End of Private Equity Fee Waivers May Be In Sight

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

July 24 — Anticipated guidance targeting attempts by private equity fund managers to shift earnings from service payments to carried interest could entirely block management fee waiver agreements if the revenue procedure contains an exception to a long-standing safe harbor, a practitioner said.

“It seems questionable whether this arrangement will be viable,” Jonathan Talansky, a member at Mintz Levin Cohn Ferris Glovsky and Popeo PC, told Bloomberg BNA July 24. “A significant aspect of the proposed rules is that safe harbor may be yanked away from any carry issued in exchange for a waived fee. The IRS would then technically try to tax the additional carry at fair market value under” tax code Section 83 principles.

The IRS said in proposed regulations (REG-115452-14) issued July 22 that it plans to issue a revenue procedure, in conjunction with final rules, that would add an exception to the safe harbor for profits interest issued for services to a partnership addressed in Rev. Proc. 93-27