Eiduk Tax & Wealth
Promoter structures library · 2026-08-26
Family Management Company Fee Stripping
Classification C, legitimate but aggressive. Defensible, but fact-intensive and audit-attracting.
Sold as: "convert your non-deductible investment expenses into deductible business expenses", "family management company", "profits interest structure"
A management company that manages only your own money, for a fee you chose, is not a business. A CPA was permanently barred from federal practice for selling that structure.
The pitch
Convert your non-deductible investment expenses into deductible business expenses. Stand up a management company, have it charge your investment entities a management fee, and deduct under Sec. 162 what Sec. 212 no longer lets you deduct.
What it costs you if it is wrong
The management fee is recharacterized as a Sec. 212 investment expense, which Sec. 67(g) now disallows permanently, so the deduction is gone rather than deferred. On the advisor side, a CPA marketing this structure was permanently barred from federal practice in November 2024.
Red flags
- The fee was chosen to produce the deduction
- The only clients are entities you own
- The service is managing your own money
- Personal expenses run through the management company
- There is no written service agreement or comparable-fee support
- The family acts as one group and the office decides for all of it
Questions to ask the person selling this
- 1How was the fee determined, and what comparable supports it?
- 2Will the company have clients other than my own entities?
- 3What services will it perform that I am not already performing myself?
- 4Who will be employed by it?
- 5Is there a written service agreement?
- 6On my facts, how is this different from the structure that got a CPA barred?