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The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on May 27, 2020.
Ending the Carried Interest Loophole Act
This bill revises the tax treatment of partnership interests received in connection with the performance of services. It eliminates the concept of carried interest, a form of compensation received by certain partners in private equity, real estate, or hedge funds for investment management services. Under current law, such compensation can be deferred from taxation until income is realized by the partnership.
The bill requires partners to recognize deemed compensation received from a partnership annually, taxed at ordinary income tax rates and subject to self-employment taxation. The bill eliminates a partner's ability to defer tax on such compensation.