2017 Essential Tax and Wealth Planning Guide

Ω Θ Tax implications of fund investing Investment fund attributes Real estate partnerships Introduction What is an investment fund? Types of investment funds and income tax characteristics • Marketable securities Hedge funds • Private equity/venture capital Publicly traded partnerships Real estate funds Key tax attributes of investment funds include 1) the characteristics of the fund itself and 2) the character of income, expense, gain, loss, and credits generated by the fund (or allocable to the fund in a FOF setting) and how these amounts impact the investor's tax liability. Taxpayers may invest in a wide variety of funds but may not be aware of how the investment strategy (e.g., holding securities short or long, trading through derivatives, buying dividend paying stocks, purchasing operating company investments, etc.) could impact the character of the income, losses, and deductions generated by the investment. The below chart and discussion can assist you in understanding the attributes of funds and the character of income and expenses coming from the funds. Investment fund attributes Entity characteristics, income/(expense) characteristics, and other considerations . Fund of funds Investment fund attributes • Trader versus investor . . entities Passive versus non-passive income Separately stated activity (including PTPs) Qualified small business stock (QSBS) Unrelated business taxable income • State tax reporting Conclusion Resources <弓 ☑ |||| A Entity characteristics Marketable security partnership Hedge fund partnership Fund of funds* Private equity/ Venture Capital partnership Publicly traded partnerships Classified as a business trading securities Classified as an operating business Classified as an investor partnership Sometimes No Sometimes Sometimes No Sometimes State sourced income generated No Sometimes No Sometimes Sometimes Sometimes No Sometimes Sometimes Frequently No Sometimes Sometimes Yes PTP separately stated activities No Sometimes Non-PTP separately stated activities No No Qualified small business stock No Rarely Operating business unrelated business taxable income No Debt financed unrelated business taxable income No Foreign reporting requirements Sometimes Capital commitments Usage of leverage No No Sometimes Frequently Sometimes No Frequently Sometimes Yes Sometimes Yes Yes Sometimes Yes Sometimes Yes Sometimes Rarely No Yes Rarely Yes Sometimes Sometimes No Sometimes Yes Yes Sometimes Yes Sometimes 2017 Essential Tax and Wealth Planning Guide | Tax implications of fund investing 55 * Fund of funds can include multiple investment funds in one strategy (hedge funds for example) or can be across investment fund strategies (hedge fund, private equity, publicly traded partnerships, etc.)

View entire presentation