Tax Cuts and Jobs Act: Partnership Interest Held in Connection with the Performance of Services

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The U.S. House of Representatives Committee on Ways and Means added an amendment to the Tax Cuts and Jobs Act that begins to address the tax controversy related to carried interests. The amendment imposes a three-year holding period requirement rather than the normal one-year requirement for qualification as long-term capital gain related to partnership interests that were acquired in connection with the performance of substantial services. The three-year holding period would not apply to any asset not held for portfolio investment on behalf of third party investors. The substantial services must be performed in a trade or business which consists of (a) raising or returning capital and (b) investing in, disposing of or developing securities, commodities, real estate held for investment or rental, cash or cash equivalents, options or derivative contracts. Qualifying partnership interests held by a corporation are exempt from the extended holding period requirement. This amendment is effective for taxable years beginning after December 31, 2017.