Close
Close

IRS guidance expected soon to address perceived loophole in the new carried interest rules

RFP
Tax Hot Topics newsletter Treasury Secretary Steven Mnuchin recently told the Senate Finance Committee that he expects the IRS will issue guidance in the next few weeks that will prevent avoidance of the newly enacted rules covering carried interests.

Section 1061 applies to carried interests involving investment and real estate businesses and generally requires that the interest be held for more than three years in order for the gain on disposal to be treated as a long-term capital gain. The new provision includes various other details on the situations to which it applies.

Section 1061(c)(4)(A) provides that the new rules do not apply to “any interest in a partnership directly or indirectly held by a corporation.” Some taxpayers have questioned whether the statute’s reference to a corporation could include an S corporation, leading some to consider contributing affected partnership interests to an S corporation in order to avoid the three-year holding period requirement.

Any guidance the IRS issues would likely restrict the exception in Section 1061(c)(4)(A) to C corporations. If administrative guidance is not viable, there is a possibility that legislative technical corrections may address the issue.

Contact Grace Kim
Principal, Partnership Tax Technical Leader, Washington National Tax Office
T +1 202 521 1590

Bryan Keith
Managing Director, National Tax Standards Group, Washington National Tax Office
T +1 202 861 4116

Glenn Dance
Managing Director, National Tax Standards Group, Washington National Tax Office
T +1 703 637 2634

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.