Tags: Senate | Weaken | House | Tax | Investment | Fund | Managers

Senate May Weaken House Tax on Investment Fund Managers

By    |   Wednesday, 09 Jun 2010 08:33 AM

Senate Democrats reportedly are close to an accord to trim a tax increase on private equity and hedge fund managers that was approved by the House.

The Senate plan would tax fund managers’ share of profits at about 33 percent for assets held less than seven years, and about 31 percent for the rest.

The tax is part of the $115 billion jobs bill that was approved by the House May 28 and is being considered by the Senate now, a Senate aide told Bloomberg.

The House mandated a tax rate of about 35 percent for fund managers’ profits, known as carried interest, regardless of how long the assets were held.

Under current rules, carried interest is treated as a capital gain. So assets held more than a year are taxed at only 15 percent.

In addition to private equity and hedge fund managers the carried interest tax would apply to venture capital and real estate fund managers.

Democrats in Congress want to increase the fund managers tax to pay for other elements of the bill, including an extension of unemployment compensation, restoration of various tax cuts that are set to expire and an increase in municipal bond subsidies.

Democrats urgently want to pass the bill, because unemployment benefits ceased for thousands of people after May 31. The Labor Department estimates more than 320,000 will suffer benefit losses by Friday if a bill isn’t passed.

But some Senators oppose the tax increase on fund managers, because they worry that it will cost the economy jobs.

Meanwhile, billionaire hedge fund manager Edward Lampert may have found a way around any increase in the carried interest tax.

His fund, ESL Partners, transferred about $829 million of stock in Sears, AutoNation and AutoZone to him last week, according to regulatory filings, Bloomberg reports.

And the fund is slated to distribute more shares of those stocks to Lampert by July 31.

Assuming direct possession of the stock means Lampert would be taxed at the capital-gains rate of 15 percent when he sold it, rather than the higher rate his fund would have to pay under the bill, accountant Robert Willens told Bloomberg.

“It’s totally an astute thing to do,” he said. “It doesn’t take a fortune teller to predict that we are going to see a lot of this activity between now and the end of the year.”

Investment legend Warren Buffett has expressed support for a tax increase.

“If you believe in taxing people who earn income on their occupation, I think you should tax people on carried interest,” he said in a congressional hearing.

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Senate Democrats reportedly are close to an accord to trim a tax increase on private equity and hedge fund managers that was approved by the House. The Senate plan would tax fund managers share of profits at about 33 percent for assets held less than seven years, and...
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Wednesday, 09 Jun 2010 08:33 AM
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