Legislation that passed the House of Representatives would adversely affect managers of real estate, private equity, venture capital and hedge funds, according to an analysis of the bill by Joseph Hugg and Jonathan Ciner, tax lawyers at global law firm DLA Piper. The Tax Extenders Act of 2009, HR 4213, includes a provision that would tax income or gains attributable to an “investment services partnership interest” as ordinary income rather than as capital gain, what the law calls “carried interest.” Capital gains taxes are generally less than ordinary income taxes in the US, as a measure to encourage investment. An “investment services partnership interest,” the lawyers wrote, is a partnership interest, including a limited liability corporation (LLC) interest, the holder of which is expected at acquisition to provide a number of asset advising, management or financing services. In the context of the bill, assets include real estate held for rental or investment, securities, partnership interests, commodities and certain options and derivative contracts, the lawyers said. The bill specifically lists real estate held for rental or investment, “thus apparently exempting an operating real estate business,” the lawyers said. In addition, the legislation does not affect income or gains to a service partner’s capital that is invested in the partnership. Other exempt investments include stock investments. A manager of a private equity fund could purchase stock in the company and would not be subject to the proposed legislation. The lawyers note, that if the manager would be subject to general income tax if the stock is worth more than the manager pays. But it is not clear in this situation whether the manager could borrow from the fund to make the investment, or have its note guaranteed by the fund, without triggering the ordinary income rules. Write to Austin Kilgore.