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457A High Income Year & Charitable Opportunity

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With the enactment of Internal Revenue Code Section 457A in 2008, offshore hedge fund fee deferral programs were effectively ended. Functioning as nonqualified deferred compensation plans, these programs enabled hedge fund managers to defer fee income (or carried interest characterized as fees) using offshore vehicles. By the end of 2017, hedge fund managers with such offshore plans will need to repatriate these funds, often creating significant income tax issues. However, for those hedge fund managers who are philanthropic, the repatriation mandated by Section 457A can be a tremendous opportunity for high-impact charitable giving.

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Charitable opportunity

While Section 457A will require the repatriation by hedge fund managers of significant dollar amounts, it is also expected that this repatriation will encourage significant charitable giving. Many hedge fund managers already provide critical support to numerous charities—both large and small—but with the higher income expected due to repatriation, these charities could see that support further expanded. This would be a terrific byproduct of Section 457A.

Though the income experienced by some hedge fund managers may be dramatically higher, charitable planning strategies their advisors recommend are expected to remain quite simple.

In significant income years, philanthropic managers often complement their high income with a substantial charitable contribution, allowing them to support their favorite charities while taking advantage of a charitable income tax deduction. With potentially outsized income in 2017 due to repatriation, it is expected that many hedge fund managers will see this as an opportunity to be even more charitable.

Looking for more? Get the full paper on the charitable opportunity with 457A.

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