So far, it looks like the Blackstone Group IPO will be a blow-out offering. But on Capitol Hill, things are less sanguine. With high budget deficits, there's lots of temptation to soak the private equity folks for more tax revenues.
Well, according to a MarketWatch report, the Senate Finance Committee is preparing some new legislation on the matter.
Basically, gains for private equity are taxed at favorable long-term cap rates; that is, 15%. But, if personal income rates are applied, the government can then charge 35%.
In fact, if you read the Blackstone IPO filing, there are two Risk Factors that warn about the possible adverse tax consequences. According to Blackstone:
"Depending on the specific provisions, the enactment of any such legislation could (1) materially increase taxes payable by holders of our common units who are individuals, non-U.S. persons or tax-exempt persons and/or (2) cause such income to be non-qualifying income under the publicly traded partnership rules, which could preclude us from qualifying as a partnership for U.S. federal income tax purposes or require us to earn such income through corporate subsidiaries, thereby materially increasing our tax liability and reducing the value of our common units."
Yes, it's legalistic mumbo jumbo. But, then again, it essentially means it's bad news for Blackstone if Congress gets its way.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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