Fund and Investor Taxation

I. For Investors

The tax issues associated with investing in private equity, real estate, venture capital, and hedge funds play an increasingly significant role due to the evolving complexities of tax law and fund structures. This is especially true for non-US investors, where the avoidance of capital gains tax and minimization of withholding tax can be a main driver in measuring investment returns.

We provide a suite of services designed to help investors select and negotiate optimal tax structures while minimizing exposures. Our advice takes into account tax exposures and reporting obligations relating to ongoing fund operations as well as the consequences resulting from portfolio company exits and other liquidity events.

Services include:

Fund Due Diligence

We review all fund documents (e.g., limited partnership agreements, private placement memoranda, subscription documents) and identify the material tax consequences and exposures of investment.

Tax Structuring

Depending on the structure offered by a fund and nature of the investor (e.g., corporate, individual, pension fund, etc.), we assist in the selection or creation of appropriate vehicles and techniques for making fund investments (e.g., selection of blocker company, parallel investment, leveraged vehicles, etc.) and evaluate alternative investment structures offered by a fund.


Depending on the circumstances, WTS can assist investors in obtaining favorable modifications to fund documents or additional comfort through side letters that address exposures identified in the due diligence review. Such provisions may include, for example, language for mitigation of income tax exposure to foreign investors during fund operations or upon exit of a pass-through portfolio company.

Withholding Tax Compliance and Documentation

Investors face increased withholding tax exposures and compliance burdens due to the growing complexity of US tax rules, especially under FATCA.  The consequences of failing to properly comply with these rules can be severe – including a 30% gross withholding tax on US-source income, including capital gains.  We assist investors in determining their classification for US income tax, FATCA and treaty purposes and help ensure that the proper documentation is in place to minimize US tax leakage.  This includes, for example, assistance with the completion of Forms W-8BEN, W-8BEN-E and W-8IMY.

II. For Funds

A fund’s structure should be designed to minimize the tax liability and exposures arising from its operation and distributions. If a fund wishes to attract foreign investment capital, a host of additional structuring opportunities and complexities may arise. In order maintain competitiveness in the marketplace, funds must be aware of the latest structures designed to secure the exemption from capital gains taxation, the reduction of withholding tax or other preferential treatment.  By offering structures that address the special technical needs of foreign investors, US funds can obtain and preserve access to the ever-increasing pool of foreign investment capital seeking deployment in the US marketplace.

Services Include:

Fund Structuring

We develop the structures for securing investor capital and distributing returns on fund investments. Our structures are customized to meet the particular needs of a fund and its investors and include state-of-the-art blocker and parallel structures designed to obtain desirable tax results while limiting administrative burdens, such as FATCA and US withholding reporting and complexities.

Portfolio Company Acquisitions and Exits

Each acquisition and disposition of an underlying portfolio investment should be carefully structured to take into account the tax consequences to the fund’s investors, including the special issues applicable to foreign investors. We provide advice that is designed to address the sometimes competing interests of US investors or fund principals, including, for example, special bifurcation exits that achieve tax exemption for foreign fund investors without reducing the return otherwise available to US investors.

Income Tax Compliance

US-based funds face a multitude of tax filing, withholding and documentation requirements. Further requirements arise where a fund has foreign investors. Failure to adequately comply with these obligations can result in penalties and the loss of tax benefits.  WTS fund compliance services are designed to assist funds develop and implement systems and procedures to ensure proper and timely compliance with the increasingly complex US tax documentation and tax reporting requirements. Our services are scalable and can range from a complete out-sourcing of the tax compliance function to initial and periodic advice designed to ensure the adequacy and effectiveness of in-sourced compliance functions.  We offer the preparation of all federal and state tax returns, including partnership returns as well as special information returns that must be provided to foreign investors.

Withholding Tax Documentation

Funds may be required to withhold and remit taxes on certain income attributable to foreign investors and may be required to submit special tax returns relating to such withholding. By obtaining certain types of documentation or fulfilling special criteria, the withholding and tax filing obligations may be reduced. WTS helps funds meet these technical requirements. In addition, we provide solutions to foreign pooled investor groups seeking to secure treaty benefits for their ultimate beneficial owners, including qualification as withholding foreign partnerships.

Tiered Investment Structures

In certain situations significant information may need to be obtained from “up-stream” investors, sometimes through layers of intermediary partnerships. The information flow, withholding and reporting obligations of each participant will depend upon the specific structure and actions taken by the other parties. Certain planning steps, such as obtaining withholding foreign partnership status or corporate status, can impact the resulting requirements to all of the parties. We coordinate with each of the parties and help achieve an optimal structure.

Contact:     F. Jay Helverson, JD, LL.M.    ▪    +1 973 401 1141    ▪