Bill > S1598

This bill, the Carried Interest Fairness Act of 2021, aims to change the tax treatment of personal service income earned in pass-through entities. The key provisions are: 1. It modifies the rules for electing to include partnership interests transferred in connection with the provision of services in gross income in the year of transfer. The fair market value of such interests will be based on the amount the partner would receive if the partnership liquidated, and the recipient will be treated as having made the election unless they elect otherwise. 2. It adds a new section to the tax code (Section 710) that provides special rules for partners providing investment management services to partnerships. This includes treating net capital gains from such interests as ordinary income and limiting the ability to treat losses as ordinary losses. 3. It applies the existing Section 751 rules for dealing with sales or exchanges of partnership interests to investment services partnership interests. 4. It excludes income from certain carried interests from being treated as qualifying income for publicly traded partnerships under Section 7704. 5. It imposes a 40% penalty on certain underpayments related to the avoidance of the new Section 710 rules. The overall goal is to change the tax treatment of "carried interest" income earned by investment managers from capital gains rates to ordinary income rates.