Carried Interests and Investment Management Fees: Certain Tax Reform Changes for Fund Managers

Family office investment vehicles often are organized as limited partnerships or LLCs treated as partnerships for federal income tax purposes. Typically, the manager of such a partnership receives an interest in the partnership’s profits (a carried interest) in connection with the management services, in addition to management fees paid by the partnership. With the new Tax Cuts and Jobs Act, the tax treatment of such carried interests and management fees have changed. Although the Act does not eliminate the ability of carried interests to generate long-term capital, the Act does impose more stringent requirements.