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Illustration: Sarah Grillo/Axios

President Biden is increasingly unlikely to get his corporate or individual tax hikes, at least without reconciliation, and most venture capital firms are keeping their fingers crossed instead of prepping tax avoidance strategies.

Behind the scenes: VC lawyers and CFOs have spent the past couple of months discussing new fund structures that could offset the elimination of carried interest's beneficial tax treatment, as proposed last month by the U.S. Treasury Department.

  • The most popular suggestion is to create special purpose vehicles for a fund's nonmarketable securities, contributed in-kind via general partners, thus effectively locking in the carried interest.
  • This would essentially be a tax deferral scheme, with the hope that a future president would reverse the carried interest move and/or lower capital gains rates.
  • But this is a big ask of limited partners, which is why VC firms are doing more talk than action. It involves added audit risk, new clawback complications and the potential of distributing nonmarketable securities to LPs (who are paying GPs to do that job).

In the spotlight: A lot of this came to light after a recent Bloomberg story that Sequoia Capital asked its LPs to make two key changes to existing fund structures, including the movement of nonmarketable and marketable securities into an SPV. As one fund formation lawyer told me: “That story caused a lot of firms to call us, but it caused a lot of firms who were thinking about this to walk away… It was like a giant flashing light for the IRS.”

  • I’m confused about the story’s argument that Sequoia’s rationale is to lock in 2021-era carried interest rules. Again, this seems more about tax deferral rather than acceleration. Were Sequoia to want to tie in 2021 rules, why also include marketable securities (companies like Airbnb and Unity) in the SPV, rather than just distribute those now?
  • It appears Sequoia is viewing this as the first step toward a massive overhaul of its entire fund structure – one source called it a “radical” plan – which is set to be unveiled in Q4 or Q1 2022. Long-term tax strategy may be a factor, but short-term tax strategy doesn’t seem to be.
  • Sequoia isn’t commenting, but my understanding is that its limited partners have already approved the changes (despite not knowing the master plan, which is a fiduciary duty-scratching display of faith).
  • Word also is that if Sequoia does get audited, the firm’s partners will cover that expense, rather than passing it onto LPs via management fee income.

The bottom line: Sequoia, per usual, is one step ahead of most of its peers. But they may not be running the same sort of race.

Go deeper

Estimate: Revenues would drop before increasing under Dems' tax plan

Democratic Rep. Richard Neal, chair of the House Ways and Means Committee, which has submitted a draft proposal on raising taxes. Photo: Tom Williams/CQ-Roll Call via Getty Images

Democrats plan to raise $1 trillion over 10 years by making the federal income tax code more progressive. But they won't get the money quickly — their plan actually decreases total income tax revenues in 2023. And when the money does come, it will come from the very rich.

Why it matters: Estimates released by the bipartisan Joint Committee on Taxation on Tuesday show the House Democrats' plan raising $12 billion less than the current tax regime in 2023. But it will raise $133 billion more in 2029.

Updated Sep 15, 2021 - Energy & Environment

California fires force Sequoia National Park personnel to evacuate

A person at the base of the General Sherman Tree in Sequoia National Park in 2006. Photo: Myung J. Chun/Los Angeles Times via Getty Images

Two uncontained California wildfires are projected to spread toward Sequoia National Park, forcing around 75 park personnel to evacuate, AP reports.

Why it matters: Park officials said the fires have the potential to threaten a part of the park known as Giant Forest, which is home to more than 2,000 giant sequoias, including one that is considered the largest tree on Earth by volume.

Updated 5 hours ago - Technology

From Malcolm X to "Free Britney," new media shapes the justice system

Illustration: Shoshana Gordon/Axios

True crime documentaries, podcasts and social media campaigns are bringing new attention to real-world legal proceedings — and are often affecting the outcome.

Why it matters: New media platforms can instantly put a national spotlight on cases that have long been forgotten or buried under red tape.