IRS Cracking Down on Fee Waivers in Real Estate Transactions

The U.S. Treasury Department has proposed new regulations that would make it more difficult for real estate developers to waive management fees that are taxed as ordinary income and to receive profits interests that are taxed at lower capital gains rates. The proposed regulations which would go into effect in 2017, would allow developers to waive management fees, but participants would have to demonstrate that their profits interests are subject to “entrepreneurial risks.”