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Carried Interest

A share of the profits of an investment fund (like a private equity or hedge fund) that is paid to the fund's managers as compensation. It is often treated as capital gains for tax purposes under current law.

Partnership Interest

A share of ownership in a partnership, which is a type of business structure where two or more individuals or entities operate a business together. This interest can include a right to profits, losses, and capital.

Ordinary Income

Income that is taxed at regular income tax rates, such as wages, salaries, and interest. These rates are generally higher than capital gains tax rates.

Capital Gains

Profit from the sale of an asset (like stocks, bonds, or real estate) that has been held for investment. Long-term capital gains (assets held for over a year) are typically taxed at lower rates than ordinary income.

Pass-thru Entity

A business structure (like a partnership or S corporation) that passes its income directly to its owners or investors, rather than being subject to corporate tax itself. The owners then report the income on their personal tax returns.

Internal Revenue Code

The official body of U.S. federal tax laws, first codified in 1939 and comprehensively revised in 1954 and 1986. It governs how taxes are collected and enforced.