YA Global recently filed its response to the Commissioner’s brief, which included some novel arguments, as discussed herein.

On February 26, 2026, as part of its ongoing appeal, YA Global Investments, LP (“YA Global”) filed its response to the Commissioner’s brief, setting the stage for a forthcoming decision from the appellate court.

As discussed here and here, YA Global, a foreign investment fund that provided capital to portfolio companies in exchange for stock, convertible debentures, promissory notes and warrants, engaged U.S.-based Yorkville Advisors LLC (“Yorkville”) to manage its portfolio. YA Global took the position that it was not engaged in a trade or business. The Tax Court ultimately ruled that YA Global was engaged in a U.S. trade or business as a result of activities conducted through its agent, Yorkville, and was therefore obligated to withhold on income allocated to its foreign partners. Subsequently, following the Tax Court’s ruling, YA Global filed an appeal in the Third Circuit seeking reversal of the Tax Court’s decision.

The Tax Court previously held that YA Global was engaged in a U.S. trade or business because (i) the activities Yorkville conducted on behalf of YA Global were continuous, regular, and engaged in for the primary purpose of income or profit; (ii) the portfolio companies paid fees to YA Global, labeled as “structuring fees” or “monitoring fees”, which the court determined were intended to compensate YA Global for services performed by its agent, Yorkville, on behalf of the portfolio companies; (iii) YA Global’s activities went beyond the scope of a typical investor that invests capital; and (iv) YA Global did not otherwise qualify for the securities trading safe harbor under Code Section 864(b)(2)(A).

While the reply brief reiterates many of YA Global’s arguments from its earlier appellate brief, which we previously discussed here, YA Global’s reply brief focused on contesting the Tax Court’s findings that the portfolio companies’ fees paid to YA Global were more than additional payments for use of capital. YA Global urged the Third Circuit to look beyond the operative documents’ fee terminology, i.e., structuring and monitoring fees, contending that Yorkville provided services to YA Global, not to the portfolio companies, and the portfolio companies “paid only to obtain capital, nothing more.” In support thereof, YA Global cited evidence that the portfolio companies (i) did not in fact receive, or pay Yorkville to provide them with, sourcing, negotiating, structuring or managing services, (ii) retained their own lawyers and placement agents to interact with YA Global, and (iii) explicitly acknowledged that neither YA Global nor Yorkville acted as a financial advisor.

Moreover, even if Yorkville had provided personal services to portfolio companies, YA Global asserted that such activities could not be attributed to YA Global under agency principles. In this regard, YA Global focused on the investment management agreement, which it argued established that Yorkville was engaged to act on YA Global’s behalf and not on behalf of the portfolio companies.

Looking Ahead

With the briefs now filed, a decision by the Third Circuit is on the horizon. Although many practitioners view the facts of the YA Global decision as unique, funds with non-U.S. investors whose activities extend beyond typical investment and trading activities should closely monitor the case because the decision could affect how these funds will conduct their future investment and trading activities.