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

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

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Conducted on Tuesday, February 9, 2021

Recorded event now available

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Course Materials

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, notwithstanding the new tax reform rules. The panel discussion will include final regulations released January 7, 2021, which clarify certain 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 January 7, 2021, the U.S. Internal Revenue Service (IRS) and Department of the Treasury released final regulations which have the effect of limiting 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 the carried interest will share in 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 both 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?
  • 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?


Huber, Brian
Brian D. Huber

Gunderson Dettmer Stough Villeneuve Franklin & Hachigian

Mr. Huber supports venture capital and growth equity fund managers on all aspects of the fund lifecycle. He has...  |  Read More

Naylor, Jeremy
Jeremy Naylor

Proskauer Rose

Mr. Naylor is a member of the firm’s Private Funds Group. He works with private investment fund sponsors and...  |  Read More

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