The Tax Debt Agreement (TRA) is a contract between former shareholders who sold their partners and the new public company C Corp, which acquired the shares in order to share the value of the tax benefits resulting from the gradual implementation of the sale of the shares. Typically, senior partners receive 85% of the tax savings from the sale and C Corp retains 15% of the value. A TRA liability is covered by C Corp for the 85% tax savings to be paid to former partners. The passage of tax reform last December gave investors greater security when it comes to corporate tax rates in the near future. One consequence is the increased interest of some investors in acquiring payment rights under existing tax receivable agreements (TRAs). In short, ACCORDS are agreements made by a company (a “pubco”) as part of an IPO to monetize Pubco`s tax attributes after the IPO for the benefit of owners prior to the IPO and investors who acquire payment rights under TRAs to such pre-IPO owners. Our previous article on ARTs focused on some ways in which tax reform could affect the value of TRA payment rights. Since the introduction of tax reform, we have seen a marked increase in investor interest in the acquisition of TRA payment rights, including through hedge funds, family offices and private trust funds. This article describes some of the functions of an AED that an investor should analyze before acquiring rights under an AER. The Up-C structure takes its name from the UpREIT transaction, which became popular in the late 1990s. With a few exceptions, a company wishing to become a limited company must be taxed as C Corporation (C Corp).

As a result, many companies that have been taxed as a partnership in the past turn into C Corp. before undertaking the IPO. This conversion can be done in a large number of tax-exempt transactions. The type of exempt transaction that C Corp has the effect of transferring a tax base on commercial assets. As a result, the transformation of the partnership into C Corp results in the integrated benefit of the company`s assets being increased from a single tax level to a double level of taxation (at the C Corp level and in the case of distribution at the shareholder level). The above discussion was based on a single sale of the interests of the former partners.