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Tax Reporting for Hedge Funds

Leveraging Deloitte’s iPACS Financial Products to pursue tax alpha

Deloitte Tax LLP professionals use the iPACS Financial Products (iFP) technology to help you enhance the reliability of tax reporting for hedge funds and make tax-aware decisions.

Traditional tax reporting for hedge funds

Historically, a comprehensive analysis of the tax impact of securities trading has been a manual and time-consuming process for hedge fund managers mandated by the need to meet an annual tax-reporting deadline. The process produced a snapshot of past results, sufficient for regulatory tax compliance, but not optimized and too late for effective tax planning. Identifying the “tax alpha” in a portfolio (that is, the ability to make tax-aware decisions) is a significant challenge unless the manager has the ability to frequently import the right data into a robust and configurable technology platform with useful reports to make tax-aware decisions on a rolling basis.

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Deliver accurate results and tax compliance planning with confidence

Deloitte’s skilled tax professionals, powered by advanced technology, expand the tax department’s value proposition to your organization. You can visualize your historical tax positions and risks with detail you can drill into, enhance the reliability of your tax reporting for hedge funds with easier access to more frequent estimates, and analyze various scenarios based upon configurable tax positions that can be toggled based upon your objectives. The analysis that supports scenario planning allows you to understand the tax opportunities and risks inherent in a specific portfolio’s trading strategy.

Deloitte’s tax professionals use the iPACS Financial Products (iFP) application to:

  • Tax-sensitize the fund’s portfolio data
  • Analyze tax positions based on the trading strategy, security types, and investor demographics
  • Consider multiple scenarios based on your specific objectives—whether annual tax reporting for hedge funds, periodic estimates, audit defense, or strategic planning.

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The iPACS track record

Over the past 10 years, Deloitte’s iPACS process and the platform have helped more than 1,000 leading investment management firms address their tax compliance and reporting challenges.

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The pursuit of tax alpha

Adding tax alpha necessarily means that the tax basis and holding period of each lot of securities are known, which requires a proper application of tax adjustment such as the wash sale, straddle, and constructive sale rules, and others. Choosing the right tax lots to sell may seem easy. However, doing it right requires up-to-date data and a platform to calculate the tax basis and holding period. With the transparency of a truly tax-sensitized holdings analysis, your portfolio tax planning can impact long-term capital gain and qualified dividend income, accelerate and preserve short-term capital losses, and mitigate the potential for loss deferral.

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How the Deloitte Tax iFP team works: Experience meets technology

The iFP platform has been built from the ground up to specifically serve the unique RIC or hedge fund trading environment. At the core is SAP HANA® in-memory platform, capable of executing accurate, complex, iterative trade calculations at incredibly high speed. We can streamline the process of gathering and cleansing the necessary data. And the tool’s user-friendly, web-based dashboard simplifies Deloitte’s ability to prepare and share tax results on demand.

Our seasoned tax professionals work with clients to meet their specific needs. iFP has dozens of configuration options that enable clients to determine how certain tax rules may be applied. Our tax specialists review the calculations and provide insights to assist clients in their efforts to improve fund tax compliance, while also delivering new value.

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Enabling new opportunities from new approaches

The Deloitte Tax iFP team provides the data, analysis, and insights you need to explore new, potentially tax-efficient opportunities for these key trading-related activities:

Wash sales and
Constructive sales Qualified dividends
Explore basic tax planning, which may allow you to increase the net long-term capital gain position of the fund. Understand where you may have accelerated gains on an appreciated position by entering into an offsetting position. Validate positions that meet specified holding period requirements, which may lead to getting a beneficial tax rate on dividend income.

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The Deloitte Tax iFP team difference

We bring a specialized mix of knowledge, experience, and capabilities to help you achieve greater reliability in your tax reporting for hedge funds and be more tax-aware in your analysis and planning.

  • Deep experience in tax planning and compliance, advanced technology, and the hedge fund industry allows us to recognize and understand specific sector challenges.
  • Tailored technology-enabled services to meet individual client needs and goals.
  • Analytics and data visualization to help identify opportunities or problems that require attention.

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Deloitte Wins Back-to-Back ITR ‘Americas Tax Technology Firm of the Year’ Awards

iFP is one of the technological advancements which led to International Tax Review’s selection of Deloitte as the leading Americas tax technology organization by using digital innovation to help its clients adapt to accelerating globalization, increased regulatory and business complexities, and other transformational changes in the corporate landscape.

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Ted Dougherty

Ted Dougherty

Hedge Fund and Tax Investment Management Leader

Ted leads Deloitte’s US Hedge Fund practice and is the national Tax leader for hedge funds. Ted deals with complex tax issues and has led the industry in assessing the impact and implementation of ASC... More