WASHINGTON, DC—Congress has been trying to change carried interest’s tax characterization for years and in some instances, came rather close to suceeding. More recently, the issue died down — at least on the Hill — as the conversation shifted to comprehensive tax reform.
‘Carried interest’ is safe for now, has been the unspoken message.
Last week that message changed.
On Wednesday the Internal Revenue Service quietly proposed a rule that would effectively do what numerous proposed acts and measures could not: ban companies such as private equity firms from converting the management fees they receive from their investors — fees that would normally be taxed as ordinary income — into capital contributions invested in their funds. These are taxed at a much lower tax rate.
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