Long-awaited guidance on the tax treatment of partnership (and LLC) interests related to services has been issued in 26 CFR Part 1 [TD 9945] RIN 1545-BO81. For private equity executives assessing compensation arrangements and doing personal wealth planning, there is some good news.

Recall that new Internal Code Section 1061 under the 2017 Tax Cuts and Jobs Act extended the holding period for certain interests to qualify for lower long-term capital gain rate tax treatment from one year to three years, essentially recharacterizing gain for interests held from one to three years as short term gain taxed at ordinary income tax rates (37%), rather than lower long term capital gain tax rates (20%). Proposed regulations issued last summer left many outstanding questions unresolved and provided “unsatisfactory” resolution to others. READ MORE