Many hedge funds and other investments whose returns are based on short-term trading are tax inefficient.  Good gross returns can be reduced 50% or more by income taxes (including state and local income taxes).  For over 20 years, investors, including hedge fund investors, have used private placement life insurance (PPLI) and private placement variable annuities to eliminate or defer income tax on hedge fund and other tax-inefficient earnings and, with proper estate planning, reduce or eliminate estate tax as well.  PPLI can provide a large tax-free death benefit for a cost that is often much less than the tax savings gained.  After 30 years of uncertainty and speculation, a recent Tax Court decision confirmed the validity of the “investor control” doctrine, potentially allowing the IRS to impose taxes on investment returns from PPLI and annuities.  In a guest article, Jeffrey S. Bortnick and Philip S. Gross, partners at Kleinberg, Kaplan, Wolff & Cohen, discuss this significant Tax Court decision and its potential ramifications on the hedge fund industry.  For further insight from Gross, see “The Impact of Revenue Ruling 2014-18 on Compensation of Hedge Fund Managers and Employees,” Hedge Fund Law Report, Vol. 7, No. 24 (Jun. 19, 2014); and “Tax Practitioners Discuss Taxation of Foreign Investments and Distressed Debt Investments at FRA/HFBOA Seminar (Part Three of Four),” Hedge Fund Law Report, Vol. 7, No. 4 (Jan. 30, 2014).  For more from KKWC, see “Recent Cases Reduce the Impact of Newman on Insider Trading Enforcement,” Hedge Fund Law Report, Vol. 8, No. 18 (May 7, 2015).