The Tax Policy Center Newsletter
August 21, 2007

You are cordially invited to a Tax Policy Center forum on
Taxing Carried Interest

Friday, September 7, 2007
9:00-10:30 a.m.
*The Rayburn House Office Building, Room B-318*
First Street and Independence Avenue, SW, Washington, DC

Panelists:

• Victor Fleischer, associate professor, University of Illinois College of Law
• Daniel Shaviro, Wayne Perry Professor of Taxation, New York University School of Law
• William D. Stanfill, partner, Silver Creek Technology Investors
• C. Eugene Steuerle, codirector, Tax Policy Center; Senior Fellow, Urban Institute (moderator)
• Jonathan Talisman, partner, Capitol Tax Partners

Private equity firms purchase underperforming companies, restructure them, and try to sell them at a profit. The income of the firms' general partners has recently come under congressional scrutiny because of its special nature.

The general partners, who identify companies to take private and seek limited partners to invest the necessary capital, typically receive a large portion of their compensation in the form of capital gains when the companies are sold because much of their return is structured as a "carried interest" - often entitling them to 20 percent of the firm's profits. That capital gain is taxed at a maximum rate of 15 percent, compared with a top rate of 35 percent on ordinary income.

Often the profits are quite large and some believe taxing them more lightly than other compensation is inequitable and inefficient. Others argue that the partners are doing the same thing all entrepreneurs do -taking risks and, if lucky, earning their reward down the road as a capital gain. It would be unfair, supporters say, to single out carried interest.

The debate over the taxation of carried interest also raises more fundamental questions about why some types of income should be taxed at much lower rates than others and, if there is to be a distinction between ordinary income and capital gain, what criteria should be used to determine when income qualifies for capital gain treatment.

The forum's panel of experts will discuss the legal, economic, and ethical issues involved in the taxation of carried interest, as well as proposals Congress is considering.

Breakfast will be provided at 8:45 a.m. The forum begins promptly at 9:00a.m. To RSVP, e-mail jkoch@ui.urban.org or call (202) 261-5538.

Please allow extra time to pass through security at the Rayburn Building. The Rayburn Building is at First Street and Independence Avenue, SW and is accessible by metro on the Orange and Blue lines (Capitol South stop).