Marcum LLP

As Seen In


In This Edition


Maury Cartine, Partner-In-Charge of Marcum LLP's National Alternative Investment Industry Group Tax Department, Article "Facing New Tax Unfriendly Proposals" Featured in HFMWeek

Featured: Maury Cartine, Partner, Alternative Investments



As the summer comes to a close, we can look back at some stalled 2013 tax proposals that just might be a sign of things to come. Earlier this year, Senator Carl Levin introduced legislation entitled as the Cut Unjustified Tax Loopholes Act (S. 268, introduced on 11 February 2013; also known as the CUT Loopholes Act).  This ominous sounding legislation includes many provisions designed to make investment managers and their investors less wealthy or perhaps poorer depending on your view of the glass as either half full or half empty.

One key provision of the CUT Loopholes Act is the revival of the attack on carried interests. Title VI of the Act is entitled "Ending the Carried Interest Loophole", but the very  first provision of Title VI states that it may be cited as the Carried Interest Fairness Act of 2012. Hmm – is that glass half empty or half full? In either case, this title does exactly what it was intended to do. Investment managers would lose the benefits of the lower tax rates applicable to long-term capital gains and qualified dividends as all taxable income a attributable to the carried interest would be re-characterised as ordinary income and subject to self-employment tax. The carried interest is referred to in the proposed statute as the ‘investment services partnership interest’. Private equity fund managers and real estate operators would, as in previous versions of the proposed legislation, become less wealthy faster than hedge fund managers who traditionally realise less long-term capital gains.

As might be expected, the statutory language has advanced over the years and now e effectively eliminates virtually all loophole strategies to avoid the ordinary income result in favour of the more beneficial long-term capital gain treatment. However, investment managers will still receive the benefits of the lower tax rates applicable to long-term capital gains and qualified dividends attributable their own capital contributions.  e portion of the investment manager’s interest that is attributable to capital contributions is referred to as the ‘capital interest’. What is not so clear is how an investment manager moves realised ordinary income from an investment services partnership interest to a qualified capital interest. As silly as it might seem, a partnership might have to distribute cash representing the realised taxable income from the investment partnership services interest to the investment manager and the investment manager may have to re-contribute the cash to the qualified capital interest to avoid any additional ordinary income that is not attributable to the carried interest itself.

Congress appears to be hopelessly bogged down with petty party line disputes and a split in control over both houses. Nonetheless, the proposed legislation to end the benefits of the carried interest keeps reappearing year after year since it was first introduced in 2007. Will the current carried interest treatment prevail? Is your glass half full or is it half empty?

Click here to read full article >>

Maury Cartine, Partner-in-Charge, Tax & Business

Tax Services - New York
Tax & Business
New York, NY



Marcum LLP is one of the largest independent public accounting and advisory services firms in the nation, with offices in major business markets throughout the U.S., as well as Grand Cayman, China and Ireland.

Learn More


750 3rd Avenue, 11th Floor
New York, NY 10017

Find an Office

(855) MARCUM1


Marcum Foundation


Leading Edge Alliance