The Present (and Future?) of Carried Interest Taxation

For at least two decades, legislators have expressed concerns that investment fund managers who receive payments attributable to carried interests (e.g., partnership interests in a partnership received for certain investment management services) are obtaining the benefit of long-term capital gains rates on what otherwise should be treated as ordinary income. There have been several legislative proposals to curb what some legislators perceive as a loophole under the tax system associated with the grant of carried interests to private fund managers. This practice note discusses the carried interest rules under I.R.C. § 1061 (26 U.S.C. § 1061) and its application to private investment funds and their U.S.-based managers.

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Related Content

• Tax Considerations in Structuring a Private Equity Fund
  Review this discussion of tax issues at the fund, general partner, investor, and portfolio level, highlighting methods developed by private funds to structure around adverse tax consequences. 
• Carried Interests: Tax
  Consult this more general description of R.C. § 1061and its modified definition of long-term gain with respect to certain types of partnership interests in extending the required holding period of capital assets from one to three years.
• Waiver of Carried Interest Notice by General Partner
  Consult this notice of waiver of carried interest that general partners may use to provide notice of an election to waive proceeds from the sale of assets under the terms of a fund's limited partnership agreement.

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