Tagordinary income

Carried Interests – Here We Go Again

Capitol buildingBy:  Amanda Wilson

Following up on last week’s blog post on carried interests, a new bill was introduced Friday in the House of Representatives targeting carried interests.  This bill, H.R. 2889, is titled the Carried Interest Fairness Act of 2015.  One of the main consequences of the bill is that, if enacted into law, partners that provide investment management services to an investment partnership would find their distributive shares of capital gains recharacterized as ordinary income .

This is not the first time that legislation has been introduced targeting carried interests and, if unsuccessful, it is unlikely to be the last.  Carried interest income continues to be a target of the Obama administration and members of Congress.

For now, we will monitor this bill and let you know if there are any developments.

Senator Targets Carried Interests

By:Capitol building  Amanda Wilson

Yesterday, Senator Al Franken sent a letter to the Department of Treasury taking aim at “carried interest” income.  In the letter, Senator Franken asked the IRS to revise  Form 1065 (the tax return form for partnerships) to require disclosure of “carried interest” income.  Senator Franken stated that this will help stop the financial industry from “hid[ing] the extent to which the industry is taking advantage of the carried interest income classification “.

Why does this matter?  Private equity and investment funds structure their partnership agreements to provide that a portion of their compensation be received as “carried interest” income, which generally qualify for the more preferential capital gains rate (20% tax rate) rather than the ordinary income rate (39.6% maximum tax rate).   Members of Congress and the Obama Administration have repeatedly called out “carried interests” as an objectionable tax loophole, and have made  unsuccessful attempts to do away with “carried interests”.  This letter appears to be the opening shot in a new “carried interest” battle.

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