Tax Alert: Rules Changed for Fee Deferrals
10/22/2008
The recently enacted Emergency Economic Stabilization Act of 2008 contains a tax provision repealing Section 409A fee deferrals for hedge-fund managers of offshore funds. The repeal is effective for fees earned by offshore managers for services performed after December 31, 2008.
The law provided for grandfathering of existing fee deferrals for services performed before January 1, 2009. However, deferrals for 2008 and earlier years that have not been previously taxed will be taxed if not paid out by the end of 2017. Under future regulations to be issued, existing deferred compensation arrangements that are grandfathered can be amended, without penalty, to allow an acceleration of payment of the deferred compensation. A manager may consider the outright termination of its compensation plan and pay a tax at that time.
Further guidance should be issued within 120 days of the date of the Act or October 3 to address how a manager can elect to accelerate its grandfather deferrals while paying the tax without any penalties. Hopefully, these regulations and other guidance will address and clarify other issues related to this new provision.
For additional information on this matter, please contact your J.H. Cohn tax professional at 877-704-3500.
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