Supercharged IPOs and the Up-C, by Gladriel Shobe

The “supercharged IPO,” a new and increasingly popular financial transaction, has fundamentally changed the nature of IPOs for many companies. Traditionally, an IPO was a tax nonevent for the company and the owners, meaning it created no tax liability for either. Through creative but questionable tax planning, companies have found a way to do better than this by effectively generating a negative tax liability for the company and its owners. These transactions have received substantial attention from practicing lawyers, investment bankers, and journalists, and even briefly caught the attention of Congress, yet they have attracted surprisingly little scrutiny from scholars. The attention they have received has failed to consider the different types of supercharged IPOs, resulting in misguided analyses and conclusions regarding these transactions. This Article examines the costs and benefits of the different types of supercharged IPOs to show that some of these transactions have greater tax benefits than scholars have realized. It places a particular emphasis on the Up-C, a structure with the greatest tax benefits, which scholars have overlooked even though it is by far the most common, and increasingly popular, form of supercharged IPO. A closer examination of the Up-C reveals that this structure produces tax benefits that are not justified by the regulations that supposedly allow them.

 

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