Good point, but I believe the majority of US-operated HFs are structured in offshore havens (specifically the Caymans). Even though the managers and their offices are onshore, the deferment benefit of the carried interest is possible as a result of legally registering in an offshore territory.
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How do Hedge Funds pay 15% tax?
- Thread starter dancalio
- Start date
Quote from propseeker:
This is a logical assumption, but it's not correct. The real reason for them being taxed at the highest rate is because in the recent revised 'bailout bill', there was a clause snuck in eliminating the 15% cap gains loophole for fund managers. Thus manager payout is now taxed as earned income regardless of investment style.
WRONG. VERY WRONG
Right, yes pass-through income, not earned.Quote from dancalio:
Are you sure it's treated as earned income? If earned income, they get extra screwed as they would have to pay 3% medicrap with no limit on top of income tax.
I'm guessing it gets treated as normal pass-through income from a partnership, which is taxed at the marginal income tax rates, but does not count as employment income.
Actually, it's the abolition of deferment which is part of how they are justifying taxing at the full rate:Quote from Trader KGB:
Good point, but I believe the majority of US-operated HFs are structured in offshore havens (specifically the Caymans). Even though the managers and their offices are onshore, the deferment benefit of the carried interest is possible as a result of legally registering in an offshore territory.
http://www.crowell.com/NewsEvents/Newsletter.aspx?id=1042
http://www.pillsburylaw.com/content...843/Exec Comp Vol 1100 No 1146 10-21-08_1.pdf
Quote from propseeker:
Yes, I see existing funds will be grandfathered if in existence before Jan 1, 2009. So, shouldn't apply to existing firms.
I'm not seeing that. I see grandfathering for "services provided prior to January 1, 2009", which would make sense. Grandfathering 'existing funds' would make this provision utterly toothless.
I am interested in learning exactly what "protection for deferral arrangements currently in place" means. This language certainly suggests the existence of a loophole.
From everything I'm reading, it means what you said: any services already performed and currently being deferred will continue being deferred up to 2017. Any services provided after 2008 will no longer be elligible for deferral.Quote from BlindLemonBoosh:
I am interested in learning exactly what "protection for deferral arrangements currently in place" means. This language certainly suggests the existence of a loophole.