Private Equity and Venture Capitalists Face Complex Gifting Challenges

  • The Trump-era gift tax exemption is set to expire next year.
  • Private equity and venture capital managers need to prepare for the implications on carried interest gifting strategies.
  • Carried interest can be a valuable asset to transfer due to potential appreciation.
  • Special rules apply when gifting carried interest, with potential ‘disastrous consequences’ if not done correctly.
  • The vertical slice technique can help avoid issues with Section 2701 of the U.S. tax code.

The Trump-era gift tax exemption is set to expire next year, which could have significant implications for private equity and venture capital managers. Carried interest, a share of profits paid as compensation, can be an ideal asset to transfer due to its potential appreciation over time. However, special rules apply when gifting carried interest, with potential ‘disastrous consequences’ if not done correctly. The vertical slice technique can help avoid issues with Section 2701 of the U.S. tax code.

Factuality Level: 8
Factuality Justification: The article provides accurate and relevant information about the potential changes in gift tax exemption and its implications for private-market fund managers regarding carried interest gifting strategies. It includes expert opinions from a tax partner at an accounting firm and discusses the rules and techniques involved in gifting carried interests. The article also mentions the political context that may affect the future of the exemption, making it informative and objective.
Noise Level: 7
Noise Justification: The article provides relevant information about the potential changes in gift tax exemption and its implications for private-market fund managers, but it is somewhat repetitive in its presentation of the issue and lacks a more in-depth analysis or exploration of the consequences for different stakeholders. It also does not offer significant actionable insights or new knowledge beyond the basic understanding of the problem.
Private Companies: Armanino
Key People: Connie Liu (tax partner at Armanino)

Financial Relevance: Yes
Financial Markets Impacted: Private equity, venture capital, and fund managers
Financial Rating Justification: The article discusses the implications of changes to gift and estate tax exemptions on carried interest for private-market fund managers, which affects their gifting strategies and could impact financial planning and asset transfer decisions. This has potential consequences for the industry and individual managers’ tax liabilities.
Presence Of Extreme Event: No
Nature Of Extreme Event: Other
Impact Rating Of The Extreme Event: Minor
Extreme Rating Justification: There is no extreme event mentioned in the article, but it discusses potential changes to tax exemptions and their implications for private-market fund managers. The impact of these changes can be considered minor as they affect mainly financial planning strategies.
Move Size: No market move size mentioned.
Sector: Technology
Direction: Up
Magnitude: Small
Affected Instruments: Stocks

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