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2008

Taxation-Federal

Black-Scholes formula

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Full-Text Articles in Law

The Taxation Of Private Equity Carried Interests: Estimating The Revenue Effects Of Taxing Profit Interests As Ordinary Income, Michael S. Knoll Nov 2008

The Taxation Of Private Equity Carried Interests: Estimating The Revenue Effects Of Taxing Profit Interests As Ordinary Income, Michael S. Knoll

Faculty Scholarship at Penn Law

In this Article, I estimate the tax revenue effects of taxing private equity carried interests as ordinary income rather than as long-term capital gain as under current law. Under reasonable assumptions, I conclude that the expected present value of additional tax collections would be between 1 percent and 1.5 percent of capital invested in private equity funds, or between $2 billion and $3 billion a year. That estimate, however, makes no allowance for changes in the structure of such funds or the composition of the partnerships, which might substantially reduce tax revenues below those estimates.