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Abstract: 

Private funds (such as hedge funds and private equity funds) have become a staple of the investment portfolios of many private foundations. Investing in private funds and other pooled investment vehicles presents a plethora of legal issues typically handled by outside counsel specializing in fund review. This article highlights a new--and, in the authors’ experience, sometimes overlooked--fund review issue presented as a result of the Bipartisan Budget Act of 2015 (BBA), generally effective for tax years beginning after December 31, 2017. Specifically, as explained in detail below, the BBA provides new rules respecting audits of partnerships that, in the absence of appropriate contractual provisions, can cause tax to be paid by parties that economically should not bear it. Thoughtful attention to the BBA in fund review and inclusion of appropriate provisions in side letters, if necessary, may be helpful in protecting the interests of a foundation, and militate against any private benefit concerns, in the event that an audit occurs.

Keywords: BBA (Bipartisan Budget Act of 2015); Imputed Underpayment; Push-Out Election; Exempt Partner

Affiliations:  1: John D. and Catherine T. MacArthur Foundation; 2: Harter Secrest & Emery LLP.