Tax Receivable Agreements
Tax Receivable Agreements ("TRAs") are legal contracts where a company agrees to share the economic benefits from certain tax savings with another party. These tax savings may relate to deductions for depreciation, goodwill amortization and net operating losses. The first TRAs originated in the early 1990s and TRAs have become increasingly prevalent in recent years. Prior to 2005, TRAs were used in less than 1% of initial public offerings (“IPOs”) but as of 2018, that number had increased to 8% of IPOs. This growth has created an ecosystem of leading accounting and law firms with specialized expertise in TRAs.TRAs are now a common feature of IPOs structured as an Up-C.   Up-C IPOs are designed to generate basis step-ups that allow a company to benefit from substantial tax deductions.