The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses investing in designated primary market makers and private placement memorandums. It is authored by our colleagues Tamara Senikidze and Gerald Thomas as well as George Douvris of RSM US LLP.
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Advanced Issues for DPM & PPM Transactions and Platforms: Business Tax Issues in Light of Tax Reform – Key Takeaways
By Tamara Senikidze, McguireWoods LLP; Gerald Thomas, McguireWoods LLP; and George Douvris, RSM US LLP
In light of the 2017 tax law, commonly known as the Tax Cuts and Jobs Act (TCJA), it is important for a private equity firms investing in DPMs and PPMs will need to evaluate each business its invests in to determine what type of entity should be utilized, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 21 and 22.
Experts included George Douvris, Tax M&A Partner, RSM US LLP, Linda Epstein, Controller, Silver Oak Services Partners, LLC, and Shane Goss, Managing Director, Huron Consulting Group. The panel was moderated by Gerald Thomas, a partner at McGuireWoods LLP.
Here are five key points from the panel discussion.
1. The key components of tax reform affecting PE-backed health care companies include the pass-through tax deduction, interest expense limitation and bonus depreciation.
2. Healthcare pass-through companies performing medical services and employing physicians, nurses, medical assistants, or healthcare professionals are generally not eligible to receive the benefit of the new pass-through tax deduction. Yet, some companies are exploring ways to restructure their businesses to take advantage of the deduction in limited settings.
3. Many of the elements of tax reform (e.g., repeal of the interest stripping rule, adoption of limitations on deductibility of interest, limitation computations at partnership level, exclusion of certain trades and business from limitations, and expanding the definition of “qualified property” in the context of business depreciation) continue to evolve as additional regulations and guidance are issued by the IRS, leaving practitioners and taxpayers in a bit of flux as the new rules are navigated this current filing season.
4. The general consensus is that more proactive planning and collaboration between taxpayers and their tax return preparers/attorneys is necessary to understand and properly navigate the new rules.
5. The new tax rate structure is generating significant discussion related to tax entity choice (corporate vs. pass-through). While current entities are ultimately not making any changes to their entity status, new platforms and funds are spending considerable time determining what type of entity makes sense for them.