Press Room: Tax Release

February 21, 2012

Taxation of Carried Interest in the Bullseye (again)

At the risk of appearing to be the boy who cried wolf, the prospects for a change in the tax treatment of carried interests held by alternative investment fund managers has increased markedly in the last few days.

To wit:

  • President Obama’s 2013 Budget (the “Greenbook”) clearly calls for taxing as ordinary income a partner’s share of income from an “investment services partnership interest” in an investment partnership, a.k.a. a carried interest.
  • Senator Levin (D-MI) has introduced a bill in the House of Representatives to provide for the “proper tax treatment of personal service income earned in pass-through entities,” a.k.a. carried interests. This bill is essentially the same as the proposed 2010 legislation relating to taxing carried interests.

Of course, as always, it isn’t exactly clear what will happen to these (or any other proposals) in the current legislative environment.

But, the heat is on. Interestingly, the taxation of carried interests is not only a United States matter—both the German and Swedish governments are considering proposals to increase tax rates on, in effect, carried interests.

More information on the current state of the taxation of carried interests of a partnership will be forthcoming.