Three important developments today on the carried interest tax front. Let’s do it in notes form:
1. Senate Majority Leader Harry Reid has told private equity chiefs that no carried interest tax bill will get through the Senate this year, according to The Washington Post. The stated reason is scheduling rather than desire, which could mean that carry legislation could be revisited in 2008. Two quick sub-notes: (1) The only pending carry bill is in the House, not the Senate, where it still may be put to a vote in 2007; (2) Reid’s statements do not reference the so-called Blackstone Bill, which would only affect publicly-traded partnerships.
2. The exact opposite scenario is playing out in the UK, where Chancellor of the Exchequer Alistair Darling today will unveil what The Guardian refers to as “substantial increases to the tax bills of private equity bosses.” These changes will be introduced later this morning, and we’ll be posting details.
3. David Toll reported here yesterday that certain buyout firms “have begun requesting clauses in their partnership agreements that let them try to maintain their anticipated level of after-tax profits in the event that proposed tax legislation passes.” Maybe they don’t believe Harry Reid, or perhaps are just thinking ahead to 2008. Either way, it would be a big mistake for any LP to sign such terms – at least as currently constructed. Toll reports that initial language would allow the GPs to amend their LPAs without LP approval, in response to a change in U.S. tax law affecting carried interest. Are you kidding? If you’re an LP who agreed to this (and some apparently have), let me know. And then direct me to your dealer.