NY Times: With Tax Advantages Looking Shaky, Private Equity Seeks a New Path

New York Times DealBook:  With Tax Advantages Looking Shaky, Private Equity Seeks a New Path:

As Washington grapples with the country’s fiscal woes, the private equity industry is grudgingly facing a new reality: its long-held tax advantages are likely to disappear.

For years, private equity has quashed efforts to raise taxes on so-called carried interest income, the profits partners receive as part of their compensation. Those earnings are considered capital gains, so they are taxed at a much lower rate than ordinary income.

While few concede defeat publicly, the industry is rethinking its strategy. Rather than trying to stop the changes outright, lawyers and executives behind the scenes are trying to minimize the hit if it happens. ...

One issue will be the amount of carried interest reclassified as ordinary income. Mr. Levin’s 2012 bill would convert 100% of carried interest. By contrast, an earlier version of the bill proposed capping the affected income at 50% to 75%.

(Hat Tip: Ed Kleinbard, Mike Talbert.)