“A bill to amend the Internal Revenue Code of 1986 to provide for the proper tax treatment of personal service income earned in pass-thru entities.”
No CRS summary available for this bill.
This section cites the Act as the "Carried Interest Fairness Act of 2025" and includes a table of contents.
This section amends the fair market value rules under section 83(c) of the Internal Revenue Code (IRC) for partnership interests transferred in connection with services to (or for the benefit of) the partnership. It requires valuation at the amount the recipient would receive upon a hypothetical sale of all partnership assets at fair market value and liquidation (reduced by liabilities) and treats the recipient as having made an IRC §83(b) election to include the value in gross income in the year of transfer unless an election is made to the contrary under rules similar to IRC §83(b)(2). The changes apply to transfers after the date of enactment.
This section adds new IRC §710 to establish special tax rules for an investment services partnership interest, recharacterizing a partner's distributive share of the partnership's net capital gain as ordinary income and net capital loss as ordinary loss (limited to the excess of aggregate prior recharacterized gains over prior recharacterized losses for such interest). It further (1) allocates recharacterized amounts ratably among relevant long-term and short-term capital gain or loss items (treating §1231 property as long-term capital assets); (2) denies qualified dividend income treatment to dividends allocated with respect to such interest; and (3) denies the §1202 gain exclusion for qualified small business stock allocated with respect to such interest. The section additionally (1) treats gain from disposition of such interest as ordinary income (recognized notwithstanding other Code provisions, except for gifts or death, which carry over the character); (2) treats loss from disposition as ordinary loss to the extent of net prior recharacterized gains; (3) permits an irrevocable election (with reporting) to avoid gain recognition on contributions to another partnership; and (4) requires a partner to recognize gain (equal to fair market value over basis of distributed property, treated as ordinary income) on partnership distributions with respect to such interest.