The New York Times Cites Two Steptoe Partners on Offshore Tax Shelters

The New York Times references Steptoe partners Anne Moran and Suzanne McDowell in an article titled “Romney’s Returns Revive Scrutiny of Offshore Tax Shelters.”  The article, published February 7, explores blocker corporations, which are a tax planning strategy to avoid something called the unrelated business income tax (UBIT).  The strategy allows nonprofit institutions and large retirement funds to invest in private equity firms.  Such private equity investments are frequently subject to UBIT.  But by investing through an offshore corporation in a tax haven, pension funds, universities, foundations and even large individual retirement accounts can structure those investments via a blocker corporation to avoid that tax.  Although the IRS has ruled favorably on this tax planning technique and many tax practitioners question whether UBIT should even apply to private equity investments, so-called UBIT blockers cost the United States Treasury nearly $1 billion a decade, according to Congress's bipartisan Joint Committee on Taxation.

In the article, Ms. Moran, whose practice focuses on employee benefits, and Ms. McDowell, who is knowledgeable about the UBIT, explain how such a fund can benefit individual retirement accounts.

To reap the advantages of a partnership, the I.R.A. investment manager buys shares in a blocker corporation. The corporation then invests in the partnership, and investment gains are paid out as dividends, not subject to the tax, Ms. McDowell said.

The full article can be read at The New York Times.  A version of this article also appeared in The Boston Globe.