26 02 2018

IRS To Close Carried Interest Loophole, Says Mnuchin

The Internal Revenue Service (IRS) will issue guidance soon to close a tax loophole that is said to be enabling hedge fund managers to access lower rates of tax reserved for carried interest.

Carried interest are payments that are typically received by fund managers as part of their compensation package, directly linked to the performance of the investments they oversee, and by stakeholders.

The Tax Cuts and Jobs Act signed into law by President Trump in December 2017 contained changes to the treatment of carried interest. Individuals are now required to hold a profit-making interest for three years in order to qualify for a preferential tax rate of 23.8 percent for carried interest, to avoid a rate of 37 percent otherwise generally applicable.

Speaking to the Senate Finance Committee, Mnuchin acknowledged a report from Bloomberg that hedge fund managers are avoiding the new rules by creating shell companies in Delaware to avoid the three-year restriction, which currently covers only individuals.

He confirmed that, after discussions with the IRS and Office of Tax Policy, new guidance to prevent this workaround will be issued by the end of the month.

www.tax-news.com