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@taxblog
G2 Blog Moves to G2 Website
You can now find our blog entries on our website. To read our thoughts on the tax code, securities trading, IRC compliance, industry events, product enhancements and more, please visit http://www.g2ft.com/blog/index.html.
July 2014 Issue of G2 Newsletter
The G2 Team has been busy, working very hard during the first half of 2014 on an array of activity: business alliances, tax season client support, product development and much more.
Read our latest G2 Newsletter to learn more about goings on at G2 these past months.
New G2 White Paper -- Phase III Cost Basis Reporting: A Guide to Complying with Expanded Transfer Statement Information Requirements
In April 2013, the U.S. Treasury Department and IRS issued final regulations for Phase III of the Cost Basis Reporting (CBR) requirements, which address certain securities futures, debt instruments and options. Our new white paper explains how to comply with the Expanded Transfer Statement Information Requirements (§1.6045A-1) set forth in this third and final implementation phase of the CBR reporting law. According to the Transfer Statement Enhanced Information Requirements, when a broker transfers certain securities futures contracts, debt instruments, and options (as defined by §1.6045-1(a)(18)) to another broker, key pieces of data must be reported to the receiving broker.  This reporting is mandatory for transfers on or after January 1, 2015, when the securities are acquired after January 1, 2014.
Strong Turnout for “Wash Sales: A Closer Look” Webinar
Thank you to our many attendees for participating in Wash Sales: A Closer Look, last week’s 2nd Taxable Events Webinar. George Michaels, our resident authority on tax analysis/accounting of securities transactions (TAST) led an advanced discussion of section 1091 of the tax code.
Michaels focused on “wash sale rule headaches” and here’s some of what he covered. He discussed chaining/rolling, which is how cost basis adjustments for one wash sale can affect another lot’s holding period, basis and calculation of gain/loss; he also talked about branching/sublots, which addresses instances when the disposed and replacement lots do not contain the same security size; when discussing substantially identical securities, Michaels referred to the seminal court and revenue rulings that dictate what constitutes material differences when comparing securities. Â
After the presentation, Michaels and Daniel Tilkin, G2 partner and senior tax analyst, fielded a number of attendee questions including whether contributed securities can trigger the wash sale rule and if total return swaps are considered contracts to acquire.
We hope attendees found the webinar informative. Please click here to access a recording and pdf of the slide presentation, which are available on our website. We are already planning our next webinar, Constructive Sales: The Exceptions. Click here to read our white paper on this topic. To learn more about this upcoming webinar and other Taxable Events webinars, visit our webinar section. For additional TAST resources, visit our Resource page.
Got the Wash Sale Blues? Relief Is On the Way . . . at 1:00 pm ET on June 18th
How does the concept of chaining affect a lot’s holding period and basis? How do you apply the Hanlin v Commissioner paradigm and use feature comparison to determine what is considered substantially identical?
When trying to comply with section 1091 (wash sales) of the Internal Revenue Code (IRC), fund accountants and compliance officers grapple with these kinds of tough questions. Answering them requires an in-depth knowledge of section 1091 (wash sales), section 1233 (short sales) and securities trading. To make this process more manageable and to help funds avoid the risk of non-compliance, we will host “Wash Sales: A Closer Look,” our 2nd complimentary/CPE-eligible webinar on Taxable Events, June 18th at 1:00 pm ET.
Our inaugural webinar, “Wash Sales, Constructive Sales and Straddles: A Primer,” briefly covered section 1091. However, to give this subject the treatment it deserves, “Wash Sales: A Closer Look” will provide an advanced discussion of branching, chaining, rolling, substantially identical and other concepts key to identifying and treating wash sales. Â
We hope you join us for “Wash Sales: A Closer Look,” which will include plenty of examples of securities transactions that trigger the wash sale rule. Click here for details and to register for this 50-minute webinar with a live Q&A period. For a primer on wash sales, read our white paper, Basic Wash Sales.
G2 FinTech Gleans Valuable Information at “Investing in Non-Traditional Fixed Income” Conference
Last week G2 FinTech attended the Financial Research Associates conference on Investing in Non-Traditional Fixed Income where investment managers, portfolio managers, strategists, and consultants shared useful information on the state of alternative fixed-income investments. Here’s just some of what we heard.
