Treasury to Issue Regulations Limiting Exclusion to the New Carried Interest Holding Period to C Corporations

The legislation formerly known as the Tax Cuts and Jobs Act extended the section 1061 carried interest holding period from one year to three years. However, section 1061(c)(4) provided an exception for “any interest in a partnership directly or indirectly held by a corporation.” The reference to a corporation arguably applies to both S corporations and C corporations, which provides the opportunity for the use of S corporations to avoid the three year holding period. As a result, the recently released Notice 2018-18 provides that S corporations are not corporations for the purposes of section 1061(c)(4). However, the Treasury’s authority to make that decision is questionable due to the existing IRC definitions of C corporations and corporations.

Read more: Treasury Assumes Authority to End Carried Interest Debate

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