First Entry
Welcome to the Carried Interest Tax blog. As our name indicates, this blog will track the debate and any developments regarding the taxation of carried interests (For an explanation of carried interests, see Wikipedia's Carried Interest page).
If you are new to this issue, Congress has been looking into many aspects of private equity and hedge funds. One of the issues that Congress is exploring is the taxation of carried interests, which represents the fund manager’s share of fund profits.
Under current law, if properly structured, the fund manager is not taxable on the receipt of a carried interest. Moreover, because private equity funds are taxable as partnerships, the fund manager’s share of profits is taxable depending on the character of the profits earned by the fund. As a result, if the funds returns are in the form of long-term capital gains or dividends (as is common), the fund manager’s share of the profits are taxable at a maximum Federal income tax rate of 15%.
Should Congress change these rules? Will Congress change these rules? I don’t think anyone knows the answer to the first question, and reasonable people will probably differ on the second question. However, it is clear that Congress is seriously looking for revenue raisers, and this effort could get swept up into that process. For proof of that point, see the proposal last week to tax publicly traded fund managers, such as Blackstone after its proposed IPO, as corporations, which are taxable on capital gains at the same rate as ordinary income. Tomorrow, we’ll discuss the proposed “Blackstone Bill” in more depth.
So welcome to the fray. As we say in the South, buckle up, because it’s going to be a bumpy ride.
KSTax
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