ES NPA Holding, LLC v. Comm’r: Certain Implications of a Recent Tax Court Case on Private Funds and the Profits Interests They Issue

Tax partners Sean FitzGerald and Leila Vaughan authored an article for The Investment Lawyer about the implications of a recent tax court case, ES NPA Holding, LLC v. Commissioner, on private funds and their sponsors. The authors note that developments in the tax law surrounding profits interests are not common, but this recent decision provides guidance that may be of particular interest to fund sponsors that establish complex or multi-tiered structures.

FitzGerald and Vaughan highlight that although the Tax Court’s holding in ES NPA Holding is positive overall and consistent with the reasonable approaches many tax practitioners and their fund sponsor clients have been taking, the Internal Revenue Service (IRS) took some surprisingly aggressive positions in this audit and held fast to those positions through litigation. They add that in the coming years, especially in light of the expected increase in partnership audits resulting from the Bipartisan Budget Act of 2015, it will be important to monitor the IRS’s attitude toward profits interests.

The full article is available to The Investment Lawyer subscribers.