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Knoll Finds Proposed Tax on Fund Managers of Questionable Value
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Yet it is not so simple. The revenue effects of a tax increase are unlikely to meet expectations. “For such companies, the payment of a contingent fee to a private equity firm in exchange for its assistance in selecting the directors, hiring the managers, and helping to restructure and operate the business would likely qualify as an ordinary and necessary business expense” that can be deducted from income, Knoll wrote. Accordingly, once the industry adjusts, the tax increase might yield “little or no net increase in tax collections.”

To Knoll’s knowledge, his study hasn’t changed any minds on Capitol Hill, but it may compel lawmakers to “deal with the possibility that the dollar value is less than they expected.” Knoll intends to expand his study for publication. “In that process,” he says, “I intend to look further at who would bear the economic incidence of a tax increase on carried interests.”
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