IRS finalizes carried interests regulations

January 13, 2021

The IRS has posted final regulations on the tax treatment of carried interests under Sec. 1061.

Carried interests are ownership interests in a partnership that share in the partnership’s net profits. They are often transferred in connection with the performance of substantial services by an individual. Proceeds from that individual’s partnership interest are often taxed as capital gain rather than ordinary income.

The final regulations (T.D. 9945) retain the basic structure of proposed regulations issued in August with certain changes made in response to comments. The final regulations change the capital interest exception in Regs. Sec. 1.1061-3, the treatment of capital interests acquired with loan proceeds, the lookthrough rule for certain applicable partnership interests (APIs) and the treatment of APIs to Sec. 1061(d)-related individuals. Learn more.

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