Client Profile
| Industry: | Private Equity | | Assets Managed: | >$9 Billion | | Geographic Footprint: | New York City | | Ownership Structure: | Multi-tiered partnership/LLC | |
Issue
An investor had more than 100 partnership investment funds, some of which had Pennsylvania-sourced income or loss, but the taxpayer filed a Pennsylvania capital stock/foreign franchise tax return with zero apportionment to the state. The error led to an increase in the investor’s apportionment factor, and a $1.2 million franchise tax assessment that excluded interest or other penalties.
Solution
Our national state and local tax group helped the investor mitigate its tax bill by evaluating the correct flow-through apportionment for the investment funds. The multi-tiered partnership structure had insignificant ownership interests, which made determining the apportionment formula complex. Our group worked closely with the investor to remediate the error made and report the correct apportionment factor for the investment funds’ capital stock/foreign franchise tax return. We then negotiated a resolution with the Pennsylvania Department of Revenue that significantly decreased the tax bill.
Outcome
With our assistance, the taxpayer settled the corporate franchise tax assessment for $2,500, a reduction of more than $1.2 million from the original tax bill. Additionally, the services we provided mitigate the risk of future compliance concerns related to the reporting of capital stock and foreign franchise tax.
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