Changing Landscape for Management Fee Waiver Arrangements of Private Fund Sponsors: Proposed Regulations on Disguised Payments for Services Pose Problems
Author: Daniel Meehan.; Joel Peters-Fransen.
Source: Volume 29, Number 03, January/February 2016 , pp.5-18(14)
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Abstract:
Proposed regulations issued in July 2015 change the landscape for management fee waiver arrangements used by private fund sponsors. The regulations would require that profits interests received by fund sponsors in such arrangements meet several new requirements in order to be respected as partnership interests eligible for allocations of lower-taxed long-term capital gains and qualified dividend income. Arrangements that fail the new tests would be treated as compensation arrangements taxed at higher ordinary income rates. Even if an arrangement satisfies the new requirements, the new guidance also raises the possibility of immediate taxation at the time the profits interest is issued. Fund sponsors should review existing management fee waiver arrangements with their tax advisors to determine whether changes are advisable.Keywords: management fee waiver arrangements, partnership profits interests, Prop. Treas. Reg. Sec. 1.707-2, Rev. Proc. 93-27
Affiliations:
1: Kirkland & Ellis LLP; 2: Cargill, Inc..