Law360, New York (August 5, 2015, 10:56 AM EDT) -- On July 23, 2015, the Internal Revenue Service issued long-awaited proposed regulations discussing the taxation of management fee arrangements commonly used by private equity funds and their management. The proposed regulations address the tax treatment of "disguised" payments for services under Section 707(a)(2)(A) of the Internal Revenue Code, where a partner has rendered services to a partnership in a capacity other than partner. By specifically classifying certain fee arrangements, including particular carried interest mechanisms, as disguised payments for services, the proposed regulations target purportedly abusive situations where private equity funds use management fee waivers to convert services income, taxable at the ordinary rates, into income items meriting capital gain treatment....
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