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Rob Holo Quoted in The Deal’s Article on the Biden Administration’s Potential Corporate Tax Changes
March 17, 2021
Tax partner Rob Holo was quoted extensively in an article, published in The Deal, on potential trends and outcomes of the Biden administration’s corporate tax rates.
In the article, “Biden's Tax Man May Cometh for PE Firms,” Rob discusses how private equity profits and dealmaking may be significantly reshaped by tax changes under the Biden administration, specifically in relation to potential changes made to the Tax Cuts and Jobs Act (TCJA). An increase in the corporate tax rate would, for example, encourage PE firms to use more flow-through structures for portfolio companies and their income, because entities such as partnerships are not themselves subject to income tax. “That presumably would lead to an increased demand for transactions that are flow-through deals” Rob says.
Corporate taxpayers may also come up with workarounds, such as deferral structures, that avoid or delay taxation. “With taxes, timing is everything,” Rob says, so corporate taxpayers may opt for “structures to defer … income for five or seven years. That’s a huge net present value savings.”
Rob also predicts that a higher tax on corporations will encourage PE dealmakers to seek out more debt financing instead of equity financing as a way to minimize their taxable income. He also notes that the Biden administration’s use of certain tax incentives could offer PE dealmakers a benefit for keeping manufacturing operations in the U.S.