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A Compendium of Private Equity Tax Games

18 Pages Posted: 16 Nov 2014  

Gregg D. Polsky

University of Georgia School of Law

Date Written: November 14, 2014

Abstract

This paper will describe and analyze tax strategies, lawful and unlawful, used by private equity firms to minimize taxes. While one strategy — the use of “carried interest” — should by now be well understood by tax practitioners and academics, the others remain far more obscure. In combination, these strategies allow private equity managers to pay preferential tax rates on all of their risky pay (through carried interest), pay preferential tax rates on much of their non-risky pay (through management fee waivers and misallocations of their expense deductions), and push much of the residual non-risky pay down to their funds’ portfolio companies who, unlike the fund, can derive significant tax benefits from the resulting deductions (through monitoring fees and management fee offsets).

Keywords: tax, private equity, carried interest, management fee waiver, monitoring fees, management fee offset

Suggested Citation

Polsky, Gregg D., A Compendium of Private Equity Tax Games (November 14, 2014). UNC Legal Studies Research Paper No. 2524593. Available at SSRN: https://ssrn.com/abstract=2524593 or http://dx.doi.org/10.2139/ssrn.2524593

Gregg D. Polsky (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

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