When I had my last meetup in Washington, DC, someone who insisted on remaining anonymous came to deliver me one message, which he argued at length: I should exhort readers to comment regularly on pending regulatory actions during the comment period. He said input from members of the public were far more important than most citizens realize, and that he would regularly mine the comments from closed regulatory matters in his work.

So I hope you’ll be willing to spend a couple of minutes to provide a comment on regulatory guidance proposed by the IRS on a private equity tax abuse, management fee waivers. Most of you have probably heard of the widely-publicized private equity “carried interest” loophole, which allows private equity general partners and hedge fund managers convert their labor income, which would normally be taxed at ordinary income rates, into being treated as capital gains and hence taxed at a much lower rate.

The management fee waiver is a smaller but more egregious abuse, which is why the IRS proposed ending it. We’ve described it longer form in previous posts. The short version is it allows general partners to have more of their income from doing their day jobs be taxed at those lower capital gains rates.

A group of Senators is backing the IRS effort. As we wrote in September:

Elizabeth Warren, Al Franken, Tammy Baldwin, and Sheldon Whitehouse wrote a short, forceful letter supporting IRS efforts to end a long-standing private equity tax dodge, management fee waivers… You’ll also see that the Senators’ letter applauds the IRS for taking the position that this tax scheme was never kosher. That gives the agency the power to challenge past tax filings. This certainly appears warranted, given the strong position the IRS has taken. But heretofore the agency has been unwilling to confront large tax payers with savvy lawyers. Let’s hope Warren and her fellow Senators make sure the IRS follows through and dings the private equity miscreants for back taxes owed.

We’ve attached their letter at the end of this post.

Although it’s hard to muster any defense for this practice, the private equity industry may still try pressuring allies and portfolio company employees to send in organic-looking comments to defend the practice. While the IRS is not likely to be moved up to a point, if the comments are too lopsided, it may lead to backsliding, particularly on assessing taxes owed.

Commenting is easy! The simplest way is to go here, http://www.regulations.gov/#!docketDetail;D=IRS-2015-0036, and say, “I support of the comment letter, dated September 21, 2015, submitted by senators Warren, Franken, Whitehouse, and Baldwin. I ask that the regulation be adopted as proposed.”

If you have time, please change the wording a bit and add your own thought. The most important thing is to make your views heard, and if you have something more to say, don’t hesitate to add it.

Thanks for your help!

Letter-to-Treasury-on-Management-Fee-Waivers_final

Letter to Treasury on Management Fee Waivers_final