1023-00003
· Ironside Capital Management LP · IDR Responses
holding-period-schedule.xlsx
DOCUMENT
M&A / Corporate
[sheet: Cover]
| Field | Value |
| Document Title | Trade-Level Holding Period Analysis — IRC § 1061 |
| Prepared By | Robert Jansen, Calderwood & Harkness LLP |
| Reviewed By | Leila Nazari / Sylvia Hartwell, Calderwood & Harkness LLP |
| Date Prepared | July 26, 2023 |
| Enclosed With | IDR #3 Response dated July 28, 2023 |
| Client | Ironside Capital Management LP |
| Client EIN | 83-2741956 |
| General Partner | Ironside Capital GP LLC (EIN: 83-2741890) |
| Tax Year Under Examination | Calendar Year 2021 (January 1 – December 31, 2021) |
| Form 1065 Filing Date | September 15, 2022 (on extension) |
| IRS Examination Opened | March 22, 2023 (Letter 2205-D) |
| Lead Examiner | Timothy J. Albrecht, Revenue Agent, GS-13 (Badge No. 74-28193) |
| Supporting Examiner | Dawn M. Petrovic, Revenue Agent, GS-12 |
| IRS Counsel | Eric S. Lundgren, Attorney, Office of Chief Counsel, LB&I Branch 5 |
| IRS Practice Area | Pass-Through Entities, Large Business & International Division |
| Issue Addressed | IRC § 1061 — Three-Year Holding Period for Applicable Partnership Interests |
| Amount at Issue | $38.7M of $94.3M total performance allocations to GP for 2021 |
| Prime Broker / Custodian | Ridgeline Securities LLC |
| Purpose | Demonstrate that all 14 positions challenged by the IRS exceeded the three-year holding period required by IRC § 1061 for long-term capital gain treatment |
| Privileged & Confidential | Prepared in connection with IRS audit defense; subject to attorney-client privilege and work product doctrine |
[sheet: Holding Period Analysis]
| Position ID | Security / Instrument Name | Instrument Type | Acquisition Date | Disposition Date | Holding Period — Days | Holding Period — Years | Three-Year Threshold Met? | Acquisition Cost ($) | Sale Proceeds ($) | Realized Gain / (Loss) ($) | LTCG / STCG Classification | Ridgeline Securities LLC Trade Confirmation Ref. | Notes |
| POS-001 | Meridian Industrial Holdings Inc. — Common Equity | Common Stock | 2017-06-12 | 2021-02-08 | 1337 | 3.66 | Yes | 8200000 | 12450000 | 4250000 | Long-Term Capital Gain | RDG-2021-00412 | Acquired via block trade; single lot |
| POS-002 | Castlebridge Energy Corp. — Senior Secured Notes 6.25% 2024 | Corporate Bond | 2017-09-18 | 2021-04-22 | 1312 | 3.59 | Yes | 15500000 | 18100000 | 2600000 | Long-Term Capital Gain | RDG-2021-01087 | Purchased in primary offering |
| POS-003 | Pinnacle Dynamics Group Ltd. — Common Equity | Common Stock | 2017-11-03 | 2021-05-14 | 1288 | 3.53 | Yes | 6800000 | 9950000 | 3150000 | Long-Term Capital Gain | RDG-2021-01534 | Event-driven position; merger arbitrage origin |
| POS-004 | Ashford Maritime Logistics Inc. — Convertible Preferred | Preferred Equity | 2018-01-22 | 2021-06-30 | 1255 | 3.44 | Yes | 11000000 | 13200000 | 2200000 | Long-Term Capital Gain | RDG-2021-02198 | Converted to common prior to sale; holding period tacked |
| POS-005 | Quartzfield Technologies Inc. — Common Equity | Common Stock | 2017-08-07 | 2021-03-19 | 1320 | 3.61 | Yes | 4300000 | 7800000 | 3500000 | Long-Term Capital Gain | RDG-2021-00789 | Global macro thematic position |
| POS-006 | Northbrook Capital Properties REIT — Common Units | REIT Units | 2018-02-15 | 2021-07-09 | 1240 | 3.39 | Yes | 9100000 | 11300000 | 2200000 | Long-Term Capital Gain | RDG-2021-02456 | Credit strategy allocation |
| POS-007 | Velara Pharmaceuticals Corp. — Common Equity | Common Stock | 2017-12-11 | 2021-08-23 | 1351 | 3.7 | Yes | 5600000 | 8750000 | 3150000 | Long-Term Capital Gain | RDG-2021-03012 | Event-driven; FDA catalyst |
| POS-008 | Granitewood Infrastructure Partners LP — LP Interest | LP Interest | 2018-03-05 | 2021-09-10 | 1285 | 3.52 | Yes | 12400000 | 15100000 | 2700000 | Long-Term Capital Gain | RDG-2021-03387 | Infrastructure credit co-investment |
| POS-009 | Suncrest Renewable Energy Holdings — Common Equity | Common Stock | 2017-10-16 | 2021-06-02 | 1325 | 3.63 | Yes | 7200000 | 10500000 | 3300000 | Long-Term Capital Gain | RDG-2021-01890 | Global macro / ESG overlap position |
| POS-010 | Harborline Shipping Group Inc. — Senior Unsecured Notes 5.75% 2023 | Corporate Bond | 2018-04-09 | 2021-10-18 | 1288 | 3.53 | Yes | 13800000 | 15950000 | 2150000 | Long-Term Capital Gain | RDG-2021-03789 | Credit strategy; distressed purchase |
