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New York Probes Private-Equity Tax Practices
New York Probes Private-Equity Tax Practices
By REED ALBERGOTTI , MARK MAREMONT and GREGORY ZUCKERMAN
A New York investigation into the tax practices of the private-equity industry is looking for potential wrongdoing ranging from delay of tax payments to avoidance of them entirely.
The main focus of the investigation, say people familiar with it, is whether and how some firms convert certain management fees into investments that are eligible for more-favorable tax treatment. Partners at some of the nation's largest private equity firms have used the practice for years, though it also is one that several firms have avoided, some industry practitioners have called risky and some academics have called aggressive and potentially illegal.
The investigation, by the office of New York Attorney General Eric Schneiderman, opens another front of attack on the industry, which has been under a microscope during the presidential campaign of Republican nominee Mitt Romney. Mr. Romney formerly led private-equity firm Bain Capital . As previously reported, Mr. Romney's attorney said he didn't participate in the fee-waiver program at Bain.
<...>
In the main strategy in question, known as a fee-waiver conversion, private-equity firms or individuals at the firms voluntarily waive management fees due to them from the firm's investors. Instead, they ask the investors to place that money in certain funds managed by the firms. The change can turn management fees, taxed as ordinary income at federal rates of 35%, into investments that could enjoy capital-gains treatment, at 15% federal rates. The attorney general's office...is investigating whether industry participants engaged in a strategy to avoid taxes altogether on some management fees...It isn't clear if such an approach is common, if used at all. Some tax practitioners aware of the so-called fee-waiver conversion approach said they were unfamiliar with this more-extreme version of the idea.
- more -
http://online.wsj.com/article/SB10000872396390443571904577629831800831466.html
By REED ALBERGOTTI , MARK MAREMONT and GREGORY ZUCKERMAN
A New York investigation into the tax practices of the private-equity industry is looking for potential wrongdoing ranging from delay of tax payments to avoidance of them entirely.
The main focus of the investigation, say people familiar with it, is whether and how some firms convert certain management fees into investments that are eligible for more-favorable tax treatment. Partners at some of the nation's largest private equity firms have used the practice for years, though it also is one that several firms have avoided, some industry practitioners have called risky and some academics have called aggressive and potentially illegal.
The investigation, by the office of New York Attorney General Eric Schneiderman, opens another front of attack on the industry, which has been under a microscope during the presidential campaign of Republican nominee Mitt Romney. Mr. Romney formerly led private-equity firm Bain Capital . As previously reported, Mr. Romney's attorney said he didn't participate in the fee-waiver program at Bain.
<...>
In the main strategy in question, known as a fee-waiver conversion, private-equity firms or individuals at the firms voluntarily waive management fees due to them from the firm's investors. Instead, they ask the investors to place that money in certain funds managed by the firms. The change can turn management fees, taxed as ordinary income at federal rates of 35%, into investments that could enjoy capital-gains treatment, at 15% federal rates. The attorney general's office...is investigating whether industry participants engaged in a strategy to avoid taxes altogether on some management fees...It isn't clear if such an approach is common, if used at all. Some tax practitioners aware of the so-called fee-waiver conversion approach said they were unfamiliar with this more-extreme version of the idea.
- more -
http://online.wsj.com/article/SB10000872396390443571904577629831800831466.html
Lid blowing off Romney tax secrecy
http://www.democraticunderground.com/10021201624
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