Reuters – Hedge funds could face increased scrutiny over a tax break that allows investors to make generous expense deductions and write off fees they pay for fund management, the Wall Street Journalreported on Tuesday.
Changes in the way hedge funds are investing, and an Internal Revenue Service proposal on investments known as swaps, have prompted some fund advisers to review how the tax break, known as trader status, might be affected, the paper said on its Web site (www.wsj.com).
“With these other issues emerging in the hedge-fund world, the Internal Revenue Service may focus more on the trader status,” the paper cited Wayne Kellner, a tax principal at accounting firm Rothstein Kass, as saying.
Hedge funds claim trader tax status, which can also be used by some individual traders, when their strategy involves frequent turnover of stocks, commodities or other investments, the paper said. Hedge funds that use a buy-and-hold strategy are deemed “investor” funds and aren’t eligible.
