Sanchirico on The Tax Advantage to Paying Private Equity Fund Managers with Profit Shares

Chris William Sanchirico (Penn) has posted The Tax Advantage to Paying Private Equity Fund Managers with Profit Shares: What Is It? Why Is It Bad? on SSRN.  Here is the abstract:

Private equity funds purchase ailing companies, restructure them over the course of several years, and then sell them at a profit. Fund managers typically receive a share of fund profits in return for their services. The tax treatment of this form of service compensation has recently come under close scrutiny in the press, the academy, and Congress. This paper helps to clarify the nature of the tax advantage accorded to such compensatory profit shares. The paper also critically assesses some of the chief arguments for and against the current tax treatment of such compensation schemes.