• Federal Taxation of Carried Interest

For several years, there has been interest on the part of Congress and, more recently, the Obama administration in changing the taxation of income derived from a partner's carried interest in certain investment funds organized as partnerships. In May, the House of Representatives passed legislation that would change substantially the treatment of income from partnership carried interests by characterizing a portion of it as ordinary income. For individual taxpayers, once it has been fully phased in by 2013, the House legislation would treat 75% of carried interest as ordinary income and the remaining 25% as it is treated under current law (i.e., based on the underlying income of the fund in question). Until 2013, the percentages would be 50% and 50%, respectively. A version of the legislation, with slightly different provisions, is currently stalled in the Senate. As the Senate will be in recess from August 9 through September 12, it is unlikely that there will be further developments with respect to this legislation until mid-September.

  • New York State Abandons  Proposal to Tax Non-Resident Carried Interest at Ordinary Income Rates

On August 3, 2010, the New York State Assembly and Senate unanimously voted down a measure that would have taxed carried interest as ordinary income for non-New York residents who work in New York State.