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HEDGE FUND ACCOUNTING:

A TECHNICAL GUIDE_tm TO INVESTMENT PARTNERSHIP TAX PLANNING

In Focus: Individual Income Tax Returns

TABLE OF CONTENTS

Introduction

Balance Sheet

Break Periods

Economic Allocations

Layered Allocations

Full-Netting Aggregate Allocations

Partial-Netting Aggregate Allocations

Incentive-Driven Performance (Re)Allocations

Transfers of Partnership Interests

Partial and Total Redemptions

Partnership Investment Performance

Understanding Headline Reports Related to Hedge Funds

OVERVIEW

Update: The two tax returns apps under IN FOCUS: Individual Income Tax Return above are fully operational. To use them properly, you need to register with a valid email (the only piece of required information). To get a glance of what they are like, feel free to go through the Quick Guide_tm for these tax returns apps as an unregistered guest.

Thank you for visiting. The site is in the pre-launch state; we are basically at a "demonstration" stage prior to formal launch. Thus, links are not currently operational, except for a few under the Community Apps/Blogs heading on the right panel. You are welcome to take a look at them. The table of contents on the left panel should give you a good idea of the topics covered when the site becomes fully operational.

The Hedge Fund (HF) technical guide will be subject to a paid annual subscription; the Community Apps/Blogs will remain free of charge.

Our HF guide focuses almost exclusively on calculating and reporting accounting figures for securities investment partnerships, commonly known as hedge funds. It is well known that securities partnership accounting is highly complex and not very well understood even among industry professionals. The complexity is mainly due to two major factors:

The first is the process by which partnerships allocate realized gains and losses to their partners, using methodologies approved by the Internal Revenue Service (IRS).

The second is the way in which performance fees (formally known as performance incentive reallocation), when applicable, can be calculated. The interactions between tax allocation of realized gains/losses and performance fee calculations make partnership fund accounting particularly complex.

All hedge funds utilize the services of prime brokers and part of routine reporting by these brokers involves Net Asset Value (NAV) calculations as well as portfolio risk profile analysis, we will not spend much time on how to prepare for and to produce those reports.

Instead, our HF guide will focus on the challenging tasks of calculating management fees, especially the applicable performance fees, and the process in which realized gains/loss are allocated among the partnership’s members. Thus, the technical guide is designed to explain how the partnership calculates, upon demand, the impact of a partner’s partial or complete withdrawal with specific figures for the net proceeds of such requests. Similarly, how any new deposits of existing partner(s) and/or new subscriptions by new partner(s) should be handled in an anticipatory mode so that the entire structure evolves with these new developments.

COMMUNITY APPS/BLOGS

Practical Understanding of Options

Annuities

Balance Sheet

From Form 1099-B to Schedule D (demo data only)

Tax Computation Using Federal Tax Rate Schedules (fully functional)
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From Form 1099-B to Schedule D (fully functional)
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Qualified Dividends and Capital Gain Tax Worksheet (demo data only)
By Invitation Only

Qualified Dividends and Capital Gain Tax Worksheet (fully functional)
By Invitation Only