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Application of 1061 and the Feasibility of Carry Waivers

Gain a comprehensive understanding of the "3 Year Carry Rule" in an easy-to-understand format.

Section 1061, enacted as part of the TJCA, requires a three year holding period (rather than a one year holding period) in order for carried interest partners to qualify for long-term capital gains rates on carry proceeds (3 Year Carry Rule). The application of these rules to a typical private equity fund structure is complex and fact-specific. This topic provides a clear summary of these rules in an easy-to-understand format, identifies common misconceptions and traps for the unwary and provides practical structuring solutions to avoid or minimize the impact of the 3 Year Carry Rule. In particular, this panel will focus on the potential implementation of a carry waiver mechanism, whereby carried interest partners may avoid the short-term characterization through a waiver of their participation rights with respect to portfolio investments held for less than three years in exchange for a priority return with respect to certain qualifying investments held for more than three years. These provisions have the potential to drastically reduce or eliminate the application of short-term capital gain rates, but come with a host of technical and drafting issues that may trigger significant unintended consequences unless drafted carefully.

Runtime: 100 minutes
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Over 33 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Agenda

Background and History of Carried Interest Legislation

Overview of the Section 1061 Rules

Potential Workarounds

  • Structuring Considerations
  • Funding Considerations for Follow-on Acquisitions

Waiver Provisions

  • Potential Issues
    • Transitory Allocations
    • Substantiality Generally
    • Constructive Receipt and Economic Substance
  • Comparison to Management Fee Waivers
  • Drafting Considerations for 1061 Waiver Provisions
    • Timing of Waiver Election
    • Waiver of Current or Future Appreciation
    • European Waterfall vs. American Waterfalls

Impact of Regulations

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Why Lorman?

Over 33 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Credits

OnDemand Course

This course was last revised on February 6, 2020.

Call 1-866-352-9540 for further credit information.

This program does NOT qualify, nor meet the National Standard for NASBA accreditation.

MP3 Download

This program does NOT qualify, nor meet the National Standard for NASBA accreditation.

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More Program Information

Why Lorman?

Over 33 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Faculty

Morgan Klinzing

Morgan Klinzing

Pepper Hamilton LLP

  • Associate in the Tax Practice Group of the law firm Pepper Hamilton LLP, resident in the Philadelphia office
  • Practice focuses on federal and international income tax, with a focus on the private equity arena and pass-throughs
  • Represents clients in domestic and cross border M&A, fund formation and structure, reorganizations and partnership agreements
  • Frequent speaker for the American Bar Association and other professional groups on tax issues impacting flow-through entities and cross border structuring
  • LL.M. degree in taxation, New York University
  • Can be contacted at 215-981-3456 or [email protected]
David Stauber

David Stauber

Pepper Hamilton LLP

  • Partner in the NYC office of Pepper Hamilton LLP
  • Practice emphasizes all aspects of U.S. federal income tax aspects of fund formation, mergers and acquisitions and securities offering matters
  • Conducts regular seminars and workshops on numerous topics related to partnership taxation, international taxation and tax reform
  • Written several publications related to the areas of international tax, partnership tax and tax reform
  • Member of the New York and New Jersey bars
  • LL.M. degree in taxation, NYU; J.D. degree, cum laude, University of Michigan
  • Can be contacted at 212-808-2705 or [email protected]
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Product ID: 406991
Published 2020
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