Enter multiple symbols separated by commas

Blackstone Partners May Avoid Tax on IPO Gain: N.Y. Times

Partners of private equity firm Blackstone Group may have devised a way to avoid paying
tax on $3.7 billion raised largely in the firm's initial public offering last month, the New York Times reported on Friday.

Blackstone partners may recoup $553 million in tax payments, and some $200 million more over the long term, the Times reported, without explaining how it arrived at those calculations.

Congress is currently weighing whether to raise taxes on the profits made by private equity and hedge fund firms, which would more than double the tax rate from 15% to 35%.

The Times said Blackstone's tax move hinged on its use of goodwill, an accounting term for the value of the intangible assets built up by a company over time.

Under the plan, partners paid a 15% capital gains rate on the shares they sold last month in the IPO, the Times said. However, Blackstone then arranged to get deductions for itself for $3.7 billion worth of goodwill at a 35% rate, in deductions that must be spread out over 15 years.

The Times said a spokesman told the newspaper its analysis of the tax implications was "totally flawed."

Blackstone spokesman John Ford told Reuters he had no comment on the matter.

Other private equity and hedge fund firms that have already gone public, or plan to, make use of similar techniques, the Times said.

Fortress Investment Group, which went public in February, uses a form of this tax structure, according to the New York Times.

And private equity pioneer Kohlberg Kravis Roberts and hedge fund firm Och-Ziff Capital Management describe similar tax strategies in preliminary prospectuses, the Times said. All three declined to comment, it added.

Contact U.S. News


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

U.S. Video

  • Hero miles for military members: Real estate magnate's plea

    Chairman of the Fisher House Foundation, Ken Fisher, discusses the Hero Miles program with CNBC's Dina Gusovsky. During Military Appreciation Month, Fisher is asking every traveler to donate 1,000 of their miles to replenish the Hero Miles programs that is in danger of running out.

  • Cramer shuts down this market's haters

    "Mad Money" host Jim Cramer on why this market can't stop, won't stop.

  • From the battlefield to the boardroom

    Your Grateful Nation is dedicated to helping Special Forces veterans enter the corporate world and Knot Standard provides complimentary suits to vets. Mad Money's Jim Cramer spoke with Rob Clapper, Your Grateful executive director; John Ballay, Knot Standard co-founder and president; Tej Gill, retired U.S. Navy Seal; and Darren McB, active duty U.S. Navy Seal.