# Summary of S. 4123, Carried Interest Fairness Act of 2024
This bill changes how investment managers and advisors pay taxes on profits from partnerships they help manage, commonly known as "carried interest." Currently, these profits are often taxed at lower capital gains rates; the bill would require them to be taxed as ordinary income at regular rates instead.
The bill primarily affects private equity managers, hedge fund managers, real estate investment advisors, and similar professionals who receive partnership interests as compensation for their services. It targets situations where the value of these interests is tied to the partnership's investment performance. The legislation creates a new tax category called "investment services partnership interests" and reclassifies capital gains from these interests as ordinary income, generally subject to higher tax rates. The bill includes some exceptions for legitimate capital contributions that partners make with their own money.
The changes apply to partnership interests transferred after the bill's enactment, with most provisions taking effect for tax years ending after enactment. The bill also imposes a 40 percent penalty on underpayments related to violations, and requires these investment management earnings to count toward self-employment tax calculations. The legislation removes an existing provision (Section 1061) that currently allows some capital gains deferral for carried interest holders.
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