House Ways & Means Committee Passes Temporary Tax Relief Act
On November 1, 2007, the U.S. House Ways & Means Committee passed the Temporary Tax Relief Act of 2007. A summary of the legislation can be viewed here. The bill includes, in addition to individual alternative minimum tax relief, tax increases--including taxing carried interest income received by investment fund managers in investment funds as ordinary income. As summarized in the Ways & Means press release:
H.R. 3996 contains provisions to change the tax treatment of "carried interest" for investment fund managers. Under the Committee-passed legislation, they will no longer receive a lower capital gains rate of 15% for what is essentially a management fee or payment for services. Partners and managers would continue to receive a lower rate of taxation on returns derived from money they have personally invested.
In addition to other things, the bill would also allow certain tax-exempt entities to invest directly in investment partnerships without incurring unrelated business income tax, which would eliminate the current-law incentive for such entities to invest in investment partnerships through “blocker” corporations.
The National Venture Capital Association had this reaction.
