I’m Curious About Private Equity Law

In order to provide as much detail as possible, Ex-Bitter asked one of New York’s top private equity lawyers to answer the following advice question. That lawyer’s reply is posted below. Bitter Lawyer thanks him for his help and insight.

What do Private Equity lawyers do and is it hard to get in to such an area?

To understand what private equity lawyers do, you really have to take a step back and know what a private equity firm (ie, the PE lawyer’s client) does.  Essentially, PE firms operate funds that pool the investments of pension funds and anybody else who has a lazy few million that they’re prepared to part with for a decade or so.

The private equity firm takes this cash, together with a truckload of debt that it borrows from banks, and goes about buying companies or other assets with the idea of selling them a few years later at a massive profit. The theory is that the private equiteers will use their big Wharton brains and savvy industry contacts to magically transform the company into something way more valuable than the original owners ever could.  The fund repeats this formula about a dozen times, gives the investors back their money with a whopping return around 10 years later, and takes rapacious fees (and upwards of 20% of any profits) for itself.  Everybody wins!!

Except the lawyers. PE lawyers have basically two functions: (i) they form the funds (which are typically structured as limited partnerships) and help the PE firm negotiate the terms on which investors contribute their cash; and (ii) they act for the PE fund when it buys and sells its investments.

The first function is very technical and tax-driven.  Some people profess to find it interesting. Personally, I think its as boring as batsh*t. The second function is basically the same as what an M&A lawyer does, but with the added twist that your client is younger than most of your underwear and makes 10 times as much money as you do. Private equity firms are a notoriously demanding category of client. They work hard themselves, and they’re smart enough to know they can keep legal costs down by compressing the timeframe of any task they feed to their lawyers.

So, you should expect to work to tight deadlines on nights, weekends, public holidays, your wedding day, whenever. (I realize that a lot of people get screwed at big firms, and just about everybody knows what its like to see the sunrise from their office, but I really feel that private equity lawyers are especially vulnerable to the “Gee, I hate to bring this to you late on a Friday, but I’m going to need everything by first thing Monday” client call.) And here’s the best bit: at most firms, all this extra toil and aggravation won’t earn you a cent more than the Trusts & Estates associate down the hall who clocks off at 6:30 every night. Sweet!

Nevertheless, if you’re among that special breed of people who are masochistically driven to work faithfully in the service of those much richer than themselves, there is (sort of) an upside. It’s hard to imagine a practice group in any large law firm that provides a broader range of experiences than private equity.  The clients and their deals tend to be very financially sophisticated, and while some private equity firms have a limited industry focus, many of them will invest in just about anything they can make money, so you’ll likely encounter a more diverse spectrum of transactions than you’ll see elsewhere. The learning curve is long and steep—and you’ll be death-marched up it in double-time—but if you put your own skill set development ahead of such trivialities as maintaining healthy relationships with friends and loved ones, private equity may be a good bet.

So, how do you get in?

That might be a little tricky nowadays. A couple of years ago, becoming a private equity lawyer required little more than a JD and a pulse.  But things have changed. The credit crunch has not been kind to PE firms, which rely upon bank debt to muscle-up their investment returns.  Deal flow is down, and so is law firm hiring. A few firms are recruiting sporadically to deal with attrition, but most industry participants have stalled their hiring drives for the time being. If you can’t find a specific PE position, the best bet is probably to take any corporate role at one of the firms that is especially active in the area (Simpson, Skadden, Latham, Weil, Ropes, etc.), and then try to sidestep when conditions improve.

An individual receiving Letter 1153(DO) and Form 5471 has 60 days to file a written protest with the IRS Appeals Office to challenge the TFRP determination. The protest should contain a complete discussion of the facts and legal authorities that show that the individual was not a responsible person for the company’s employment taxes or that he did not act willfully. The protest, or a subsequent submission to the Appeals Office, should include documentary evidence, such as business records and affidavits, that supports the individual’s case. At the conference, an authorized representative will present arguments that the individual should not be held liable for the TFRP or that the penalty should be compromised on the basis of hazards of litigation.

Post-Assessment Procedures


If the Appeals Office upholds the TFRP, the IRS will assess the penalty against the individual and issue notice and demand for payment of the trust fund taxes. The individual can dispute the IRS’s decision in court, but first must pay a “divisible” portion of the penalty for each quarter of the employment tax assessment and file a claim for refund with the IRS.

The divisible amount of the tax is equal to the withholding taxes attributable to a single employee for each payroll tax quarter covered by the penalty assessment. If the IRS issues a Notice of Disallowance of the refund claim, or takes no action on the claim for a period of six months, the individual can commence a refund suit. The lawsuit must be initiated within two years of the date that the divisible tax was paid, or two years from the date that a Notice of Disallowance was issued. The action can be filed in the local United States District Court or the Court of Federal Claims.

Fighting the Law and Winning


Preparation is crucial to winning a TFRP case. A professional advisor must exhaustively develop the facts and review company business records, correspondence, and e-mails. These documents, together with affidavits from third parties, should be used to show the limitations on the authority and the lack of willfulness of the potential responsible person. The advisor’s development of the facts, and knowledge of the law and IRS procedure, will advance the likelihood of a successful outcome.

warren g. moseley


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