Revenue Ruling 2014-18 holds that stock options and stock-settled stock appreciation rights (stock rights) granted by offshore funds and other entities domiciled in tax-indifferent jurisdictions can be structured to avoid immediate taxation under Section 457A of the U.S. tax code. Among other things, this ruling allows an offshore fund to compensate its managers with stock rights that will only be subject to U.S. tax upon exercise, so long as the stock right is exempt from Section 409A and the manager has the same redemption rights with respect to acquired shares as other shareholders of the hedge fund.
