Some mega-rich investment managers who earn billions are allowed to classify their income as carried interest, which is taxed at a 15 percent rate.

This is a factual claim about U.S. tax law as of August 2011: that investment managers, including some earning billions, could treat their income as carried interest taxed at a 15% rate. True: tax law sources show that in 2011 carried interest was generally treated as long-term capital gains, taxed at a top federal rate of 15%, and that some fund managers with very large incomes used it. Mostly true: the treatment and the 15% rate hold, but the 'billions' description is somewhat overstated, for example top earners made hundreds of millions to around a billion. Mostly false: carried interest was taxed favourably but at a materially different rate from 15%, or the treatment applied only in narrow cases presented as general. False: in 2011 carried interest was taxed at ordinary income rates and not at 15%.

Set before the research began.

1. E1 Warren Buffett says the super-rich pay lower tax rates than others PolitiFact · 18 August 2011

   “Some hedge fund managers and other finance-sector executives get taxed at this rate on their earnings because their compensation is classified as “carried interest” and taxed as a capital gain.”

2. E2 [PDF] Taxation of Private Equity and Hedge Fund Partnerships Congressional Research Service · 10 March 2011

   “The latter performance fee is called “carried interest” and is treated, or characterized, as capital gains under current tax rules.”

3. E3 [PDF] Taxation of Private Equity and Hedge Fund Partnerships Congressional Research Service · 10 March 2011

   “As a result, carried interest is taxed at capital gains rates, which have historically been lower than the rates on ordinary income.”

4. E4 The case for raising taxes on private equity | Fortune Fortune · 8 July 2011

   “I would argue that carried interest is a contingency fee for services rendered (investing other people’s money), and should therefore be taxed as ordinary income (35%) rather than as capital gains (15%).”

The Congressional Research Service's 2011 report says carried interest was treated as capital gains under the tax rules of the time and taxed at capital gains rates (E2, E3). A Fortune piece from July 2011 gives the capital gains rate as 15%, against 35% for ordinary income (E4). PolitiFact says some hedge fund managers and other finance executives were taxed at a capital gains rate because their pay was classified as carried interest (E1). So the evidence supports the treatment and the 15% rate, but none of it shows how much these managers earned, so the claim that they earned "billions" is not confirmed.