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Private Equity Management Fee Conversions

Posted: 13 Feb 2009 Last revised: 14 Jan 2012

Gregg D. Polsky

University of Georgia School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: February 16, 2009

Abstract

Private equity managers regularly convert a portion of their 2 percent annual management fees into additional carried interest. They do this primarily to convert the tax character of the resulting income. This special report explains the economics behind management fee conversions, describes their mechanics, and analyzes the arguments that could be made by the IRS to disallow their intended tax results. The report ultimately concludes that the IRS can make quite strong arguments under current law to deny managers the tax benefits they seek in converting fees.

Keywords: fee waivers, fee waiver, fee conversion, fee conversions, private equity, private equity management fees, private equity management fee waiver

JEL Classification: K34

Suggested Citation

Polsky, Gregg D., Private Equity Management Fee Conversions (February 16, 2009). Tax Notes, Vol. 122, No. 7, 2009. Available at SSRN: https://ssrn.com/abstract=1342030

Gregg D. Polsky (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

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