On January 7, 2021, the U.S. Internal Revenue Service (IRS) and Department of the Treasury released final regulations (Final Regulations) applicable to Section 1061 of the Internal Revenue Code of 1986, as amended (the Code).1
Section 1061 recharacterizes certain long-term capital gains of a noncorporate taxpayer that holds one or more applicable partnership interests (APIs) as short-term capital gains unless the gains are from assets held for more than three years. For a further description of Section 1061, see Congress Finalizes Tax Reform
. The Final Regulations retain the basic approach and structure of the proposed regulations published on August 14, 2020 (Proposed Regulations), with certain significant revisions. For a description of the Proposed Regulations, see IRS Releases Proposed Regulations on Recharacterization of Carried Interest
(Proposed Regulations Alert).
Below are certain significant revisions in the Final Regulations.