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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3861
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi, Im wondering if you would be able to tell me how I could

Resolved Question:

Hi,
I'm wondering if you would be able to tell me how I could find out who has invested in a certain hedge fund? thanks so much
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

Customer:

hi

NPVAdvisor :

Since the gram-Leach Bliley act and other privacy initiatives, the fund could actually get in a lot of trouble publishing who their investors are

NPVAdvisor :

Now, if the INVESTOR has to make their investments public, like with a public company or some charities...

Customer:

hmm. okay. so can you walk through a hypothetical with me

NPVAdvisor :

you might get to it that way

NPVAdvisor :

sure

Customer:

if an individual investor invests in a fund and benefits from it, i.e., makes a profit, where and when is that reported on tax documents?

NPVAdvisor :

OK, yes, the interest from interest bearing investments would be put on a 1099 int

NPVAdvisor :

...and ...

Customer:

for example, if dividends accrue for the investor in the fund, are those dividends necessarily reported on the investor's return, or do they accrue to the fund, and then they are reported when withdrawn

NPVAdvisor :

any proceeds of sale of the shares of the fund itself would be sent to them (and IRS) on a 1099B

NPVAdvisor :

actually the dividends would be placed on a 1099div regardless

NPVAdvisor :

it's not really PUBLIC information though

NPVAdvisor :

fuds have to report regardles of whether the dollars are withdrawn or not ... it's kind of like profits in an S-Corp

NPVAdvisor :

even if you don't physically distribute, you have to pay the tax

NPVAdvisor :

Now, if the irs put a lien or levied funds THAT information is filed with the court and become public

NPVAdvisor :

If you have access to the persons tax documents though (as in the case of a divorcing spouse) you would certainly see everything there

NPVAdvisor :

If you give me a little (not identifying information, but) more information about the reason you need it or a scenario where there's a certain relationship, I might be able to help you work through it

NPVAdvisor :

there are verious relationships (fiduciary to client,etc) where there's a requirement of full disclosure, for example

NPVAdvisor :

still with me?

Customer:

it would go on a 1099 to the individual EVEN if the individual didn't receive cash?

Customer:

the fund has to pay the tax? or the individual does? what if the fund is authorized to pay the tax from the proceeds of the fund, even if undistributed. that is the case here.

Customer:

i'm trying to figure out how this individual has invested significantly in a fund but may not have received a 1099 from them

Customer:

hi, still with you.

NPVAdvisor :

OK hang on and let me get the regs

Customer:

i didn't know you were chatting on there!

Customer:

yes, it's for a divorce, but the response is: it would be on my tax return.

Customer:

however, i know he has invested in the fund. I have the Investor's rights agreement and the stockholders agreement

Customer:

I guess I should look on those again re tax reporting

NPVAdvisor :

They MUST provide that information see this:

NPVAdvisor :

New Cost Basis Reporting Challenge for Hedge Funds, Partnerships and Corporations: IRS Form 8949 & New Form 1065 Schedule D:

NPVAdvisor :

IRS Form 8949 requires taxpayers to detail and segregate capital gains and losses on a transaction-by-transaction basis (rather than by summarizing and referencing an attachment) and into separate categories for those short-term gains and losses for which Form 1099-Bs are received that report both gross proceeds and cost basis, those for which Form 1099-Bs are received that report gross proceeds but not cost basis and those for which no Form 1099-Bs were received. Similar segregation is required for long-term gains and losses.

NPVAdvisor :

There are mor rewuirements for funds, regardless of how they're organized than ever before

NPVAdvisor :

HOWEVER,

NPVAdvisor :

if NO interest was paid by any of the investment inside the fund

NPVAdvisor :

OR

Customer:

so the individual will have to receive and report to the its an irs form 8949 regardless of whether he withdrew money from the fund?

NPVAdvisor :

if nothing was sold so that there;s no 1099B

NPVAdvisor :

You COULD have a situatin where there was no reporting to be done (very unlikely) but possible

Customer:

because to me that says "taxpayer," which could mean the fund itself in this case

NPVAdvisor :

lets say they help the same investments for the full tax year, and none of thos inestments paid a dividen

NPVAdvisor :

no, funds pass everything through to the investor

Customer:

I know the investments paid a dividend for sure

NPVAdvisor :

then there would be a 1099-DIV

NPVAdvisor :

and you could (by knowing the dividenper share and share price_ "Back into" the amount invested

Customer:

but the investor's rights doc says that the fund can hold the investor's investment. You mean that they send an IRS form to the individual investor, even if the fund pays taxes for the investor out of his/her proceeds?

