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Legal Update

The New Deal: Hedge Fund Management Fees Are Subject to Social Security Taxes

23 September 2014
Mayer Brown Legal Update

The Internal Revenue Service (IRS) has recently released a tax audit memorandum in which it asserted that the owners of a hedge fund management company taxable as a partnership owed Social Security taxes on their distributive share of the management company income, even though the owners paid themselves reasonable salaries. This Chief Counsel Advice memorandum is the first reported authority in which the IRS pressed this position in the investment management industry. Mark Leeds of Mayer Brown’s New York office examines this development and discusses an alternate structure for the management company that might have lessened the likelihood of an assertion that Social Security taxes were due.

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