This bill would reform the tax code by requiring managing partners (big wigs) at hedge funds and private equity firms to pay income taxes rather than long-term capital gains taxes as they earn money from “carried interest.” Basically, higher taxes than they're used to.
What's carried interest you ask? Current law allows investment funds to be structured as a partnership by the managers, who may invest in the business and keep some of the fund’s profits as compensation.
When the fund’s profits are long-term capital gains from investments, managers pay capital gains taxes — either 15 or 20 percent — rather than ordinary income taxes which may be up to 39.6 percent depending on their income level.
This legislation would require the carried interest income of managing partners be taxed as ordinary income rather than a capital gain. Penalties for underpayment would be increased. The bill would apply to any member of a partnership that provides the following services:
Advising the partnership about investing in, purchasing, or selling specific assets;
Managing, acquiring, or disposing of the partnership’s assets;
Arranging financing related to acquiring those assets.