The tax treatment of carried interest has been a controversial topic for several election cycles now: should it be treated as ordinary income or capital gains? Without taking a position pro or con, it is nonetheless safe to say that very powerful economic (and therefore political) interests wish to see the current tax treatment prevail. That is not certain, however, and it stands to reason that a benefit that helps extremely successful people and not middle and lower economic classes may one day disappear. Should carried interest be treated as ordinary income instead of capital gains, the incremental burden to private equity and venture investors could be significant.
If that were to happen, New York Private Finance could provide assistance to those affected by the change. The general partners of private equity and venture capital firms would not need to liquidate their positions to fund current tax payments. Rather, they could borrow from NYPF to meet their tax obligations, using their carried interest positions as collateral for medium-term loans. They would not be able to avoid their tax liabilities, of course, but a loan from NYPF would enable them to postpone the liquidation of their investments for as long as six years. This would ensure that they could manage their portfolio with an eye to longer-term growth and the maturity of the underlying companies.
Note to self: keep an eye on the ongoing controversy and be prepared to assist with tax management, should the prevailing method of taxing carried interest go the way of all flesh.
Contact us to learn how NYPF can help.
