Most non-U.S. hedge funds take precautions to avoid engaging in a U.S. trade or business; otherwise, they are subject to U.S. federal income tax on net income that is effectively connected with that U.S. trade or business. However, all funds that invest in U.S. debt and equity – as well as in derivatives that reference U.S. debt and equity – may be subject to a 30% withholding tax on gross payments of U.S.-sourced fixed, determinable, annual or periodic income (FDAP). In this two-part series, John Kaufmann of Greenberg Traurig discusses certain ways in which final and temporary regulations recently promulgated under Internal Revenue Code Section 871(m) increase the scope of FDAP withholding, and lists traps for the unwary created by these regulations. This second article explains the scope of the new regulations and the potential complications that they have created. The first article discussed the current law and the issues that the new regulations are intended to address. For additional commentary from the firm, see our series on “Investment Opt-Out Rights for Hedge Fund Investors”: Part One (Nov. 8, 2013); Part Two (Nov. 14, 2013); and Part Three (Nov. 21, 2013).