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Carried Interest Rules for Investment Funds: Final Regs, Planning Opportunities, and Pitfalls

Recording of a 90-minute premium CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Tuesday, November 22, 2022

Recorded event now available

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This CLE course will examine the three-year holding period requirement for carried interests under IRC 1061 and discuss structuring techniques that can preserve long-term capital gains treatment for private equity and hedge fund managers following the enactment of the 2021 regulations. The panel discussion will include the final regulations released on Jan. 7, 2021, which clarify specific points left open to interpretation by the 2017 tax reform law.


Investment fund managers often participate in a portion of an investment fund's profits through a "carried interest" structured as a partnership interest in the investment fund. For partnership interests, the U.S. federal income tax treatment of carried interest is based on the character of the income earned by the fund. For fund managers, IRC 1061 may increase the holding period required for long-term capital gain treatment from one year to three years.

On Jan. 7, 2021, the IRS and the Department of the Treasury released final regulations that limit certain planning opportunities and include new calculation methodologies and partnership-level reporting requirements. Still, several techniques remain available to preserve long-term capital gains treatment for investment fund managers. Planning could include alterations to the overall business deal, such as restricting the types of gains in which the carried interest will share or permitting the fund manager to waive the right to participate in gains from certain investments but be made whole from other fund income and gains. Counsel should consider structural adjustments to how an investment is made and the form of an exit.

Listen as our panel examines the new three-year holding period requirement for carried interests under IRC 1061 and discusses the planning opportunities that may be available for private equity and hedge fund managers to preserve long-term capital gains treatment based on a one-year holding period rather than the three years outlined in 1061.



  1. Carried interests before and after tax reform: new IRC 1061
  2. Impact of new regulations and current status
  3. Tax planning opportunities
    1. Contributing capital in connection with the issuance of carried interests
    2. Transfer of carried interests to unrelated parties
    3. Distributing appreciated assets to holders of carried interests
    4. Special allocations
    5. Qualified dividends and 1231 property


The panel will review these and other critical issues:

  • What is the scope of IRC 1061 and whom does it impact?
  • What are some alternative approaches that tax counsel should consider to preserve long term capital gains treatment?
  • How does IRC 1061 impact qualified dividends and gains from the sale of property taxed under IRS 1231, and how might that impact tax planning under IRC 1061?


Segal, Leah
Leah B. Segal

Goulston & Storrs

Ms. Segal is a tax lawyer who counsels clients in a wide range of domestic and cross-border transactions,...  |  Read More

Stein, Jonathan
Jonathan Stein

Goulston & Storrs

Mr. Stein advises public and private companies, investment funds and real estate investors on corporate,...  |  Read More

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