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Just received this breaking news update from the New York Times ...

The New York attorney general is investigating whether some of the nation’s biggest private equity firms have abused a tax strategy in order to slice hundreds of millions of dollars from their tax bills ... The attorney general, Eric T. Schneiderman, has subpoenaed more than a dozen firms seeking documents that would reveal whether they converted certain management fees into fund investments, which are taxed at a far lower rate than ordinary income ... Among the firms to receive subpoenas are Kohlberg Kravis Roberts & Company, TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners and Bain Capital
Now that certainly sounds interesting.  Full article here.

From the full article ...

The tax strategy — which is viewed as perfectly legal by some tax experts, aggressive by others and potentially illegal by some — came to light last month when hundreds of pages of Bain’s internal financial documents were made available online. The financial statements show that at least $1 billion in accumulated fees that otherwise would have been taxed as ordinary income for Bain executives had been converted into investments producing capital gains, which are subject to a federal tax of 15 percent, versus a top rate of 35 percent for ordinary income. That means the Bain partners saved more than $200 million in federal income taxes and more than $20 million in Medicare taxes.

Originally posted to David Houck on Sat Sep 01, 2012 at 03:26 PM PDT.

Also republished by The Bain Files.

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