While the final regulations simplify key exceptions and contain favorable changes, ambiguity continues for investment fund managers.

On January 7, 2021, the US Treasury Department and Internal Revenue Service (together, Treasury) published final carried interest regulations (the Final Regulations) under Section 1061,1 which is intended to limit long-term capital gain treatment attributable to “carried interest” arrangements issued to owners and employees of private fund sponsors by imposing a three-year holding period requirement in lieu of a one-year holding period requirement. The Final Regulations make important modifications to the proposed carried interest regulations (the Proposed Regulations) — released by Treasury in July 2020 — that are beneficial to private fund sponsors.