About IRS Audit Risk Survey for Hedge Funds (Interim Update 2)

The IRS has developed a methodology to determine an audit risk profile for hedge funds, private equity firms, CTA’s RIAs and corporations using offshore structures. Sum2 has commissioned a survey to determine financial services industry awareness and readiness for IRS audit risk factors.

The survey seeks to determine industry awareness of IRS Industry Focus Issue (IFI) risk exposures for hedge funds, private equity firms, RIAs, CTAs and corporations using offshore structures. The survey is open to fund management executives, corporate treasury, tax managers and industry service providers.

CPAs, tax attorneys, compliance professions, administrators, custodians and prime brokers are also welcomed to participate in the study. The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IFI audit risk.

Sum2 will share weekly interim results of the surveys findings. The survey will run for four weeks. This is the second weekly report.

Survey Highlights

• 65% of survey respondents are from North America
• 15% are from Great Brittan
• 12% are from other EU countries
• 3% are from Asia
• 78% of respondents indicate an unawareness of IFI
• 18% of respondents indicate they plan to alert investors to IFI impact
• 17% of respondents indicated that they initiated actions to address IFI
• 11% of respondents indicated that they have received action alerts from industry service providers

Take the Survey

We invite you to participate in a survey to determine industry awareness of IRS Industry Focus Issue risk for hedge funds, private equity firms, RIAs, CTAs and offshore corporate structures.

The survey can be accessed here: IRS Audit Risk Survey for Hedge Funds

The survey is open to fund management executives and industry service providers to the industry. CPAs, tax attorneys, compliance professions, administrators, custodians, consultants and prime brokers are welcome to take the study. The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IRS Industry Focus Issue risk.

Sum2 is looking to use the survey to better respond to the critical needs of fund managers and the alternative investment management industry by improving our just released IRS Audit Risk Program (IARP).

This survey asks ten questions. The questions concern your awareness of IFI and how it pertains to your fund or fund management practice. The survey seeks to determine overall industry risk awareness, potential exposure to IFI risk factors and any mitigation initiatives you plan to address IFI risk factors.

It should take no more then 5 minutes to complete the questionnaire. Your participation in this study is completely voluntary. There are no foreseeable risks associated with this project. However, if you feel uncomfortable answering any questions, you can withdraw from the survey at any point. It is very important for us to learn your opinions. Your survey responses will be strictly confidential and data from this research will be reported only in the aggregate. Your information will be coded and will remain confidential.

If you have questions at any time about the survey or the procedures, you may contact Sum2 at 973.287.7535 or e-mail us at customer.service@sum2.com

Thank you for your participation.

Hedge Fund Audit Risk Survey: Interim Results

The IRS has developed a methodology to determine an audit risk profile for hedge funds, private equity firms, CTA’s RIAs and corporations using offshore structures.

Sum2 has commissioned a survey to determine financial services industry awareness and readiness for IRS audit risk factors. The survey seeks to determine industry awareness of IRS Industry Focus Issue (IFI) risk exposures for hedge funds, private equity firms, RIAs, CTAs and corporations using offshore structures.

The survey is open to fund management executives, corporate treasury, tax managers and industry service providers. CPAs, tax attorneys, compliance professions, administrators, custodians and prime brokers are also welcomed to participate in the study.

The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IFI audit risk.

Sum2 will share weekly interim results of the surveys findings. The survey will run for four weeks. This is the first weekly report.

Survey Highlights

• 62% of survey respondents are from North America
• 18% are from Great Brittan
• 16% are from other EU countries
• 4% are from Asia
• 50% of respondents who viewed survey begin survey
• 20% of respondents indicate an awareness of IFI
• 9% of respondents indicated that they initiated actions to address IFI
• 7% of respondents indicated that they have received action alerts from industry service providers concerning IFI
• 2% of respondents indicated that they plan to communicate impact of IFI to fund investors

Take the Survey

We invite you to participate in a survey to determine industry awareness of IRS Industry Focus Issue risk for hedge funds, private equity firms, RIAs, CTAs and offshore corporate structures.

