A bill by Baucus and Grassley was just announced.  See here.  It's a rifleshot approach that makes investment advisory and asset management firms ineligible for the 7704(c) "passive-type" income exception.  Blackstone, as a publicly-traded partnership, will be taxed as a corporation under the general rule of section 7704.

Interestingly, as I read the statute, Fortress and Blackstone would receive five years of transition relief, with the amendment not kicking in until 2012.  The legislation shouldn't affect the pricing of the Blackstone IPO too severely, then, although the additional 35% tax at the entity-level will still bite a little, even discounting it five years out. 

Of course, if Congress changes the tax rules relating to carried interest before 2012, the transition relief becomes less helpful. 

This is all pretty sensible.  Congress will close the PTP loophole using a very narrow fix, and will continue to consider the taxation of carry, but without completely blowing up the Blackstone deal in the meantime over a tax issue. 

(N.B. Because the amendment targets investment advisory and asset management firms, oil and gas partnerships - the main users of PTPs, are not affected.  Which sort of begs the question why oil and gas firms should get the benefit of avoiding the corporate tax while financial services firms have to pay up.  But I can see why the Finance Committee doesn't want to open up that particular can of worms.)

Previous posts on Blackstone:

The Blackstone IPO: Two and Twenty on Drugs

AFL-CIO vs. Blackstone
Reuters and Bloomberg on Blackstone's Tax Structure
The Politics of Taxing Blackstone
Blackstone IPO: Analysis of the Tax Risk 
The Blackstone IPO: Regulatory Arbitrage Extraordinaire

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