MFA seek to limit
As hedge funds successfully lobbied against a major federal tax proposal in late December, they were still working behind the scenes to limit increased “inspections” under consideration by the New York office of the Securities and Exchange Commission.
In August, the SEC”™s New York office sent hedge funds a letter requesting certain documents and information be produced for periodic inspections, reportedly over concerns funds were leveraging inside information to make profitable trades.
The Managed Funds Association promptly complained that some of the information requested under the pilot program is not collected and maintained by its members, and was imposing onerous time demands on funds, particularly small ones.
Instead, Washington, D.C.-based MFA wants the SEC to act in an advisory capacity, albeit an expanded one via roundtables for the chief compliance officers of hedge funds.
“Hedge fund advisers ”¦ recognize the fundamental principle that good compliance is a crucial element of good business,” said John Gaines, MFA president. “Many advisers have recruited first-class lawyers and compliance professionals, often with substantial experience at other SEC-regulated firms, to assist in ensuring that proper policies and procedures are in place to minimize compliance and legal risk.”
As MFA awaits the SEC”™s next step, a Democratic-led effort to impose new taxes on the industry fell short, with Congress enacting a “patch” that mostly preserves the status quo for another year.
Because of the bill”™s passage in late December, the Internal Revenue Service issued a statement indicating that the timing of tax returns may be delayed this year as it updates its forms and systems following the new law”™s passage in December.
With the existing federal alternative minimum tax (AMT) set to expire, more than 20 million families were about to get hit with an extra $2,000 on average in taxes.
AMT was enacted nearly 40 years ago to ensure the wealthiest families in the nation could not use shelters to pay less than 25 percent of their income in federal and state taxes. Because the tax”™s income classification was never indexed for inflation, the government has repeatedly tinkered with exemptions to ensure that the tax only affects the richest earners.
In a plea for the act”™s renewal, Gov. M. Jodi Rell said the tax would affect hundreds of thousands of Connecticut families. Earlier this year, Citizens for Tax Justice estimated that nearly 25 percent of Connecticut taxpayers would have to pay the alternative minimum tax if Congress did not act.
Rather than continuing to tinker with the tax”™s exemption formula, U.S. Rep. John Larson of Hartford and other Democrats wanted a new law shifting much of AMT”™s revenue onto the backs of hedge funds and private equity firms. In August, Larson proposed Congress create a commission to study what he termed “the proper tax treatment” for hedge funds and private equity firms