On Aug. 14, the U.S. Department of the Treasury and the IRS issued
proposed regulations under IRC Section 1061, which limits the preferential long-term capital gain tax treatment of partnership profit interests (sometimes referred to as carried interests) held by investment fund managers. Enacted as part of the
Tax Cuts and Jobs Act of 2017, and effective for tax years beginning after Dec. 31, 2017, IRC Section 1061 generally recharacterizes net long-term capital gains as short-term capital gains on the disposition of an applicable partnership interest (API). IRC Section 1061(c) defines an API as a partnership interest held by, or transferred to, a taxpayer, directly or indirectly, in connection with the performance of substantial services by the taxpayer, or by any other related person, in any applicable trade or business. Excluded from this definition are interests held directly or indirectly by a corporation and certain capital interests in a partnership that are based on capital contributed or the value of the interest under IRC Section 83.