Bruzzone Strategics

Equity Funds: Raising Taxes on Profits

^Rueters

^{Loopholes hard to find in U.S. fund tax battle}

12:07pm EDT

By Megan Davies and Kim Dixon

NEW YORK/WASHINGTON (Reuters) - Lawmakers have given the investment fund industry an uphill task to try to find any loopholes in a proposal to raise taxes on the profits made on investments.

While lawyers have been working around-the-clock advising private equity clients on the impact, there aren't obvious ideas left that would avoid or skirt the tax.

The threat that Washington would raise taxes on the "carried interest" dollars executives earn has been looming for years but escalated in recent months and days as the government faced increasing pressure to raise money.

Dems Jobs Bill Hurts Private Equity Groups

From Politico on the Jobs Bill Debate:   But the most prolonged fight has been one pitting powerful venture capital and private-equity interests against a House-backed reform targeting investment fund partnerships who now shelter income as “carried interest” at the lower capital gains rate of 15 percent.

An estimated $18.7 billion would be raised over the next decade, and tax writers appear to be taking a blended approach to preserve some of the character of capital gains as a concession to the financial industry and its Senate allies.

To the extent that carried interest reflects a return on invested capital, the bill would continue to tax it at capital gain rates. But to the extent that carried interest does not reflect a return on invested capital, the bill would require investment fund managers to treat 75 percent of the remaining carried interest as ordinary income taxed at a far higher rate.

Joint Venture, Hedge Fund Sponsors Taxes Go Up Under Obama Proposal

SAN FRANCISCO, CA --  The Obama Administrations $3.8 trillion budget proposal includes bad news for hedge fund and real estate fund managers.  Profit participation, or carried interest will be treated as ordinary income, not as capital gains.