With this column, we begin a review of the legislation that has passed the House of Representatives (the “2009 Levin Bill”)1 to tax carried interests as ordinary income. The changes, if ultimately enacted into law, will have a dramatic effect on the typical real estate securities transaction.
General partners or managing members (“managers”) of various types of entities structured as partnerships or limited liability companies, such as those that invest in real estate, private equity or hedge funds (“fund”), usually share in the profits of the fund through a carried interest. A carried interest generally allocates to the manager a percentage of fund profits, and such allocations are usually disproportionate in that the percentage of profits allocated to the manager is generally well in excess of the percentage of capital contributed by the manager to the fund.
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