There's an interesting, although a bit technical, article in the NY Times DealBook by Victor Fleischer that discusses how the Obama administration could, by executive action, change the tax treatment of carried interest from capital gains to ordinary income. This is a hot topic for any private equity or venture capital fund manager that has carried interest, as it could almost double the tax burden on carried interest, or carry as it is known in the industry. The article is "How Obama Can Increase Taxes on Carried Interest" and the link is here: http://dealbook.nytimes.com/2014/06/12/how-the-president-can-increase-taxes-on-carried-interest/
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Americans have a long history of structuring their finances in order to minimize their tax obligation. One of my favorite legal quotes is from Supreme Court Justice Learned Hand, who said: "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).
Management fee waivers are a tax-minimization strategy employed by private equity firms to essentially have management fee taxed at capital gains rates rather than at ordinary income rates. There's a recent article from NY Times DealBook called "What's at Issue in the Private Equity Tax Inquiry" that provides a good overview of management fee waivers and why the New York Attorney General is reportedly investigating the practice. Here's the link: http://dealbook.nytimes.com/2012/09/04/whats-at-issue-in-the-private-equity-tax-inquiry/ |
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