In a four-part guest series, Arthur H. Kohn, partner at Cleary Gottlieb, along with Andrew L. Oringer and Steven W. Rabitz, partners at Dechert, summarize the principal U.S. federal income tax and related design considerations associated with carried interest arrangements for individuals employed by, or otherwise providing services to, sponsors of private funds. This third article reviews practical issues related to profits interests in a tax partnership, including the treatment of profits interests and capital interests as separate interests in a partnership; dual-status issues; phantom income; and tax distributions. The first article provided background on carried interest arrangements and examined relevant analytical considerations. The second article discussed Section 83(b) elections; fee-waiver provisions; and tax treatment on the repurchase, disposition or payment in liquidation of profits interests. The fourth article will explore additional practical and design considerations. For additional commentary from Rabitz, see “Becoming a Plan Assets Fund May Limit Hedge and Other Private Funds’ Abilities to Charge Fees” (Apr. 21, 2016); and “Recent Developments Affect Classifications of Control Groups and Fiduciaries Under ERISA” (Apr. 14, 2016).