Investment Company - Characteristics Fundamental Characteristics – “must meet” Obtains funds (from one or more investors) and provides the investor(s) with investment management services Investing solely for capital appreciation, investment income or both Typical Characteristics - “apply judgment” Multiple investments & investors Investors not related to investment manager Ownership in form of equity or partnership interests Investments managed on fair value basis
Investment Company - Disclosures Status as an investment company and that it follows the accounting and reporting requirements of ASC 946 Any financial support provided to any investees during the period Any contractual obligations to support an investee that has not yet been paid Effective Date – Interim & annual periods beginning after 12/15/13 (aka – “NOW”)
Restricted Stock - Valuation Question: Should a discount be applied to arrive at the fair value for IPO securities given the lack of marketability? Answer: The accounting analysis is dictated by the nature of the restriction and whether it is associated with the security or not Certificate stamped with a "restrictive" legend Rule 144 Black out periods Short-swing provisions Lockup agreements
On the Horizon Consolidation Investments in other investment companies Blocker entity Revenue Recognition – Incentive fees Disclosures
State Taxation Economic Nexus- Update Experiences in the past year Washington- Questionnaires continue, taxes paid California- Evolution of “look thru” San Francisco Gross Receipts Tax Planning to bifurcate GP and Management entities? Tracking of time spent in SF Carried interest Do stock distributions avoid inclusion?
Foreign Bank Account Reporting (FBAR) New mandatory e-filing maintained by FinCEN New Form 114 similar to prior TD F Still due June 30th No PDFs or other attachments accepted. Rules on required reporting are consistent with prior year Watch for acceptance within 2 days assigning BSA identifier number.
Management Fee Waivers Treasury recently announced plan to issue comprehensive regulations Informal discussions with Treasury note their focus on: Upfront (locked in) waiver, versus annual or quarterly elections Subsequent appreciation from waiver date required to earn priority allocation Different entities receive mgmt fee reduction, versus priority allocation of gain. Loans or other up front payments to GPs Clawback on priority allocation Recent audit activity
Qualified Small Business Stock Supporting the Determination LP reporting. What we saw for 2013 What happens if LP is audited on issue in the future? Representations from the company Deal docs may contain rep language at investment date. What about at exit? Limitations on Carried Interest Limited to “Capital Interest” on the date the QSB stock was acquired Do the regulations under Sec (rollovers) apply to Sec (gain exclusions)? 704B capital, GAAP, Capital, other? Project underway to approach Treasury for clarification
FATCA and Withholding Registration May 5 th, First wave of registration, completed Registrations by June 3, will be on July 1 st scheduled listing Treasury recently announced they will ease enforcement in 2014 and 2015 as long as firms are making good faith effort to comply Remember registration is just the first step. Ongoing maintenance requirements Withholding Increased scrutiny of W-8s by escrow agents Any invalidation can require backup withholding of 28% (including on gross proceeds) Get reviews completed by escrow agents well in advance Be prepared for duplicate reporting (1099 and K-1 to LP for same income)
On the Horizon Prospects for significant tax legislation Timing? Camp’s Proposal President’s plan Senate proposed extenders Questions?
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