Private equity investors were stunned last week when Sens. Joe Manchin and Chuck Schumer agreed to a giant reconciliation bill. Not only that Manchin got to yes on anything, but that he adopted very convoluted language on changing the tax treatment of carried interest.

The big picture: This could become a full employment act for private equity fund accountants.

What to know: We don't yet have full legislative text of Manchin's bill, with Senate Democrats instead only providing a one-page summary. But multiple sources say the carry change would be cribbed from the House version of Build Back Better (RIP).

• This does not recharacterize carried interest as ordinary income, which everyone agrees would be the cleanest way to close the loophole (even among those who bristle at the suggestion that it is a loophole).
• Instead it focuses on holding periods. First by expanding the minimum holding period for capital gains treatment on PE carried interest from three years to five years. Second, by starting the clock on the later of the date on which the fund acquired "substantially all" of its carried interest, or the date on which it acquired "substantially all" of its assets.
• [Update: Senate Democrats have now released legislative language, and the carry provision does indeed mirror BBB.]

Here's the problem, as explained by law firm Gibson Dunn: "The Act does not specify how the 'substantially all' requirement is intended to be measured, and, because many investment funds (e.g.,...

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