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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.
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New York (HedgeCo.Net) – Wealthy Americans who have been hoarding cash overseas and failing to pay Uncle Sam are getting a break, as the Internal Revenue Service unveils a plan that will greatly reduce their penalties.
The idea comes a month after UBS was charged with helping thousands of American clients hide over $15 billion in secret Swiss bank accounts. The IRS is forcing the bank to disclose the names associated with 52,000 offshore accounts, something that UBS is trying desperately to contest in order to salvage their U.S. clientele base.
Should these individuals come forward prior to this release of names, the IRS is offering a reduced penalty of up to 20 percent for not filing a Report of Foreign Bank and Financial Accounts, also known as an Fbar. However, the clients must be proactive. Should they not come forward and their names eventually be disclosed, they not only face a penalty equal to 50 percent of the balance of each account, but other fines and possible jail time as well.
"This is a chance for people to come clean on their own," IRS Commissioner Doug Shulman explained.
The IRS will still require the individuals to pay any back taxes owed over the last six years as well as any applicable fees. It is estimated that the U.S. loses $100 billion a year in lost tax revenue from offshore activity.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Bloomberg – Microsoft Corp., the software maker that scrapped a $47.5 billion bid for Yahoo! Inc. this month, may forge a partnership with the Internet company in the search- advertising market to challenge Google Inc.
Microsoft, which abandoned its takeover attempts May 3, said yesterday that it’s exploring a transaction with Yahoo and may renew attempts to buy the entire company. The two may combine units that sell ads that run next to Internet search results, said Morningstar Inc. analyst Toan Tran.
Billionaire investor Carl Icahn is pressuring Yahoo to ally itself with Microsoft to compete with Google, which dominates the Internet search market. Icahn, backed by investors such as hedge- fund manager John Paulson, plans to oust Yahoo’s board if Chief Executive Officer Jerry Yang fails to sell to Microsoft.
“Carl Icahn is in this to make a quick buck, so whatever helps him make money he’ll be happy with,” said Tran, who is based in Chicago and doesn’t own shares of either company. “What Carl Icahn definitely wants is an outright sale of Yahoo to Microsoft at some price higher than what it is now.”
Microsoft has offered to buy Yahoo’s search unit and take a minority stake in the company after Yahoo gets rid of its holdings in Asia, Reuters reported today, citing a person familiar with the talks. Microsoft spokesman Frank Shaw declined to confirm or deny the report, while Yahoo spokeswoman Diana Wong declined to comment.
Microsoft, based in Redmond, Washington, fell 53 cents to $29.46 at 4 p.m. New York time in Nasdaq Stock Market trading. Sunnyvale, California-based Yahoo rose 2 cents to $27.68, while Google dropped $2.55 to $577.52.
