New Tax on Sales of PE Firms Discovered in Carried Interest Bill

Private equity firms picking through the proposed tax hike on carried interest have discovered an alarming provision buried in the legislation that will raise taxes on sales of their firms.
Author:
Updated:
Original:

Private equity firms picking through the proposed tax hike on carried interest have discovered an alarming provision buried in the legislation that will raise taxes when they sell their firms.

The provision means any founder of a hedge fund, PE firm or venture capital firm who sells shares in the firm, even through an IPO, will be taxed at ordinary income rates as high as 39 percent. Right now, those sales are taxes at capital gains rates of 15 percent. This would obviously hit anyone trying to cash out by selling to another firm or going public. 

Not surprisingly, the PE industry is steaming over this provision and are working to kill it before it gets voted on either today or tomorrow. Lawmakers say the provision was put in to stop fund managers from trying to get around the new carried interest tax.

The sales provision is intended to stop executives at buyout, venture-capital and real-estate partnerships from circumventing the higher taxes on their pay imposed by the bill, said Matthew Beck, a spokesman for the House Ways and Means Committee. Otherwise, he said, fund managers would sell their stake -- and pay the lower tax rate -- just before receiving income subject to higher taxes.

Higher Tax on Buyout Fund Manager Would Hit Hedge Fund Sales [Bloomberg]

Related

Tax on Carried Interest Moving Closer to Reality

A new proposal to tax carried interest as ordinary income was just attached to a larger tax and spending bill that could be voted on by the House as early as tomorrow.

Family Farm Exemption Discovered in Carried Interest Tax Hike

Leveraged buyout and venture capital firms are steaming over a new carve-out provision for family farms inserted at the last minute into the carried interest tax hike that passed the House at the end of last month.

Private Equity Fuming Over Carried Interest Tax Hike

For over three years, the private equity industry’s main lobbying group successfully fought against moves to increase taxes on carried interest. Then, Max Baucus and Sander Levin had to go screw it all up yesterday by slipping carried interest legislation into a big tax and spending bill.

Europe Moves Ahead with Tough PE/Hedge Fund Regulation

European lawmakers are inching closer to passing a range of regulations that put hedge funds and private equity firms under tighter government scrutiny and subject them to much greater oversight.