At least a dozen U.S. private equity firms have been subpoenaed by
the New York state attorney general as part of a probe into whether a widely
used tax strategy that saved these firms hundreds of millions of dollars is
proper, a source familiar with the situation said on Saturday.
[...]
The
subpoenas, which were sent out in July, seek documents related to the conversion
of fees these private equity firms charge for managing investors' assets into
fund investments, the source said. This means the investigation predates the
release last month of confidential Bain fund documents by Gawker that revealed
such a practice.
The practice is known as a "management fee waiver." As fund
investments, the income would be taxed as capital gains, which attract rates
around 15 percent. Without the conversion, the fees would be ordinary income,
taxed at rates around 35 percent.