Back to the Future: Revisiting the ALI's Carried Interest Proposals
6 Pages Posted: 20 Aug 2009 Last revised: 11 Sep 2015
Date Written: October 7, 2009
Congress is currently considering carried-interest legislation (section 710) that would limit the ability of service partners to convert ordinary compensation income into tax-favored capital gain. While the problem of conversion undoubtedly merits attention, the premise of the proposed legislation deserves closer scrutiny. This article argues that Treasury may already have the requisite authority under existing law to address capital gain conversion and avoidance of other limitations, and that instead of enacting complex new statutory provisions of uncertain scope Congress should consider directing Treasury to promulgate anti-abuse regulations under section 707(a)(2)(A). The article draws on the the American Law Institute's reform proposals concerning the treatment of service partners.
Keywords: carried interests, 710, H.R. 1935, deferred compensation, management fee conversions, profits interests, section 707(a)(2)(A), section 83, guaranteed payments
JEL Classification: K34
Suggested Citation: Suggested Citation