On May 10, 2013 the SEC and IRS passed final regulations under section 336(e) that provide basis step-up opportunities for non-corporate acquirers. The new regulations provide an opportunity for a Private Equity Fund (PE) to acquire a target and receive a basis step-up and tax shield, without creating a purchasing corporation or otherwise restructuring the target prior to the acquisition. Further, a PE now has the flexibility to restructure the target such that the ongoing activity is conducted through an LLC taxed as a partnership, which would allow the fund to pass on a full basis step-up upon exit and eliminate future corporate taxation on the target’s activities. In addition, the new regulations may provide the ability to separate multiple businesses post-acquisition in a much more tax-efficient manner than previously existed, thereby allowing a PE to better align its investments.
The full article from McGladrey can be found here.