Anticipating profits interests distribution - What questions to ask?

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BostonBorg
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Joined: Tue Aug 13, 2013 9:14 am

Anticipating profits interests distribution - What questions to ask?

Post by BostonBorg »

A few years back, my privately held company was acquired by a larger privately held company. I don't know the full corporate structure, but it's private equity backed. I believe the corporation (from where I get a W2) is help by a Limited Partnership holding company (Company XYZ Holdings LP) from which the private equity fund is the main investor and unit holder. In 2019 I was given a set of Class B units to the limited partnership with a 5 year vesting schedule. These are intended to be "profits interests" and had $0 value at issue and vest. I was instructed and filed an 83(b) with the IRS and have been receiving $0 K-1s each year since.

I come to learn that the partnership will likely go through a re-capitalization event, likely within the next few months. We've been told
a) the Class B units will have accelerated vesting and b) there will be a distribution of money. I'm trying to understand a few things about profits interests and my future tax liability. The new corporate structure will be very similar, but with a new limited partnership owning the corporation. I may or may not receive a new Class B grant, but I will have the opportunity to invest in Class A units in the new structure and defer some of the tax liability (or so I'm told). I will likely pass as I generally try to sell any vested/sellable company stock ASAP. Questions

  • On the K-1, what line will profits interests show up on?
  • Will I be responsible for self-employment tax?
  • Any other questions I should ask and/or think about?

I don't expect the $ amount to materially change my family's finances. This should be more like a nice bonus, but since we usually do pretty detailed tax planning and withholding adjustment during the back half of each year, I'm trying to understand what questions to ask. Thanks in advance.
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