Mixing Management Fee Waivers with Mayo

Abstract

This Article examines whether the management fee waiver strategy used by private equity firms to drop their tax rates actually works. Scholars have almost uniformly condemned the strategy, calling it "extremely aggressive," "profoundly piggish," or otherwise "illegal." However, this Article shows that the critics substantially overstate their case. The provision of law most frequently cited by the critics doesn't even exist, and their arguments seem particularly inapposite, given the changes in the tax-administrative law landscape wrought by Mayo v. United States.

Keywords: private equity, 707, Mayo, fee waivers, profits interests, phantom regulations, guaranteed payments, Pratt, Bain