Expert Available: Hedge Funds and Taxes

February 20, 2008


Alan Dlugash, High Net Worth Tax Specialist at Marks Paneth, Available to Discuss Why Hedge Fund Investors Often Pay Taxes Ranging From 70% to More Than 100% of the Income They Earn From the Funds

New York, NY - (February 20, 2008) – Fair taxation watchdogs miss the point when they claim that hedge fund operators get unfair tax breaks. There is indeed abuse in the current tax code when it comes to hedge funds, but it affects the investors: They're often subjected to taxes that wipe out nearly all – or more than all – of the income they made from the fund.

That's according to Alan Dlugash, Partner at Marks Paneth , a New York City based accounting firm with a substantial high net worth taxation practice.

"Interestingly, investors, and even hedge fund operators, are generally unaware of this abusive dimension of the current tax code – at least until they take a close look at their tax return," said Mr. Dlugash.

Mr. Dlugash is available to discuss the hidden truths about taxes and hedge funds – and why investors often suffer. During a conversation, he can address:

  • The reason for the excessive taxes many hedge fund investors must pay. The IRS code doesn't allow investors to directly deduct fees or other operating expenses incurred in many hedge fund investments. The code requires that those expenses be claimed only as "miscellaneous deductions," and those deductions can't be used until and unless they reach 2% of the taxpayer's entire income. And even if it gets over this hurdle, the AMT usually wipes out any remaining benefit. Accordingly, most taxpayers don't get to benefit from those miscellaneous deductions.
  • Why many believe the code is unfair in this way. The code severely limits the ability of hedge fund investors to deduct expenses that are necessary to earn income (e.g., investment fees and expenses, accountant' fees, legal fees, etc.).
  • Why this part of the code doesn't affect mutual fund investors. The code exempts mutual funds and their investors from segregating portfolio deductions from their income.
  • Why it may not be reasonable to claim, as many do, that hedge fund operators get an unfair tax break. There are complaints surrounding operators' ability to classify part of their compensation as capital gains. The reality is that part of the income is, in fact, from capital gains, so it should be treated that way. Accordingly, the complaint's invalid. It represents an argument that one can only make by distorting the true nature of the gain.

Adria Greenberg
Sommerfield Communications, Inc.