Tax Reporting and Reconciliation of Hedge Fund and Other Alternative Investment Fund K-1s

For many K-1s received by taxpayers, reporting the pass-through items of income and loss is a fairly straightforward process. However, the K-1 often requires the tax preparer to refer to information from numerous footnotes for hedge funds and other multi-fund pass-through entities. A Schedule K-1 from an alternative investment fund can easily exceed 50 pages or more, including details for individual transactions among the various funds or investments held.

These K-1s generally have important tax reporting information in the extensive footnotes following the standard page 1 boxes listing income, deductions, credits, and distributions. Tax professionals must identify the type of fund the K-1 is generated from and use the information found in the footnotes to prepare an accurate and complete return for clients.

Listen as our experienced panel provides detailed and practical guidance to help tax professionals correctly reconcile tax information from these complex K-1 schedules.

I. Brief background of hedge funds

II. Overview of the investor, trader, and fund of funds

III. Treatment of income and expenses from hedge fund K-1s

IV. Differences between book and tax income, Item L of Schedule K-1

V. Tax capital reporting requirements

VI. Reconciliation schedule to tie fund of fund K-1s to tax return

VII. Footnotes and how to decipher

VIII. Go through sample K-1s for each type of fund

IX. Discussion of changes in K-1 reporting requirements

The panel will review these and other relevant topics:

• Understand the type of K-1 you are receiving (i.e., investor fund, trader fund, fund of funds) and how to reflect the income, losses, and deductions to report accurately
• Identifying K-1 information that the tax preparer must enter on a return area other than Schedule E, page 2
• How to decipher K-1 footnotes to ensure proper treatment of critical pieces of information
• Prepare a schedule to reconcile current-year hedge fund K-1 reporting information to the investors' monthly statements

Learning Objectives

After completing this course, you will be able to:

• Recognize the type of K-1 that is being filed (investor fund, trader fund, fund of funds)
• Establish that income, losses, and deductions are correctly reported on Schedule K-1
• Ascertain the new Schedule K-1 reporting requirements
• Differentiate GAAP from other methods of reporting and when to use each method
• Identify the new rules applicable to pass-through entities, including "qualified business income" provisions

• 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+ 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 Schedule K-1 reporting on Form 1040 Schedule E, Page 2; familiarity with Schedule K-1 footnotes, passive investment rules, hedge fund and fund-of-fund structures, and basis schedule calculations.

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).