Joe Bankman (Stanford) has had a busy week:  he testified at yesterday's hearing of the House Oversight and Government Reform Committee on Hedge Funds and the Financial Market.  Here is Joe's recommendation:

The tax advantage of deferral of management fees was eliminated by new Internal Revenue Code Section 457, enacted as part of the Emergency Economic Stabilization Act of 2008. That provision is effective beginning in calendar year 2009. Thus, 2008 will be the last year in which fund managers will benefit from deferral. The Alternative Minimum Tax Relief Act of 2008 contained a provision that would have taxed carry at ordinary income rates. That Act passed the House of Representatives in June, 2008, but died in the Senate. Thus, carry remains tax-favored. I recommend that Congress eliminate the tax advantage given to carry by again passing a measure similar to that contained in the Alternative Minimum Tax Relief Act of 2008. I recommend, though, that such a measure be amended to address the concerns expressed in the New York State Bar Association Report on Proposed Carried Interest and Deferred Fee Legislation.

(Hat Tip: Katie Pratt.)