Private Equity Tax Increase

House Votes to Raise Taxes on Private Equity

The U.S. House of Representatives has voted to raise taxes on private equity and venture capital managers.  The vote mandated that private equity managers will have to pay more than twice as much taxes on carried interest.   Carried interest is the percentage of profits earned by the fund for investors, so in a typical 2 and 20 fee structure, managers are compensated with 2% of the fund’s assets for management expenses and 20% is the reward for performance (the carry).   Read more about carried interest here.

Currently, fund managers treat carried interest as capital gains and therefore only pay 15%.  If the measure passes the Senate, carried interest will be considered ordinary income and thus face a 35% tax.  The president of the Private Equity Council, which represents several large private equity firms, has defended the current tax treatment saying, “Carried interest is appropriately taxed as a long-term capital gain because it represents the profit that an investment partnership earns by buying a capital asset…and eventually selling it for more than the purchase price.”  The bill is not expected to pass in the Senate.

The House voted 241-181 today, largely along party lines, to end fund managers’ ability to pay the 15 percent capital- gains tax rate on the share of fund profits they are paid as compensation. The proposal, unlikely to pass the Senate, would tax those payments – known as carried interest – as ordinary income with a top 35 percent rate.

“Those who invest their own money will continue to receive capital gains tax treatment,” said Michigan Democrat Sander Levin. “Those who manage other people’s money will have to pay ordinary income tax like everybody else who performs services.”

House Democrats have twice before passed the tax increase over the objections of Republicans who say it would discourage investment. The measure would renew 45 tax breaks due to expire Dec. 31, including a research credit that businesses use to hire workers, and tax benefits for restaurants, retailers, teachers and college students.  Source

Read about Obama’s plans regarding Carried Interest
Answer to What is Carried Interest?

Popular private equity articles:

1. Private Equity Tracker Tool
2. Alternative Investment Jobs
   
3. Career Guide
   
4. Service Provider Directory
5. Private Equity Associate
   

Tags: carried interest, carried interest taxation, carried interest tax, tax house, representatives, private equity legislation, private equity regulation, congress private equity tax increase

Additional Business Training.com Resources