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Article
Publication date: 6 April 2012

Roger D. Lorence

The purpose of this paper is to update investors who have incurred losses from fraudulent enterprises since the publication of Lorence's “Tax consequences for investors in…

Abstract

Purpose

The purpose of this paper is to update investors who have incurred losses from fraudulent enterprises since the publication of Lorence's “Tax consequences for investors in hedge fund frauds”. The critical development is that taxpayers who filed in reliance on the so‐called “safe harbor” provided by the Internal Revenue Service have denied themselves the full benefits otherwise afforded under the law.

Design/methodology/approach

This technical paper describes developments applicable to claiming tax losses for fraudulent investments and fraud (i.e. conversion) of accounts at broker‐dealers. The paper describes the most tax‐effective method for defrauded investors to recoup a portion of their loss through tax refunds and tax losses.

Findings

Given the continuing incidence of financial frauds, once a fraud has been discovered, the defrauded investor must act promptly to claim the most beneficial tax treatment.

Originality/value

This paper builds on the findings of a prior study of the area to update investors on the latest developments in tax treatment of theft losses.

Details

Journal of Investment Compliance, vol. 13 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 12 April 2011

Roger D. Lorence

The purpose of this paper is to highlight the continuing diligence required of the tax compliance function of any investment vehicle that holds commodities contracts. In…

Abstract

Purpose

The purpose of this paper is to highlight the continuing diligence required of the tax compliance function of any investment vehicle that holds commodities contracts. In addition to monitoring Congressional developments that are likely to pick up where 2010's Dodd‐Frank Act left off, with the globalization of commodities trading, contracts traded on foreign exchanges are being added to the list of “Section 1256” contracts, which have special beneficial tax treatment under current law.

Design/methodology/approach

This technical paper describes new technical rules applicable to the tax returns for taxpayers who trade in commodities contracts, as well as the need to be alert to future developments, whose likely parameters are provided.

Findings

After a period of low levels of new developments, commodities taxation has come to the fore in Washington and an increasing tempo of developments is expected.

Originality/value

This paper provides timely guidance from an expert on tax issues relating to tax planning and tax return preparation from commodities traders.

Details

Journal of Investment Compliance, vol. 12 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 13 September 2011

Roger Lorence and Steven Q. Zhang

The purpose of this paper is to highlight not only the pre‐closing, but also the continuing due diligence required of all parties in private placement life insurance or…

Abstract

Purpose

The purpose of this paper is to highlight not only the pre‐closing, but also the continuing due diligence required of all parties in private placement life insurance or annuities invested in hedge funds.

Design/methodology/approach

This technical paper describes the due diligence process for these high‐end offerings, illustrating key concerns through case studies.

Findings

Recent events have caused the advantages, disadvantages and timing issues to crystallize, together with what issues require pre‐closing and post‐closing due diligence.

Originality/value

This paper provides timely guidance from experts approaching the issues from multiple disciplines – law, accounting, and financial analysis – to yield a comprehensive analysis of the position of all parties to the transaction.

Details

Journal of Investment Compliance, vol. 12 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 5 May 2015

Roger Lorence

To describe the best practices for complying with the increasingly large body of information returns required by the Internal Revenue Service of participants in the…

Abstract

Purpose

To describe the best practices for complying with the increasingly large body of information returns required by the Internal Revenue Service of participants in the investment management industry and the severe penalties that apply to noncompliant taxpayers.

Design/methodology/approach

This technical paper describes the explosive growth of information returns and protective return filings required of investment management industry participants, based upon the author’s advising tax return preparers and taxpayers charged with filing these forms.

Findings

Each tax return filing season has demonstrated the ever-increasing and enormous waste of effort and money but no relief is in sight. The expectation of relief from the tax authorities at any level or from Congress and other legislative bodies, is remote.

Originality/value

This paper provides timely guidance from a practitioner in the field of tax compliance including a summary of current forms to be reviewed by tax practitioners with investment management industry clients, either on the manager or the investor side.

