Senate Majority leader Harry M. Reid has reportedly confirmed that the recently-proposed tax hikes on the income of private equity managers will not be addressed by the Senate before the end of the 2007 term. See our June 26, 2007 Alert for background and a summary of the proposed legislation that would require fund managers to pay ordinary income tax rates on income they receive as carried interest from the funds they manage.

On October 9, the Washington Post reported that Reid has told lobbyists and members of the private equity industry that the Senate will not be able to hear the proposed legislation in the time remaining on this year’s Senate calendar. The legislation originated as a proposal in the House, but has met significant opposition and delay as private equity firms have aggressively lobbied against its advancement.

It is possible that the legislation will be addressed again in 2008, however the proposed legislation is still in the early stages of development. The House tax-writing panel has not yet scheduled a drafting session for the proposed bill and the Senate Finance Committee has raised a number of concerns over the probable economic impact of the tax increases that must be resolved before the legislation can be considered by the full Senate.

We will continue to monitor the proposed legislation impacting carried interest and will provide updates as necessary.