Tax distributions and carry clawback

In recent months, questions regarding tax distributions and carry clawback provisions in Limited Partnership Agreements (LPAs) have become more prevalent.

Tax distributions were initially designed to help carried interest holders manage tax liabilities arising before they receive distributions, especially relevant for US taxpayers due to their accrual basis of taxation. Over time, these provisions have grown complex, leading to varied practices and significant commercial implications, such as affecting fund returns and diluting clawback benefits for investors.

Read the full article on our Private Capital Solutions website, where we answer nine key questions.

  1. What are tax distributions?
  2. Why are tax distributions required?
  3. What is the range of provisions in LPAs for tax distributions?
  4. How are tax distributions taxed?
  5. What are the commercial consequences of tax distributions?
  6. What is clawback?
  7. What is the range of provisions in LPAs in relation to clawback?
  8. What are the tax consequences of a clawback?
  9. Are there regulatory considerations?

Partner, Joe Robinson is a co-author on this article.