Two and Twenty: Taxing Partnership Profits in Private Equity Funds
@article{Fleischer2006TwoAT, title={Two and Twenty: Taxing Partnership Profits in Private Equity Funds}, author={Victor Fleischer}, journal={Corporate Finance: Capital Structure \& Payout Policies}, year={2006} }
Private equity fund managers take a share of the profits of the partnership as the equity portion of their compensation. The tax rules for compensating service partners create a planning opportunity for managers who receive the industry-standard "two and twenty" (a two percent management fee and twenty percent profits interest). By taking a portion of their pay in the form of partnership profits, fund managers defer income derived from their labor efforts and convert it from ordinary income…
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