In a November 15 opinion in YA Global Investments LP v. Commissioner, the Tax Court ruled that a Cayman Islands hedge fund was engaged in a U.S. trade or business through an agency relationship with its US-based manager, and that its operations were not covered by the investment exception or the securities trading safe harbor as the fund (through its agent, the investment manager) provided services to portfolio companies in addition to capital. The court based its opinion on the specific facts of the case, where the fund had continuous control of the manager’s actions under the LP agreement and directly structured the securities it purchased with portfolio companies. However, it is possible that this decision will have wider implications to foreign partners of offshore funds.