On May 12, 2025, the House Committee on Ways and Means Chairman Jason Smith (R-MO) released an amended 389-page bill, entitled “The One, Big, Beautiful Bill,” and the staff of the Joint Committee on Taxation released a companion report (JCT report). Chairman Smith had released a 28-page tax bill on May 9, 2025.
Below, we highlight the top four takeaways and their potential impact on fund sponsors, investors, and the broader asset management community.
1. Section 899: Turning off Section 892 benefits for certain foreign governments
The updated bill proposes the enactment of new Section 899 under the Internal Revenue Code, which would impose a retaliatory tax on certain countries that have adopted digital services taxes (DSTs), undertaxed profits rules (UTPR), diverted profits taxes, and other foreign taxes that the Secretary determines are disproportionately borne by US persons. In particular, Section 899 would turn off Section 892 benefits for governments of discriminatory foreign countries and increase the rate of withholding (up to twenty percentage points) on other foreign persons tax resident in, or controlled by, foreign persons tax resident in, discriminatory foreign countries.
The JCT report clarifies that the retaliatory tax could modify certain preferential rates on income tax treaties. This proposal is similar to H. R. 591, the “Defending American Jobs and Investment Act,” but with the notable difference that the prior version of Section 899 did not seek to modify Section 892 benefits. It remains to be seen what the final approach will be.
2. Modification of excise tax on investment income of certain university endowments
The updated bill modifies the current excise tax under Section 4968 of the Internal Revenue Code imposed on certain large private university endowments. In particular, it introduces graduated rates ranging from 1.4 percent of net investment income (in the case of an institution with a student adjusted endowment in excess of $500,000 and not in excess of $750,000), up to 21 percent of net investment income (in the case of an institution with a student adjusted endowment in excess of $2,000,000). The effect of this proposal would be to tax investment income of the largest private university endowments at the same rates as imposed on unrelated business taxable income (UBTI).
3. Portfolio interest exemption preserved
The updated bill does not address portfolio interest exemption. Accordingly, the portfolio interest exemption continues to be preserved under this version of the bill. Notably, the fact that the bill does not include any changes to the portfolio interest exemption does not mean that tax writers have rejected revising that provision.
4. Carried interest reform
The updated bill is similarly silent on carried interest reform. See our prior alert for background. The fact that the bill does not address carried interest reform does not mean that an ultimate tax bill will not revise the carried interest regime.
We caution that we are at the earliest stages of the tax reform process. The current bill is intended to encompass defense, immigration/border security, and tax in one bill has not been approved by the full House Chamber, and faces significant political hurdles on the topics of state and local tax (SALT), some business provisions, and overarching deficit reduction. The House Chamber differs in position on many of these points relative to its Senate Chamber counterpart. The tax bill may still see the tax split into a separate bill to be considered later this year under the FY2026 budget cycle.
We emphasize that many of the positions currently reflected in the House’s tax bill are not necessarily supported or endorsed by the Senate Chamber. Therefore, the fact that a specific provision was not included in the current House draft should not be interpreted as a lack of Senate support for inclusion in future tax legislation. We will continue to monitor developments closely and provide timely updates as new information becomes available.
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