A recurring theme of the conference included the continuing low-rate environment, which has gone on longer than expected. In an April survey of 67 economists by Bloomberg, everyone expected the 10-year treasury rate to rise. Instead, it dropped from 3% to 2.4%, before rebounding to 2.6%. Speakers were unwilling to bet on the direction of interest rates. This uncertainty has prompted many investors, pension funds especially, to take on higher risk in an attempt to get desired returns. Quantifying and managing this risk was another conference theme. Bank loans, emerging market debt, high-yield debt, distressed and defaulted debt, and other investments that can perform well in this low-rate environment were discussed. In addition, the merits of unconstrained bond strategies and where they fit into a portfolio strategy were discussed. Speakers also touched upon the difficulties benchmarks pose in the high-yield space. On the equity side, things are much easier, as there is a more limited number of investments, which generally have a liquid market. On the fixed income side, there is a much larger pool of investments that go into the benchmark, many of which are not liquid. Up to 30% of the Barclay's Aggregate Bond Index is non-investible. Conversely, a few large issues can have an inordinate effect on the index. As bonds are issued and retired, this can cause the duration of the index to change.
This conference touched upon a number of other important issues affecting the alternative fixed-income investment space. We found it highly informative and worthwhile.
"Powerful Tax Analysis: Advent Geneva® Integration with TaxGopher®” Webinar
The keynote message: G2 TaxGopher, plugged into Advent’s Geneva, the market leading portfolio accounting system, offers a tremendous solution for strengthening a firm’s tax compliance and delivering heightened tax awareness.
The strong turnout of attendees at the recent Advent-hosted webinar on the subject heard from George Michaels and Brian Roberti, G2’s CEO and President respectfully.Â
George first explained the business problems addressed by the solution, addressing the Cost Basis Regs as well as the full extent of income tax analysis required by the IRS, for any tax paying entity. Advent’s portfolio accounting products are well regarded (in trade capture and) serving as a firm’s economic or investment book. As George pointed out, firms also need to be readily able to convert that book into their tax book for year-end tax compliance, and for on-demand tax awareness through-out the year, specifically for the more tax sensitive investment / trading strategies.
George also shared his insights on the key technology design points – reliable data adapter, high performance, ease of use, security and control – for a book-to-tax tool like TaxGopher, with the investment management community in mind. Additionally, he spoke to the full tax difference – one tax analysis engine that can identify and treat multiple tax event types and their interactions, along with a flexible rules-based approach to accommodate tax policy differences.
In turn, Brian immediately cited “20/700/7” as a way to add perspective to the TaxGopher story. That is: there are 20 institutional TaxGopher clients, and data from more than 700 funds being processed by TaxGopher, with the longest running client now using TaxGopher in the 7th consecutive tax year.
The integration of TaxGopher with Geneva is particularly strong and present: 15 of those 20 clients feed book data from Geneva to TaxGopher.
Brian then illustrated the technical and business benefits of the combined solution by highlighting three use cases, each representing an anonymous client’s use of the product.
Finally, the attendees were informed about the various tax accounting of securities transactions resources available to tax practitioners, including G2’s webinar series (http://www.g2ft.com/webinars/index.html) and white papers (http://www.g2ft.com/papers/index.html).
We really appreciate the effective job that Nilang Patel of Advent did in setting the stage with his introductions of the G2 speakers.
We look forward to helping many more firms gain the benefits of this powerful tax analysis solution. Today, within the Advent client community, that points to Geneva users. Evidence of similar interest from users of the Advent APX and Axys® products could drive the building of TaxGopher integration with those products as well.
G2 Announces 2nd Taxable Events Webinar “Wash Sales: A Closer Look”
In just a few weeks George Michaels will host another webinar about tax accounting / analysis of securities transactions -- “Wash Sales: A Closer Look.” During this interactive web seminar, Michaels will take attendees on a deep dive into the world of wash sales, one of the first tax shelters to be disallowed by Congress. In its simplest terms, a wash sale consists of a disposition of a loss position coupled with a replacement position. To identify when a series of buy-sell-buy transactions triggers the wash sale rule and to determine disallowed losses, tax practitioners and compliance officers need a firm grasp of key terms including branching, chaining, rolling and substantially identical. Michaels will discuss these and other critical concepts, and during the live Q&A period, attendees will have the chance to pose questions on this section (1091) of the Internal Revenue Code (IRC). Attendees will also have the opportunity to earn Continuing Professional Education (CPE) credit.
