Tax News
Recent Legislative Developments
May 09, 2017
Legislative Actions
This year is shaping up to be a roller-coaster in tax land. This is probably the closest the US has been to a comprehensive tax reform and if the stars align just right, it may actually happen, despite the expectations of many naysayers. The last few weeks were filled with some notable legislative developments that could have a significant impact on the investment fund industry.

First and foremost, the Trump tax plan was finally announced. As Trump would say, the unveiling of the plan was “Huge” and the anticipation rivaled that of a new season of “dancing with the stars.” The plan, in its entire one page glory, contained some blockbuster points which did not really differ that much from Mr. Trump’s original campaign. The biggest ones perhaps for people in the industry would be the 15% business tax rate that would apply to passthrough entities, the repeal of AMT, NIIT and estate taxes, and not mentioning carried interest. So, without any plumbing in place, it wouldn’t be inconceivable that under the plan, carried interest could go back to being taxed at 15% as in the good old days. What are the chances of this coming to fruition? It is hard to say, but we would not hold our breath.

In the same token, probably realizing that things are not looking too good for repeal of carried interest under the Trump plan, Levin and Tammy Baldwin reintroduced the carried bill in the House and Senate respectively. At pretty much the same time, Wyden reintroduced MODA (the modernizations of derivatives act) which does away with Sec-s 1256 and 1234A, among other Code sections, and marks-to-market pretty much most derivative products.

Finally, on the State front, carried interest bills were reintroduced as well and CT actually held its hearing a few weeks ago with CT hedge fund association holding the baton in defense of hedgies. Readers may recall that CT, NY, NJ and MA introduced bills last year to tax carried interest at 19% since the Federal government was apparently in a gridlock on this issue. These bills were reintroduced this year.  The CT hearing materials can be found here – https://www.cga.ct.gov/asp/menu/CommDocTmyBillAllComm.asp?bill=HB-07313&doc_year=2017

Again, this year will be very interesting for tax and major changes are afoot. Where we actually end up is anyone’s guess, but things will be particularly exciting if the 15% tax rate sees the light of day and Congress decides to outsource any anti-abuse rules to Treasury. Then the floodgates for LLC and S-co formation will be open for the foreseeable future until Reg projects, audit teams and the courts sort out the contours of this new business tax.
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Tags: legislation, Carrid Interest, MOPA