Tax Reporting of Fund Managers' Profit Grants: Carried Interest Rules for Partnerships

Determining Applicable Partnership Interests, Eligible Services, and the Three-Year Holding Period

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, September 25, 2019

Recorded event now available

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Program Materials

This webinar will provide tax advisers and compliance professionals with a practical guide to the compliance challenges and planning opportunities found in the carried interest provisions in the new tax reform law. The panel will discuss the treatment of a partnership grant of a profits interest where the recipient has no capital contribution obligation and detail the specific changes to the treatment of carried interest in the 2017 tax reform legislation.

Description

The 2017 tax reform law retained the practice of preferential tax treatment of profits interest or "carried interest" granted to managers of hedge funds, private equity, and real estate funds. However, tax reform contained significant changes to carried interest taxation, presenting tax reporting and planning challenges to partnership tax advisers and compliance professionals.

Carried interest refers to the practice when partnerships grant profits interest to general partners for their fund management services sometimes only if the fund's profit margin exceeds a specified rate of return applicable to limited partners. Current law allows the general partner recipient to treat this payment as long-term capital gain if the underlying assets meet the required holding period and provide tax benefits. The grant itself is not subject to tax upon either grant or vesting.

The recent tax law did not eliminate the carried interest preference but made several fundamental changes. Tax reform introduced the concept of "applicable partnership interest" to define and limit those partner activities and partnership structures eligible for profits interest treatment. Tax reform extended the holding period required for preferential treatment from one year to three years. Tax advisers must recognize the challenges and opportunities the changes to profits interest treatment can present to eligible partnerships.

Listen as our experienced panel provides practical guidance on the tax reporting and planning challenges contained in the new carried interest rules.

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Outline

  1. Structure of carried/profits interest
  2. Changes to carried interest treatment in the 2017 tax reform law
    1. Applicable partnership interest
    2. Extended holding period
    3. Specified assets covered by the extended holding period
    4. Corporations not eligible for preference
  3. Pending and anticipated regulatory guidance
  4. Tax reporting challenges involving carried interests
  5. Differences between federal and state treatment of carried interests

Benefits

The panel will discuss these and other relevant topics:

  • How might the new "applicable partnership interest" provisions in the new tax law change the structure and tax reporting of profits interests to fund managers?
  • Impact of the Section 1061 holding period increase on the tax treatment of profits interest for assets with a holding period between one and three years
  • Potential reporting differences between state and federal tax treatment of carried interest income

Faculty

Gross, Philip
Philip S. Gross

Partner
Kleinberg Kaplan Wolff & Cohen

Mr. Gross chairs the firm's Tax Department and advises clients on the taxation (federal, state, local and...  |  Read More

Lovett, Brian
Brian T. Lovett, CPA, JD

Partner
WithumSmith+Brown

Mr. Lovett has extensive experience serving the tax needs of both public companies and closely-held businesses,...  |  Read More

McCann, James
James D. McCann

Partner
Kleinberg Kaplan Wolff & Cohen

Mr. McCann has extensive experience in the areas of domestic and international taxation. He counsels clients regarding...  |  Read More

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