HedgeCo.Net

West Palm Beach (HedgeCo.net) – On June 12, three IRS personnel participated in a teleconference designed to address open questions regarding the Report of Foreign Bank and Financial Accounts (FBARs) for calendar year 2008 that must be filed by June 30. It was their position that an offshore hedge fund is a “foreign financial account” for FBAR purposes and that, therefore, every U.S. investor in an offshore hedge fund should file an FBAR, whether or not the fund has any offshore bank or securities accounts.

The FBAR needs to be filed by U.S. persons that have a financial interest in, or signature or other authority over, a foreign financial account or accounts if the aggregate value of the account(s) exceeds $10,000 at any time during the year. The instructions to the FBAR provide that foreign financial accounts include “any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds).” In the teleconference, the IRS personnel took the position that offshore hedge funds are foreign financial accounts for FBAR purposes.

Based on the instructions to the FBAR and this insight from IRS personnel, until further guidance is issued by the IRS, we recommend that an FBAR should be filed by the following persons or entities with respect to offshore funds:

•  Every U.S. investor, including U.S. tax-exempt entities, in an offshore hedge fund (this includes both stand-alone offshore hedge funds and the offshore feeder in master/feeder hedge fund structure)

•  U.S. feeder funds that invest in offshore master funds, and any U.S. investor that owns more than 50% of the U.S. feeder

•  Any direct U.S. investor in an offshore master fund

•  Investment managers that have a financial interest (for example, through their carry) in any offshore hedge funds (whether stand-alone, feeder or master)

This requirement is in addition to FBAR requirements applicable to U.S. persons or entities that have a direct or indirect interest in an offshore bank, securities or securities derivatives account. Therefore, any U.S. person or entity (for example, a U.S. hedge fund) that has a financial interest in such foreign financial account or owns more than 50% of the equity of an entity that has a foreign financial account needs to file the FBAR. Similarly, anyone with signature or other similar authority over such foreign financial accounts needs to file the FBAR.

Alex Akesson

Edtior for HedgeCo.Net
Email: alex@hedgeco.net

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Forbes – Major Wall Street firms placed large bets against Morgan Stanley using credit-default swaps, two days after Lehman Brothers Holdings Inc sought bankruptcy protection, the Wall Street Journal said, citing trading records.

The firms included Merrill Lynch & Co, Citigroup Inc, Deutsche Bank AG and UBS AG, according to the paper.

The paper said that a close examination of the trading revealed that the swaps played a critical role in magnifying bearish sentiment about Morgan Stanley.

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Tags: administrative-services, alan-greenspan, appaloosa-management, arthur-sulzberger, bankruptcy-code, bias, calendar-year, collateralized-debt-obligations, contention, curbs, journalism, lehman-brothers-holdings, lehman-brothers-holdings-inc, loans, onshore, pergam-finance, sailfish-capital-partners-llc, summer-intern

New York Post – As the Securities and Exchange Commission continues its assault on short sellers, hedge funds are discussing legal action to challenge Chairman Chris Cox’s recent moves – just as funds in the UK are considering lawsuits against their government regulator.

Since Friday, Cox has enacted a hodgepodge of emergency rules in an effort to give struggling Wall Street firms time to recover from their recent battering, including a widespread ban on shorting of financial stocks, and requiring hedge funds to disclose what they short.

That has prompted debate in the hedge fund world about what, if anything, might be done to temper efforts they say hurts good players along with the bad. Talk of legal action is still in the discussion stage, and no lawsuit may emerge.

"There are just a lot of questions right now," said an industry insider.

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Tags: ameriprise, calendar-year, court-decision, journalism, mr-cox, new-marketplace, news-press, value-investors, world-equity