The Wall Street Journal: U.S. to block tax-law loophole on ‘carried interest,’ Mnuchin says

Treasury Secretary Steven Mnuchin said the loophole can be closed under current law

Treasury Secretary Steven Mnuchin said the government will act within two weeks to block a hedge-fund maneuver around part of the new tax law.

The tax law changed the rules governing what’s known as carried interest received by investment fund managers. Hedge-fund managers and others must now hold their investments for three years instead of one to qualify for lower capital-gains tax rates on their share of the profits. That’s a much narrower restriction than lawmakers had previously discussed, but even that change appears porous.

The law, as written, says the carried-interest rules don’t apply to investments “held by a corporation.” Typical corporations pay two layers of taxes, one on the company and one on investors. But the language as written leaves a gap for S corporations, which are pass-through entities that pay just one layer of tax.

Hedge funds have been setting up companies in Delaware to take advantage of the opening, Bloomberg News reported on Wednesday.

An expanded version of this story is available at WSJ.com

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