CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. IRS Will Close Carried Interests Tax Loophole

IRS Will Close Carried Interests Tax Loophole

by Mike Godfrey,, Washington

07 March 2018

The Internal Revenue Service has said it will soon issue regulations to confirm that S corporations are also subject to the three-year holding period for partnerships interests introduced in the Tax Cuts and Jobs Act, to prevent individuals from circumventing the measure.

The change concerns carried interest –  ownership interests in a partnership that share in the partnership's net profits. Carried interests are often issued to investment managers in connection with the investment manager's services. These interests often result in the holder receiving capital gains that are taxed at a lower rate, rather than ordinary income.

The Tax Cuts and Jobs Act extended the holding period with respect to certain carried interests (i.e. applicable partnership interests) to three years to access the concessionary tax treatment. However, concerns have since been raised that hedge fund managers are avoiding the new rules by creating shell companies in Delaware to avoid the three-year restriction, which currently covers only individuals.

In February, Treasury Secretary Steven Mnuchin acknowledged these concerns in front of the Senate Finance Committee, and promised that new guidance would be issued by the end of the month after consultation with the IRS and Treasury.

Although no official guidance has yet been released, the IRS on March 1 issued a notice confirming that it would issue regulations to clarify that taxpayers will not be able to circumvent the three-year rule by using S corporations.

"Under the tax reform law, the three-year rule took effect for tax years beginning after December 31, 2017. Treasury and IRS intend to issue regulations that are also effective for tax years beginning after that date," said the agency.

TAGS: individuals | Finance | tax | investment | interest | law | Internal Revenue Service (IRS) | United States | tax reform | regulation | services | Tax

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »