in order to properly advise clients who may be impacted.

Listen as our panel discusses the recent tax court decision in YA Global Investments L.P. v. Commissioner and its impact on non-U.S. investors, as well as offer critical tax planning considerations under current tax law in light of this recent tax court ruling.

1. Overview of tax court ruling in YA Global Investments L.P. v. Commissioner
2. Identifying foreign partners and offshore partnership structures
3. Calculating effectively-connected taxable income (ECTI)
4. Section 1446 tax liability
5. Best practices for tax counsel, private funds, and fund managers

The panel will discuss these and other key issues:

• What are the key takeaways from the tax court's ruling in YA Global Investments L.P. v. Commissioner?
• What goes into the calculation of the withholding amount under Sections 864(c)(8), 1445, and 1446(f)?
• Differentiating between various form reporting requirements
• How do you remedy prior withholding noncompliance?
• What are the next steps and best practices for tax counsel, private funds, and managers to minimize adverse tax consequences?

Learning Objectives

After completing this course, you will be able to:

• Identify ECTI subject to partnership withholding
• Discern how to report claims of treaty exceptions to withholding requirements
• Determine how to calculate Section 1446 withholding amounts
• Recognize how to remedy prior noncompliance in partnership withholdings on foreign partners' income

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years plus business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of foreign information reporting requirements and ownership attribution rules; familiarity with foreign partnership structures and identifying foreign-source income. The webinar assumes attendee already has indepth knowledge of the rules for determining effectively-connected income, as well as a working understanding of how foreign tax treaties work.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).