Home      Login

Abstract: 

Operating a mutual fund organized in the United States without incurring entity-level U.S. federal income tax requires compliance with a number of highly technical tests, including the so-called “gross income test.” Application of the gross income test is subject to a number of uncertainties, not least of which is the treatment of income from the discharge of indebtedness, particularly when such income arises from an investment by a mutual fund in an operating partnership. This article summarizes the gross income test, describes the need for guidance in applying the gross income test with respect to income from the discharge of indebtedness arising from an investment by a mutual fund in an operating partnership, and proposes an analytical framework for future guidance in this respect.

Keywords: regulated investment company; entity-level income tax gross income test; cancellation of debt income; partner-level vs. partnership level; PLR 201001005

Affiliations:  1: Akin Gump Strauss Hauer & Feld LLP Tax Group; 2: Akin Gump Strauss Hauer & Feld LLP Tax Group.