Carried Interest Fairness Act of 2025
Sponsored By: Senator Tammy Baldwin
Introduced
Summary
Would reclassify carried interest and other investment-manager returns as ordinary income instead of capital gains. It would also change how partnership interests received for services are valued and impose new reporting, penalty, and Social Security rules.
Show full summary
- Investment managers and partners would see net capital gains from an "investment services partnership interest" treated as ordinary income and net capital losses treated as ordinary losses subject to a limitation. It would also make the fair market value of service-linked partnership interests equal to the liquidation-value distribution and treat recipients as having made a Section 83(b) election unless they opt out.
- Partnerships and investors would lose the ability to count certain carried-interest income as qualifying income for publicly traded partnership status under Section 7704. A transitional rule delays that nonqualifying treatment for up to 10 years for affected partnership taxable years.
- Tax administration and workers would face stricter rules and enforcement. The bill would raise the accuracy-related penalty to 40% for underpayments tied to avoidance of these rules, expand reporting and valuation requirements, grant Treasury anti-abuse authority, and include investment-services partnership income in net earnings from self-employment for Social Security purposes.
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Bill Overview
Analyzed Economic Effects
2 provisions identified: 0 benefits, 2 costs, 0 mixed.
Carried interest taxed as ordinary income
If enacted, the bill would make many carried-interest allocations and related partnership gains ordinary income instead of capital gain. The rule applies only to defined investment-services partnership interests and does not apply to the portion that is a bona fide capital contribution. Dividends or qualified small-business stock gains allocated to these service interests would lose preferential tax treatment. The bill would repeal the old three-year holding rule and change partnership ordinary-income rules for some distributions and sales. A change to publicly traded partnership rules would exclude this carried-interest income from qualifying income, but that PTP change is delayed for 10 years.
Higher taxes and reporting for fund managers
If enacted, the bill would count investment-services partnership income as self-employment earnings, raising self-employment tax and affecting Social Security credits. Recipients of partnership interests for services would be valued using a liquidation rule and treated as having made an 83(b)-type election unless they opt out. The accuracy-related penalty would rise to 40% for underpayments tied to avoiding these rules, and the safe harbor would be narrowed to require disclosure, substantial authority, and a reasonable-belief standard. Partners would need separate accounting, follow new reporting rules, and may face new Treasury anti-abuse regulations. The bill also allows an irrevocable election for certain contributed interests with required recordkeeping.
Sponsors & CoSponsors
Sponsor
Tammy Baldwin
WI • D
Cosponsors
Chris Van Hollen
MD • D
Sponsored 2/6/2025
Patty Murray
WA • D
Sponsored 2/6/2025
Brian Schatz
HI • D
Sponsored 2/6/2025
Edward Markey
MA • D
Sponsored 2/6/2025
Amy Klobuchar
MN • D
Sponsored 2/6/2025
Timothy Kaine
VA • D
Sponsored 2/6/2025
Jeff Merkley
OR • D
Sponsored 2/6/2025
John Reed
RI • D
Sponsored 2/6/2025
Mazie Hirono
HI • D
Sponsored 2/6/2025
Elizabeth Warren
MA • D
Sponsored 2/6/2025
Bernie Sanders
VT • I
Sponsored 2/6/2025
Cory Booker
NJ • D
Sponsored 2/6/2025
Peter Welch
VT • D
Sponsored 2/6/2025
Sen. Luján, Ben Ray [D-NM]
NM • D
Sponsored 4/1/2025
Roll Call Votes
No roll call votes available for this bill.
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