“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”
Alfred Eisenstaedt/Time & Life Pictures, via Getty Images
Learned Hand, the federal appeals court judge.
— Judge Learned Hand, 1934
Private Equity fund managers use waived management fees to make required contributions to fund a new acquisition of their funds. This is similar to receiving a partnership interest for services which is clearly taxable. Ultimately, the managers pay the cap gain rate on this investment rather than the ordinary income rate. Why doesn’t the IRS challenge this?
A Private Equity Tax Tactic May Not Be Legal – High & – Low Finance – NYTimes.com.