The survey can be accessed here: IRS Audit Risk Survey for Hedge Funds

The survey is open to fund management executives and industry service providers to the industry. CPAs, tax attorneys, compliance professions, administrators, custodians, consultants and prime brokers are welcome to take the study.

The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IRS Industry Focus Issue risk. The goal of the survey is to help Sum2 better respond to the critical needs of fund managers and the alternative investment management industry by improving our just released IRS Audit Risk Program (IARP).

This survey asks ten questions. The questions concern your awareness of IFI and how it pertains to your fund or fund management practice. The survey seeks to determine overall industry risk awareness, potential exposure to IFI risk factors and any mitigation initiatives you plan to address IFI risk factors. It should take no more then 5 minutes to complete the questionnaire.

Your participation in this study is completely voluntary. There are no foreseeable risks associated with this project. However, if you feel uncomfortable answering any questions, you can withdraw from the survey at any point. It is very important for us to learn your opinions.

Your survey responses will be strictly confidential and data from this research will be reported only in the aggregate. Your information will be coded and will remain confidential.

If you have questions at any time about the survey or the procedures, you may contact Sum2 at 973.287.7535 or e-mail us at customer.service@sum2.com

Thank you for your participation.

Hedge Fund Audit Risk and Foreign Nationals

Sum2 is conducting a study to determine fund management industry awareness and preparedness to address recent IRS initiatives concerning the use of Industry Focus Issues (IFI) to guide agency field engagements.

The survey can be accessed here: IRS Audit Risk Survey for Hedge Funds

Sum2 asked industry participants to take part in the survey that were not domiciled in the US. Though the IRS is not the national tax authority for fund managers located outside of the US the audit guidelines that the agency is developing has a high focus on foreign nationals investing in funds with a US nexus. This has implications for any individuals, institutions and subscribers to fund of funds regardless of their nationality. The IRS has developed three tiers of IFI that relate to the investment management industry and four (4 ) of the fourteen (14) First Tier IFI concerns foreign nationals participation in US domiciled partnerships. The IFI risk profiling that will guide agency field agents examination of investment partnerships and other fund structures will impact all partners in a investment fund corporation.

The duration of the survey will be four weeks. Sum2 will be releasing interim weekly results of the survey. The first interim update will be released later today. So far respondents of the survey have indicated an extremely low level of awareness about the IFI and its potential impact on fund partnerships.

One of the goals of the survey was to create visibility for our new IRS Audit Risk Program (IARP) product. In future releases of the product, we plan to incorporate other tax domiciles.

We encourage all global participants to review the survey to determine how it may impact their fund management business.

We also welcome any comments or insights from industry participants about how IFI may impact their investment fund partnerships company's and how Sum2's IARP can be improved to help investment partnerships more effectively mitigate and manage audit tax risk.

In particular we welcome insights and intelligence on EU market application and best practices guidelines industry participants employ to monitor and manage tax audit threats. As with all risk management products, there is a lot of interest in the IARP product in the United States.

We are looking forward to the release of subsequent additions of the IARP that speak to managing audit tax risk in other domiciles and tax jurisdictions.

We welcome your insights into initiatives or trends that impact the global fund management industry.

Thank you for your response.

Sum2 Commissions IRS Audit Risk Study

Sum2 has commissioned a survey to determine financial services industry awareness and readiness for IRS audit risk factors. The survey seeks to determine industry awareness of IRS Industry Focus Issue risk exposures for hedge funds, private equity firms, RIAs, CTAs and corporations using offshore structures.

The survey is open to fund management executives, corporate treasury, tax managers and industry service providers. CPAs, tax attorneys, compliance professions, administrators, custodians and prime brokers are welcome to take the study.

The study's purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IRS Industry Focus Issue risk.

The goal of the survey is to help Sum2 better respond to the critical needs of fund managers and the alternative investment management industry by improving our just released IRS Audit Risk Program (IARP) for fund managers.

To take the IRS Audit Risk Survey, click here.

IRS background information can be found here.

Sum2 alerts can be found here.

IARP product information is here.

This survey asks ten questions. The questions concern participants awareness about IFI that pertain to their fund or fund management practice. The survey seeks to determine overall industry risk awareness, awareness of potential risk exposure to IFI risk factors and any mitigation initiatives managers may plan to address IFI risk factors. It should take no more then 5 minutes to complete the questionnaire.

