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					                              Georgetown University Law Center
                    Private Equity & Hedge Funds: Taxation & Transactions
                           Professors Requenez, Crnkovich and Sloan
                                         Spring 2010

Private Equity & Hedge Funds: Taxation & Transactions will meet on Tuesdays from 7:55 p.m.
to 9:55 p.m. in room 207 of McDonough Hall. The final examination, which will be open book,
is scheduled for May 8, 2010. Required course materials will be made available through the
library, electronic access through the university, in class or via courseware. Required readings
are listed under each of the topics covered. Items identified as “reference” are not part of the
required reading.


       Office phone numbers:             Arturo Requenez II
                                         Greenberg Traurig, LLP

                                         Bob Crnkovich
                                         United States Treasury

                                         Eric Sloan
                                         Deloitte Tax LLP




INTRODUCTION

January 19    [1]       Introduction: Private Equity & Hedge Fund Structure and Operations
 [R,C,S]                 Types of funds
                         Participants in funds
                         Fund structure
                         Principal economic terms

                                  Required Readings:
                                 Jack S. Levin, Structuring Venture Capital, Private Equity and
                                  Entrepreneurial Transactions, “Structuring Formation of
                                  Private Equity Fund” (Chapter 10)
                                 Andrew W. Needham, Hedge Funds, Tax Management
                                  Portfolio 736, “What is a Hedge Fund,” “Fund Prototypes,”
                                  and “The Basic Economic Deal” (pp. A-1 – A-8) (hereafter
                                  referred to as “Hedge Fund Portfolio”)
                                 Andrew W. Needham, Private Equity Funds, Tax Management
                                  Portfolio, 735, “Fund Prototypes” and “The Economic Deal”,
                                  (pp. A-1 through A-12) (hereafter referred to as ”Private
                             Equity Portfolio”)
                            Reference: Private Equity Funds, Business Operations &
                             Structure, James M Schell (Chapter 1)




FUND FORMATION

January 26   [2]   Fund Terms & Economics
[R]                   Private Equity Term Sheet
                      Hedge Fund Term Sheet
                      Primary fund organizational documents
                      Introduction to securities & ERISA issues at fund formation




February 2   [3]   Choice of Entity
[C]                 Flow-through taxation
                    Limited partnerships & limited liability companies
                    Distributive share of partnership income
                    Partnership level characterization

                             Required Readings
                            Sections 701, 702, 703, 704(a), 704(d), 705, 7704
                            Treas. Reg. §301.7701-1, -2, -3

                   Taxation of the Fund & Limited Partners / Basic Subchapter K
                   Operating Rules
                    Capital calls / property contributions
                    Basis & holding period of interests
                    Allocations of tax items
                    Distributions from the fund
                    Capital accounts
                    Introduction to “Waterfall” and “Clawback” considerations

                             Required Readings:
                            Sections 721, 704(b), 704(c)
                            Treas. Reg. 1.704-1(b)(1)(i), (b)(2)(i) - (b)(2)(ii)(d)(6),
                             (b)(2)(ii)(h), (b)(2)(iv)




                                            2
February 9           Limited Partner Tax Issues
[4]                  Taxable US Investors
[C]                  Tax Exempt Investors - UBTI
                     Non-US Investors – USTB / ECI
                     Significance of investor tax status
                     Structuring funds to address the different tax postures and objectives
                       of diverse investor base

                              Required Readings:
                             UBTI & Debt Financed Property – Sections 511(a)(1);
                              512(a)(1); 512(b)(4); 512(c)(1); 514(a); 512(b)(17); TAM
                              9651001; Treas. Reg. 1.1291-1(e)(1)

                             USTB / ECI – Sections 872(a)(2); 882(a)(1); 875(l); 702(b);
                              1446(a); Rev. Rul. 91-32; Johnson v. Comm'r., 24 T.C. 920
                              (1955)
                             Hedge Fund Porfolio (pp. A-59 – A-63)
                             Private Equity Portfolio (pp. A-63 – A-64)

                    General Partner / Manager Structure & Tax Issues
                     Carried interest versus fee income
                     Capital versus profits interest
                     Compensating members of the general partner
                     Restricted & non-vested interests
                     Removal / departure of member of the general partner


                              Required Readings:
                             Proposed Section 710
                             Treas. Reg. 1.704-1(e)(1)(iv) (Capital Account)
                             Diamond v Commissioner, 56 T.C. (1971), aff’d 492 F.2d 286
                              (7th Cir. 1974)
                             Campbell v. Commissioner (943 F.2d. 815 (8th Cir. 1991).
                             Section 83
                             Rev. Procs. 93-27 and 2001-43
                             Notice 2005-43
                             Reference: Proposed regulations – REG-105346-03, 70 Fed.
                              Reg. 29675 (May 24, 2005)


February 16         No Classes


February 23   [5]   Alternative Fund Structures & Related Complex Tax Issues


                                            3
[C]                       Parallel fund structures
                          Master feeder structure
                          Blockers
                          Special purpose vehicles
                          Fee deferral
                          Fees as ordinary income or capital gain
                          Single versus multiple partnership issues
                          Is the fund manager a US shareholder
                          Borrowing at the fund level & UBTI

                                  Required Readings:
                                 Notice 2009-8; Rev. Rul. 2008-12; Announcement 2008-65;
                                  Rev. Rul. 2008-38; Rev. Rul. 2008-39
                                 Sections 269, 409A, 707(c)
                                 Treas. Reg. 1.707-1
                                 Private Equity Portfolio (pp. A-27 – A-48)
                                 Hedge Fund Portfolio (pp. A-45 – A-56)


