A fund sponsor that aims to incentivize its personnel through grants of interests in future profits must decide, as a threshold matter, whether to offer a direct profits interest or a so-called “phantom” interest. Profits interests retain the possibility of achieving capital gains treatment on future profits but also result in the recipient being treated as a partner in the firm for all tax purposes. Conversely, phantom interest is a contractual right that generates ordinary income but also ensures the recipient remains deemed an ordinary employee. A recent presentation sponsored by Dechert offered a detailed analysis of both types of interests, along with the associated tax and business considerations. The program featured Dechert partners Andrew L. Oringer and Steven W. Rabitz. This article summarizes their insights. For additional commentary from Oringer and Rabitz, see “Is That Your (Interim) Final Answer? Disclosure Rules Under ERISA To Impact Many Private Funds” (Aug. 20, 2010).