"

Estimated reading time: 1 minute, 1 second

IRS Tries to Curb Private Equity Fee Waivers

IRSThe Internal Revenue Service recently proposed rules to stop what it says are abusive maneuvers by private-equity firms. With these rules, the IRS is seeking to limit private-equity executives' practice of reducing their tax bills by reclassifying how their management fees are taxed.

 In turn, it would be harder for firms to convert high-taxed fees into lower-taxed carried interest and take advantage of a 19.6-percentage-point difference in top tax rates. The proposal represents the government's attempt to limit the tax benefits enjoyed by private-equity managers.

Typically, private-equity firms charge their investors a 2-percent fee on their assets and also keep 20 percent of profits, known as carried interest.

Here are two areas where these rules come into play:
• Profits Share. By using waivers, firms can forgo some of their fees and take a bigger share of the profits in addition to the tax benefit of doing so. The rules, aimed at preventing "disguised payments for services," say each case should be decided on the specific facts at hand, with weight given to whether the fund managers bear risk of losing money.
• Capital Pledges. Private equity executives often swap their cut of management fees into investments to satisfy capital pledges they have made to funds managed.

Read 6965 times
Rate this item
(0 votes)

Visit other PMG Sites:

Template Settings

Color

For each color, the params below will give default values
Tomato Green Blue Cyan Dark_Red Dark_Blue

Body

Background Color
Text Color

Header

Background Color

Footer

Select menu
Google Font
Body Font-size
Body Font-family
Direction
PMG360 is committed to protecting the privacy of the personal data we collect from our subscribers/agents/customers/exhibitors and sponsors. On May 25th, the European's GDPR policy will be enforced. Nothing is changing about your current settings or how your information is processed, however, we have made a few changes. We have updated our Privacy Policy and Cookie Policy to make it easier for you to understand what information we collect, how and why we collect it.