Corporate blockers may provide tax-exempt entities an opportunity to enhance certain types of investment returns. With changes in US tax law brought about by the 2017 tax reform legislation, university endowments, foundations, pension trusts, and other tax-exempt entities should analyze whether the use of an alternative investment vehicle (“AIV” or “corporate blocker”) could play an appropriate part in their overall investment strategy.
For tax-exempt investors participating in funds as passive limited partners, many of the same critical decision points with respect to utilizing a corporate blocker structure that existed prior to the 2017 legislation remain relevant. For other tax-exempt investors, the 2017 legislation changes with respect to how tax-exempt entities calculate their unrelated business taxable income (UBTI) may make blocker structures more attractive for certain types of investments.
Action item: Given that corporate blockers continue to be relevant, tax-exempt entities need to understand how corporate blockers can fit into their overall investment strategy.