Introduction -

While the battles over the extension of the Bush tax cuts raged in Congress in 2012, the Puerto Rican government without much fanfare passed significant tax legislation which has the potential to radically change the tax landscape for hedge fund and private equity managers and other U.S. based service businesses.

As the budget sequestration continues and the prospect of a final budget proposal from Congress weighs in the balance, one of the items that remains pending is the change in the favorable tax treatment of carried interest. President Obama's Budget provides for such a change. 1 Proposals to change the tax treatment of carried interest have come and gone a few times over the years. The author has marveled at the private equity industry’s lobbying success in the nation’s capital. Following the most recent presidential election and the negative media attention to the low effective tax rate of presidential candidate Mitt Romney as a result of this tax benefi t for investment managers, however, this would seem to bes the end of the road for the carried interest tax benefit.

Originally published in the Journal Of Taxation Of Investments on August 12, 2013.