Private equity partnerships are typically limited partnerships with one general partner and the rest being limited partners (see B7.106A).
The income of a private equity partnership is allocated according to each partner's interest and taxed separately in the hands of each partner according to the partner's status in the usual manner. The following points detail issues that might be relevant to private equity partnership assessments only. More details can be found in Ray: Partnership Taxation, Ch 20.
Treatment of the general partner
The general partner will normally make only a small contribution, if any, to the funds as general partner but will be remunerated by way of a prior share of the fund's profits (a 'priority' or 'management' profit share)—typically first out of the fund's (net) income and, if that is insufficient in any year, its capital realisations. Since profits may not be generated within the fund in its early years, the general partner will normally be allowed under the partnership agreement to make drawings in anticipation and in advance of the fund-making
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