Client Alert

Legislation Introduced to Increase Taxes on Manager Profits from Private Equity Funds, Real Estate Funds and Hedge Funds

June 27, 2007

Larry Sidman, Jason Rosenstock and Vance Schuemann

After several months of congressional interest in the tax treatment of carried interest distributions received by the general partners and managers of private investment funds, including private equity, real estate and hedge funds, two giant shoes dropped within the past 10 days. On June 22, 2007, the powerful Chairmen of the House Ways and Means Committee and the House Financial Services Committee and the Chairman of the House Democratic Caucus joined Sander Levin (D-MI), Chairman of the Subcommittee on Trade of the House Ways and Means Committee, in introducing H.R. 2834, the Investment Management Services Taxation Act. This legislation, if enacted, would require that carried interest be treated for tax purposes as ordinary income taxed at 35% rather than capital gains taxed at 15%.

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