Was Blackstone's Initial Public Offering Too Good to Be True?: A Case Study in Closing Loopholes in the Partnership Tax Allocation Rules

Document Type


Publication Date

January 2013


Typically, publicly-traded entities must be treated as corporations for tax purposes. Blackstone Group LP is publicly traded; yet, it is not treated as a corporation for tax purposes. Why not? Blackstone Group LP utilizes complex tax structuring in order to qualify for an exception from the typical corporate tax treatment and, in the process, saves millions of dollars in tax liability annually.Members of Congress proposed reforms that would have prevented Blackstone Group LP from obliterating its tax liability in this manner. Yet, these reforms were not enacted. This Article takes a different approach. It argues that existing law already provides the IRS with the tools needed to challenge the legitimacy of the results claimed by Blackstone Group LP. In the process, this Article highlights an important and unintended loophole in existing partnership tax allocation rules, specifically, the failure of the rules to adequately address allocations among related partners. Finally, this Article proposes that the IRS use general tax law standards to close this unintended loophole.