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In the midst of an ongoing New York State investigation into the accounting practices of some of the country's largest private equity firms, two Republican Congressmen asked State Attorney General Eric Schneiderman's office to "cease its efforts" with regard to requests for tax information made directly to the entities involved, The Huffington Post reported last week.

The letter sent by Sen. Orrin Hatch (R-Utah) and Rep. Dave Camp (R-Mich.), the week of Sept. 16, asked the AG's office to make requests for tax documents directly to the Internal Revenue Service. It also applied to requests made by the State in pursuit of its investigation into the use of "dark money" by nonprofits for political campaigns. ("Dark money" is a term to define funds that are used for an election campaign without being properly disclosed before the election.)

"Schneiderman responded that as New York's top law enforcement official, he is perfectly entitled to ask for tax information directly, and that, indeed, he and officials in many other states do so all the time," as reported by The Huffington Post.

The investigation focuses on the use of the "management fee waiver," an accounting strategy common to private equity firms that allows fees to be converted from income into investments which are taxed at a 15 percent capital gains rate as opposed to an income rate that can be as high as 35 percent.

Tax experts differ on whether the strategy is legal.

As reported by CNNMoney, more than a dozen private equity firms are under investigation, including Kohlberg Kravis Roberts & Company, TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners and Bain Capital, which was founded by Republican presidential nominee Mitt Romney.

Related Links:

Orrin Hatch/Dave Camp Letter to Congress

https://www.nytimes.com/2012/09/02/business/inquiry-on-tax-strategy-adds-to-scrutiny-of-finance-firms.html?pagewanted=all

https://money.cnn.com/2012/09/02/investing/new-york-ag-private-equity-taxes/index.html

https://bigstory.ap.org/article/source-ny-probing-equity-firms-including-bain

https://www.huffingtonpost.com/2012/09/24/eric-schneiderman-dark-money-private-equity_n_1910840.html

https://www.valuewalk.com/2012/09/n-y-attorney-general-investigates-private-equity-firms-tax-strategies/