SmartMoney Blogs

The Tax Blog
The latest news, insights and tips about taxes

Carried Interest Still Controversial

The August 6 Tax Report on the controversial “carried interest” issue attracted many comments. Some readers defended the provision’s current generous tax treatment and said changing it could damage the U.S.’s ability to create jobs and compete internationally.

Getty Images

“Does America really want to drive away the private equity industry when international competitiveness and international demand for U.S. products is more threatened than ever?” said Bernard Peperstraete of NGN Capital in New York.

Mark Heesen, president of the National Venture Capital Association, agreed. In a statement to the Wall Street Journal, he said, “Continuing to apply a capital gains tax rate to carried interest earned by venture capitalists who invest long-term to build new companies and create jobs is not only appropriate by definition, but from a public policy perspective it is paramount to U.S. economic recovery as we desperately need to encourage - not discourage – this high growth activity.”

Others disagreed. An investment manager from Hilton Head, S.C. said, “The carried-interest rules benefit me personally as a manager of investment partnerships. But even I can’t argue that they are sound tax policy.”

A few readers had technical questions. “Do you think REITs and Master Limited Partnerships would be included in changes on carried interest?” asked one adviser.

Independent tax analyst Robert Willens said no, because the dividends from most REITs and MLPs are already taxed at ordinary income rates. “They aren’t part of the discussion on carried interest,” he said. Neither has there been talk of changing the capital gains tax rates for timber REITs.

While some believe all carried interest should be taxed as ordinary income, others suggested a less radical approach. It is to tax the original award of carried interest at ordinary income rates but then allow further appreciation to be taxed as a capital gain.

Here’s an example: Say that Ted, Joe and Jane form a partnership. Ted and Joe each put in cash in return for an 80% of the profits, while Jane contributes her expertise in return for a 20% share. Jane would be taxed at ordinary income rates on her 20% profit share when she receives it. After that, her future appreciation would be taxed as capital gain.

“That would treat carried interest like executives’ restricted stock,” said Willens of the suggestion.


We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (5 of 73)

View all Comments »
    • Between me and my husband we’ve owned further more MP3 avid gamers more than the decades than I can rely, together with Sansas, iRivers, iPods (classic & touch), the Ibiza Rhapsody, and so on. Yet, the previous several yrs I have settled down toward one line of gamers. Why? Given that I was joyful in the direction of check out how well-designed and exciting in the direction of hire the underappreciated (and extensively mocked) Zunes are.


    • Zune and iPod: Optimum Those look at the Zune towards the Contact, but once observing how slender and incredibly very little and light it is, I attempt it towards be a alternatively one of a kind hybrid that brings together traits of each the Touch and the Nano. It truly is exceptionally vibrant and attractive OLED show is a little bit more compact than the touch screen, still the player by itself feels rather a little bit more compact and lighter. It weighs with regards to 2/3 as much, and is noticeably lesser inside of width and peak, whilst being only a hair thicker.


    • Zune and iPod: Most people today look at the Zune in direction of the Contact, nevertheless after watching how thin and surprisingly very little and gentle it is, I attempt it in direction of be a as an alternative one of a kind hybrid that combines attributes of the two the Touch and the Nano. It’s exceptionally colourful and stunning OLED display screen is marginally smaller sized than the contact screen, nevertheless the participant alone feels Extremely a bit lesser and lighter. It weighs in excess of 2/3 as a lot, and is noticeably scaled-down inside of width and height, even though currently being basically a hair thicker.


    • Concerning me and my husband we’ve owned added MP3 avid gamers about the decades than I can count, including Sansas, iRivers, iPods (classic & touch), the Ibiza Rhapsody, and so on. Yet, the remaining handful of yrs I’ve fixed down in direction of just one line of players. Why? For the reason that I was delighted in the direction of take a look at how well-designed and pleasurable in the direction of hire the underappreciated (and greatly mocked) Zunes are.


    • The clean Zune browser is amazingly beneficial, nevertheless not as optimistic as the iPod’s. It works nicely, still isn’t really as quick as Safari, and has a clunkier interface. If on your own sometimes system on working with the internet browser that is not an issue, nonetheless if you are developing in the direction of study the world-wide-web alot versus your PMP then the iPod’s much larger screen and better browser could possibly be considerable.


About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.