The share price of Fortress Investment Group is today 7 percent lower as a result of fears that proposed tax legislation will take a bigger bite out of the firm’s profits.
The bill, introduced yesterday by US Senators Max Baucus and Charles Grassley, the heads of the Senate Finance Committee, would force publicly traded partnerships like Fortress to pay full corporate income taxes. The bill was inspired by fears that The Blackstone Group’s upcoming IPO was the beginning of a trend for public partnerships to avoid corporate taxes.
One Washington observer put the likelihood of the bill becomes law at “one percent”, noting that it has yet to even make it through the Senate Finance Committee.
The proposed bill, if it is enacted, would apply to any partnership that has not yet filed to go public. For Fortress and Blackstone, which both rely on the same “passive-income” tax exemption, the law would take effect in 2012.
In an article published today, a source told the Wall Street Journal that the introduction of the bill could shave 20 percent off the valuation of Blackstone’s IPO, expected within weeks.
In a filing with the SEC today, Blackstone announced: “If this or any similar legislation or regulation were to be enacted and to apply to us, we would incur a material increase in our tax liability and could well result in a reduction in the value of our common units.”