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Insight Center: Webinars

Application of 1061 and the Feasibility of Carry Waivers

Speakers: David Stauber and Morgan Klinzing

1:00-2:40 PM (ET)
Application of 1061 and the Feasibility of Carry Waivers

Presented by Lorman Education Services

Section 1061, enacted as part of the TJCA, requires a three year holding period (rather than a one year holding period) in order for carried interest partners to qualify for long-term capital gains rates on carry proceeds (3 Year Carry Rule). The application of these rules to a typical private equity fund structure is complex and fact-specific. This topic provides a clear summary of these rules in an easy-to-understand format, identifies common misconceptions and traps for the unwary and provides practical structuring solutions to avoid or minimize the impact of the 3 Year Carry Rule.

In particular, this panel will focus on the potential implementation of a carry waiver mechanism, whereby carried interest partners may avoid the short-term characterization through a waiver of their participation rights with respect to portfolio investments held for less than three years in exchange for a priority return with respect to certain qualifying investments held for more than three years. These provisions have the potential to drastically reduce or eliminate the application of short-term capital gain rates, but come with a host of technical and drafting issues that may trigger significant unintended consequences unless drafted carefully.

Key topics include:

  • Background and history of carried interest legislation
  • Overview of the Section 1061 Rules
  • Potential workarounds
  • Waiver provisions
  • Impact of regulations


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