Tax alert: Sun Capital Partners court case ruling

November 2013
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Tax alert: Sun Capital Partners court case ruling

At a glance

A recent case involving private equity fund Sun Capital Partners IV, LP (Fund IV), highlighted a potential issue for private equity funds that invest in portfolio companies with unfunded pension liabilities. While the case is not a tax case per se (the Internal Revenue Service was not involved and no tax liability was at issue) it has captured the attention of the tax community because the First Circuit attempted to analyze whether Fund IV was engaged in a trade or business for tax law purposes in reaching its conclusion.

At this point, Sun Capital has done nothing to fundamentally alter the tax landscape for private equity funds, their managers, and their investors. The case has, however, highlighted an ERISA risk for funds that have or are considering investments in portfolio companies that have unfunded pension liabilities, leaving private equity funds and their advisors several points to consider moving forward.