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Tax News
Archive - September 2011
Henricus v. Comm’r.: a Trader v. Investor Déjà vu
Henricus v. Comm’r.: a Trader v. Investor Déjà vu
It seems like as of late the Tax Court is set on slamming every person that comes through its doors claiming a trader status.  It feels like it was yesterday when I talked about the Richard Kay case on this blog. There I alluded that a taxpayer who seemed to fall within the category of what most people in the trading community would call a swing trader ended up being treated as an investor.  On top of that the taxpayer was hammered with a Section 6662 penalty. Well, roll forward a few months and we have the same story all over again. The Tax Court just decided the following case Henricus...
September 30, 2011 read more
Santa Clara – a Warrant Causes the Termination of S Election
Santa Clara – a Warrant Causes the Termination of S Election
Sometimes funds come across a suitable portfolio company that is an S Corporation. Because of the limitations on shareholders and second class of stock, funds could not acquire equity directly in the S corporation. To mitigate this issue the fund could do a number of things such as restructure the company prior to the investment (e.g. have the S corporation contribute assets to an LLC and invest in that LLC.). Sometimes a restructuring is not feasible and the fund may either walk away from the portfolio company or contemplate acquiring debt and/or warrants in the company. The hope is that...
September 27, 2011 read more
The Tax Treatment of Credit Default Swaps is Finally Clarified
The Tax Treatment of Credit Default Swaps is Finally Clarified
One of the major frustrations I’ve had with the taxation of derivative instruments, such as swaps, is the unsettled state of the pertinent law, including some basic issues like characterization for tax purposes and related definitions. Until now, the tax characterization of Credit Default Swaps (CDS) represented some of the more striking examples of this type of a problem. If I have to summarize the issue, the major problem with figuring out how to tax CDS was that they do not fit too well in any of the closely related categories of instruments for which there is already published...
September 26, 2011 read more
Proposals to Tax Carried Interest at Ordinary Rates are Back
Proposals to Tax Carried Interest at Ordinary Rates are Back
It seems that the efforts to tax investment fund managers’ performance compensation at ordinary income rates had subsided for a long time. Those readers that have followed the issue know that these efforts have been largely unsuccessful since the early inception of the first Carried Interest bill by Senator Levin in year 2007. Now, the Carried Interest proposal resurfaces yet again in the form of a revenue raiser in another Obama favored legislation titled the “American Jobs Act of 2011” (S.1549; H.R.2911). While there are some substantive differences from prior installments, the...
September 26, 2011 read more