How Do Tax Receivable Agreements Work

The passage of the tax reform last December gave investors greater security when it comes to corporate tax rates in the near future. One of the consequences is an increased interest on the part of some investors in the acquisition of payment rights under so-called « tax receivables » (« TRAs ») agreements. In short, TRAS are agreements entered into by a company (a « Pubco ») as part of an initial public offering (« IPO ») to monetize the tax characteristics of the post-IPO pubco for the benefit of pre-IPO owners and investors who acquire payment rights under TRAs from these pre-IPO owners. Our previous article on TSEs focused on some of the ways in which tax reform could affect the value of AER`s payment entitlements. Since the adoption of the tax reform, we have seen a significant increase in investor interest in acquiring tra payment rights, in particular hedge funds, family offices and private investment funds. This article describes some of the characteristics of an TRA that an investor should analyze before acquiring rights under an TRA. . Gladriel Shobe Associate Professor, Brigham Young University Law School Posted by simsjg on Wednesday, April 18, 2018 in Essays, Volume 71, Volume 71, Number 3, Volumes. Prior to 2005, TRAs were almost never used in IPOs. Today, they have become daily and are changing the landscape of the IPO market in a way that is likely to be even more pronounced in the future. This article traces the history of different iterations of TRAs and shows that a new generation of more aggressive AA has developed recently.

Although TRAs have only been used in the past for a small subgroup of companies with a particular tax profile, the new generation of innovative and aggressive TRAs can be used by virtually any company that is going public, significantly increasing the potential use of ASAs. Private Benefits-in-Public-Offerings-Tax-Receivable-agreements-in-IPOs For more information on investments in TRAS, please contact one of the following members of the Ropes & Gray team: Each TRA investment should be considered in light of the specific provisions of the TRA and the facts that apply to each Pubco…