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Sidley Updates

Application of Section 457A to Side Pocket or Illiquid Investments

Tax Update
December 12, 2008

Taxpayers that have compensation arrangements with offshore funds (or certain other tax indifferent persons) (“nonqualified entities”) that hold side pocket or illiquid investments (directly or through a master fund) should consider whether such compensation arrangements are affected by a recently enacted tax provision. Affected taxpayers should consider restructuring their compensation arrangements in a manner that is not subject to the application of this provision. Any such restructuring must be completed by December 31, 2008 to be effective for 2009.