Client Alert

Deferred Compensation Paid by Offshore Funds Limited by the Emergency Economic Stabilization Act

October 15, 2008

Andrew M. Short and David M. Ritchie

On October 3, 2008, Congress enacted the Emergency Economic Stabilization Act of 2008, P.L. 110-343 (the Act). In addition to its many other provisions, Section 801 of the Act adds Section 457A to the Internal Revenue Code which is intended to generally curtail the ability of investment fund managers to defer income recognition of management and incentive fees due from offshore funds organized in tax havens.  The measure was included as a revenue-offset for the extension of a package of various tax incentives and tax credits, and is effective for fees for services performed after December 31, 2008.  Existing deferrals for services provided before January 1, 2009 may continue to be deferred but must generally be included in gross income before 2018.

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