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William M. Funk This article was authored by William M. Funk, Principal of the Law Office of William M. Funk, New York.

As hedge fund or other alternative investment managers know, in any offering document, the tax considerations are placed near the end. But you should think about these issues right from the start. Understanding the consequences of these considerations before a fund offering is the best way to avoid pitfalls that could repel potential investors or hurt investors who proceed with the investment unawares.

When launching a fund, you must understand these five key areas of tax considerations:

1. Your Investors 2. Your Investments 3. Your Tax Nexus 4. Your Allocations 5. Your Tax Elections

Your Investors

Knowing who could invest in your fund and their tax profile will have a significant impact on how you structure your fund. Are the investors U.S. businesses and high net worth individuals? Are they U.S. tax-exempt investors such as retirement funds or college endowments? Are they non-U.S. investors?

The answers to these questions will determine the tax reporting and withholding obligations of your fund entity with respect to each investor. Because these obligations can be significantly different with respect to different types of investors, such as U.S. taxable investors and non-U.S. investors, these obligations can be difficult or impossible to manage if signi......................

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