Insights

Private equity firms sometimes waive management fees payable by portfolio investment entities or funds in exchange for new partnership interests in the entities or funds. In theory, the practice is fair because the fee recipients surrender a certain stream of income in exchange for a partnership “profits interest” that may…

We have discussed a structuring technique real estate investors use to protect the lower-federal-income-tax-rate-long-term-capital-gain treatment of real estate gains, before property is converted to an active development purpose that creates higher-tax-rate income. The structuring requires property transfers and the use of multiple business entities, which decreases transparency for the government…

In January we noted a new Tax Court case, Pool v. Commissioner, addressing the boundaries of a structuring technique real estate investors use to protect the lower-federal-income-tax-rate-long-term-capital-gain treatment of real estate gains, before property is converted to an active development purpose that creates higher-tax-rate income. Tax Court Sets Boundaries For Predevelopment Capital…

On January 30, IRS proposed income tax regulations reducing flexibility to allocate partnership deductions. The regulations also limit tax-free contributions and distributions of leveraged property, including mortgaged real estate, to and from partnership entities. The taxation of partnerships and many LLCs could change. Old transactions are not permanently grandfathered. Pre-existing…

A recent Tax Court case, Pool v. Commissioner, is the first court opinion in many years describing the limits of a popular capital gain tax planning technique used by real estate investors and developers. Some real estate project legal structures enable investors to recognize a mix of long-term capital gain and…