Friday, March 30, 2007

The Taxman Cometh...But Only for Some?

Today Bloomberg reports that the partnership structure Blackstone is proposing in its IPO could give it a tax advantage over such rivals as Goldman Sachs and Morgan Stanley. This is just the latest of the tax-related questions that have come up around the public offering. Last week on NPR's Marketplace, Alan Sloan noted the complications common shareholders might have accounting for Blackstone shares on their own tax forms; a challenge Blackstone itself noted in its filing, stating "Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units," and informing potential shareholders that they "should anticipate the need to file annually a request for an extension of the due date of their income tax return" because the firm anticipated delays in furnishing tax information in time. (For more analysis of the tax implications of Blackstone's proposed partnership structure, see Victor Fleischer's blog at

Of course, this debate pales next to that over the overall tax structures that private equity firms operate under, specifically questions about whether the money firms make on the "carry"--or their share of the profits of the fund, typically 20%--should be taxed as capital gains or income tax. Private equity firms stand to lose a lot of money if Congress decides to clarify the law and treat their carry as income (taxable at 35%) rather than as capital gains (taxable at 15%). Avoiding such a hike could be one of the reasons that Blackstone wants to make a public offering now. Stay tuned for responses from politicians, potential shareholders and everyday taxpaying Americans.


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