Fidelity Sheds Corporate Skin; Move May Eliminate U.S. Taxes

Fidelity Investments, the world's largest mutual-fund manager, reorganized its corporate structure, a move that could increase profits for its owners by eliminating hundreds of millions of dollars in future taxes.

FMR Corp., the closely held parent of Boston-based Fidelity, converted into a limited liability company, or LLC, according to an Oct. 15 filing with the U.S. Securities and Exchange Commission. FMR shareholders, including the family of Chairman Edward ``Ned'' Johnson III, approved the change earlier this year, company spokeswoman Anne Crowley said yesterday.

The switch could eliminate FMR's federal taxes because LLCs can pass on all earnings to their owners, who then pay individual rates, according to Robert Willens, a tax analyst at Lehman Brothers Holdings Inc. in New York. The shareholders and FMR might have to pay a one-time capital-gains levy if the Internal Revenue Service rules, as it has in the past, that such a conversion equates to a sale of the company for tax purposes.

``Going from a corporation to an LLC, you have this toll charge, so to speak,'' Willens said in an Oct. 31 interview. ``Usually it's the last thing you would ever want to do.''

Fidelity, founded by Ned Johnson's father in 1946, plans to remain a private company, Crowley said.

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