Clifford Chance

Hedge Fund Found To Have A United States Trade Or Business

November 28, 2023

On November 15, 2023, the Tax Court released its decision in YA Global Investments, LP v. Commissioner.  The petitioner YA Global Investments, LP is a Cayman hedge fund treated as a partnership for US tax purposes.  The case examined YA Global's activities for the period from 2006 to 2008.  The Tax Court determined that YA Global's activities, as a result of the activities of its manager Yorkville Advisors conducted on its behalf within the United States, were continuous, regular and directed at income or profits that went beyond the management of investments and were not within the statutory safe harbor for securities trading.  The Tax Court, in light of this determination, found that YA Global had not met its burden of establishing that it was not engaged in a US trade or business.  While the IRS argued YA Global's activities were a lending business, the Tax Court noted that its analysis did not turn on whether any trade or business conducted by YA Global could properly be characterized as a lending business.

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