June 19, 2007

Congressional Scrutiny of Private Equity Continues

As widely reported, Senators Baucus (D-MT) and Grassley (R-IA) introduced a bill last Thursday that would significantly change the taxation of publicly traded private equity firms structured as partnerships. This legislation, if passed, would cause publicly traded private equity firms to be taxed as corporations. As such, these firms generally would be subject to an entity-level corporate tax (with no preference for capital gains, including carried interest) and the owners of these firms would be subject to tax on distributions received from the firms. Here is a related NY Times article.

Rep. Charles Rangel, Chairman of the House Ways and Means Committee, praised the bill and said his committee would examine the legislation. If passed, the bill would be immediately effective for any firm that has not yet filed an IPO registration statement with the SEC. For firms that have done so, namely the Blackstone Group, the bill would not be effective until 2012.