Press Room

18 Aug 2020

Treasury and IRS release long-awaited guidance on carried interest taxation

On July 31, 2020, Treasury and IRS released proposed regulations regarding Sec. 1061’s carried interest rule, which was enacted as part of the Tax Cuts and Jobs Act (TCJA). Targeting incentive allocations made to fund managers, Sec. 1061 recharacterizes certain long-term capital gains as short-term if the holding period is not more than three years. Section 1061 was a limited change to carried interest taxation and it did not impact other aspects regarding the tax treatment of carried interests (including the safe harbor regarding the issuance of a profit interest, e.g., carried interest). Key highlights of the proposed regulations include:

  • Confirms certain income and gain, such as Sec. 1231 gains from sale of business assets and qualified dividends are excluded
  • S corporations are not exempt from Sec. 1061 and applies this rule retroactively
  • Provides narrow exception for capital interests
  • Clarifies who the taxpayer is for purposes of the calculation of net gains subject to recharacterization
  • Accelerates gain on transfers to immediate family members
  • Requires increased information and reporting requirements
  • Provides warning to taxpayers using techniques to defer carry (e.g., waivers)

Please follow this link for detailed commentary from Andersen United States on these proposed regulations.

Julian Nelberg

Julian is Head of the Private Client group at Andersen LLP. His clients include international high net worth individuals, senior executives, trusts and companies.

Email: Julian Nelberg