What is the potential tax rate difference when GPs eventually sell their stake if they have rolled their carried interest into a continuation vehicle?

When General Partners (GPs) roll their carried interest into a continuation vehicle, the prevailing tax treatment typically allows them to benefit from a capital gains tax rate, which is generally lower than ordinary income tax rates. In the United States, long-term capital gains can be taxed at a maximum rate of around 20% for most taxpayers, which is significantly lower than the maximum marginal ordinary income tax rate of approximately 37%.

This tax strategy is advantageous for GPs as they can defer taxes by rolling over their interest into the continuation vehicle, which allows them to participate further in the fund's performance without incurring an immediate tax liability. When they eventually sell their stake, the capital gains that they realize would likely be taxed at this lower rate, making option B the correct choice.

The other options do not align with the typical tax treatment of rolled-over carried interests. The 37% rate applies to ordinary income rather than capital gains, while an indefinite deferral of taxes is not feasible unless aligning with specific investment structures. A tax rate up to 50% does not reflect the current capital gains taxation rules for most taxpayers. Thus, the lower rate of approximately 20% accurately represents the potential tax rate difference for GPs in this scenario.