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Abstract: 

This article discusses a recent memorandum opinion by the Tax Court in ES NPA Holding LLC v. Commissioner, which clarifies the application of the profits interest safe harbor to tiered partnership structures. The court ruled that the taxpayer’s receipt of a profits interest in a lower-tier partnership qualified as a non-taxable event under the safe harbor provided in Revenue Procedure 93-27. The court’s decision provides guidance on the use of such structures and settles certain previously unsettled tax issues. However, it should be noted that the court’s analysis was limited to the facts and arguments specific to this case and may not apply to all tiered partnership structures. The decision is expected to be cited by practitioners to support the application of the profits interest safe harbor in similar situations involving tiered partnership structures.

Keywords: ES NPA Holding LLC v. Commissioner; profits interest safe harbor; tiered partnership structure; Rev. Proc. 93-27; taxation of profits interests

Affiliations:  1: Shearman & Sterling LLP; 2: Shearman; 3: Shearman; 4: Shearman; 5: Shearman.