New Carried Interest Rules for Investment Funds: Structuring Around the Three-Year Holding Period Requirement

Recording of a 90-minute CLE/CPE webinar with Q&A

Conducted on Wednesday, July 18, 2018

Recorded event now available

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Program Materials

This CLE webinar will examine the new 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 funds fund managers notwithstanding the new tax reform rules.


Investment fund managers often participate in a portion of the investment fund’s profits through a “carried interest,” structured as a partnership interest in the investment fund. As a partnership interest, the US federal income tax treatment of carried interest is based on the character of income earned by the fund. For fund managers, new IRC §1061 may increase the holding period required for long-term capital gain treatment from one year to three years.

While future corrective legislation and agency interpretations may limit IRC §1061 planning opportunities, a number of techniques may be available to preserve long-term capital gains treatment for investment fund managers based on a one year holding period, including 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) and structural adjustments both to the manner in which an investment is made as well as the form of an exit.

Our panel will examine the new three-year holding period requirement for carried interests under IRC §1061 and discuss the planning opportunities that may be available for private equity and hedge funds fund managers to preserve long-term capital gains treatment based on a one-year holding period rather than the three year period set forth in IRS §1061.



  1. Carried interests before and after tax reform—new IRC §1061
  2. 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 property taxed under IRS §1231, and how might that impact tax planning under IRC §1061?


Huber, Brian
Brian D. Huber

Senior Counsel
Proskauer Rose

Mr. Huber's primary focus is tax planning for a broad range of private fund clients. He advises private equity fund...  |  Read More

May, Arnold
Arnold P. May

Proskauer Rose

Mr. May is a partner in the firm's Tax Department and a member of the Private Investment Funds Group. His practice...  |  Read More

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