| POS-011 | Trident Aerospace & Defense Corp. — Common Equity | Common Stock | 2017-07-24 | 2021-04-05 | 1351 | 3.7 | Yes | 3900000 | 6100000 | 2200000 | Long-Term Capital Gain | RDG-2021-00956 | Event-driven; defense sector consolidation thesis |
| POS-012 | Clearmont Data Systems Inc. — Common Equity | Common Stock | 2018-05-14 | 2021-11-22 | 1288 | 3.53 | Yes | 5100000 | 8200000 | 3100000 | Long-Term Capital Gain | RDG-2021-04210 | Technology sector; acquired in secondary block |
| POS-013 | Brightpath Consumer Brands Inc. — Common Equity | Common Stock | 2017-04-19 | 2021-01-29 | 1381 | 3.78 | Yes | 4500000 | 6900000 | 2400000 | Long-Term Capital Gain | RDG-2021-00198 | Consumer discretionary; earliest acquisition in challenged set |
| POS-014 | Edgewater Credit Opportunities Fund II LP — LP Interest | LP Interest | 2018-06-25 | 2021-12-15 | 1269 | 3.47 | Yes | 10200000 | 12000000 | 1800000 | Long-Term Capital Gain | RDG-2021-04598 | Credit fund co-investment; latest disposition in challenged set |
| TOTALS | 14 of 14 = Yes | 117600000 | 156300000 | 38700000 | All Long-Term Capital Gain | Minimum holding period: 1,240 days (POS-006); all exceed 1,095-day threshold |
[sheet: Summary Statistics]
| Metric | Value |
| Total Number of Challenged Positions | 14 |
| Total Acquisition Cost (All 14 Positions) | $117,600,000 |
| Total Sale Proceeds (All 14 Positions) | $156,300,000 |
| Total Realized Gains (All 14 Positions) | $38,700,000 |
| Total 2021 Performance Allocations to GP | $94,300,000 |
| Challenged Amount as % of Total Performance Allocations | 41.0% |
| Positions Meeting IRC § 1061 Three-Year Holding Period | 14 of 14 (100%) |
| Positions Failing IRC § 1061 Three-Year Holding Period | 0 of 14 (0%) |
| Minimum Holding Period (Days) | 1,240 (POS-006: Northbrook Capital Properties REIT) |
| Maximum Holding Period (Days) | 1,381 (POS-013: Brightpath Consumer Brands Inc.) |
| Average Holding Period (Days) | 1,310 |
| Average Holding Period (Years) | 3.59 |
| Earliest Acquisition Date | April 19, 2017 (POS-013) |
| Latest Acquisition Date | June 25, 2018 (POS-014) |
| Earliest Disposition Date | January 29, 2021 (POS-013) |
| Latest Disposition Date | December 15, 2021 (POS-014) |
| All Positions Classified As | Long-Term Capital Gain |
| IRC § 1061 Three-Year Requirement | Holding period must exceed 3 years (1,095 days) for LTCG treatment of applicable partnership interests |
| Trade Confirmations Source | Ridgeline Securities LLC (Prime Broker) |
| Fund Gross Return (2021) | ~18.7% |
| Fund AUM (12/31/2021) | $3.82 billion |
| Carried Interest Rate | 20% above 8% preferred return (full catch-up), per LPA §5.2 |
[sheet: IRC 1061 Reference]
| Topic | Detail |
| Statute | IRC § 1061 — Partnership Interests Held in Connection with Performance of Services |
| Effective Date | Tax years beginning after December 31, 2017 (Tax Cuts and Jobs Act of 2017) |
| General Rule | Net long-term capital gain with respect to an applicable partnership interest is treated as short-term capital gain unless the holding period exceeds 3 years |
| Applicable Partnership Interest | Any interest in a partnership transferred to or held by a taxpayer in connection with the performance of substantial services in an applicable trade or business |
| Applicable Trade or Business | Any activity conducted on a regular, continuous, and substantial basis which consists in whole or in part of raising or returning capital, and investing in, disposing of, or developing specified assets |
| Three-Year Holding Period | Gain attributable to assets held for 3 years or less is recharacterized as short-term capital gain; the 3-year period = 1,096+ days |
| Relevance to ICM | Ironside Capital GP LLC holds an applicable partnership interest in ICM; the 20% carried interest / performance allocation is subject to IRC § 1061 |
| IRS Examination Issue | Whether 14 positions liquidated in 2021 met the three-year holding period; $38.7M of the $94.3M GP performance allocation is at issue |
| ICM's Position | All 14 positions exceeded the three-year holding period; no recharacterization is warranted |
| Potential Tax Impact if Reclassified | $38.7M × (37% ordinary/STCG rate − 20% LTCG rate) = $6,579,000 additional tax |
| Supporting Documentation | Trade confirmations from Ridgeline Securities LLC; internal trade logs; Borwick Craine & Associates LLP workpapers |