DealBook: Why a Pension Case Will Not Change Private Equity Tax Law

by Steve Judge

Steve Judge is president and chief executive of the Private Equity Growth Capital Council.

In a recent Deal Professor column, Steven M. Davidoff writes that a recent pension case decision involving Sun Capital Partners “upends the current tax treatment of carried interest.” The notion that a case involving the Employee Retirement Income Security Act, or Erisas, could be interpreted as a tax case to change settled carried-interest tax law requires the reader to take many leaps of faith (and logic) that run counter to several important facts.

The first is that the United States Court of Appeals for the First Circuit expressly admits that the case is not a tax law case and that its decision applies strictly to potential withdrawal liability in the Erisa multi-employer pension plan context.

The second is that both the Treasury Department and the Internal Revenue Service lack the authority to change the tax treatment of carried interest absent an explicit act by Congress. As former Treasury Secretary Timothy F. Geithner stated in a March 2010 letter exchange with Senator Sheldon Whitehouse, Democrat of Rhode Island: “These changes to current tax law require statutory changes, and unfortunately cannot be done by changes to administrative guidance.”

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