Enterprise Value

2014-10-13

During the 111th and 112th Congresses, and in prior Congresses, policy makers have introduced legislation that would unfairly subject investment management entrepreneurs to an increased tax on the sale of the “enterprise value” of their business.

In the United States, any individual, partnership, or corporation that creates a business and develops a sustainable customer list and an identifiable brand will have created goodwill or “enterprise value.”  When a person sells a business, any gain attributable to the “enterprise value” of the business is taxable at capital gain rates.

If a business is operated as a partnership, the structure generally used by hedge funds, gain from the sale of the partnership interest will also be taxed at capital gain rates to the extent attributable to “enterprise value.”

Legislation introduced in prior Congresses would change the tax treatment of the sale of “enterprise value” for investment management partnerships from capital gain to ordinary income.

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