Rollings Fees Into Deals As Equity
Broker's and acquisitions folks let's talk about your fees being put into deals as equity.
I am curious because I was watching a Q&A with Simon Ziff and he casually mentioned in passing that he had found a tax-efficient manner in which to invest the firm's fees. In fact so much so that he regrets having not invested more of the firm's fees during the recession from what I recall.
What I interpreted.... is that he's suggesting that at the closing, since the fee remains in escrow and goes directly into the deal as equity, and thus never touching your bank account until a capital event.... you don't have to report to the IRS that you have "earned" that income because you haven't actually realized it. I have also had close friends tell me they've done this with some big ass fees too ($500k+).
1) If you're a broker and your charge a fee and roll into the deal with a sponsor what's the tax treatment?
2) If you're a sponsor and your LP pays your an acq/structuring fee and it goes into the deal what's the tax treatment?
3) If you transfer funds from one escrow account to another with the intent to invest in another deal (outside of the one your acq/structuring fees were paid for) what's the tax treatment?
4) What happens when you sell the deal? Is it income or cap gains?
Does anyone actually know what the tax rules surround this? Seems like a gray area but apparently everyone does it.
PS - yes i understand that no one here is likely an accountant or tax pro but I'm sure someone has seen how it has been handled it the past at their shop. Save the disclaimers I won't hold you to it lol.
Wish I knew, also interested. Never pushed for it because my firm(s) didn't want their cut rolled in.
Was this on the Tuesday morning Zoom chat with Josh Zegen? I was on that but went to the bathroom and missed 5 mins. Sounds like a good 5 mins.
you couldn’t have the firms half paid out to them at closing..?
no it was on a q&a he did at Penn State (he’s an alumn)
NO ONE KNOWS?!?!
Aut perferendis culpa quo quam non fugiat. Accusantium hic itaque doloremque aut et. Recusandae unde totam blanditiis odio culpa. Similique qui culpa modi est omnis necessitatibus sint. In fuga alias asperiores ea.
Est dolores dolor dolor voluptate odio soluta ut ut. Voluptatibus enim reprehenderit tempore dolorum enim.
Voluptates voluptatem voluptatum voluptatem saepe error eius. Beatae est sed adipisci minus. Qui adipisci tenetur nobis quia laborum voluptate. Eveniet laborum quo quibusdam aperiam. Perferendis beatae minima eaque possimus quam nemo. Rerum quis sunt nulla magnam molestiae qui quo.
Harum mollitia enim est unde voluptatem. Accusamus magni ut nulla enim. Impedit maxime delectus porro cupiditate. Mollitia saepe quae officiis pariatur mollitia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...