Please read our press release “G2 FinTech Announces 2nd Webinar of Series on Taxable Events and Investment Portfolios” or visit: http://www.g2ft.com/webinars/WashSales_ACloserLook.html for more details or to register for this webinar. Click here to access a recording of our inaugural webinar “Wash Sales, Constructive Sales and Straddles: A Primer.” To read white papers on wash sales and related topics, please visit the white papers section of our Tax Analysis of Securities Transactions (TAST) Resource Page.
Constructive Sales, Straddles and G2 at 5th Annual Private Investment Funds Tax Master Class
The G2 FinTech team went all in as co-sponsor at last week's Financial Research Associates hosted event, "The 5th Annual Private Investment Funds Tax Master Class." We had speakers on two panels at this conference; George Michaels and Dan Tilkin relayed their expertise on constructive sales and straddles, respectively. Also in attendance: James, Peter, William, Brian and Megan.
The first panelist from G2 was George Michaels, speaking on "Wash Sales, Short Sales, Constructive Sales and Constructive Ownership Transactions." Highlights from George's panel included a lively discussion on the specifications of what constitutes substantially similar securities -- proving the ambiguity of the term among colleagues. George's co-panelist, Bob Gordon from Twenty-First Securities, also shared some great insight about the background behind the rulings.
Following lunch on the second day, our Senior Tax Analyst, Dan Tilkin, spoke on the panel, "1256 Contracts, Section 988 and Straddles." Highlights from Dan's panel include an informative discussion on basic vs. identified straddles. They also touched on the significance of 1256 treatment on a regulated futures exchange and the 60/40 treatment as opposed to ordinary income. Fun fact: the Norwegian Krone is the only foreign currency contract that can be subject to the 60/40 rule.
Other highlights from the conference included the opening panel, where Maury Cartine of Marcum LLP relayed 2013 tax updates and looking ahead at 2014. Tax expert and our good friend George Teixeira of Anchin, Block & Anchin LLP spoke on an interesting panel that detailed tax implications of different fund structures.
Overall, this conference proved to be a great opportunity to exercise our thought leadership, while learning about new developments on tax within the alternative investment community from our respected peers.Â
Click here to read “More Hedge Fund AuM Increases the Risk of Non-Compliance with the Internal Revenue Code (IRC)” – some of our thoughts leading up to last week’s event; and check out our Facebook pix of this 2-day conference here.
More Hedge Fund AuM Increases the Risk of Non-Compliance with the Internal Revenue Code (IRC)
We’ve all seen the headlines and read the stories. Hedge fund AuM is now touted at a whopping $2.9 trillion. This April alone, investors poured no less than $17.9 billion into hedge funds. This trend holds several possible implications for funds…more money to invest in more portfolios…more trading…more gains…more losses and yes…more chances for non-compliance with the IRC. Increased trading activity can lead to an increase in the number of taxable events (wash sales, constructive sales and straddles, etc.) that a fund needs to identify and treat in order to remain compliant with the tax code. The last thing a fund needs is to run afoul of the IRS, face hefty fines as well as risk damaging its reputation and losing clients.
No Easy Feat
When does a series of buy-sell-buy transactions result in a wash sale? When does a non-wash sale become a wash sale because of the effects of a straddle? Answering these questions and others like them is no easy feat; it requires in-depth knowledge of BOTH the U.S. tax code (wash sales, straddles, constructive sales, qualified dividends, dividends received deductions and short sales) and securities trading. Given this complexity and a potential increase in the number of trades that funds need to analyze, it would stand to reason that tax practitioners and compliance officers could only benefit from as many opportunities as possible to learn/review best practices guidelines on IRC compliance. To this end, we maintain a Tax Analysis of Securities Transactions (TAST) Resource page that includes information and guidelines on how to perform tax accounting on investment portfolios. We also share our knowledge and experience on this topic by speaking at various training venues/tax seminars.
This week we will co-sponsor and speak at Financial Research Associates’ (FRA) 5th Annual Private Investment Funds Tax Master Class to be held at the Princeton Club, NYC on May 21 and 22nd. This year we’re excited to speak on not one but two panels at this tax event for both private equity funds and hedge funds. As part of the Hedge Fund track, at 11:00 a.m. on day two (5/22), George Michaels will join colleagues from BDO and Twenty-First Securities Corp. and talk about constructive sales (see our latest white paper, Advanced Topics in Constructive Sales: The Exceptions) as part of the Wash Sales, Short Sales, Constructive Sales and Constructive Ownership Transactions panel. After lunch at 1:00 p.m., Daniel Tilkin, partner and senior tax analyst at G2, will share the floor with colleagues from Mayer Brown and Kaufman Rossin and talk about basic and identified straddles (see our white paper, Tax Implications of Straddles) on the 1256 Contracts, Section 988 and Straddles panel.
