While the proposed carried interest regulations clarify key aspects, the proposed rules leave some ambiguity for investment fund managers.

Section 1061 is intended to limit long-term capital gain treatment attributable to “carried interest” arrangements issued to owners and employees of investment fund managers by imposing a three-year holding period requirement in lieu of a one-year holding period requirement to obtain favorable long-term capital gain rates. On July 31, 2020, the Treasury Department and Internal Revenue Service (together, Treasury) issued proposed regulations under Section 1061 (the Proposed Regulations).