Dog Days Afternoon: Five August Updates for Alternative Funds

BACK

August 18 turned out to be a busy day at two agencies with no particular reason to coordinate. The CFTC proposed an exemption that would let a good number of you stop being commodity pool operators. A few hours later, the SEC proposed an entire offering framework for crypto assets. Both landed while Congress was in recess and half the industry was on a boat.Neither one changes a single obligation you have today. The August development that does change something came out of the 5th Circuit six days earlier, when a panel quietly withdrew a January opinion that had handed fund principals a real tax win and replaced it with a standard that takes most of it back. So this is an odd month to read: plenty of motion, very little of it binding, and the one item that binds arrived without a press release.

Can You Drop Your CPO Registration Under the CFTC’s New Proposal?

Not yet. Comments run 45 days from Federal Register publication, and a proposal relieves no one of anything while it sits there. The better question is why you’d wait, because the same relief has been available since December and most managers who qualify haven’t claimed it.

Three Changes, One of Them Long Overdue

Release 9284-26 does three things. It creates a CPO registration exemption for SEC-registered advisers whose pools take only sophisticated investors. It adds a matching exemption for CTAs. And it raises the capital ceiling on the small pool exemption for inflation, which is overdue, since Regulation 4.13(a)(2) still holds you to $400,000 across every pool you operate and 15 participants in any one of them. That figure hasn’t moved in decades. Chairman Selig called the current setup duplicative. But if you already file with the SEC, you’d probably reach for a stronger word.

You Don’t Have to Wait for the Rule

Staff opened this door in December with Letter 25-50, which brought back the old Rule 4.13(a)(4) exemption for QEP-only pools in everything but name. Letter 26-06 reissued it in February and sorted out how it works alongside delegation arrangements. Meet the conditions and you can withdraw your registration this week. What the comment window adds is a say in how those conditions read once they’re permanent, and the firms that have spent the year operating under 25-50 are the ones who should write in. Our NFA regulatory compliance team can tell you in one call whether your structure clears the bar.

Does the Form PF Threshold Change Cost You Your CPO Relief?

It might, and very few managers are running that scenario. Letter 25-50 conditions the relief on filing Form PF for the relevant pool. The joint SEC and CFTC proposal from April 20 would raise the filing threshold from $150 million in private fund assets to $1 billion, which means a manager who deregisters as a CPO could later find itself no longer obligated to file the very form its relief depends on.

Two Proposals, One Fund

Take a $400 million adviser that withdrew CPO registration this spring. Under the current form it files. Under the proposed thresholds, it doesn’t, and the condition it relied on to deregister stops being satisfied. Whether voluntary filing preserves eligibility, and whether the CFTC will address the interaction in this Part 4 rulemaking, are questions better raised in a comment letter than discovered during an exam.

October 1 Hasn’t Moved

The February 2024 Form PF amendments still carry a compliance date of October 1, 2026. That’s six weeks. Comments on the rollback closed June 23, and no adoption date has surfaced since. Large hedge fund advisers on the quarterly cycle are the group October 1 reaches first, and they should build to the form as written. Calendar-year annual filers won’t touch it until April 2027 and shouldn’t spend a dollar preparing for a form under revision.

Who Counts as a Limited Partner for Self-Employment Tax Now?

In the 5th Circuit, a partner who plays no significant role in managing or running a business. On August 12, the court withdrew its January opinion in Sirius Solutions and substituted a new one, now captioned K Alain, L.L.L.P. v. Commissioner, No. 24-60240.

The January Rule Is Gone

That earlier opinion held that limited liability under state law settled the Section 1402(a)(13) question. The August opinion drops that reading in favor of a functional inquiry into what each partner does day to day, then sends the case back for findings. The panel denied the government’s petition for rehearing en banc, treated it as a request for panel rehearing instead, and granted that.

What Belongs in the File Before Year End

For now, the ruling applies only in Louisiana, Mississippi, and Texas. Denham is still pending in the 1st Circuit, while the 2nd Circuit heard Soroban on June 25. Either case could create a circuit split and eventually reach the Supreme Court. Still, you can’t plan March filings around that possibility. If you repapered your management company based on the January opinion, document what each partner does before filing returns. The IRS’ Schedule K-1 instructions won’t walk you through that analysis, but our tax preparation team can. Partners questioning why their capital accounts don’t match the audited statements can also start with our guide to decoding a K-1.

What Does Regulation Crypto Assets Mean for a Crypto Fund?

The SEC’s August 18 proposal is aimed mainly at token issuers, but funds holding those tokens need to pay attention too. A proposed safe harbor could allow a token to stop being treated as an “investment contract” once the issuer finishes, or permanently ends, the work it promised investors. Your fund could buy a token while it’s treated as a security and still own it after that label no longer applies.

What Issuers Would Get Under the Proposal

Issuers would have two ways to raise capital without full SEC registration. One exemption covers up to $5 million over four years. The other covers up to $75 million in any 12-month period and comes with financial statements and ongoing reporting. Covered offerings and certain secondary sales would also avoid state registration requirements. Comments run for 60 days after publication.

What Fund Managers Need to Prepare For

Fund managers may need to revisit the books if a token changes status while the fund owns it. The asset could require different classification and presentation in the financial statements, which is much easier to handle when valuation support, proof of ownership, and key controls are already documented. Our guide to audit-ready valuations and proof of keys explains what auditors will expect. The rise of digital asset funds covers the broader direction of the market.

Can You Deliver Investor Documents Electronically by Default?

Not today, though your window to influence the answer closes September 21. Regulation E-Delivery would let advisers, broker-dealers and funds send required information electronically without first collecting affirmative consent, which reverses a default that has stood since the mid-90s.

What Falls Inside the Rule

For an adviser, covered information would take in Form ADV Part 2 brochures, Form CRS and the account-statement notice the custody rule requires. Paper stays available to anyone who asks. Guidance from 1995 and 1996 would remain usable for two years after adoption, so consents you’ve already collected keep working through the transition. The proposing release runs long. The comment form takes five minutes.

The Work That Pays Either Way

Postage savings won’t register on a boutique’s income statement. A current investor contact register and a documented process for handling paper requests will, because both get tested the moment an examiner asks how you know your investors received what you were required to send. That question already comes up during a surprise custody exam, and email delivery won’t make it any easier to answer.

What August Leaves on Your Desk

Three of this month’s five items are proposals, which puts the burden on you to separate what regulators intend to do from what they’ve done. October 1 hasn’t moved. September 21 hasn’t moved. And no one at the SEC or the CFTC is going to call to mention that one of your funds now sits on the wrong side of a threshold.That’s where we come in at Michael Coglianese CPA, P.C.:

Audits & Assurance: Explicitly built for alternative investment firms, not retrofitted from corporate templates. We know your compliance requirements inside out and deliver clean audits that hold up when regulators come knocking.
NFA Regulatory Compliance & Consulting: The NFA and CFTC don’t mess around, and neither do we. If you’re dealing with commodities, we’ll keep you compliant without the usual regulatory stress eating into your day.
Tax Preparation: You can’t get anyone at the IRS on the phone right now. Good thing we already know how to handle your K-1s, performance allocations, and whatever complex structure you’re running.
Audit, Tax, and Regulatory Support for Crypto Entities: Crypto just went from niche to normal overnight. If you’re trading, mining, or running a fund, we know the rules (even the ones they’re still writing).
Industry-Specific Advisory: We’ve spent decades serving alternative investment firms, from hedge funds to private equity to real estate. Get personalized solutions from advisers who speak your language and understand your specific challenges.