Alerts

Legislation Introduced to Tax Incentive-Based Allocations as Ordinary Income

June 26, 2007

Legislation has been introduced in the House of Representatives, H.R. 2834, which, if enacted, would generally treat incentive allocations (often referred to as “carried interests”) by investment partnerships as ordinary income for the performance of services, which would be subject to ordinary income rates and, in the case of many individuals, self-employment taxes. In addition, any gain realized with respect to a disposition of such an interest in an investment partnership would also be treated as income from services, taxable as ordinary income and subject to the self-employment taxes. The proposed legislative language does not specify an effective date for these rules.