There are a couple of proposals in Obama’s green book that you may want to be aware of:

• Carried interest taxed as ordinary income
  • Subject to self-employment tax
  • Cannot use loans or other advances to “purchases carried piece (or additional lp piece)
  • Use of convertible debt, contingent debt or options would also not qualify
• Grantor Retained Annuity trust (grat) term must be at least 10 years if you are going to use a zero grat for transfers between family members.
  • Grats are a popular method of transferring the appreciation of an asset to your heirs (the appreciation % must exceed an interest rate determined by the IRS at the time of the gift).  Because the grantor has a retained interest, the income tax consequences are borne by the grantor.
• Valuation discounts for minority interest and lack of marketability are not allowed for transfers of family controlled entities to other family members.  This effectively will eliminate discounts when using a common estate planning vehicle called a “family limited partnership” (FLP’s).
• No Capital gain taxation on small business stock or alternative minimum add-back  issued after 2/17/09. Note that this would not apply if part of a carried interest if carry is taxed at ordinary income.

As usual, these have not been in the senate or the house and they are just proposals.  Please call me if you have any questions at (510) 797-8661.