Hedge funds ‘must reorganise’ to avoid Obama-era taxes

Business Intelligence Middle East  – International Tax lawyers are urging private-equity and hedge-fund clients to restructure their partnerships so they can sidestep the higher taxes that president-elect Barack Obama has vowed to impose on their profits.

Obama’s promise to revive a failed 2007 bill forcing executives to pay rates of 35% or more instead of the 15% capital-gains tax has prompted lawyers to advise the firms to take measures such as setting up offshore entities. That would help circumvent higher taxes on so-called carried- interest profits that executives at the firms typically earn.

The lawyers say they are pressing their clients to act before the year’s end on the assumption that any law or regulatory change won’t apply before 2009.

“If you wait to do it, then to unwind or restructure later will be very difficult and trigger significant tax penalties,” said Mike Kosnitzky, who heads Boies Schiller & Flexner’s tax practice in New York and is advising clients.

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