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Tax & Accounting · Carry Treatment

Tax & Accounting Dashboard

IRC Section 1061 holding period analysis, ASC 718/606 compliance, and carry KPIs

LTCG Qualified

$74M

52% of API gains

Recharacterized

$69M

48% held <3 years

Tax Savings

$9.1M

If all held >3 years

Blended Rate

29.8%

vs 23.8% target

IRC Section 1061 \u2014 Applicable Partnership Interest Analysis

Section 1061 requires a 3-year holding period for LTCG treatment on gains allocated to an Applicable Partnership Interest (API). Final regulations published January 2021. Technical corrections issued 2022-2024.

✓

Heritage Benefits Group

Held >3 years. Qualifies for LTCG under API rules.

Holding

3.2 years

Gains

$42.5M

LTCG

Rate

23.8%

✗

NorthStar Physician Partners

Held <3 years. Recharacterized as STCG per Section 1061(a).

Holding

2.8 years

Gains

$38.2M

Recharacterized

Rate

37.0%

✓

Sentinel Security

Held >3 years. Clean LTCG treatment.

Holding

3.5 years

Gains

$31.8M

LTCG

Rate

23.8%

✗

Atlas Manufacturing

Held <3 years. API recharacterization applies.

Holding

2.1 years

Gains

$18.4M

Recharacterized

Rate

37.0%

✗

Cascade Data Systems

Recently acquired. Will recharacterize until 2027-Q2.

Holding

1.8 years

Gains

$12.6M

Recharacterized

Rate

37.0%

☆

GP Capital Interest

Capital interest exception — invested capital commensurate with contribution.

Holding

N/A

Gains

$57.8M

Exempt

Rate

23.8%

API Gains by Tax Treatment$144M total

LTCG 52%

STCG 48%

Accounting Standards Compliance

ASC 718Profits Interest AwardsCompliant

Equity-classified, fair value at grant. ASU 2024-01 Example 10 Cases A-D clarify scope.

Non-cash comp expense of $4.2M recognized over vesting period.

ASC 718Synthetic Carry ProgramsUnder Review

Cash-settled liability, mark-to-market each period.

Potential $1.8M quarterly P&L volatility from MTM adjustments.

ASC 606Carry as Performance FeeCompliant

Variable consideration, constrained until reversal risk resolved.

Revenue recognition deferred; $18.4M constrained carry not yet recognized.

ASC 606Management Fee RevenueCompliant

Fixed consideration recognized over service period.

$55M annual management fee recognized ratably.

ASC 820Portfolio Fair ValueCompliant

Level 3 inputs for unrealized positions. Quarterly valuation committee review.

$2.4B unrealized NAV dependent on Level 3 fair value hierarchy.

Carry Operations KPIs

Carry IRR

18.6%

Target: >15%

On Track

Time-to-Carry

2.3 yrs

Target: <3 yrs

On Track

Payout Accuracy

100%

Target: 100%

On Track

Clawback Exposure

Target: $0

On Track

Escrow Sufficiency

142%

Target: >100%

On Track

Section 1061 Risk

48.2%

Target: <30%

Alert

ASC 718 Burn Rate

2.1%

Target: <3%

On Track

Constrained Revenue

$18.4M

Target: Monitor

Watch

Advisory Landscape \u2014 Carry Tax & Accounting

Deloitte

Technical accounting + ASC 718 guidance

Profits interest scope assessment (ASU 2024-01)

PwC

Tax structuring + GP stakes diligence

Section 1061 + capital interest exception analysis

KPMG

Tax updates + regulatory monitoring

Final regs and technical corrections tracking

Revenue recognition for asset managers

ASC 606 carry-as-variable-consideration framework

Simpson Thacher

Private funds governance + regulatory

LPA negotiation, clawback/escrow mechanics

Proskauer

Funds tax counseling + formation

Section 1061 holding period and exceptions