Carried Interest

[jjamie12]

Carried Interest taxed as Ordinary Income

 

I don't find the arguments against this to be very persuasive. Of course the income derived from this is 'no sure thing'. Same as any end of year bonus, and those are taxed...

 

The only thing I can think of is possible hurdle rates on potential investments being higher?

 

Thoughts?

[GG]

The only plausible rationale is that because private equity firms & VCs are actively involved in running the portfolio companies, all income derived from those business should be treated as ordinary. That makes sense. What doesn't is that carried interest applies to when the business is sold, which has always been deemed as a capital transaction not ordinary course.

 

But, since we are in the era of made up rules of the week, nothing to see here, move along.

[jjamie12]

The only plausible rationale is that because private equity firms & VCs are actively involved in running the portfolio companies, all income derived from those business should be treated as ordinary. That makes sense. What doesn't is that carried interest applies to when the business is sold, which has always been deemed as a capital transaction not ordinary course.

 

But, since we are in the era of made up rules of the week, nothing to see here, move along.

 

Wait a second, though. The way that I understand Carried Interest is that it is essentially their 'bonus' on top of their management fee, no?

[GG]

Wait a second, though. The way that I understand Carried Interest is that it is essentially their 'bonus' on top of their management fee, no?

 

Technically it is. But the way that these guys make the real money is buying companies and then selling them at a profit. Sounds more like a capital transaction..

 

Won't matter. If the law passes, then it will only ensnare them for one taxable period. By next year, all these shops will reorganize to make sure that all distributions are capital gains. Or worse, they'll structure transactions as all stock deals to avoid taxation altogether.

 

Brilliant.

[DC Tom]

Technically it is. But the way that these guys make the real money is buying companies and then selling them at a profit. Sounds more like a capital transaction..

 

Won't matter. If the law passes, then it will only ensnare them for one taxable period. By next year, all these shops will reorganize to make sure that all distributions are capital gains. Or worse, they'll structure transactions as all stock deals to avoid taxation altogether.

 

Brilliant.

 

But that's a lot easier to solve...appoint a transaction czar and a restructuring czar.

[jjamie12]

Won't matter. If the law passes, then it will only ensnare them for one taxable period. By next year, all these shops will reorganize to make sure that all distributions are capital gains. Or worse, they'll structure transactions as all stock deals to avoid taxation altogether.

 

And this is, of course, absolutely true.

 

So: Government does something, it sounds good, people love them ("yay populism!!!!!11!!!"). Nothing actually really changes... Sound about right?

[Magox]

Wait a second, though. The way that I understand Carried Interest is that it is essentially their 'bonus' on top of their management fee, no?

It's just an additional way to tax and punish private equity managers.

 

But to answer your question, yes, since the vast majority of the money that is made is from bonuses, then it's just another way the government can get their grubby hands on companies that are successful.

 

Of course these !@#$ing bafoons don't understand that these private equity managers will just raise their fees in order to compensate for the lost wages.

[GG]

And this is, of course, absolutely true.

 

So: Government does something, it sounds good, people love them ("yay populism!!!!!11!!!"). Nothing actually really changes... Sound about right?

 

In a nutshell, yeah.