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TAX EQUALITY: ELIMINATING THE LOW EFFECTIVE MARGINAL TAX RATES FOR PRIVATE EQUITY PROFESSIONALS by ProQuest

VIEWS: 67 PAGES: 29

This article recounts the chronology of the existing tax treatment, laying out the partnership and the landscapes of section 83 of the Internal Revenue Code (IRC), including a discussion of Diamond v Commissioner and Campbell v Commissioner, and the resulting Treasury regulations. The article evaluates arguments opposing and supporting any changes to the current scheme of allowing carried interests to be treated as capital gains. It concludes that subjecting carried interests to inclusion in ordinary income under section 83 of the IRC is a reasonable approach to equalizing income tax treatment of compensation, particularly in light of advances in financial valuation techniques, before which the valuation of profits interests was more difficult. In the alternative, this article will assert that cutting off the source of the capital gains treatment, namely by denying the pass-through treatment for carried interests in partnerships, is also a viable alternative.

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