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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) – Senate Finance Committee Chairman Max Baucus has introduced a new bill aimed at halting offshore tax evasion by U.S. companies.
The new bill is in response to Senator Levin’s “Stop Tax Haven Abuse Act,” which also seeks to crack down on offshore jurisdictions and impose tighter restrictions for hedge funds.
The bill will entail several facets, mainly the requirement to report transfers of capital to offshore locations. Any financial institution that directly or indirectly transfers a minimum of $10,000 to an offshore institution must give a detailed report to the U.S. Treasury with the customer’s name, both the onshore and offshore bank associated with the transaction, the amount, along with the account number and type of account. Right now, this information is required to be filed with the Internal Revenue Service, in something known as an FBAR filing.
Any institution who fails to report these transfers or any person who does not include this information with their tax returns would face fines and penalties. The draft bill may have more burdensome reporting requirements and compliance issues for hedge fund managers that do business offshore, but it differs greatly from the “Stop Tax Haven Abuse Act” introduced on March 2 by Senator Levin (D-MI), which would have harsher consequences and stricter requirements for hedge funds.
Stating that offshore tax havens “are engaged in economic warfare against the United States, and honest, hardworking Americans,” the bill essentially seeks to increase the disclosure of offshore accounts, holdings, transactions and entities while increasing the strength and jurisdiction of the U.S. Treasury. Penalties of up to $1 million per violation are expected to be enforced for failure to report to the SEC.
Foreign corporations that are managed and controlled in the United States will be treated as a domestic corporation and will therefore be responsible for paying U.S. taxes. It is estimated that 80 percent of the country’s largest companies have subsidiaries in tax havens. Levin also seeks to close the tax loophole associated with offshore dividends.
Hedge funds will be required to establish anti-money laundering programs as well as use due diligence to evaluate investors supplying offshore funds. The bill also creates a tighter cohesion between the Treasury and the U.S. Securities and Exchange Commission.
The Levin Bill seeks to end the estimated $100 billion in lost tax revenue each year from offshore tax abuse.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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MSNBC – On the streets of Antigua, Texas billionaire Allen Stanford is a controversial figure. Some embrace him while others deride him as a modern-day colonialist.
But nearly all say they fear a U.S. investigation into the tycoon’s financial empire and Antigua-based offshore bank could damage the Caribbean island where Stanford is a household name, its biggest private employer and powerful business force.
"He’s providing jobs. He’s good for the economy. If he’s in trouble, that’s bad for us all," said George Green, manager of Cool Down Cafe, a hole-in-the-wall restaurant on a narrow street in St. John, the island’s capital.
Green’s comment was echoed across the twin-island nation of Antigua and Barbuda on Monday as news spread of a deepening probe into Stanford’s $50 billion Houston-based investment operation, Stanford Group Co, and its Antigua-based affiliate, Stanford International Bank.
