Private Equity Tax

The Private Equity Tax Debate

Private equity firms along with hedge funds have received a lot of criticism asserting that they receive preferential tax treatment. The charge stems from a "tax loophole" involving the substantial performance fees that private equity managers, which make up a large part of the managers' income.
The performance fees are taxed by only 15% rather than the top income tax of 35%. This has caused some public criticism, especially among politicians who have put forth legislation to correct the tax treatment of management fees.

Private equity and hedge fund managers have protested any changes to the current tax code. Private equity managers argue that they should not be taxed at 35%, claiming that their performance fees are different than general income. They believe that carried interest is a logical reward for their invested time, resources and services, and the risk of loss involved in private equity.

Whether carried interest will be considered as general income is of huge importance to managers, as they stand to lose substantial earnings through this tax reform. Here is a really well done and extensive article that looks at the possibility of increasing tax on private equity carried interest and the possible ramifications of this.

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Tags: Private equity tax, private equity taxes, private equity capital gains tax, private equity carried interest, carried interest tax

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http://privateequityblogger.com/2008/09/private-equity-tax.html