Citations (1)


Footnotes (177)



Private Equity Management Fee Conversions

Gregg D. Polsky

University of Georgia Law School

November 4, 2008

FSU College of Law, Public Law Research Paper No. 337
FSU College of Law, Law, Business & Economics Paper No. 08-18

Because of the uproar over "carried interests," it seems that almost everyone knows that the tax law currently allows private equity managers to pay capital gains taxes on a substantial part of the (often substantial) income generated by their services. While this result raises significant tax policy concerns, the basic tax law governing carried interests is well-settled, and legislative action therefore would be necessary to address these concerns.

In contrast, a little-known technique utilized by private equity managers to convert the character of their remaining compensation income is extremely aggressive and subject to serious challenge by the IRS. Private equity managers regularly attempt to convert their fixed annual two percent management fees into additional carried interest through so-called fee waivers. The tax result, if this technique is successful, is the conversion of current ordinary income into deferred capital gains.

Despite the recent spotlight on the taxation of private equity management compensation, surprisingly little attention has been paid to this particular tax minimization strategy. This article attempts to fill that void. Its purpose is twofold. First, it will describe the mechanics of fee waivers, which are pervasive within the private equity community but not widely appreciated or understood outside of it. Second, it will discuss the tax issues stemming from fee waivers, focusing on the IRS arguments that could be made to disallow their intended tax results.

Number of Pages in PDF File: 43

Keywords: fee waiver, fee waivers, management fee waivers, private equity management fee waivers

Open PDF in Browser Download This Paper

Date posted: November 6, 2008 ; Last revised: January 14, 2012

Suggested Citation

Polsky, Gregg D., Private Equity Management Fee Conversions (November 4, 2008). FSU College of Law, Public Law Research Paper No. 337; FSU College of Law, Law, Business & Economics Paper No. 08-18. Available at SSRN: http://ssrn.com/abstract=1295443 or http://dx.doi.org/10.2139/ssrn.1295443

Contact Information

Gregg D. Polsky (Contact Author)
University of Georgia Law School ( email )
225 Herty Drive
Athens, GA 30602
United States

Feedback to SSRN

Paper statistics
Abstract Views: 9,551
Downloads: 2,210
Download Rank: 3,671
Citations:  1
Footnotes:  177
People who downloaded this paper also downloaded:
1. A Compendium of Private Equity Tax Games
By Gregg Polsky

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 1.218 seconds