Treasury eyes hedge fund fees

The Department of the Treasury is weighing a number of guidance projects, including one on hedge funds’ tax treatment of management fees. The Treasury is aware that certain hedge fund managers are reclassifying management fees — which are taxed as income — into profits taxed as capital gains, according to William Bowers, Treasury senior counsel of tax policy. He told The Bureau of National Affairs that the government would scrutinize these actions. Andrew DeSouza, spokesman for the Treasury, said that the department has been looking at the carried interest issue from its own perspective, but that it's too soon to call this an investigation. A second motion for guidance would determine whether hedge fund managers and other financial services managers qualify for a tax exemption under Section 409A is also underway, according to Mr. Bowers. An entity that is not an employee or director involved in a trade or a business that provides services for other entities for a fee are exempted from the requirements in that section of the tax code.