What is the main event discussed in this 8-K filing?

The main event is the confirmation from the IRS through a private letter ruling that a significant transaction support payment of approximately $275.2 million, made by Ares Management's subsidiary ACM, is fully deductible in 2017. This tax treatment is expected to positively impact the company's distributable earnings for its common unit holders.

How will this tax deduction benefit Ares Management's investors?

The deduction is expected to create a taxable loss for Ares Holdings, Inc. (AHI), a key subsidiary, meaning AHI will likely pay no current U.S. federal income taxes in 2017. This reduction in tax payments is projected to lead to higher distributable amounts for Ares Management's common unit holders, with an estimated benefit of $0.46 per common unit in aggregate cash tax savings for 2017 and 2018.

What are the options regarding the Net Operating Loss (NOL) generated?

Ares Management expects AHI to end 2017 with a net operating loss (NOL). The company can choose to carry this NOL back to offset taxes paid in prior years, potentially generating tax refunds, or carry it forward to reduce taxable income in future years. The final decision will be made later, considering factors like future tax rate changes and the timing of benefits.

Will this deduction affect the company's reported earnings or accounting for income taxes?

The filing states that the deduction is not expected to impact the provision for income taxes applicable to Ares Management's economic net income in 2017 or 2018. This suggests the tax benefit is primarily related to cash tax payments rather than an immediate adjustment to the income tax expense on the income statement.

ARES/ARES-PB 8-K SEC Disclosure

Summary

This 8-K filing from Ares Management Corp. (ARES) primarily concerns the tax treatment of a significant transaction support payment made in connection with the acquisition of American Capital, Ltd. (ACAS). Specifically, the company received a favorable private letter ruling from the IRS confirming that a $275.2 million payment made by its subsidiary, Ares Capital Management LLC, is fully deductible in 2017. This deduction is expected to create a substantial taxable loss for Ares Holdings, Inc. (AHI), a wholly owned U.S. subsidiary that receives management fees and distributable earnings. Consequently, AHI is not anticipated to pay any current U.S. federal income taxes for 2017, leading to higher distributable amounts for Ares Management's common unit holders. The filing also highlights that AHI is projected to end 2017 with a net operating loss (NOL) that can be carried back to prior years for tax refunds or carried forward to offset future tax liabilities. The decision on whether to carry back or carry forward the NOL will be made later, considering factors like potential corporate tax rate decreases and the timing of refunds. Ares Management estimates that this tax deduction will result in approximately $0.46 per common unit in aggregate cash tax savings for 2017 and 2018, with the majority realized in 2017.

Key Highlights

1Favorable IRS private letter ruling confirms a $275.2 million transaction support payment is fully deductible by subsidiary ACM in 2017.
2Expected taxable loss for U.S. federal income tax purposes for subsidiary AHI in 2017 due to the deduction.
3AHI anticipates paying no current U.S. federal income taxes in 2017, increasing distributable amounts to common unit holders.
4AHI is expected to have a net operating loss (NOL) at year-end 2017, with options to carry back or carry forward.
5Estimated aggregate cash tax savings of approximately $0.46 per common unit in 2017 and 2018, primarily realized in 2017.
6The deduction is not expected to impact the provision for income taxes applicable to economic net income in 2017 or 2018.

Ares Management Corp 8-K Report, Corporate Update (Jun 22, 2017)

Summary

Key Highlights

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