NYAG Hedge Fund Tax Abuses
On Apr. 18, NYAG issued $40mn settlement with Harbert fund for tax.
- Settled with Harbert Management Corporation and top executives at the firm, re tax.
- Alleged Violations
- Charged members of company failed to pay millions in NY taxes over several years.
- Resolved whistleblower allegation of failure to pay taxes on its performance income.
- Settlement is the largest NYAG tax-related recovery, filed under NY false claims act.
- State Tax Apportionment
- Businesses operating both in and out of NY, must apportion the total income for tax.
- Based on the part of their income which derives from or is connected with New York.
- Firm sponsored Harbinger Capital Partners, a $26bn hedge fund, based in NY City.
- Alabama corporation hired Philip Falcone as the primary investment decision-maker.
- Offshore affiliate served as investment manager for the Fund from 2002 until 2009.
- Falcone and other in team, operated at offices located at 555 Madison Avenue, NYC.
- Offshore manager earned performance fee income of 20%, of the fund’s net profits.
- False Tax Filings
- Offshore manager’s controller signed tax return that apportioned 0% income to NY.
- Despite, accountants' initial assessment about the tax liability, that NY tax was due.
- Instead, offshore manager apportioned all fee income to lower-tax state of Alabama.
- Where back office and support functions for the Harbinger Fund were all conducted.
- Tax return did not mention existence of NY offices, listing only the Alabama address.
||Auditor; HF; IA; Inv Co
||LR, PR, 4/18/2017
||Accounting; Financial; Reporting; Tax
||United States of America
||Fund Mgt; Hedge Funds
||AML & Enforcement
Last substantive update on 04/18/2017