Taxation of U.S. Investment Partnerships and Hedge Funds: Accounting Policies, Tax Allocations and Performance Presentation -- Contents -- Preface -- Chapter 1: The Arcane World of Hedge Funds and Investment Partnerships -- What Is a "Hedge Fund"? -- U.S. Venture Partnerships -- Types of U.S. Hedge Fund Entities and the U.S. Tax Code -- Organizing a Typical U.S. Hedge Fund -- Investor Clienteles in Hedge Funds -- Foreign Investors in a U.S. Hedge Fund -- Offshore Funds -- U.S. Investors in Offshore Funds -- U.S. Investors in Swiss Bank Accounts -- U.S. Investors in Madoff-Like Managed U.S. Trading Accounts -- Size of the Global Hedge Fund Industry -- Fund-of-Funds -- Incentives of the Hedge Fund Manager and Investors -- Valuation of a Hedge Fund Management Company -- Economies of Scale in Hedge Funds -- Chapter 2: The Structure of Hedge Funds -- Organizing a Typical Offshore Hedge Fund -- Master-Feeder Structuring of Onshore/Offshore Arms: Organizing a Hedge Fund for Clienteles -- U.S. Withholding Agent for U.S. Withholding Taxes on Foreign Investors -- Chapter 3: Hedge Fund Fees -- Starting Point: The Partnership Agreement -- Fund Valuation at Discrete Opening Time Points -- Calculation of Fixed Fees -- Calculation of Performance Fees -- Claw-Back Provision: Performance Fee Returned to Limited Partners -- Representation of a Fund's Net Asset Value (NAV) per Share -- Black-Scholes Formula Valuation of Performance Fees -- Chapter 4: Hedge Fund Accounting and Tax Filing -- Partnership Accounting for U.S. Funds -- IRS Tax Return Filings for U.S. Hedge Funds -- Financial Statements for Hedge Funds and Venture Funds -- Interim Valuation: The Core of a Hedge Fund's Accounting Operation -- Books of Account and Financial Statements for Hedge Funds -- Audit of an Offshore Fund -- Audit of a U.S. Fund.

Capital Account Audit for Both Offshore and U.S Funds -- Chapter 5: Partner Tax Allocations in U.S. Partnerships -- U.S. Tax Allocation Rules Governing U.S. Partnerships -- Tax Components of U.S. Investment Partnership Income -- Fixed Fees: Income to the General Partner and Expense to the Limited Partners -- Generalizing the Allocation Formula to Other Components of Income -- Tax Basis of Partner's Investment in a U.S. Partnership -- Accountants' Terminology -- Tax Allocations of Realized and Unrealized Income to Partners -- The Tax Allocation Method of Layering -- Tax Allocation of Interest -- Tax-Exempt Interest Income, Line 18a -- Similar Calculation for Tax Allocation of Dividends, Investment Expense, Foreign Tax Paid -- Tax Allocation of Fixed Fees Paid by Limited Partners -- Tax Allocation of Guaranteed Payments (of Fixed Fees) to the General Partner -- Reporting Subcomponents of Interest Income and Dividends -- Tax Consequences of Shorting -- Short Positions: Tax Treatment of Equity Dividends or Bond Coupons Claimed as Interest Expense -- Distributions from Partnerships Owned -- Chapter 6: Tax Allocations of Realized Gains by Layering -- Tax Allocation of Unrealized and Realized Capital Gains Using the Method of Layering -- Ignoring Ambiguity #1 with Layering -- Work-Around to Fix Ambiguity #2, the Fatal Flaw with Layering -- Chapter 7: Partial and Full Netting Methods -- The Methods of Aggregation or Netting -- Partial Netting -- Full Netting -- Measures of Book-Tax Disparity across Partners -- Formulating the Problem for Optimal Partner Tax Allocations under Full Netting -- Formulating the Problem for Optimal Partner Tax Allocations under Partial Netting -- Solving the Convex Optimization Problem of Tax Allocation -- Chapter 8: Comparative Tax Consequences of Layering and Netting Methods.

