S. Partnership Taxation and Private Equity Deals

In recent years, private equity firms have established themselves as a formidable rival of public capital markets in financing businesses. Indeed, they had 6.3 trillion dollars of assets under management in 2021 -- an amount that is significantly larger than the GDP of Japan, the world's third largest economy. At the same time, the portfolio companies of private equity firms employed over 12 million people.

U.S. private equity funds are virtually always structured as partnerships for tax purposes. The same is true of venture capital funds, hedge funds, and most small businesses in the U.S. One attractive feature of partnerships is that partnership income is subject to only a single layer of tax, at the partner level; by contrast, corporate income is subject to tax at both the corporate and shareholder levels. Another attractive feature is that partnerships are very flexible and allow bespoke and often complex economic arrangements among the partners. In this seminar we will work with these and other unique features of entities that are treated for tax purposes as partnerships, with a particular focus on private equity fund partnerships.

To lay the foundation for the rest of the semester, we will start with the basic rules for the taxation of partnerships. We will then work with these rules as tax advisors to private equity funds, focusing on common partnership tax issues for those entities. We will approach these tasks from the perspective of lawyers in private practice, applying and analyzing the rules as they apply in concrete transactional settings.

There will be a practical exercise for each class to create a type of work product that is common in private practice. This will include traditional drafting projects in portrait formats, including drafting provisions of partnership agreements and preparing short memos. But today advisors often convey their advice in landscape formats, which have become indispensable tools for tax lawyers, so we will also prepare PowerPoint and Excel presentations. Modern legal practice is collaborative, so the class will be divided into teams for many of these exercises.

Our class time will normally be divided into two parts. One part will be technical, in which we will review the Internal Revenue Code, Treasury Regulations and other materials relevant to particular aspects of partnership taxation generally or to private equity funds in particular. The other part will be a discussion of the practical exercise for that class, often with a presentation to the class by one or more class members or teams of their work. All lawyers, and tax lawyers in particular, must be able to convey complex ideas and issues in a clear way, so presentation of exercises to the class is an important part of the course.

Everybody in the class is expected to attend and participate regularly. As this is a collaborative seminar, attendance is mandatory (unless you have provided an acceptable reason for absence at least one day before class). Grading will be based on attendance, preparation and class participation; assigned exercises; and a final exam.