Co-authored by Joseph Iskowitz

On May 28, the House of Representatives passed the American Jobs and Closing Tax Loopholes Act of 2010 by a vote of 215 to 204. Among other things, the bill would tax a specified percentage of the income allocated to an interest in an investment fund or an investment real estate partnership held by the fund’s manager or other persons related to the manager disproportionately to capital invested—often referred to as the “carried interest”—as well as the gain from a sale of such interest as ordinary income. The bill would treat 50% of such income and gain as ordinary income prior to January 1, 2013, and 75% of such income and gain as ordinary income thereafter. Amounts treated as ordinary income under the provisions of the bill would also be deemed “self-employment income” for purposes of the self-employment tax, although the largest part of the self-employment tax is still capped. The bill is proposed to be effective January 1, 2011, for funds whose taxable year is the calendar year. The bill will now be sent to the Senate for its approval, and if approved, the bill is expected to be signed into law by President Obama.

To read the text of the bill, click here.