1 minute reading time (271 words)

"CARRIED INTERESTS” STILL IN CONGRESS’S CROSSHAIRS

On February 26, 2014, Chairman Dave Camp (R) of the House Committee on Ways and Means released his proposal to reform and simplify the nation’s tax code. Rep. Camp’s proposal reduces the top marginal rate (for both individuals and corporations), but also eliminates several deductions and loopholes. One of Rep. Camp’s proposals was to close the perceived loophole allowing “carried interests” to be taxed as capital gains instead of ordinary income.

A “carried interest” refers to the share of the profits received by a private equity fund manager (as a partner of the fund) upon the ultimate sale of the underlying investment company. Under current law, these “carried interests” are taxed as capital gains, with a top rate of 20% compared to 39.6% for ordinary income. (These rates do not include the additional 3.8% Medicaid surtax applied to net investment income under the Affordable Care Act for a taxpayer with an AGI in excess of $200,000 ($250,000 if married, filing jointly)). Critics argue that the private equity fund is in the trade or business of developing companies and then ultimately selling them. Thus, according to their reasoning, the private equity fund should report the income from the “carried interest” as trade or business income taxed at 39.6%. 

Despite signaling his commitment to end this perceived loophole, Rep. Camp did not fully embrace the idea of taxing “carried interests” as ordinary income. His proposal excludes one major type of private equity funds: real estate. While unlikely to ever become law, Rep. Camp’s proposal should alert private equity fund managers that the taxation of “carried interests” remains firmly in the crosshairs of Congress.

IRS BOTH REDUCES AND INCREASES THE PENALTY FOR NON...
FOREIGN-HELD ASSETS FOUND TO BE ASSET PROTECTED

Seminars & Events:

April, 2017 - CELESQ
“An Asset Protection Planning Primer for Estate Planning, Tax and Creditors Rights Lawyers”
Live Web Cast
May 31 – June 1, 2017 - 

SOUTHPAC TRUST OFFSHORE PLANNING INSTITUTE CONFERENCE 2017, “Asset Protection in a Changing World” (31 May 2017) and “Questions & Answer Panel on Industry Challenges to Asset Protection Structures” (1 June 2017)
Las Vegas, Nevada

 

View More Recent Seminars and Events

Contact Information

Barry S. Engel
Email: info@engelreiman.com