Ending the Carried Interest Loophole Act
Sponsored By: Senator Wyden, Ron [D-OR]
Introduced
Summary
Closes the carried interest loophole by treating partnership interests given for services as compensation. It would require recipients to recognize value at transfer and create a new annual "deemed compensation" system for service-related partnership stakes.
Show full summary
- Service providers who get partnership stakes would generally have the transferred interest treated as taxable at transfer unless they opt out of the special rule. The transfer value is tied to what a partner would receive in a hypothetical fully taxable liquidation.
- Taxpayers holding covered partnership interests would have an annual "deemed compensation" amount included as ordinary income and simultaneously be treated as having a long-term capital loss equal to that amount for the same year.
- Partnerships and investors face new reporting and capital-account rules. The bill defines which partnerships and instruments count, sets a specified rate equal to the first segment rate plus 9 percentage points, creates a 10-year applicable period for some adjustments, and gives the Treasury authority to write implementing regulations.
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Bill Overview
Analyzed Economic Effects
4 provisions identified: 0 benefits, 1 costs, 3 mixed.
New annual tax on carried interest
If enacted, this bill would create a yearly "deemed compensation" tax on service-related partnership interests. You would include the aggregate deemed compensation amounts as ordinary income each year. You would also get a matching long-term capital loss equal to the same dollar amount for the same year. The deemed amount is computed using a specified rate (first-segment rate for the year plus 9 percentage points) times a formula based on invested capital. These rules would apply for taxable years beginning after enactment and replace the old carried-interest rule in section 1061.
New valuation for partnership pay
If enacted, this bill would change how partnership interests given for services are valued. The fair market value would be treated as what a partner would receive if the partnership sold all assets for cash and liquidated, net of liabilities. Recipients would be treated as having made an 83(b) election by default unless they opt out. Amounts included at transfer would be added to the partner's capital account and, for certain instruments, treated as invested capital for later deemed-compensation calculations. These changes apply to transfers after enactment.
Treasury to write anti-abuse rules
If enacted, the Secretary of the Treasury would write regulations to carry out the new deemed-compensation rules. Guidance would include anti-abuse rules, aggregation and tiered-structure rules, and extensions to financial instruments and non-partnership entities. Rules would also cover loan forgiveness, applicable loans, and transfers in gifts or inheritance. These regulations will shape enforcement and compliance and affect many partnerships and service recipients.
Partnerships must report deemed amounts
If enacted, partnerships would have to report each partner's deemed compensation amount to the IRS and to the partner. The amount must be included with the standard information partners already get under section 6031(b). Any entity that receives a report of a deemed compensation amount would have a corresponding reporting rule. This mostly creates extra paperwork and modest compliance costs but gives partners clear numbers to use on returns.
Sponsors & CoSponsors
Sponsor
Wyden, Ron [D-OR]
OR • D
Cosponsors
Sen. Whitehouse, Sheldon [D-RI]
RI • D
Sponsored 4/16/2026
Sen. King, Angus S., Jr. [I-ME]
ME • I
Sponsored 4/16/2026
Sen. Warren, Elizabeth [D-MA]
MA • D
Sponsored 4/16/2026
Sen. Sanders, Bernard [I-VT]
VT • I
Sponsored 4/16/2026
Sen. Smith, Tina [D-MN]
MN • D
Sponsored 4/16/2026
Sen. Luján, Ben Ray [D-NM]
NM • D
Sponsored 4/16/2026
Sen. Schatz, Brian [D-HI]
HI • D
Sponsored 4/16/2026
Sen. Reed, Jack [D-RI]
RI • D
Sponsored 4/16/2026
Sen. Hirono, Mazie K. [D-HI]
HI • D
Sponsored 4/16/2026
Sen. Markey, Edward J. [D-MA]
MA • D
Sponsored 4/16/2026
Sen. Fetterman, John [D-PA]
PA • D
Sponsored 4/16/2026
Sen. Blumenthal, Richard [D-CT]
CT • D
Sponsored 4/16/2026
Sen. Van Hollen, Chris [D-MD]
MD • D
Sponsored 4/16/2026
Roll Call Votes
No roll call votes available for this bill.
View on Congress.gov