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Recharacterizes taxable treatment of certain partnership interests received for investment management services so that amounts commonly called “carried interest” are taxed as ordinary income rather than long‑term capital gain, and treats related items as self‑employment income. It also changes how transfers, dispositions, distributions, and losses tied to those interests are recognized, imposes new reporting/recordkeeping and valuation rules, adjusts penalties for underpayments tied to avoidance of these rules, and modifies the test for publicly traded partnership qualifying income. The changes take effect for taxable years ending after enactment and for transfers/dispositions occurring after enactment (with some rules effective immediately); they will affect investment managers, partnerships, investment funds, publicly traded partnerships, individual partners’ payroll/self‑employment tax liabilities, and IRS/SSA reporting and enforcement activities.
The bill tightens taxation and reporting of partnership service and carried-interest–style income—raising revenue and Social Security coverage—but does so at the cost of higher taxes for service providers, greater compliance burdens, and short-term administrative uncertainty.
Individuals who provide investment-management or carried-interest–style services (partners, fund managers) will have those amounts reclassified as ordinary income and subject to self-employment tax, increasing payroll-tax contributions and generating additional federal revenue.
The IRS and Treasury gain clearer statutory authority and reporting rules to enforce treatment of partnership service income and anti-avoidance measures, improving administration and reducing some enforcement gaps.
The bill clarifies and standardizes statutory references (short title, table of contents, cross-references) to the Internal Revenue Code, making the law easier to navigate for lawyers, accountants, and affected taxpayers.
Partners and investment-service providers will face substantially higher tax burdens because gains formerly taxed as capital gains will be taxed as ordinary income and subject to self-employment tax, reducing take-home pay.
Partnerships, advisers, and taxpayers will face materially higher compliance, reporting, valuation, and recordkeeping costs from new valuation rules, anti-avoidance provisions, and extra reporting requirements.
The law delegates exceptions and requires substantial IRS guidance; until that guidance is issued, taxpayers and practitioners will face administrative uncertainty and uneven application of the rules.
Introduced February 6, 2025 by Marie Gluesenkamp Perez · Last progress February 6, 2025