Certain arrangements would be recharacterized as ordinary income, rather than as distributive shares of partnership income.

On July 22, 2015, the US Treasury Department and the US Internal Revenue Service (IRS) released proposed regulations (the Proposed Regulations) under Section 707 of the Internal Revenue Code of 1986, as amended (the Code), to provide guidance regarding when arrangements involving the receipt of a partnership interest for services will be treated as a disguised payment for services and not as the right to receive a distributive share of partnership income. An arrangement that is treated as a disguised payment for services under the Proposed Regulations will be treated as a payment for services for all purposes of the Code, with the result that the payment will be taxed as ordinary income and be subject to Code Sections 409A and 457A (as applicable). The Proposed Regulations do not affect traditional forms of carried interest, concluding that they are generally subject to a significant entrepreneurial risk.