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Abstract: 

Our first article, by Daniel Meehan and Joel Peters-Fransen, discusses the tax implications of waivers of private investment fund management fees in exchange for fund profit interests. The authors address the July 2015 regulations proposed by the Treasury Department and Internal Revenue Service. They explain the proposed regulations’ new requirements for the profit interests to qualify for lowertaxed long-term capital gains and qualified dividend income treatment as well as avoid immediate taxation upon issuing the profit interest. In our next article, John B. Harper, Marianne Evans, and Rick Najjar discuss California’s approach to taxing general corporations versus financial corporations. The difference matters in large part because nonfinancial corporations often have a financial subsidiary or affiliate, and vice versa. The authors illuminate the rules by applying them to a hypothetical retailer with a financial affiliate that is used to finance purchases as well as securitize loans. Ethan Silver and Anup Khatri, in our third article, detail the much anticipated crowdfunding rules under Title III of the JOBS Act, which were finalized by the Securities and Exchange Commission on October 30, 2015, and, with respect to funding portals, by the Financial Industry Regulatory Authority on January 28, 2016. The authors analyze the rules for issuers generally as well as financial intermediaries known as funding portals. They also delineate the burdensome and complex nature of the rules, and suggest improvements against a backdrop of the United Kingdom’s successful crowdfunding regime, which imposes a lighter regulatory touch. We next present a U.S./International column by Peter A. Glicklich and Heath Martin on the topic of U.S. taxation of foreign fund lending. The authors discuss U.S. lending activities by foreign funds in the context of Chief Counsel Advice 201501013 and its applicability to whether a fund is subject to being taxed due to being engaged in a trade or business in the United States. This issue closes with a Community Bank column by Journal staff summarizing the Government Accountability Office’s (GAO) December 30, 2015, report on the impact of the Dodd-Frank Act. Based on extensive surveys and its own analysis, the GAO notes the mortgage-reform-related and other compliance burdens of the Act, but does not draw any definitive conclusions about its ultimate impact.

Keywords: management fee waiver arrangements, nexus, apportionment, income-sourcing rules, Crowdfunding, FINRA funding portal rules, effectively connected income, Dodd-Frank Act

Affiliations:  1: New York Law School.