Debate still continues on US carried interest
28 December 2010
Richard Zarin and William Zimmerman of Morgan Lewis & Bockius investigate why the US Congress is having such difficulty passing carried interest legislation.
Since 2007 the US Congress has considered legislation
numerous times that would subject investment fund managers to
increased US federal income taxes on the share of investment
partnership profits they are allocated in return for investment
advisory services provided to such partnerships (carried
interest). Why hasn't some form of carried interest legislation
been passed to date? We believe the answer to this question is
quite simple: The line drawing necessary to differentiate (and
impose additional tax on) income attributable to investment
management services provided by partners to US partnerships,
without changing the favoured tax treatment of true equity
investments in such partnerships, is just too difficult in
light of the flexibility provided in US partnership tax rules,
and in the current US political environment.
While there are a number of competing policy factors at
play, we believe that two of such factors are the most
The most compelling argument...
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