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From Kirsten Bischoff, Opalesque New York:

Offshore funds have always been of interest to the IRS and the US Treasury Department, but since the US succeeded in forcing UBS to reveal offshore account holder names, that interest has increased, and has been a focus of many of the new or changed tax rules.

This focus on offshore accounts is a prevailing theme for many accounting firms as they speak with hedge fund managers and investors this year. The industry is especially keeping a close eye on several issues to be clarified by the IRS in the coming weeks, which will affect accounting and reporting for funds and their investors including effecting the preparation of yearly financial statements.

“The penalties are pretty steep for errors in reporting [of offshore funds]. Especially now, there is definitely increased scrutiny in those situations,” Joseph Pacello, a tax principal at accounting firm Rothstein Kass commented to Opalesque.

Pacello says his firm is discussing several tax rules with hedge fund clients, many of which could require additional infrastructure investments to meet requirements such as increased detail in reporting. Investor demand for additional reporting drove a good deal of change in 2010, but now as regulatory changes begin to take hold in 2011, managers are on deadline to make infrastructure upgrades either directly within their firm, or with the providers they look to ......................

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