Tax Dispute Resolution Quarterly

Private equity funds liable for unfunded
pension liability
By Jeanne Sullivan, Karen Field, and Deborah Fields, Washington
National Tax
In a recent federal district court decision, two private equity funds that owned
a bankrupt company were treated as being in a single deemed partnership
engaged in a trade or business that had common control of the bankrupt
company for purposes of imputing liability for unfunded pension obligations.
At a minimum, the case potentially affects the exposure of a fund for pension
obligations of a portfolio company. Moreover, the court’s analysis in the case
could be invoked by others, such as the IRS or the courts, to disregard a
taxpayer’s organizational formalities and create deemed partnerships that could
result in unanticipated tax consequences beyond the funding of pension plan
liabilities. An April KPMG report discusses how, unless modified on appeal,
the decision may affect future structuring and due diligence for private equity
investments.
Application of SECA to service LLCs and LLPs
By Jeanne Sullivan, Karen Field, and Kelli Cacciotti, Washington National
Tax, and Danchai Mekadenaumporn, Global Mobility Services
The tax regime of the Self Employment Contributions Act (SECA) applies to net
income derived from self-employment—including by partners in partnerships
and limited liability partnerships (LLPs), members in limited liability companies
(LLCs), and sole proprietors. An entity may not realize that LLC or LLP members
are subject to SECA. In the professions of health, law, consulting, accounting,
and other specialized fields, individuals may be subject to SECA if they are
members of a “service partnership” that is an LLC or LLP—even if they only
occasionally provide services to the entity.
This May 2016 KPMG LLP report reviews the guidance in this area and provides
examples for distinguishing when certain service partnership members may be
exempt from SECA.
Incentive stock options—Navigating compliance
requirements
By Gary Cvach and Terri Stecher, Washington National Tax
Startup companies, especially in the high tech industry, frequently grant
incentive stock options to employees. In recent years, companies have
modified their incentive stock option plans due to intense competition
for employees. This May 2016 KPMG LLP article discusses two common
changes—early exercises and extensions of exercise periods—and the tax
ramifications of these changes.
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