March 2    [6]         Tax Aspects of Drafting the Fund’s Operating Agreement & Recurring
[S]                    Subchapter K Issues
                        Waterfall, capital-driven, and hybrid partnership agreements
                        Follow-on offerings / admission of new partners
                        Departure of partners / redemptions
                        Fill-up & stuffing allocations
                        Clawback
                        Guaranteed payments / preferred returns

                                  Required Readings:
                                 Sections 707(a) & (c), 731, 734, 754
                                 Treas. Reg. 1.704-1(b)(2)(iv)(f), (g), & (h), -3(e)(3)
                                 Private Equity Porfolio (pp. A-15 – A-16)
                                 Hedge Fund Portfolio (pp. A-21 – A-26)


March 9                Spring Break

March 16         [7]   US International Tax Aspects of Fund Formation
[S]                     Comparison of inbound and outbound investments
                        US taxable investors in funds that make investments outside the US
                        Non-US investors investing in i) US funds; ii) offshore funds making
                          US inbound investments or iii) offshore funds managed in the US

                       US Investors Issues
                        CFCs

                                                4
                    PFICs

                 Non-US Investors
                  FDAP / Non-business income
                  Engaged in a USTB/ECI
                  Branch profits tax (corporate investors)
                  FIRPTA (US real property investments)
                  Partnership Withholding
                  Reporting

                             Required Readings:
                            Requenez & Shuman, US Private Equity Funds Making Cross
                             Border Investments, Journal of Taxation, Vol. 106 No. 6 (June
                             2007) (read up to but not including section titled “Structuring
                             the buyout of a foreign target group)
                            Section 6039C
                            Reporting Requirements for foreign persons – Treas. Reg.
                             1.6012-1(b)(1)(i), -1(b)(2)(i), -2(g)(1)(i), -2(g)(2)(i)
                            Reference: Blanchard, Cross Border Tax Problems of
                             Investment Funds, The Tax Lawyer, Vol. 60, No. 3, Spring
                             2007




FUND INVESTMENTS & TRANSACTIONS

March 23   [8]   Buyout of Corporate Target
[R]               Private equity funds objectives
March 30   [9]    Structure overview and key tax issues
[R]               Stock versus asset purchase
                  Forward & reverse cash mergers
                  Asset basis step up
                  Interest deductibility & limitations
                  Management rollovers
                  Compensating management

                             Required Readings:
                            Jack S. Levin, Structuring Venture Capital, Private Equity and
                             Entrepreneurial Transactions, “Structuring Formation of
                             Private Equity Fund” (Chapter 5)

                 Cross-Border Investments
                  Deal structure overview

                                           5
                        Introduction to key tax issues and structuring techniques
                        Review of CFCs & PFICs

                                Required Readings:
                               Requenez & Shuman, US Private Equity Funds Making Cross
                                Border Investments, Journal of Taxation, Vol. 106 No. 6 (June
                                2007) (read second half beginning with “structuring the buyout
                                of a foreign target group”)
                               Reference: Blanchard, Cross Border Tax Problems of
                                Investment Funds, The Tax Lawyer, Vol. 60, No. 3, Spring
                                2007

April 6       [10]   Buyout of Partnership or LLC Target
[S]                   Acquisition structures
                      Deal issues unique to funds
                      Rollovers
                      Anti-Churning

                     Required Readings:
                      Sections 704, 197
                      Rev. Ruls. 99-5, 99-6, 84-111


April 13      [11]   Legislative Developments Affecting Private Equity and Hedge Funds
[R]                   Guest Speaker
                      Carried interests
*Potential Guest      Fund managers going public
Speaker               Offshore fee deferral
                      Blockers
                      UBTI

                                Required Readings:
                               S. 1624 (Baucus, June 14, 2007) (Publicly traded partnerships)
                               H.R. 2834 (Levin, June 22, 2007) (Carried interests)
                               H.R. 3417 (Larson, August 3, 2007) (Commission on tax
                                treatment of PE / Hedge Funds)
                               H.R. 3996 & 3996 (read only sections related to hedge funds
                                and fee deferral)
                               Reference: Present Law & Analysis Relating to Tax Treatment
                                of Partnership Carried Interests and Related Issues, Part 1 –
                                September 4, 2007 – JCX-62-07
                               Reference: Present Law & Analysis Relating to Tax Treatment
                                of Partnership Carried Interests and Related Issues, Part 2 –
                                September 4, 2007 – JCX-63-07



                                             6
EXIT

April 20         [12]      [US Inbound Investments-Structuring Mezzanine & Debt Investments ]
[R]
April 27         [13]      Investor / General Partner Level Exits
[R,C,S]                     Redemptions (private equity versus hedge fund)
                            Departure of member of general partner entity

                           Fund Level Exits
                            Going Public – i) fund goes public; ii) fund manager goes public
                            Sale of portfolio investment by the fund – waterfall & clawback
                             considerations
                            Working through the waterfall

                                     Required Readings:
                                    Arturo Requenez II, “Taking Private Equity Public,”
                                     International News (Issue 2, 2007) (pp. 20 & 21)
                                    Excerpts from Compass S-1
                                    Excerpts from Blackstone S-1
                                    Treas. Reg. 1.7704


May 8                      Final Exam
WDC 372,064,436v1 1-8-10




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