We look forward to participating in another successful FRA conference. Hope to see you there!
Ernst & Young Domestic Tax Conference (EYDTC): Tax Truth 2014
For this observer, the tone was set at last year’s EY Domestic Tax Conference (EYDTC) in NYC when one of the initial speakers declared, “Tax matters every day!”
This year, I traveled to Chicago to listen for and discover tax truth 2014. I came away with a collection:
You can no longer say the tax compliance “season” equals year-end tax returns – that matters.
That tax compliance is now inclusive of quarterly estimates/reporting, annual returns/extensions, what-if scenarios and planning/projections, matters.
The cycle speed for closing the books, that matters.
This being an election year, with 36 governorships up for election, matters.
The success that specific States have recently enjoyed in tax revenue collection – e.g. California declaring they’ve seen a “rebound” and intend to establish a “rainy day” fund – matters.
All new leadership at the IRS, matters.
People and budget cuts at the IRS, matters -- then telling Congress, ok, we’ll do less this year, matters.
The fastest growing category of tax returns is partnerships / pass-through entities, which then draws more audit / enforcement attention, matters.
Increasing sophistication of the tax authorities, the level of detail in regulatory requirements, and the fact that events are a form of transactions: these are all drivers for the tax-paying entity to have access to & command of transaction-level detail – that matters.
Tax departments generally lack access to transaction level detail, matters.
Tax departments therefore need to interact with cross-functional peers, Â that matters.
The emergence of data warehouse technology to gather/analyze/report/recon tax data, matters.
The benefit to a tax department of controlling/drawing their own data sample when audited, matters.
Can’t wait for EYDTC 2015!
Continued Growth at G2 FinTech
Growth seems to be a current theme in the alternative investment community. Today’s Wall Street Journal article “Hedge Funds Drive to Another Record” reports that assets under management across all hedge funds now total $2.7 trillion, an all-time high. The alternative investment community is our home market and we also have a growth story to tell. We are very excited to report that TaxGopher is now driving wash sale reporting for more than 700 funds, an increase of 40% since Q1 2013. Read more about this in our latest press release, G2 FinTech Continues Strong Growth Trajectory with Best-in-Class Tax Analysis & Cost Basis Reporting Software.
Meeting Market Need: Identified Straddle Functionality
Section 1092 of the Internal Revenue Code (IRC) prohibits the use of straddles to artificially create taxable losses and thus lower tax obligations. As a result, to reduce the risk of non-compliance with the IRC, funds must be able to identify and treat these taxable events.
Tax straddles are either basic (unidentified) or identified. A basic straddle occurs when you have two or more offsetting positions. An identified straddle is created when the taxpayer flags two or more transactions to be grouped together as part of a straddle i.e. their transactions are explicitly associated with one another. Funds that use trading strategies such as volatility arbitrage (think options trading) are not only concerned with straddles but particularly interested in identified straddles.
 In order to meet the tax compliance needs of some of these funds, we recently added identified straddle functionality to TaxGopher®, our tax analysis engine for cost basis adjustments. Click here to read our press release. Click here to read our white paper “Tax Implications of Straddles.”
Advent + G2 = Win-Win for Geneva Clients
We are very excited about our newest business agreement with Advent Software and see it as a win-win for Geneva clients (see 3/17/2014 Advent blog: The Power of Alliance). TaxGopher®, which provides accurate information on taxable gains and losses, is now the “expert” component for tax analysis within the Geneva® platform. This single, integrated solution extends the powerful capabilities of Advent’s investment portfolio management solution to include tax accounting / analysis of securities transactions — enabling users to address both year-end tax compliance and gain greater tax awareness throughout the year.
We also view this Geneva + TaxGopher integrated solution as a validation of our approach to building best-in-class software. Some seven years ago, when we started building TaxGopher, we wanted to make it possible for clients to solve complex tax analysis problems by offering them a cost-effective solution that, among other things, made use of existing IT infrastructure. At the time, Geneva was already widely recognized as the leading portfolio management system in the hedge fund space. So we made sure our tax engine could easily accept and use all the Geneva-sourced information (tax lot level detail) needed to accurately generate tax adjustments to gains and losses. Our strong domain knowledge of Geneva, and the integration of other apps to that platform, which we gained as a premier Geneva consulting firm from 2006 to 2011, made this task straight-forward.
