Carried Interest Fairness Act of 2021

Carried Interest Fairness Act of 2021

This bill modifies the tax treatment of carried interest, which is compensation that is typically received by a partner of a private equity or hedge fund and is based on a share of the fund's profits. (Under current law, carried interest is taxed as investment income rather than at ordinary income tax rates.)

This bill includes provisions that

• set forth a special rule for the inclusion in gross income of partnership interests transferred in connection with the performance of services,
• treat as ordinary income the net capital gain with respect to an investment services partnership interest except to the extent such gain is attributable to a partner's qualified capital interest,
• exempt income from investment services partnership interests from treatment as qualifying income of a publicly traded partnership,
• exempt certain family partnerships from the application of this bill,
• increase the penalty for underpayments of tax resulting from failure to treat income from an investment services partnership interest as ordinary income, and
• include income and loss from an investment services partnership interest for purposes of determining net earnings from self-employment and applicable self-employment taxes.

The bill defines investment services partnership interest as any interest in a partnership held by a person who provides services to a partnership by (1) advising the partnership about investing in, purchasing, or selling specified assets; (2) managing, acquiring, or disposing of specified assets; or (3) arranging financing with respect to acquiring specified assets.