The US Internal Revenue Service has published Proposed Regulations providing detailed guidance on when a purported partnership interest will be treated as a disguised payment for services. The Proposed Regulations employ six factors to determine whether an arrangement constitutes a payment for services, but provide that any arrangement that lacks “significant entrepreneurial risk” will constitute a payment for services regardless of the absence of other factors. These regulations will be of interest to any private equity or similar fund that uses either management fee waivers or administrative allocations in lieu of a management fee. The attached Update, prepared by the Mayer Brown Tax Transactions practice, provides an overview of the proposed regulations.
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