N. Todd Angkatavanich, Jonathan G. Blattmachr & James R. Brockway have published their article, Coming Ashore – Planning for Year 2017 Offshore Deferred Compensation Arrangements: Using CLATs, PPLI and Preferred Partnerships and Consideration of the Charitable Partial Interest Rules, in the ACTEC Law Journal. Their article begins as follows:
For estate and tax practitioners who represent hedge fund managers, the practice can be an interesting one coupled with special chal- lenges from an estate, gift and generation-skipping transfer tax (collectively herein sometimes referred to as “transfer taxes”) standpoint as well as from an income tax point of view. It is often the case that the representation of these clients involves issues that straddle both the transfer tax and income tax sides of the law. This is certainly the case when attempting to plan for the fund principal (that is, the principal manager of an investment vehicle such as a hedge fund) to address the looming year 2017 deadline for recognition of income on certain non- qualified deferred compensation arrangements.
As the deadline rapidly approaches for fund managers to recognize income tax on deferred compensation arrangements that are not other- wise subject to an ongoing risk of forfeiture, tax advisors are scrambling to find the best solution or solutions to address the substantial (and in some cases, even massive) income tax burden that the fund principal/ client may be facing.
Many clients are not waiting until 2017 to recognize the income on these arrangements and have opted to bring the deferred compensation “on shore” and recognize the income currently. For those clients who may be charitably inclined, planning to address this income tax burden might involve generating a current year charitable income tax deduction to offset at least part of the tax liability.