Below is a more detailed examination of specific features of the proposed regulations, after a brief discussion of effective dates. 1061 as applicable partnership interests (APIs). Note, finally, that carried interests are referred to in Sec. Clarify that the holding period of the asset being sold is determinative, subject to certain exceptions for transfers of interests in passthrough entities.Īlthough the preamble to the proposed regulations cautions taxpayers regarding carry waivers, the regulations would not impose new restrictions or guidelines regarding these waivers.Specify that gain from a sale of property distributed with respect to a carried interest may be subject to Sec.1061 but not for purposes of recharacterizing LTCGs as STCGs Adopt a "partial entity" approach whereby passthrough entities would be treated as taxpayers for purposes of determining the existence of a carried interest subject to Sec.Create a new third-party purchaser exception.Apply complex reporting requirements for partnerships, including funds.Real estate investment trust (REIT) and regulated investment company (RIC) capital gain dividends and certain LTCG inclusions from a passive foreign investment company (PFIC) with respect to which a qualified electing fund election has been made, to the extent it is attributable to REIT/RIC/PFIC income that does not arise from the sale of capital assets held for one-to-three years (provided certain reporting requirements are met).1092(b) and certain regulations promulgated thereunder) and 1222 (e.g., capital gains and losses identified as mixed straddles under Sec. Other gains characterized as long-term without regard to Sec.1061's greater-than-three-year holding period requirement, including: Provide that certain types of capital gain income are not subject to Sec.1061 recharacterizes LTCGs arising from the sale of capital assets held for more than one year, but not more than three years, as short- term capital gains (STCGs), which are typically taxed at the rates applicable to ordinary income. The new rule applies to carried interests in many private- equity and alternative asset funds (i.e., hedge, real estate, energy, infrastructure, and fund of funds).
#IRC 1061 CODE#
This Code provision generally says that to qualify for tax- favored long- term capital gains (LTCGs) treatment, certain carried interest arrangements must meet a greater- than- three- year holding period requirement. 115- 97, modified the taxation of carried interests by enacting Sec. The law known as the Tax Cuts and Jobs Act, P.L. This item discusses proposed regulations that the IRS issued on July 31, 2020, regarding the tax treatment of carried interests ( REG- 107213- 18). Editor: Susan Minasian Grais, CPA, J.D., LL.M.
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