Participation in this study is completely voluntary. There are no foreseeable risks associated with this project. If participants feel uncomfortable answering any questions, they can withdraw from the survey at any point. It is very important for us to learn your opinions.

Survey responses will be strictly confidential and data from this research will be reported only in the aggregate. Respondent data will be coded and will remain confidential. If you have questions at any time about the survey or the procedures, you may contact Sum2, LLC at 973.287.7535 or by email at customer.service@sum2.com.

Thank you for your time and support.

Sum2 Product Announcement: IRS Audit Risk Tool for Hedge Funds

IRS Audit Risk Program (IARP) for Hedge Funds helps managers to determine IRS risk exposure to Tier I, II and III; IRS Industry Focus Issues (IFI).

The IARP is a threat management and scoring tool that helps managers ascertain level of audit risk for each IFI Tier risk factor. The IARP aggregates and groups overall IFI Tier risk exposures. Managers and fund advisers can then take considered action to mitigate tax exposure risk factors, prepare for tax audits and organize defensive responses for potential mediation, arbitration or litigation of tax audit disputes.

The IARP uses a scoring methodology to determine a funds exposure and level of preparedness to meet IFI audit risk factors. The IARP guides managers through a thorough IFI risk assessment. It helps managers formulate and initiate actions required to mitigate the threat of IFI risk exposures.

The IARP helps to identify and calculate expenses associated with mitigation initiatives. The IARP helps managers to assign mitigation responsibilities to staff members or service providers and tracks any open risk issues.

The IARP links to issue specific IRS resources and documentation that clearly outlines the risk factor, documentation and agency engagement guidance pertaining to the specific IFI risk factor. These critical tax compliance resources enable managers to determine the severity an IFI risk factor represents and helps to align corporate resources needed to address it.

The IARP is a necessity for hedge funds, private equity firms, CTAs, RIAs, global multinationals and corporations utilizing offshore structures. The IARP is a critical resource for CFOs, CCOs, CROs and internal corporate counsel. Corporate treasury executives that engage in innovative transactions, recognize unusual revenue sources and employ sophisticated tax strategies will benefit from the use of this product. CPA firms and corporate tax attorneys with a focus on financial services industry will find the IARP an indispensable risk discovery and client engagement tool.

The IARP is a vertical application of Sum2's Profit|Optimizer product series. The Profit|Optimizer is a C Level risk management tool that assists managers to uncover and mitigate business threats and discover opportunities to assure profitability and growth. The IARP product is available as an industry standard MS Excel© application and is delivered by digital download.

More information on our sound practice product suits can be found on our Sum2 website. Please visit our bog Credit Redi. We can always be reached by e-mail at customer.service@sum2.com or by phone 973.287.7535.

The IARP is available for purchase on Amazon.com.

A single user license can be purchased for $95.00.

The link can be found here: IARP for Hedge Funds.

IRS Audit Risk for Fund Managers

The earths axis seemed to have tilted way off course last year. The global capital and credit markets crashed. Venerated banking institutions moved dangerously close to insolvency forcing mergers with better capitalized banks. The bulge bracket investment banking institutions disappeared. Some were acquired by traditional banks, others converted to a bank holding company structure; while others declared bankruptcy. In response, the Federal Reserve, Treasury Department and SEC initiated unprecedented concerted interventionist actions. The passage of EESA legislation and the implementation of the $750bn TARP program are the first in many expected moves by the government to maintain the solvency of the banking system as a national economic security issue. In addition to these initiatives the government has also passed a massive $750bn economic stimulus bill to kick start the economy. All told over $1.5 trillion dollars has recently been appropriated by the federal government to address the economic crisis. This massive capital infusion has ratcheted up the federal budget deficit. It will be incumbent on the Treasury Department and the IRS to make a concerted effort to uncover new sources of revenue to finance these massive spending programs.

Hedge funds, private equity firms, CTA's and other corporations that utilize elaborate corporate structures, engage in sophisticated transactions and recognize uncommon forms of revenue, losses and tax credits will increasingly fall under the considered focus of the IRS. Times have changed and so has the posture and practice of the IRS. The agency is transitioning its organizational posture by moving away from a benign customer service resource and assuming the form of an activist body that is intent on assuring compliance and enforcement of US tax laws. In particular it is building up its expertise and resource to more effectively address the audit challenges the complexity and sophistication hedge funds present.

