The House and Senate may vote in the next few days on legislation that would impose a 157 percent tax increase on carried interest profits earned by private equity, venture and real estate investment partnerships. The tax would go into effect immediately and would apply retroactively to transactions already completed in 2010.
Senator Max Baucus (D-MT) and Rep. Sander Levin (D-MI), chairmen of the tax-writing committees in Congress, released a joint proposal last week that would change the tax treatment of carried interest to 75 percent ordinary income and 25 percent long-term capital gains beginning in 2013. In 2011 and 2012, the split would be 50-50. PE, VC, real estate and other investment partnerships would all be treated the same.
The legislation would also tax as ordinary income any proceeds that a general partner receives from selling his or her partnership interest. That would make investment partnerships the only businesses in America where the value inherent in the enterprise would be ineligible for long-term capital gains rates, if the overall enterprise or part of it were sold.
It is urgent that you telephone and email your lawmakers today to let them know how this punitive tax hike would affect your firm. The House could vote on the legislation as early as today. In the Senate, Majority Leader Harry Reid has said that he intends to keep the Senate in session over the Memorial Day holiday weekend if necessary to consider the "tax extenders" legislation that contains the carried interest tax increase.
As an active PE or growth capital firm, there is still time for you to tell your Senators and Representative to oppose any change in the tax treatment of carried interest. Today, please contact your Senators through the Senate switchboard at (202) 224-3121.
In addition to calling and sending letters to your Senators and Representative, we're asking you to forward this email to other private investment firms in your network and invite their partners to join in the effort.
The Private Equity Council, a three-year-old advocacy, research and education organization representing the private equity industry, is working hard to stop the tax hike. We believe that carried interest is properly treated as a long-term capital gain because it represents profits earned by buying a capital asset, increasing its value over time, and then selling it at a profit. Venture capital, real estate, private equity and other investment partnerships should not be singled out for punitive tax treatment.
Please call your Senator and send them an email today.