In our last article, we discussed this case to make family offices aware of the significance of the IRS ruling. We felt that is was essential to provide some additional information, based upon a number of inquiries.

In the Lender Management LLC case, the tax court concluded that if a taxpayer was engaged in a trade or business, which in this situation, was providing investment management services, then they could treat all of their expenses as fully deductible under IRS Section 162, rather than being limited to expenses related to the production of income under Section 212.

Lender Management provided direct management services to three LLCs which were taxed as partnerships, and the only members of the LLCS were family members. While Lender Management was the only manager for each LLC and had the exclusive rights to manage the LLCS investments, each member of the LLC had the right to withdraw their investments at any time. Lender Management also provided management services to some of the entities that were controlled by the LLC. They also received fees directly from the entities some of which did not have family members.

The main purpose of Lender Management was to earn high returns on the assets that they managed, however they also provided investment advisory services and financial planning services as well.

The Lender Management decision affirms the position that an investment advisor or family office, can be in a trade or business even if the primary source of its income is from the allocation of profits from underlying managed partnerships. There is now an outstanding opportunity for families and investment partnerships to take advantage of this ruling.

For additional information on how to structure your organization to comply with the Lender Management case, feel free to contact: Michael Rosenblatt, President of The Quest Organization and of FON Search at 212-971-0033 or

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