Senate eyes hedge fund lending

After scrutinizing “carried interest,” the Senate is now investigating another tax perk enjoyed by the hedge fund industry. The Senate Finance Committee is looking into hedge funds that lend money like banks but often don't pay U.S. taxes on the profits, reports The Wall Street Journal. They do this, said the Journal, by using offshore affiliates and transactions designed to take advantage of a gray area in the tax law that differentiates between lending and investing activities. The present tax rules regarding hedge fund lending may withhold billions of dollars in taxes from the Treasury, said the Journal. Last month, congressional Democrats introduced legislation that would oblige hedge fund and private-equity fund managers who receive a “carried interest” as compensation to pay ordinary income tax rates instead of lower capital gains rates.