Treasury Issues Proposed Regulations on Management Fee “Waiver” Mechanisms
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- Last week, the Treasury and the IRS issued proposed regulations relating to disguised payments for services rendered by a partner to a partnership.
- The proposed regulations focus primarily on whether the payment to the service provider lacks “significant entrepreneurial risk.”
- Although expected to target management fee “waiver” mechanisms, the proposed regulations are much broader and implicate other partnership arrangements, including the profits interest safe harbor of Revenue Procedure 93-27. They do not appear to modify the tax treatment of carried interest.