Extract to table

The preferred return represents the minimum return threshold that must be achieved before any carried interest accrues to the GP LLC

While such early exits may generate significant returns for the Fund and its limited partners, the Section 1061 implications for the carry recipients must be understood and planned for in advance

Each such transaction must be analyzed on a facts-and-circumstances basis to determine whether the gain generated is subject to recharacterization

The general rule of Section 1061(a) provides that if one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the taxpayer's net long-term capital gain with respect to such interests for the taxable year shall not exceed the amount of such net gain that would be computed if only assets held for more than three years were taken into account

However, such tacking rules must be applied carefully and on a case-by-case basis

The Fund, the GP LLC, and HCP must each maintain records sufficient to support the calculation, and the Schedule K-1 reporting must provide the necessary detail