Assume a hedge fund's limited partner's pay 20% of annual
profits as an inventive fee. Further assume that the fund
has two investors, Partner X with 75% interest and Partner Y
with 25% interest.)
On Form 1065 Schedule K-1, Part II, Item L (Partner's share
of profit, loss, and capital)
Partner X and Y's shares of losses are 75% and 25%
respectively , and Partner X and Y's shares of capital are
75% and 25% respectively. What are Partner X and Y's shares
of profits? Would they be 75% and 25%, or would they be 60%
and 20% (in other words, taking the 20% incentive fee which
would have been paid had there been profits)?
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