Proposed Regulations on Management Fee Waivers: Impact on Private Investment Funds Explored
On July 22, 2015 the Internal Revenue System (IRS) and the Treasury Department released proposed regulations under Section 707 of the Internal Revenue Code regarding when a compensation arrangement will be treated as a disguised payment for services. The proposal may have a significant impact on certain management fee waiver arrangements commonly used by private investment funds but, could also affect certain aspects of the tax treatment of carried interest.
The proposed regulations are effective on the date they are published in final form and will only apply to arrangements entered into or modified on or after such effective date. The position of the Treasury Department and IRS as stated in the preamble is that the proposed regulations generally reflect the Code and related relevant legislative guidance regarding disguised payments for services. Given this, existing and future management fee waiver arrangements should be examined and patterned following the proposed regulations.
In this two-hour LIVE Webcast, a panel of key thought leaders and professionals organized by The Knowledge Group will provide an overview to help the audience understand the critical elements of the Proposed Regulations on Management Fee Waivers and its potential impact on private investment funds.
Key topics include:
- Overview of Section 707 of the Internal Revenue Code
- Safe Harbor Revenue Procedures on Profit Interests
- 'Disguised Payment for Services' Identified
- The factors that cause lack of 'Sufficient Entrepreneurial Risk'
- Application of the Proposed Regulations to Management Fee Waivers
Benjamin Berk, Partner
Arnold & Porter LLP
- What are waived fees and why are they under scrutiny?
- Background of the legislation
- General structure of waived fee arrangements
Brian O'Connor, Partner
Determining whether a fee waiver arrangement should be respected
- Facts and circumstances test/”Bright line” tests
- Significant entrepreneurial risk
- Other factors
- Impact on taxation of profits interests
Tim Terry, Founder and Partner
Terry Lockridge & Dunn
How do proposed regulations impact funds?
- What to consider (from a tax perspective) when drafting documents?
- Maintain burden of proof on the IRS
- Gaming out various “what if” scenarios
Who Should Attend:
- Private Equity Attorneys, Accountants, Advisors and Consultants
- Tax Attorneys
- Tax Consultants
- Private Equity Firms
- Investment Advisors
- Other related/interested Professionals and Organizations
Ben Berk is a partner with Arnold & Porter LLP in San Francisco, where he is a member of the firm’s Tax and Investment Management Practices. Mr. Berk regularly advises clients on partnership, corporate and international tax matters, focusing on private equity, real estate, and hedge funds. He negotiates, drafts and structures partnership and limited liability company agreements in fund formation and other transactional matters, both for sponsors and investors. He advises foreign and tax-exempt investors in connection with private equity and real estate investments, including structuring transactions to minimize US tax exposure through leveraged blocker structures and REITs. Mr. Berk also advises clients in structuring equity compensation arrangements in partnerships and limited liability companies, including profits interests. He is recognized by The Best Lawyers in America for Tax Law (2013-2016) and for Private Funds / Hedge Funds Law (2012-2016).
Ben Berk is a partner with Arnold & Porter LLP in San Francisco, where he is a member of the …
BRIAN J. O’CONNOR co-chairs the Tax and Wealth Planning Group for the Washington, D.C. based law firm of Venable LLP. Mr. O'Connor practices in the areas of partnership, corporate, real estate and international taxation. Mr. O'Connor also teaches an advanced course on partnership taxation and the drafting of partnership agreements as an adjunct professor at Georgetown University Law Center. He regularly speaks across the country to professional groups on topics relating to business entities and taxation and is the author or co-author of numerous articles relating to business entities and taxation in professional journals and trade publications, including The Journal of Taxation, The Journal of Pass-through Entities, Tax Notes, Tax Management Real Estate Journal and Business Entities. Mr. O’Connor also has acted as a primary participant in the publication of the nationally recognized treatise Tax Planning for Real Estate Transactions. Mr. O'Connor has been regularly selected for The Best Lawyers in America for both Tax Law and Tax Litigation and Controversy and has been regularly included in Maryland Super Lawyers. Further, Mr. O’Connor was recently named a “Tax Lawyer of the Year” for Maryland. Before joining Venable, Mr. O’Connor was an attorney-advisor for the Office of Chief Counsel for the Internal Revenue Service where he participated in high profile legislative projects and drafted regulations and other published guidance relating to pass-through entities. He received his J.D. degree, magna cum laude, from Washington & Lee University and his LL.M. degree in Taxation, with distinction and the program's highest possible grade point average, from Georgetown University Law Center. Mr. O'Connor is a member of the Virginia, Maryland and District of Columbia Bars as well as the Tax Sections for the Virginia, Maryland and American Bar Associations.
BRIAN J. O’CONNOR co-chairs the Tax and Wealth Planning Group for the Washington, D.C. based law firm of Venable LLP. …
Timothy Terry founded Terry Lockridge & Dunn in 1978. His areas of expertise include private equity taxation issues, business valuations, and mergers/acquisitions. He has advised on private equity/off-shore transactions in the U.S., Europe, Asia and Africa.
In 1980, he established TLD, Inc., a private investment bank. The firm specializes in Leverage Buyouts (LBOs), Management Buy-Outs (MBOs) as well as private equity participations. He has been an advisor for private equity transactions in Europe, Asia and Africa. He has also advised on numerous off-shore and tax treaty related matters. His work in this area, together with his equity and managing partner participations, has enabled him to develop a particular expertise concerning management fee arrangements and their tax consequences.
In 1991 he formed World Trend Financial, an independent brokerage company and a registered investment advisory firm. The firm has been named one of the 300 Top Registered Investment Advisors (RIAs) by the Financial Times of London.
Timothy Terry founded Terry Lockridge & Dunn in 1978. His areas of expertise include private equity taxation issues, business valuations, …
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About Arnold & Porter LLP
Arnold & Porter LLP is an international law firm of nearly 800 lawyers with offices in Brussels, Denver, Houston, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington, D.C. The firm, founded in 1946, maintains more than 25 practice areas spanning a broad spectrum of the law, with a primary focus on litigation, transactional matters, and regulatory issues.
About Venable LLP
An American Lawyer 100 law firm, Venable is a full-service firm with attorneys practicing in all areas of complex litigation, regulatory and government affairs, corporate and business law, and intellectual property. With over 600 attorneys, Venable serves governmental, corporate, nonprofit, institutional and individual clients throughout the United States and around the world from our headquarters in Washington, DC and offices in Virginia, Maryland, New York and California. Founded more than a century ago, Venable has enjoyed a long history of steady growth, high quality service and sound management. Our clients benefit from the broad perspective that our firm brings, as a large number of our attorneys are former prosecutors, regulators and lawmakers, as well as inside counsel. They also rely on Venable's broad capabilities and experience across an array of disciplines and industries. Our lawyers bring a wealth of experience to the challenges and opportunities our clients face, and are recognized in the business and legal communities as the leading practitioners in their fields.
About Terry Lockridge & Dunn
Terry Lockridge & Dunn was established in 1978 to provide tax, accounting and consulting services. In addition to general tax related matters, the firm specializes in issues specifically affecting the investment banking community. Over the last thirty-five years it has advised private investment managers and equity funds on a myriad of complex tax and transactional issues. These have included approaches to structuring agreements to maximize the net return to formation participants.
Timothy Terry, the firm’s founder, has been engaged in investment banking during most of his forty years in practice. The firm’s team of tax and valuation professionals have advised on formation and structural issues affecting both domestic and foreign private placements. The team routinely advises management teams on matters affecting current and proposed IRS regulations.