function of a
carried interest makes distinguishing the service
1935 (2009); and Levun, "Planning Considerations in Anticipation of the Potential
Carried Interest Legislation," Partnership Tax Watch Newsletter (October 2010)).
would have us erroneously believe that moves to change the taxation of
carried interest would only affect a handful of hedge fund managers on Wall Street.
IREM opposes any proposal that would eliminate capital gains treatment for any
carried interest of a real estate partnership.
A
carried interest arises when an individual enters into a partnership--or an LLC taxed as a partnership--without investing any capital but with the promise of a share of future profits in exchange for the individual's services.
1) Articles have discussed the unfairness of taxing
carried interest differently than other compensation for services, (2) and addressed the dangers inherent in subjecting an intrinsically mobile tax base to rates higher than those presently applied to
carried interest by the Internal Revenue Code.
Increasing the taxes on
carried interest would not only increase the cost of producing new housing, it would decrease the supply by making many deals financially unworkable.
The commercial real estate industry secured a victory when the debt limit bill enacted in August omitted a tax increase on
carried interest.
The legislation is based on the idea that a
Carried Interest should be taxed more like a salary, subject to the higher ordinary income rates and employment taxes.
The
carried interest represents the portion of cash distributions paid to the fund manager, for his or her efforts on behalf of the fund, which is disproportionate to, or in excess of, the manager's capital contribution.
Carried interest is the share of profits--typically 20 percent--that fund managers are allowed to keep as compensation for their services.
In a little-understood provision, the Levin-Baucus bill would impose a new ''enterprise value'' tax on the sale of part or all of any investment firm that has ever earned even $1 of
carried interest income.
