Taxable income and expense may be treated differently than accounting income. In general, for the majority of SPVs, no taxable income or expense should occur during the year.

• Convertible Note Interest: Under U.S. tax law, the interest that accrues on convertible notes during a period usually must be included in taxable income even when the company does not have an obligation to pay it during the period.

• Passthrough Income from LLCs and Partnerships: If you invest in a fund that invests using a passthrough operating portfolio company, that operating company may pass-through taxable income without a corresponding cash distribution. This allocation may in turn flow through to your K-1.