Press Room: Tax Release

April 30, 2013

The Continuing “Carried Interest” Issue

Partnership Taxation
Private Equity Funds
A Possible Flanking Movement

While all eyes have been focused on taxing as ordinary income the "carried interest" of general partners in private equity funds, a possible new front in the battle has been opened by a tax academic at the Urban-Brookings Tax Policy Center.

The argument is that private equity funds buy stock in companies that they intend to develop and resell and that, as with real estate developers, the gain on sale of the stock by the fund should give rise to ordinary income.

It is suggested that the IRS could, without statutory enactment, promulgate regulations dictating this result.

While the fate of such a proposal is unclear, Steven Rosenthal, the author of the proposal, has had meetings with the IRS to discuss this proposal.  He will also be speaking on the topic at the American Bar Association Tax Section meeting in May.

Remember, the assault on carried interest taxation was initiated by a law review article.

We will continue to monitor developments regarding the proposal.