On June 22, a bill was introduced in the House of Representative that would amend the Internal Revenue Code of 1986 to tax as ordinary income the “performance allocation” or “carried interest” received by a partner that provides advisory services to the partnership. Under existing law, a performance allocation is taxed as capital gains to the extent that the income being allocated is taxable as capital gains and taxed as ordinary income to the extent that the income being allocated is taxable as ordinary income.

The legislation would apply to any investment management firm that receives as compensation for its advisory services a portion of an investment partnership’s profits. The legislation does not impact the tax treatment of income and loss received by a partner providing advisory services in respect of actual capital contributed to the partnership.

The bill, H.R. 2834, was introduced by representatives Sander Levin, Charles Rangel, Barney Frank, Pete Stark, Jim McDermott, John Lewis, Richard Neal, Earl Pomeroy, Stephanie Tubbs Jones, John Larson, Earl Blumenauer, Ron Kind, and Bill Pascrel. The bill does not provide for an effective date.