Rep. Levin on Legislation to Address Ubit Rules that Encourage Off-shore Investment

Sep 6, 2007

(Washington D.C.)-  Today Rep. Sander Levin (D-MI) introduced legislation to allow tax-exempt entities to invest directly in US-based hedge funds rather than routing their investments offshore.  Levin was joined by Ways & Means Committee Members Reps. Jim McDermott, John Lewis, Earl Pomeroy, Earl Blumenauer, Bill Pascrell, Shelley Berkley, and Chris Van Hollen.

Under current law, tax-exempt entities that invest in hedge funds are subject to unrelated business income tax (UBIT) due to the debt incurred by the fund.  The debt-financed income rules were created decades ago to address a separate issue, but have forced tax-exempt investors to channel their investments in hedge funds through offshore “blocker” corporations.

“We have said that we are taking a look at the entire tax code and making it as fair as possible.  In that spirit, this bill will fix a problem that unfairly forces our pension funds, universities and foundations offshore to make certain investments,” said Levin. “These rules were never meant to apply to this kind of investment, and we should allow these institutions to bring their investments home.”

The bill would create an exception to the debt-finance income rules that would allow all tax-exempt entities to invest directly in onshore hedge funds without being subject to UBIT.   The bill is modeled on the exception to these rules that currently allows pension funds and universities to invest in debt-financed real estate. However, this exception would be available to all tax-exempt entities, including foundations. 

The problem addressed by the legislation was discussed in yesterday’s hearing in the Ways & Means Committee on tax fairness.

The text of the bill is available at:

For further information, please contact Hilarie Chambers at 202-225-4961 or