Details

Journal of Investment Compliance, vol. 16 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 12 June 2009

Roger D. Lorence

The purpose of this paper is to consider the appropriate Internal Revenue Service (IRS) tax filings for individual and fund‐of‐fund (FOF) investors who have incurred…

Abstract

Purpose

The purpose of this paper is to consider the appropriate Internal Revenue Service (IRS) tax filings for individual and fund‐of‐fund (FOF) investors who have incurred losses from hedge fund fraud.

Design/methodology/approach

The paper describes the types of losses investors have suffered; explains the types of relief the IRS provides; recommends the steps investors should take in filing claims; discusses special issues for FOFs, recoveries from the Securities Industry Protection Corp. (SIPC), treatment of litigation expenses, and recent IRS guidance; and provides a sample tax‐claim calculation.

Findings

For defrauded investors, two types of relief may be available: filing a tax return for the taxable year in which the fraud is discovered to claim an ordinary loss from theft for the entire adjusted basis in the fraudulent investment; and filing for refunds of tax erroneously paid in prior years on income fictitiously reported by the Ponzi scheme.

Originality/value

The paper provides timely guidance from an expert on tax issues related to hedge funds. Readers need to be aware that resolution of many issues discussed here is uncertain and the subject may be characterized as a “moving target”.

Details

Journal of Investment Compliance, vol. 10 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 20 November 2009

Roger D. Lorence and Steven M. Etkind

The purpose of this paper is to highlight the quandary that a taxpayer may be in when choosing between disclosing a tax return position that may be contrary to Internal…

Abstract

Purpose

The purpose of this paper is to highlight the quandary that a taxpayer may be in when choosing between disclosing a tax return position that may be contrary to Internal Revenue Service (IRS) authorities and potentially subjecting the taxpayer to substantial penalties if the position is not disclosed.

Design/methodology/approach

The paper describes the technical rules applicable to tax return disclosures and IRS forms and provides several examples relating to hedge funds.

Findings

The tensions between disclosure, possibly triggering an IRS audit, and nondisclosure, possibly resulting in substantial penalties, are not easily resolvable. In addition, financial accounting reporting of uncertain tax positions (FIN 48) must also be considered in weighing the alternatives.

Originality/value

The paper provides timely guidance from experts on tax issues relating to tax return presentation in general, and to tax issues of hedge funds in particular.

Details

Journal of Investment Compliance, vol. 10 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 12 September 2008

Roger D. Lorence

The purpose of this paper is to explain some tax management complications for onshore and offshore hedge funds posed by US FIN 48, Uncertain Tax Positions, and to…

Abstract

Purpose

The purpose of this paper is to explain some tax management complications for onshore and offshore hedge funds posed by US FIN 48, Uncertain Tax Positions, and to emphasize the hedge fund manager's responsibility for careful tax planning and compliance.

Design/methodology/approach

The paper discusses a hedge fund's objective to deliver tax‐efficient results to investors, explains the background of FIN 48, and illustrates five types of situations in which conservative auditors following FIN 48 may raise “red flags.”

Findings

With the advent of FIN 48's standards careful tax planning and compliance are more important than ever for a hedge fund. Significant complications may arise from unwise, tardy, or missed tax elections; filing an IRS Form 8275, Disclosure Statement, stating that a fund is using a method of accounting contrary to IRS regulations; or having a business construed for US tax purposes as a finance company operating in the USA. Hedge fund managers need to know the rules concerning interest expense exceeding interest income and expenses paid by investors in a fund of funds.

Originality/value

The paper provides practical guidance from an experienced securities and hedge fund lawyer.

Details

Journal of Investment Compliance, vol. 9 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Content available
Article
Publication date: 12 September 2008

Henry A. Davis

Abstract

Details

Journal of Investment Compliance, vol. 9 no. 3
Type: Research Article
ISSN: 1528-5812

Content available
Article
Publication date: 12 June 2009

Henry A. Davis

Abstract

Details

Journal of Investment Compliance, vol. 10 no. 2
Type: Research Article
ISSN: 1528-5812

Content available
Article
Publication date: 12 April 2011

Henry A. Davis

Abstract

Details

Journal of Investment Compliance, vol. 12 no. 1
Type: Research Article
ISSN: 1528-5812

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