Face the (Tax) Consequences: Preferred Equity in Private Equity

Private equity investments are a particularly important subject to a tax attorney involved in entity formations, equity issuances, and M&A transactions. This practice note discusses U.S. federal income tax considerations that arise in a preferred equity investment in an operating company organized and operated in the United States. It focuses primarily on the tax considerations applicable to U.S. investors, but also discusses certain considerations applicable to non-U.S. investors, foreign sovereign governments, and tax-exempt entities. Specifically, this practice note addresses preferred stock in a corporation, preferred interests in an LLC or partnership, the conversion of preferred into common interests, deductions, and classification considerations.

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Related Content

• Preferred Stock in Private Equity Transactions: Key Characteristics Chart
  Consult this chart providing an overview of the main terms and characteristics of preferred stock equity financings.
• Tax Benefit Maximization in Mergers and Acquisitions
  Read this practice note surveying the tax considerations for attorneys in the structuring phase of a transaction.
• Pass-Through Entities Taxation
  Review this practice note discussing the tax characteristics of pass-through entities, including partnerships, multi-member series LLCs, S corporations, real estate investment trusts, and regulated investment companies.

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