We are concerned in the venture capital community by the bill known as the "Tax Extenders Bill", which was passed in the House of Representatives last week. The provision on changing the tax treatment of "carried interest" was thrown in at the last moment to offset the loss of revenues that results from extending some tax benefits to corporations into 2010. This changes the tax structure for carried interest from capital gains to ordinary income for the general partners of venture capital firms (and private equity firms too), on the gains that they realize from their investments. Frequently, the "carried interest" runs at 20% of the profits from an investment are allocated to the general partners of a fund (although offset by the appropriate similar level of losses that occur in other parts of the portfolio). It adversely penalizes general partners of venture capital firms, who assume much of the same high risk as entrepreneurs from spending considerable time and effort in trying to help make nascent start-ups become successful.
In my view, if the Senate Finance Committee does not pull this provision out of the Bill before a vote by the Senate, these proposed changes will have a significant effect on stifling innovation in the United States, which will lead to reduced opportunities, job creation, and prosperity in our nation as a whole. (Continued...)
Read Robert's full opinion piece.