The IRS has developed its industry issue competencies. It is creating a focused organizational structure that assigns issue ownership to specific executives and issue management teams. This vertical expertise is further enhanced with issue specialists to deepen the agencies competency capital. Industry issue coordinators have also been appointed to lend administrative and agency management efficiency by ranking and coordinating responses to specific industry issues. Clearly the IRS is building up its portfolio of skills, industry expertise and organizational capacity to address the sophisticated agility of the alternative investment management industries tax professionals.

To better focus the resources of the agency the IRS has grouped Industry Focus Issues (IFI) within three tiers. IFI are industry issues the IRS considers to be of strategic interest to the agency and are worthy of considerable attention by field audit teams. Corporations with exposures in these focus areas need to exercise more diligence in its preparation and response to potential audit threats. Each IFI tier comprise risk factors ranked by its strategic interest to the IRS . This helps IRS auditors to understand a funds risk profile when opening an examination of an investment company and other sophisticated corporate structures. The IRS has created the three IFI tiers to rank significant examination issues according to the strategic agency interest within the investment management market vertical. In all the IRS has identified 36 risk factors across the three IFI tiers.

Clearly the IRS is investing significant organizational and human capital to address an industry that will no longer fly beneath the agencies radar. The IRS is making a significant investment in its industry response capability and will be called upon to generate a considerable return on the investment in the hopes that the discovery of lucrative tax revenue streams will help to pay down the massive spending deficits of the federal government.

This development has clearly raised the tax compliance and regulatory risk factors for the investment management industry. Significant tax liabilities, penalties and expenses can be incurred if this risk factor is not met with well a well considered risk management program.

In response to this industry threat, Sum2 developed the IRS Audit Risk Program (IARP) as a tool for investment and corporate treasury managers to determine exposures to each IFI risk factor. The IARP helps managers determine aggregate risk by scoring audit threats for each risk factor.

The IARP helps managers to prioritize the threat of each of the 36 risk factors. Tax managers can outline mitigation actions, assign mitigation tasks and monitor task completion. The IARP is a valuable tool to help managers frame strategies to respond to tax audits.

The IARP allows managers to determine the extent of potential resolution expense associated with each risk factor. The IARP calculates aggregated mitigation and resolution expenses for all tiers.

The IARP assists managers to more effectively communicate with outside tax attorneys, CPA's, custodians, administrators, prime brokers and fund investors.

Sum2 is conducting a survey on IFI awareness and its impact on audit risk for fund managers. To date the results have indicated that industry awareness of IFI and the audit risk factors associated with IFI is low.

The IARP is a necessity for hedge funds, private equity firms, CTAs, RIAs, global multinationals and corporations utilizing offshore structures. The IARP is a critical resource for CFOs, CCOs, CROs and internal corporate counsel. Corporate treasury executives that engage in innovative transactions, recognize unusual revenue sources and employ sophisticated tax strategies will benefit from the use of this product. CPA firms and corporate tax attorneys with a focus on financial services industry will find the IARP an indispensable risk discovery and client engagement tool.

The IARP is a vertical application of Sum2's Profit|Optimizer product series. The Profit|Optimizer is a C Level risk management tool that assists managers to uncover and mitigate business threats and discover opportunities to assure profitability and growth. The IARP product is available in an industry standard MS Excel© application and is digitally delivered.

The IARP is a vertical application of Sum2's Profit|Optimizer product series. The Profit|Optimizer is a C Level risk management tool that assists managers to uncover and mitigate business threats and spot opportunities to maintain profitability and sustainable growth.

A single seat license for the IARP is $95.00.

It can be purchase on Amazon by clicking the below icon.




NB: The IARP product does not offer advice nor does it recommend compliance guidelines. Its purpose is to help fund managers assess risk levels and provide a tool to align corporate resources to mitigate risk factors. It is highly recommend that you consult with tax, legal and compliance professionals to address the risk exposures that the IARP uncovers.