Treasury Secretary Steven Mnuchin is taking steps to keep hedge funds from using a new loophole to avoid paying higher taxes on carried interest.
Mnuchin said Wednesday before the Senate Finance Committee that he is working with the Internal Revenue Service and the Office of Tax Policy to send out guidance in the next two weeks that will effectively end the use of this loophole, which hedge fund managers identified in last year's overhaul of the U.S. tax code. The new rules were meant to prevent hedge funds from paying a lower rate than ordinary income on carried interest, and Mnuchin believes he can step in to stop efforts to dodge them.
“That’s something that we believe we have the authority to do under the existing code that left to certain discretion to me as secretary and the IRS,” Mnuchin said before committee. “We will have that resolved.”
Carried interest, or the share of profits that hedge funds and private equity firms keep from the investments they make with other people's money, was a contentious issue ahead of the enactment of the new tax in December. Mnuchin had signaled earlier in the year that hedge funds would no longer benefit from the lower rate they pay on earnings tied to carried interest.
[II Deep Dive: Steven Mnuchin: Hedge Funds Will Lose Tax Benefits]