Thursday, July 26, 2012

Hirschfeld Industries' Tax Situation

Prior to being bought out by Insight Equity Hirschfeld Industries paid federal taxes at a 36% rate.  Post buyout the rate is 1% or less.

How did this occur?  Insight Equity fashioned Hirschfeld into its private equity underwriter (PEU) image.  As a Texas Limited Partnership Hirschfeld spins profits out to partners via distributions, which are taxed as investment income at a preferred rate of 15%.  In the PEU world this is known as "carried interest." 

While PEU Hirschfeld hates paying taxes, it benefited from government spending.

This is the picture available on Hirschfeld Industries, thanks to their 2009 effort to go public.  Had that not occurred, the public would be blind to Hirschfeld's operations.  Such cases require a whistleblower or leaker.

I chronicled the private equity explosion on PEU Report and am sad to find an example of greed so close to home.

Click on any image to make it larger.


Anonymous said...

Dear mr peu reporter - Herschfeld was a corporation before insight bought them out. Corporations pay taxes. Partnerships don't pay taxes. But the partners do. After insight came in and took them in 2006 they became a partnership. The taxes you see will be other types of taxes not income. Come on you need to ask your accountant to undrstand this stuff first.

PEU Report/State of the Division said...

Thank you for reiterating points made on my PEU Report blog. It helps when an affiliate (or their accountant) speaks directly in their defense:

Anonymous said...

Look at page 12 of the document and you will see that the rate is 36 percent a year for 2009 2008 2007 2006 not 1 percent as you say and read the notes that are underneath that.

PEU Report/State of the Division said...

The footnote does not say Hirschfeld paid tax at a 36% rate. It states:

"(1) Income taxes for the periods subsequent to April 26, 2006 relate primarily to entity-level franchise taxes and income taxes related to our foreign corporate subsidiary since, as a partnership entity, such taxes on income from our operations are generally liabilities of the individual partners. For comparative purposes, we have estimated pro forma tax expense as if we had filed federal and state income tax returns for the periods after April 27, 2006."

"Pro forma" & "as if" have no bearing on reality. Hirschfeld clearly stated their tax expense in their S-1. The tax rate is but a bit of math.