How are Sydecar Fees treated for tax?
Sydecar’s administrative fee is considered a Syndication Cost, which must be capitalized as an asset rather than reported as an expense; therefore, this fee is not deductible.
Sec. 709 and the associated regulations deny deductions for partnership organizational expenses and syndication costs. Examples of potential syndication costs include brokerage fees, registration fees, and legal and accounting fees incurred in connection with issuing and marketing of interests in a partnership.
A partnership may elect to amortize its organizational expenses under Sec. 709(b), but no such election is available for syndication costs, which must be capitalized.
Rev. Rul. 81-153 the IRS ruled that an investor could not deduct syndication costs that it paid in connection with its acquisition of a partnership interest. In that ruling, a partnership (or its promoter) agreed to make payments to various investment and tax advisers in order to obtain their assistance in selling the partnership's interests to their clients.