Sponsor
Angela Craig
Representative · D-MN
Representative · D-MN
Official title: To amend the Internal Revenue Code of 1986 to lower the corporate tax rate for small businesses and close the carried interest loophole, and for other purposes.
Introduced May 8, 2025 by Angela Craig · Last progress May 8, 2025
The bill trades targeted tax relief (an 18% rate for small C corporations and expanded SALT deductions) and tighter rules on carried interest and partnership valuation for greater tax fairness and revenue from buyback limits, at the cost of lower federal revenue overall, sharper tax cliffs, increased tax bills and cash‑flow risks for some service providers, and materially higher compliance and transition burdens.
Small C corporations with taxable income at or below $400,000 (mostly small-business owners) will pay an 18% federal corporate rate instead of 21%, providing an immediate and measurable tax cut for qualifying firms.
Partners and taxpayers get clearer valuation, recognition, and transition rules for service‑for‑partnership‑interest transactions and partnership tax years, which should reduce disputes with the IRS and make tax treatment more predictable.
Reforming carried‑interest and related partnership rules converts more carried or service‑linked gains to ordinary income and tightens anti‑avoidance rules, reducing a source of preferential tax treatment and improving tax equity.
The combined tax changes (lower small‑C rate and expanded SALT deduction) reduce federal revenue and could increase the budget deficit or necessitate higher taxes or spending cuts elsewhere.
Service providers who receive partnership interests may face immediate income inclusion and tax bills based on a hypothetical liquidation/fair‑market standard (and an automatic deemed §83(b) treatment unless they timely opt out), creating real cash‑flow strain and risk of unintended taxation for founders and employees.
The new rules significantly expand ordinary income and self‑employment tax exposure for service‑providing partners (e.g., many carried interest recipients), increasing their tax and payroll‑tax liabilities.
Based on analysis of 7 sections of legislative text.
Lowers a small‑corporation tax tier, recharacterizes certain partnership investment manager gains as ordinary income, raises the buyback excise tax to 1.5%, and adjusts a SALT deduction fraction for lower‑income self‑employed filers.
Creates a mix of tax changes: lowers the effective rate on the first tier of taxable income for small corporations, restructures how partnership interests and “investment management” partnership income are taxed (recharacterizing certain capital gains as ordinary income), increases the allowable state and local tax deduction fraction for lower‑income self‑employed taxpayers, and raises the excise tax on corporate stock repurchases from 1% to 1.5%. Most provisions take effect for taxable years ending after enactment or after December 31, 2024, with some transitional rules for partnership years that span the enactment date.