PwC alternatives alert, January 30, 2009

New York City follows New York State in targeting alternative investment fund managers


Proposal to impose unincorporated business tax on carried interest from investment management services reintroduced


On January 15, 2009, New York State Assemblyman Micah Kellner reintroduced New York State Assembly Bill A2415 which will amend the New York City Administrative Code to impose the Unincorporated Business Tax ("UBT") on carried interest from investment management services. This bill follows the state proposal set forth by Governor Patterson in his Executive Budget Bill (S. 60/A.160; December 16, 2008) to expand New York's non-resident personal income tax to include carried interest for performing investment management services. If adopted, both the state and city proposals will be effective January 1, 2009.

Bill A2415 provides that income or gain realized in connection with an investment management services carried interest, other than any portion of the interest received as a capital contribution, will not be subtracted from the gross income of an unincorporated business whose assets exceed $10 MM. Under current law, the UBT is not imposed on the income from carried interest as it is deemed exempt under the New York City Administrative Code. According to the Memorandum in support of the Bill, the rationale behind Bill A2415 is to provide equal treatment between tax investment managers who are highly compensated for investment management services and the business income of a small business owner.

Similar to the State Budget Bill, Bill A2415 broadly defines the term "investment management services" to mean any interest in a business which is held by any person if such person provides, directly or indirectly, in the active conduct of a trade or business, a substantial quantity of any of the following services to the business: (A) advising the business as to the value of any property; (B) advising the business as to the advisability of investing in, purchasing, or selling any property; (C) managing, acquiring, or disposing of any property; (D) arranging financing with respect to acquiring property; or (D) arranging financing with respect to acquiring property; or (E) any activity in support of any service described in clauses (A) through (D).

Specific advice and assistance may be sought from your PwC engagement team or from any of the partners in our Alternative Investment Fund Group.