The 2012 presidential campaign and the fiscal cliff debate brought our attention to many tax issues, one of which is the continuing discussion about how carried interest is taxed. Essentially, the debate of carried interest centers on whether or not investment managers and partners should continue to be afforded capital gains treatment instead of being subject to ordinary rates and self-employment taxes for their carried interest.
Since the mid-2000s, there have been several legislative and budget proposals to eliminate the favorable tax treatment of carried interest. Some of these proposals would require managing partners of investment funds to report all their income received for their services as ordinary income. Others have proposed apportioning the reportable income between ordinary and capital gains rates. Many see the debate as a tax policy issue that should not be borne by a single industry and should be done after careful consideration of the impact of these proposals.
