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IRS Restricts Carried Interest Tax Break Used by Hedge Funds

July 31, 2020, 4:01 PM

The Internal Revenue Service released regulations to restrict a valuable tax break that hedge fund managers were able to claim after an error in 2017 Republican tax law.

The change, published Friday, bars money managers from using some types of business entities, including S corporations and passive foreign investment companies, to take advantage of an exemption to rules for taxing carried interest.

“The Treasury Department and the IRS have concluded that the grant of regulatory authority in section 1061 is sufficient for the government to issue regulations” exempting S corporations and PFICs, the rule states, referring to the relevant tax ...