I’m quoted in the Economist “Schumpeter” column today:

Victor Fleischer, associate professor at the University of Colorado Law School, says Carlyle may also want to go public sooner rather than later before potential changes to the tax treatment of private-equity firms, which would increase taxes on firms’ public shareholders and make it harder to exist as a publicly traded partnership. As the only large buy-out firm to be headquartered in Washington, DC, Carlyle is better than most at keeping its finger on the political pulse.

via Private-equity IPOs: The Carlyle swoop | The Economist.

In particular, *if* the carried interest legislation is enacted in 2012 — call that 50-50 at best — it will become difficult for PTPs that avoid the corporate tax by having 90% of their income count as “qualifying income” (passive income like capital gains).  But for firms that go public before any legislation is enacted, and for firms that are already public, they may benefit from “grandfather” rules that allow them to retain partnership status for a long time.

There has also been a provision in the carried interest legislation that would tax founders of PE firms at higher rate on the “goodwill” sold to the publicly-traded firm.  The rationale is that much of the value of the “goodwill” should really be treated as a partnership “hot asset” that gives rise to ordinary income, like inventory and accounts receivables.