Customer:

basically, this person is extremely crafty and sophisticated about hiding money and is suppressing income. as soon as the eye is off of him, I'm sure he'll withdraw the money

NPVAdvisor :

holding the funds (as a custodian) and paying the taxes are different

NPVAdvisor :

the only way the find would pay it's own taxes, would be if it were a -Corp

NPVAdvisor :

and even then any dividends paid to the shareholder would be taxable and reported on 1099-DIV

Customer:

it's actually an LLP.

NPVAdvisor :

Thats a limited Liability Partnershi[p

NPVAdvisor :

a pass-through

NPVAdvisor :

pays NO taxes at the organization level ... everything is passed through to the investor on a K-1 form which is used then to file their own taxes

NPVAdvisor :

NOW

Customer:

but if the dividends are not paid out, and just held in the fund instead for release at later date, and fund is authorized to pay on investor's behalf, investor would STILL receive 1099?

Customer:

it's an s-corp inside an llp

NPVAdvisor :

if the LLP used up it's revenues on it;s own expensew and had no profit ....?

Customer:

sorry this is annoying. i will pay for it!

NPVAdvisor :

Both are pure pass throughs

NPVAdvisor :

Only C-Corps and IRRevocable trusts pay their own taxes at corporate and trust tax rates and brackest respectively

NPVAdvisor :

sole proprietorships, S-Corps, LLCs and all partnerships are pass throughs

NPVAdvisor :

all taxes are paid at eh investor level even if NOT distributed

NPVAdvisor :

there will be either 1099s or k-1s

Customer:

You are going to be annoyed, but I am fairly positive that the fund keeps the money in a Trust and that is how it pays its own taxes.

NPVAdvisor :

to look for

Customer:

does that change anything

NPVAdvisor :

if the trust is IRRevocable, that's possible, but in that case neither he nor you can accese dollars ... If he can pull the dollars he either pays taxes ont it as its distributed or when the profits are made

NPVAdvisor :

IRREvocable trusts are just that .. left for future generations etc.... no ownership invested in the grantor of the trust

NPVAdvisor :

But again there are LOTS of times where

NPVAdvisor :

if nothing is sold

NPVAdvisor :

and no dividends are paid

NPVAdvisor :

there's nothing to report

NPVAdvisor :

(and if no interest is borne)

Customer:

okay. they were paid, but not distributed to investors

NPVAdvisor :

that's a general rule of almost all pooled investments, mutual funds, hedge finds, etc... the dividends can be reinvested in the fund BUT there's a 1099 where the investor has to pay the tax on the dividend (makes the taxes much less when it's liquidated because they are paying the tax al alng the way)

NPVAdvisor :

Just had a thought

NPVAdvisor :

if the investment is inside a qualified plan (401(k), IRA, etc) then there are NEVER any tax reporting documents unless the funds are distributed from the plan ... no matter what the investment INSIDE the plan is

NPVAdvisor :

when they finally DO distribute the there's a 1099-R

NPVAdvisor :

THAt could explain it

NPVAdvisor :

Then, there should still be (as with the others) a statement

NPVAdvisor :

but no 1099s etc.

Customer:

Okay- i just saw it. the fund is the stockholder of record until the shares are sold AND dividends are disbursed (happens at same time). the share value and dividends are held in a "trust corporation." once sold, proceeds are distributed to underlying shareholders

Customer:

too tricky

NPVAdvisor :

aahhhh theres the corporation piece

NPVAdvisor :

yes

NPVAdvisor :

mus be a distribution

Customer:

Yes, this is possible.

NPVAdvisor :

The only paper (could even be a web site) is the statement

Customer:

do you mean that the proceeds of this fund benefit an entity like a pension?

Customer:

Hmm, I have to think what else could be a qualified plan

NPVAdvisor :

But yes, you've pinned it down, they've use dthe corporate entity to hold everything in retain earnings... the corporation is paying its own tax thereby lessenting what will come to him, but no reporting to him until a distributon

NPVAdvisor :

qualified plan is a little different

NPVAdvisor :

IRA, ROTH IRA, pension, oney purchase plan, profit sharing

NPVAdvisor :

401(k)

NPVAdvisor :

SEPP (Simplified Employee Pension)

NPVAdvisor :

SIMPLE IRA, SIMPLE 401(k)

NPVAdvisor :

annuities also won't have any tax reporting until distribution

Customer:

okay, awesome. thank you so much. Fantastic.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3861
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks so much Michelle!

Let me know if I can help further

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane

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