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In Defense of the Current Treatment of Carried Interest

2 Pages Posted: 12 Jun 2013  

Jeffrey H. Kahn

Florida State University - College of Law

Douglas A. Kahn

University of Michigan Law School

Date Written: June 3, 2013

Abstract

The Obama administration and several commentators have asserted that the current taxation of so-called ‘‘carried interest’’ at capital gains rates is wrong and unjustified. Their case for this change is based on their characterization of the distributions to the partners in question as payments for their services. If that characterization were correct, there would be a very strong case for ordinary income treatment. This letter to the editor explains that, to the contrary, that characterization is erroneous. When the nature of the transaction is examined, it is clear that capital gain treatment is entirely consistent with tax policy and is appropriate.

Keywords: Carried Interest, Venture Capital, Capital Gains, Ordinary, Partnership, Investment Manager, Capital, Labor

JEL Classification: H20, H24, H25, H26

Suggested Citation

Kahn, Jeffrey H. and Kahn, Douglas A., In Defense of the Current Treatment of Carried Interest (June 3, 2013). Tax Notes, Vol. 138, 2013. Available at SSRN: https://ssrn.com/abstract=2277219

Jeffrey H. Kahn (Contact Author)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850.644.7474 (Phone)

HOME PAGE: http://www.law.fsu.edu/faculty/jkahn.html

Douglas A. Kahn

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4043 (Phone)

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