Hedge funds, private equity brace for US reports

By Kim Dixon

WASHINGTON (Reuters) - Hedge funds, private equity firms and other investors are scrambling to meet a looming deadline to report their offshore income, as U.S. tax collectors boost efforts to track foreign holdings.

The reports will give authorities a glimpse into just how much money U.S. citizens have tucked away in investment accounts overseas, believed to be in the tens of billions of dollars.

U.S. taxpayers have long been required to file "Report of Foreign Bank and Financial Account" forms with the government when they have holdings of more than $10,000 (6,000 pounds) in foreign banks.

A murky area, though, has been hedge funds, private equity firms and foreign funds, according to industry lawyers. An IRS official recently startled those industries by stating that the agency expects these investors to report offshore holdings. An initial deadline for filing is next Tuesday, June 30.

"There is a fairly good consensus among professionals in this area -- it's really a reinterpretation of what is a foreign financial account," said Mitch Nichter, an attorney in the investment management practice at Paul Hastings.

An IRS official, who was not authorized to be quoted, said there was no change in policy, just a clarification in light of the agency's renewed focus on the abusive use of offshore accounts.

"There has been no enforcement on this," in the past, said George Clarke, a white collar attorney at Miller & Chevalier in Washington, who says many of his clients have done nothing wrong but are being inadvertently pressured to file now.

The increased transparency is partially being driven by wealthy countries' hunt for revenue amid the global financial slump.