Blog Posts Tagged With Pass-Through Entities

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President Trump To Announce Tax Reform Principles

The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15%
  • Repeal the corporate AMT
  • Deemed repatriation of accumulated offshore earnings taxed at 10%
  • No destination-based cash flow tax
  • Shift toward territoriality?
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Tax Reform and the Treatment of Carried Interest

The favorable tax treatment of so-called “carried interest” that is earned by private equity managers gained a considerable amount of attention from both parties during the 2016 presidential campaign. President Trump has repeatedly called for its elimination, a goal that Treasury Secretary Mnuchin reaffirmed in remarks that he made last Friday.

This is not a new issue. In recent years, there has been a series of legislative proposals to turn off the “flow-through” character, in whole or in part, of partnership allocations of long-term capital gain in respect of carried interest and, instead, to treat all or a portion of those allocations as ordinary income. Continue Reading

The Problem of Pass-Throughs and Tax Reform

Any overhaul of the taxation of business income must address the difficult question of how to deal with pass-throughs. Most businesses in the United States are organized as pass-throughs and, since 1998, pass-throughs have earned more income than C corporations in every year except 2005. (Read the study here.) This post explains the challenges of dealing with pass-throughs in tax reform, and outlines the various ideas on the table.

Current Law Rate Differential.  Under current law, pass-throughs are not subject to U.S. federal income tax at the entity level. Instead the owners take their shares of the pass-through’s taxable income into account for purposes of determining their own tax liability, with the character of the various items of income, gain, loss and deduction generally being determined at the level of the pass-through and flowing through to the owners. Continue Reading

Tax Reform: A Private Equity Perspective

The Trump administration and House Republicans have each proposed tax law changes that, if enacted, would significantly impact private equity, both directly and (potentially more significantly) through the businesses in which private equity funds invest. The consequences of the proposed changes vary by industry and therefore the proposals may have an uneven impact across the private equity sector.  We highlight a few of the major proposed changes below.

Lower Tax Rates.  The House and Trump plans would cut corporate tax rates to 20% and 15%, respectively.

Treatment of Pass-Through Entities (Including, Potentially, Private Equity Management Companies).  The House plan would tax the “active business income” of pass-through entities at a maximum rate of 25%.  Continue Reading

Setting the Stage for Comprehensive Tax Reform

Tax reform will be one of the top priorities for the 115th Congress. Hopes for pursuing tax reform to a successful conclusion are high, given one-party control of the government (and exuberant campaign promises). Following the 2016 election, Davis Polk laid out the background and context in which tax reform measures will be considered, with links to summaries of the leading proposals and details on the politics of tax reform. Although life in Washington has moved forward since this memo was published, the key points and players remain the same. Read on for things to watch.

Setting the Stage for Comprehensive Tax Reform, December 2, 2016

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