TAX NEWS - JUNE 2010

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US Tax: Senate Said to Scale Back Carried Interest Tax

Senate Democrats are closing in on an agreement to slightly soften a tax hike on executives at private equity firms, hedge funds and other investment partnerships, passed in the House last month, Bloomberg News reported, citing a Senate aide.

The plan currently being discussed in the Senate would see "carried interest" — the portion of a fund's investment gains taken by fund managers as compensation — taxed at about 33 percent for assets held less than seven years, and about 31 percent for assets held longer than that, Bloomberg News said.

Under current rules, carried interest is taxed federally at a rate of 15 percent because it is treated as a capital gain. That contrasts with the tax rate on ordinary income, which can be as high as 35 percent.

The plan approved by the House on May 28, which overcame strong lobbying pressure from Wall Street, amounted to a compromise that would tax 75 percent of carried interest as ordinary income and 25 percent as capital gains, with no special rates for long-term assets. It is expected to raise more than $17 billion in tax revenue over the next decade.

The measure is part of a broader tax bill, passed by a vote of 215 to 204 in the House, that would extend benefits for unemployed people.
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