Although a traditionally illiquid asset, investors in private equity (PE) and other closed-end funds sometimes need to cash out prior to the end of a PE fund’s term. Secondary sales of PE fund interests offer a straightforward pathway for an investor to achieve liquidity. Several key U.S. federal income tax considerations must be weighed, however, by PE sponsors and investors planning to engage in secondary sales of PE fund interests. In addition, there are non-tax issues that should be considered when structuring a secondary sale of a PE fund interest.

This article discusses common tax-driven transfer restrictions contained in PE fund operating documents; U.S. federal withholding taxes and related withholding certificates; optional and mandatory tax basis adjustments; and allocation methodology and indemnification considerations when drafting purchase and sale agreements of PE fund interests.

To read the full article, click here.

This article first appeared as a publication in Private Equity Law Report.

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