Clarity on Recharacterization of Carried Interests

Volume 8 No 3    /    Read Article

By Susan F. Robinson (Guest Author)

Earlier this year, the I.R.S. issued final regulations providing guidance on Code §1061, which recharacterizes certain long-term capital gains as short-term gains for holders of partnership interests entitled to carried interests. The provision impacts fund managers of alternative investments, such as private equity and hedge funds, who receive carried interests. When gains are derived through a carried interest, they are treated as long-term capital gains only when the carried interest is held for 36 months and one day, significantly longer than the 12 months and one day ordinarily required. In her article written while an extern at Ruchelman P.L.L.C., Susan F. Robinson explains how the final regulations address two workarounds that were widely proposed to circumvent the lengthened holding period and cautions that the policy debate on carried interests may not be over.  See more →