Which Is the Better Method for Allocation of Realized Gains: Layering, Full Netting, or Partial Netting? -- Layering Examples Showing Earlier Tax Payment -- Full Netting Examples Showing Tax Postponement -- Chapter 9: Tax Efficiency of Hedge Funds -- Tax Efficiency Considerations for Offshore Hedge Funds -- Tax Preference Ordering for U.S. Investors -- More Attractive Tax Items to U.S. Investors -- Less Attractive Tax Items to U.S. Investors -- An Exception: Special Tax Preference for Gains from U.S. Exchange-Traded Futures Contracts -- Ambiguities in Tax Preference -- Tax Efficiency Steps for U.S. Hedge Funds -- A Structure for Tax-Exempt U.S. Entities to Recover Foreign Taxes -- Chapter 10: Hedge Fund Performance and Risk Presentation -- Performance Presentation: CFA Institute GIPS Verifi cation -- Calculation of Hedge Fund Returns for Performance Presentation -- Facilitating Historical Risk and Return Review for Investors Using GIPS Guidelines -- Chapter 11: Mutual Funds and Venture Funds Compared to Hedge Funds -- Tax Return Filing of U. S. Partnerships Is an Involved Task -- Comparison with Tax Allocations Made by Mutual Funds -- U.S. Venture Partnerships (Silicon Valley Venture Funds) -- Chapter 12: Epilogue -- Economic Accounting Is a Common Denominator for U.S. and Offshore Funds -- Tax Return Filing of U.S. Partnerships Is an Involved Task -- Calculating Partner Allocations Is Most of a U.S. Partnership's Tax Accounting Effort -- Layering and Netting Methodologies for Tax Allocation of Capital Gains -- Example of Tax Allocation of Capital Gains by Full and Partial Netting in a 100-Partner Setting -- Tilting Tax Allocations According to Tax Preferences -- The Crown Jewel: Automated Tax Allocation of All Items of Income -- The End of an Era of Layering.

Appendix 1: Excerpts of Key U.S. Statutes Discussed in Chapter 1 That Govern U.S. and Offshore Hedge Funds and Venture Funds -- Exemption from Registration of Securities with the SEC under Rule 506 of Regulation D of the Securities Act of 1933 -- Appendix 2: Methodology and Implementation Example of Full Netting -- Full Netting Objective Stated Verbally in the Treasury Regulations -- Mathematical Translation of the Treasury Regulations -- Translating the Treasury Term "Book-Tax Disparities" -- Relating the Treasury Regulations on Full Netting to a Mathematical Problem -- Choice of Convex Objective Function -- Constraints That Follow from the Treasury Regulations on Full Netting -- Magnitude Constraints -- Additivity Constraints -- Additivity Constraints Simplify Magnitude Constraints -- The Constrained Optimization Problem of Full Netting -- Verifying Convexity -- The Hessian Matrix That Establishes Convexity Is a By-Product for Practical Computer Implementation -- Solving the Full Netting Problem with 3 Alternate Solvers -- Open-Source R Solved 100-Partner Problem in 40 Milliseconds -- Matlab Solved the 100-Partner Problem in 6.60 Seconds -- Open-Source CVX Solved the 100-Partner Problem in 0.78 Seconds -- Multiple Solutions to the Global Optimum -- Second-Pass Procedure to Derive a Unique, Robust, and Efficient Solution -- Appendix 3: Methodology and Implementation Example of Partial Netting -- Partial Netting Implementation Example -- CVX Solved the 100 -Partner Partial Netting Problem in 0.88 Second -- Second Pass to Derive a Unique Solution for Partial Netting -- Appendix 4: Nonabusive Tilting of Tax Allocations According to Tax Preferences -- Tax Preference Option -- Treasury Regulations Forbid Outright Tax Preference Tilting -- A Simple 2-Partner Example of Abusive Tax Preference Tilt.

The Unique Optimum Scaled Solutions in Appendixes 2 and 3 Also Minimize Tax Preference Tilts across Partners -- The Scaled Tax-Neutral Allocations in Appendixes 2 and 3 Are a Gold Standard for Tax-Neutral Allocations -- Nonabusive Allocations That Consider Tax Preferences -- Further Minimizing the Dispersion of All Partner Tax Allocations from the Target Optimum -- Appendix 5: Eliminating Layering Entirely, by Allocating Dividends, Interest, Capital Gains, and Expenses in One Step -- Making All Allocations, Including Dividends and Interest, by Using Netting Methodology -- Dispelling Fears about Simultaneously Allocating Dividends/Interest and Capital Gains -- Generalizing the Partial Netting Methodology to Include Allocations of Dividends, Interest, Investment Expense, and Foreign Taxes -- Formulating the Grand Problem of Simultaneously Allocating Dividends, Interest, and Capital Gains under Netting Methodology -- CVX Solved the 100-Partner Grand Allocation Problem in 0.78 Seconds -- Second Pass to Derive a Unique, Robust, and Tax-Neutral Solution -- The End of the Era of Layering -- Summary of the Results in Appendixes 2, 3, 4, and 5 -- Acknowledging the Originators of the Front-End Convex Optimization Software CVX and Its Back-End Algorithm SDPT3 -- Index.