own account will not constitute a U.S. trade or business. Thus foreign hedge funds formed as corporations do not generally pay corporate income tax. Domestic tax-exempt entities face similar concerns when investing in funds structured as partnerships. While tax-exempt on income related to their tax-exempt purpose, tax exempt entities are required to file tax returns and pay income tax on “unrelated business taxable income,” commonly referred to as UBTI. Because the activities of an entity structured as a partnership flow through to its investors, if the partnership receives income that would be UBTI in the hands of the tax-exempt investor, the investor is forced to file an income-tax return and pay unrelated business income tax. To avoid this requirement, tax exempt entities use offshore blocker corporations in much the same way foreign investors do. To date, no bill has been introduced to change this treatment, although concerns over the tax gap have led to increased scrutiny of business structures involving offshore corporations in general. For example, in May 2007, the Senate Finance Committee held a hearing about offshore structures used for tax evasion. References Corporate taxation Investment management Private equity Hedge funds