At a Glance
The Ending the Carried Interest Loophole Act was introduced on April 16, 2026.
Under the bill, carried interest holders would owe income tax annually on carry they have not yet received, regardless of whether any cash was distributed that year.
The bill was written with large, established funds in mind. It does not account for how deal-by-deal managers operate.
Congress should either carve out SPV-based managers from the framework entirely, or tie the tax obligation to an actual distribution rather than a calendar year.
Introduction
For most venture managers, especially emerging managers with very low or no management fees, carried interest is how they make the vast majority of their income.
Carry is the share of investment profits that a fund manager receives when a deal exits successfully. On a typical SPV, a manager might take 20% of the upside above the investors' initial capital. For emerging managers running lean operations, carry is the incentive that makes the entire financial model work: the manager bets their time and reputation on a deal, and if it pays off for investors, they share in the return.
What the Bill Does
Carried interest has attracted reform proposals for years. The current treatment under Section 1061 of the Internal Revenue Code requires fund managers to hold an investment for at least three years to qualify for long-term capital gains tax rates on carry. The political argument against this treatment is sound: critics say it allows fund managers to pay lower tax rates on what is, in effect, compensation for their work.
The Ending the Carried Interest Loophole Act takes a different approach than prior proposals. Rather than extending the holding period or eliminating capital gains treatment outright, the bill would require carry holders to pay ordinary income tax each year on a calculated amount of carry, even if no money has actually been distributed from the investment vehicle. When the carry is eventually paid out, a corresponding tax deduction would offset the gain. The intent is to tax carry as income earlier, and at higher rates, rather than waiting until an exit.
On paper, the mechanics are straightforward, but in reality, the consequences are not evenly distributed.
Why the Proposed Bill Affects Emerging Managers the Most
The bill's annual tax obligation assumes a cash flow profile that large, established funds can support. A manager running a traditional committed capital fund collects management fees every year. That steady income covers tax bills as they come due. The carry obligation under the new framework would be an added cost on top of existing income.
Emerging managers running SPVs on a deal-by-deal basis often have no such cushion. Many charge reduced management fees or no fees at all. Under this bill, a manager who raised several SPVs the previous year with carry that has not been paid out yet would owe income tax on carry they have never seen.
The bill was not written to create that problem; however, it does not account for the difference between a fund manager with a steady fee base and a solo GP whose income comes in irregular intervals tied to successful fundraises and exits.
What Should Change
The political case for carry reform is fair. When a fund manager's primary source of income comes from a share of investment profits, there is a sound argument that it should be taxed like a salary rather than a stock gain. But requiring deal-by-deal managers to pay income tax on carry they have not yet received creates a cash flow problem that large funds rarely have to face: either find the money elsewhere or liquidate a position early to cover a tax bill. Neither outcome serves the policy goal, and both introduce new problems while trying to solve an old one.
At a minimum, the bill should tie the tax obligation to an actual distribution rather than a calendar year. A manager who receives no cash in a given year should not owe income tax on a calculated amount in that year. That change preserves the bill's intent (taxing carry as ordinary income) without penalizing managers who lack the resources to cover obligations on money they have never touched.
A more targeted approach would carve out SPV-based deal-by-deal managers from the framework entirely, or establish a threshold below which the annual calculation does not apply. The bill is aimed at large fund managers converting management compensation into capital gains. Emerging managers running SPVs are not that, so the bill should reflect the difference.
Understanding how carry works on an SPV is the first step to understanding what this bill would change for your deal economics. Learn more about how GPs make money from an SPV with Sydecar's Private Markets Playbook:
