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.

Real Estate Modeling Course

  • Real-life RE Modeling Tests from actual Interviews
  • Various asset classes including multi-family, commercial and more
  • Huge discount - until more tests and cases added

Comments (5)

May 7, 2020 - 11:32pm

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.

I had a flair for languages. But I soon discovered that what talks best is dollars, dinars, drachmas, rubles, rupees and pounds fucking sterling.
May 8, 2020 - 10:52am

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.

“Doesn't really mean shit plebby boi. LMK when you're pulling thiccboi cheques.“ — @m_1
  • 1
May 9, 2020 - 10:46am

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)

I had a flair for languages. But I soon discovered that what talks best is dollars, dinars, drachmas, rubles, rupees and pounds fucking sterling.
May 9, 2020 - 10:47am

NO ONE KNOWS?!?!

I had a flair for languages. But I soon discovered that what talks best is dollars, dinars, drachmas, rubles, rupees and pounds fucking sterling.
May 9, 2020 - 11:30am

Quo ex omnis in enim et dignissimos. Eaque dicta reiciendis soluta. Tempora corrupti voluptate quia repellat ducimus debitis animi velit. Animi sed et quis dolores.

Fugit aut ut unde. Ut cum omnis officiis voluptatibus consequatur et hic.

I had a flair for languages. But I soon discovered that what talks best is dollars, dinars, drachmas, rubles, rupees and pounds fucking sterling.
Start Discussion

Total Avg Compensation

November 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (40) $360
  • Associates (234) $234
  • 2nd Year Analyst (144) $156
  • 3rd+ Year Analyst (34) $154
  • Intern/Summer Associate (107) $146
  • 1st Year Analyst (513) $136
  • Intern/Summer Analyst (394) $84