IRS Victory In YA Global V. Commissioner: A Cautionary Tale

On November 15, 2023, the Tax Court released its opinion¹in YA Global v. Commissioner and, among other conclusions, held that YA Global Investments LP, a Cayman Islands limited partnership (YA Global), was engaged in a U.S. trade or business for purposes of Code Section 864.

I. FACTUAL BACKGROUND

YA Global was a hedge fund that focused on equity-related lending transactions with convertible instruments and standby equity distribution arrangements (SEDAs). In 2001, YA Global was initially formed as a Delaware limited partnership. In early 2007, YA Global registered as a Cayman Islands limited partnership. From YA Global's formation until early 2007, Yorkville Advisors, LLC, a Delaware limited liability company (Yorkville), was YA Global's sole general partner. Yorkville Advisors GP, LLC was then YA Global's sole general partner from 2007 until 2011. YA Global had two feeder funds: YA Offshore, a Cayman Islands corporation (for YA Global's non-U.S. and