This Essay analyzes the tax treatment of carried interests in private equity. It argues that there are two competing analogies: service income and investment income. Standard approaches are not able to resolve which of the competing analogies is better and often fail even to recognize that there are competing analogies. The best method for determining the proper treatment of carried interests is through direct examination of the effects of each of the possible treatments, known as the theory of line drawing in the tax law. Using this approach, it is clear that the better treatment of holders of carried interests is as investors. Key pieces of evidence include the longstanding policy premises behind partnership taxation and the complexity and avoidance problems with attempts to tax carried interests as service income. In particular, the longstanding policy behind partnership taxation is to tax partners as if they engaged in partnership activity directly. Current law, which gives carried interests holders capital gain follows this approach, and changing the law to tax carried interests as service income would require rejection of this historical trend. Because such an approach would mean taxing carried interests differently than if the partners engaged in the activity directly, it would be easily avoidable. Moreover, attempts to tax carried interest as service income will have to be able to distinguish service income from other types of income, a task which has proven to be difficult, complex, and avoidable.
The Suspension Clause: English Text, Imperial Contexts, and American Implications
Since 1996, the Supreme Court of the United States has signaled that the jurisprudence of the writ of habeas corpus, and its possible suspension, should be informed by an understanding of the writ and of the Habeas Suspension Clause in the U.S. Constitution “as it existed in 1789.” This article recovers the historical basis of the Suspension Clause. It begins by exploring, in the English context, previously unexamined court archives and other manuscript sources. It then traces the path of the writ across the British Empire in the years before 1789. Finally, it analyzes early American uses of the writ, including its treatment in the Judiciary Act of 1789 and Chief Justice John Marshall’s decision in Ex Parte Bollman. The article concludes that the writ’s peculiar force was the product of judicial rather than statutory innovation; that judicial authority was premised on the idea that judges enacted powers peculiar to the king—his prerogative—when they used the writ; that this meant that judges focused more on the behavior of jailers rather than the rights of prisoners; that this focus gave the writ its surprisingly wide coverage as to persons and places; and that the implications of this history for current cases involving the claims of Guantanamo Bay detainees are significant.
Delaware’s Compensation
This Article illuminates the interdependence between the structure of Delaware’s franchise tax and Delaware’s corporate law. It makes three major arguments. First, different franchise tax structures would create different regulatory incentives for Delaware. Second, the current structure of Delaware’s franchise tax law is suboptimal. A franchise tax that is sensitive to firm performance would be superior to Delaware’s current franchise tax. It would align Delaware’s incentives with those of shareholders and induce Delaware to offer corporate law that maximizes shareholder value. It will have this effect even if Delaware faces no competition from other states over incorporations and even if shareholders are passive. Third, Delaware may not have sufficient incentives to reform its franchise tax law. The Article derives policy implications.