Our body of work with Geneva has only helped grow our software business. To be sure, over the years, fifteen of our more than twenty TaxGopher institutional clients have been Geneva users. Advent’s agreement and interest in reselling G2’s tax analysis component as an integrated part of the Geneva solution set validates not only our approach to building software but the effectiveness of our product.
We’re proud of this latest development in our long-standing alliance with Advent and are already very busy helping Geneva clients reap the benefits of this collaboration. Â
Lively Q&A at G2 Inaugural Taxable Events Webinar
Yesterday we held our very first webinar – Wash Sales, Constructive Sales & Straddles: A Primer, and we couldn’t be happier with the results. In this time of hectic schedules and busy work weeks, we are very pleased and proud of the fact that tax practitioners, compliance and financial officers at different levels within hedge funds, hedge fund service providers and accounting & audit firms set aside the time to attend our high-level discussion about tax analysis/accounting of securities transactions (TAST) – arguably the most expensive and complex aspect behind generating book to tax adjustments.Â
As the webinar title suggests, George Michaels, an authority on TAST, led a discussion on the three taxable events – wash sales, constructive sales and straddles. He used a variety of trading scenario examples and shared bits of Internal Revenue Code (IRC) history to help illustrate his points. He discussed some of the key concepts (chaining, branching, substantially identical securities, offsetting positions) that are necessary to understand when different combinations of buys and sells trigger different sections of the IRC. Michaels explained how short sales can affect wash sales and he also discussed qualified covered calls, which are exceptions to the tax straddle rule. Last but not least, Michaels ended the presentation noting and emphasizing that in many instances within an investment portfolio these events can and do impact one another (i.e. a trade that results in a straddle causes a non-wash sale to become a wash sale).
After the presentation, which ran a tad over (not surprising, given the complexity of the subject matter), attendees posited a number of good questions. One attendee asked whether total return swaps are substantially identical to common stock; another wanted to know which holding period requirement takes precedence when dealing with multiple tax adjustments on the same tax lot (say a wash sale and a straddle). Another asked about a more advanced topic, mixed straddles. Michaels addressed these questions with his usual poise and was happy to share some of his knowledge about TAST best practices and offer participants the chance to earn CPE credit as well.
We hope attendees found the webinar informative and helpful. For those unable to attend or if attendees wish to review some of this very complex subject matter, a recording and pdf of the slide presentation are available on our website.Please click here to access them.
We are already planning our next webinar – Wash Sales: A Closer Look, which will take place in June and provide participants with a deep dive into this specific taxable event (Section 1091 of the IRC). To learn more, visit our webinar section. For more TAST resources, visit our Resource page.
The More Relevant Information the Better: G2 Taxable Events Webinar Series
Google makes you smarter. Agree or disagree, this search engine provides millions of people with access to countless resources that can be used to help them make more informed and more accurate decisions. In other words, the more relevant information, the better. This sentiment could not ring more true as it relates to tax accounting /analysis of securities transactions (TAST), arguably the most costly and complex part of accurately generating a fund’s book to tax adjustments.
Ask any fund tax practitioner or compliance officer and they will agree – identifying, say, when a non-wash sale becomes a wash sale because of the effects of a straddle – is anything but easy. However, with more readily available, practical and relevant information on TAST best practices – this complex business problem can become much more manageable. More relevant information on TAST best practices can help firms avoid non-compliance with the Internal Revenue Code (IRC) and costly regulatory scrutiny and sanctions. Proponents of “the more relevant information is better” approach, we are very excited to announce our CPE-eligible, complimentary web seminars about taxable events and investment portfolios. These webinars are in addition to our other TAST Resources.
We’re not the only ones who espouse the “more relevant information is better” approach when it comes to TAST best practices. The Hedge Fund Law Report, a definitive source of actionable intelligence on hedge fund law and regulation, just published the final article of a four-part series about TAST best practices, “Tax Practitioners Discuss Taxation of Swaps, Wash Sales, Constructive Sales, Short Sales and Straddles at FRA/HFBOA Seminar.”
Learn more about our inaugural webinar, Wash Sales, Constructive Sales & Straddles: A Primer, 1:00- 2:00 p.m. EST, Thursday, March 13. To read our TAST white papers, click here.
G2 FinTech Wins 2nd U.S. Tax Analysis & Compliance Software Solution of the Year — Hedge Funds — Award
G2 has been awarded its 2nd IHFA award! We're very proud of this recognition. Read all about it in our press release.
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