What are Blocker Structures?

Blocker structures are corporations that effectively “block” taxable income at the corporate level for U.S. federal, state and local income tax purposes. Most commonly they are U.S. corporations that absorb tax.

Taxable income passed through on a Schedule K-1 by a portfolio company generally falls into the category of income “effectively connected with a U.S. trade or business” (ECI) for foreign investors and unrelated business taxable income (UBTI) for U.S. tax-exempt investors. A blocker structure prevents the flow-through of ECI to the investor; however, the blocker corporation will be fully subject to U.S. taxation.