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Wolters Kluwer Financial Services’ GainsKeeper Helps Mutual Funds and Hedge Funds Simplify Tax Rules for Passive Foreign Investment Companies

Wolters Kluwer Financial Services have announced that it has added a new module to its GainsKeeper FundTaxPro solution to help mutual funds and hedge funds simplify tax reporting related to passive foreign investment companies (PFICs).

Mutual funds and hedge funds that invest in one or more PFICs often face operational, tax and reporting challenges when computing their taxable income and distribution requirements required by the Internal Revenue Code (IRC) and Internal Revenue Service (IRS) regulations. The first challenge is making a determination as to whether a foreign corporation is a PFIC, which is difficult because it relies on information contained in financial reports from foreign countries. Foreign financials may not be compiled according to U.S. accounting standards and/or may be difficult to obtain. Even if the correct information is obtained, the necessary additional calculations to determine taxable earnings can be difficult. The PFIC tax regime is a complex set of rules that present several options for taxation, including an often used mark-to-market method, as long as the necessary information can be obtained.

GainsKeeper FundTaxPro, a powerful automated tax reporting solution that is relied upon by more than 3,800 U.S. mutual funds and hedge funds, provides a sophisticated module to automate the required PFIC tracking and calculations. By automating the process, fund companies can help reduce the risk of inaccurate fund distributions and associated IRS penalties. The PFIC module also helps fund companies reduce the time spent on calculations and provides a highly detailed set of reports that can serve as source documents and can provide an audit trail for the calculation.

“Tracking and performing PFIC adjustments manually—typically with spreadsheets—creates higher risk due to the potential for entering incorrect values or inadvertently changing formulas,” said Paul Keith, senior manager for Investment Compliance Solutions at Wolters Kluwer Financial Services. “By implementing an automated process, fund companies can gain confidence that their shareholder distribution calculations, and ultimately their tax returns, are completed accurately.”

In addition to automating investment fund tax calculations and reporting, securities professionals count on Wolters Kluwer Financial Services for cost basis reporting compliance, corporate actions analysis and taxability details. The company’s unparalleled tax expertise and proven technology helps streamline accurate investment tax calculations and mitigate tax reporting risks.