Abstract

The carried interest tax loophole has helped private equity to become one of the most lucrative sectors of the financial Industry. As private equity general partners are taxed at long term capital gains rates on partnership profits allocated to a carried interest, while the same amount of compensation structured as salary would be taxed at ordinary income rates. Thus, General Partners pay a top tax rate of 20% on their carried interest instead of the 37% they would pay if the compensation were structured as salary, which many economists and tax experts believe it actually is.

Highlights

  • A Matter of Equity- The Taxation of Private Equity GeneralVallach Accounting Depratment, City University of New York, United States 2 Anisfield School of Business, Ramapo College of New Jersey, United States * Constance J

  • Private Equity funds managed 2.8 trillion in assets in 2017 Adam Smith’s first Canon of Taxation is Equity and Fairness (Prequin, 2018), situated taxpayers should be taxed according to the American Institute of Certified Public Accountants (AICPA)

  • Are Tax Loopholes an Unintended Consequence of a Complex Tax Policy? The favorable taxation of the carried interest of private equity firms is not a sustainable tax policy. Whether this favorable tax loophole should be closed is subject to further discussion by Congress

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Summary

A Matter of Equity- The Taxation of Private Equity General

Vallach Accounting Depratment, City University of New York, United States 2 Anisfield School of Business, Ramapo College of New Jersey, United States * Constance J. Anisfield School of Business, Ramapo College of New Jersey, United States

Introduction
An Overview
Findings
Conclusion
Full Text
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