Congress moves to tax private equity managers like wage earners, not investors

What it does

This bill closes the 'carried interest' tax loophole by requiring investment fund managers to pay ordinary income tax (not lower capital gains tax) on their share of partnership profits earned through managing assets. It treats carried interest as compensation for services rather than investment returns, and extends the rule to similar arrangements in other entities and SPACs.

Why we flagged it

The bill's core mechanism is tax reclassification: converting preferential capital gains treatment of carried interest into ordinary income taxation. This is a direct revenue-raising measure targeting a specific tax preference used by investment professionals.

What the text implies

• The bill repeals IRC §1061 (the 2017 carried interest holding period rule), eliminating a prior partial reform and replacing it with a more comprehensive approach that treats all carried interest as ordinary income regardless of holding period.
• Section 710(e) extends the rule beyond partnerships to SPACs, investment entities, and other structures, closing avoidance routes through entity-form arbitrage.
• The 40% accuracy-related penalty (§6662(m)) on underpayments related to carried interest creates a strong enforcement signal and raises the cost of aggressive tax positions.
• Self-employment tax treatment (§1402(m)) means carried interest is now subject to both income tax AND self-employment tax (15.3%), doubling the tax increase on this income.
• The 10-year transition rule for publicly traded partnerships (§7704(d)(6)(E)) grandfathers existing arrangements, potentially allowing some fund structures to avoid the rule for a decade.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

The bill closes a long-standing tax preference that allowed investment managers to pay capital gains rates (20%) on compensation that should be taxed as ordinary income (up to 37%), shifting tax burden from wealthy fund managers to the general public. This broadens the tax base and improves horizontal equity—people doing similar work pay similar rates.

Named in the bill

Internal Revenue Service, Private equity firms, Hedge funds, Venture capital firms, Investment partnerships, Special purpose acquisition companies (SPACs), Real estate investment trusts (REITs), Publicly traded partnerships

Where it stands

2 cosponsors: 2 Democrats.

• Feb 6, 2025 — Introduced · Congress.gov: “Introduced in House”
• Feb 6, 2025 — Referred to House Committee on Ways and Means · Congress.gov: “Referred to the House Committee on Ways and Means”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.

Money around this bill

5 lobbying clients named this bill on 6 disclosure filings across 2 quarters, Dec 2025 to Jun 2026. Those filings disclosed $3,733,637 in lobbying spend. A filing names 14 bills on average, so that figure is what each filing reported, not a share belonging to this bill.

More lobbying clients named this bill than 78% of bills with at least one filing.

Marie Gluesenkamp Perez, the sponsor, reported $927,619 in PAC receipts in the 2026 cycle.

• National Venture Capital Association — $1,173,637 on 1 filing
• Managed Funds Association — $1,100,000 on 1 filing
• International Council of Shopping Centers — $1,010,000 on 2 filings
• American Federation of Teachers — $410,000 on 1 filing
• New Venture Fund — $40,000 on 1 filing

Lobbying Disclosure Act filings through Jul 20, 2026. A filing shows who paid to lobby on a bill it names, not what changed.