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New York to probe private equity tax strategy

464 views · Published 4 October 2012 · 0:50 · Indexed 22 October 2026

Channel: News Direct · 2012 · News & Politics

New York attorney general Eric Schneiderman is investigating more than a dozen private equity firms for abusing loopholes to save of millions of dollars. New York is investigating "management fee waivers," converting management fees — taxed at an income rate of up to 35 percent — into fund investments, or carried interests, at a capital gain tax of 15 percent.

Leaked documents from Bain Capital show that at least $1 billion in management fees have been converted into fund investments. This means the partners saved more than $200 million in federal income taxes and more than $20 million in Medicare taxes. Other firms that have been subpoenaed include Apollo Global Management and Kohlberg Kravis Roberts & Company.

Tax lawyers argue that when fees are converted into carried interests, managers risk losing all or some of their value, and are thus entitled to be taxed at the lower rate. A 2009 survey of 35 US buyout firms revealed that this is a common practice industry-wide, as 40 percent of firms surveyed said they have made such arrangements.

New York to probe private equity tax strategy

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