BOMA'S INVOLVEMENT
BOMA’s involvement and position on emerging and recent legislative issues:

BOMA Opposes Tax Hike on Carried Interest

Proposal Would Have Negative Consequences for Commercial Real Estate and U.S. Economy

(WASHINGTON, DC—October 25, 2007) The Building Owners and Managers Association (BOMA) International strongly opposes a proposal by House Ways and Means Chairman Charlie Rangel to change the tax treatment of “carried interest,” the portion of the profits a general partner receives in a partnership, from a capital gain to ordinary income and thereby increasing the tax rate from 15 percent to 35 percent as part of the Alternative Minimum Tax (AMT) bill.

The characterization that this plan is an attempt by Congress to simply close a tax “loophole” in an effort to increase the taxes on only a few well-off "hedge fund" managers in the spirit of tax fairness is oversimplified and inaccurate. In reality, the bill will have far-reaching and damaging consequences more so on commercial real estate entrepreneurship and American business. Requiring all returns from carried interests be taxed at ordinary income rates, no matter the nature of the investment or the investment period, will disrupt the investment relationship between entrepreneurs and their capital finance partners.

“Increasing the tax rate on carried interest would have negative consequences on commercial real estate investment, as well as the countless American business men and women that rely on business tax incentives to develop properties, create jobs and ultimately strengthen the economy,” said BOMA International Chairman and Chief Elected Officer Brenna S. Walraven, RPA, CPM, executive managing director, national property management, USAA Real Estate Company. “The significance of this change will be felt most noticeably on “Main Street” and in underserved cities and neighborhoods that require developers to take up front risks in exchange for future profits in tough economic areas. In short, this huge tax increase would have profound unintended consequences to the 1.5 million workers directly employed by the real estate industry and the nation’s 800,000 construction workers.”

A change in the tax code requiring carried interest be taxed as ordinary income would also more negatively impact the small real estate entrepreneurs who may not have the same negotiating leverage larger firms do to pass on a carried interest tax increase to their investors or employ new investment structures to avoid the tax all together.

BOMA International will continue to work with policy makers to educate them on the economic necessity of maintaining the current carried interest.

Energy Efficient Upgrades Tax Incentive - In August 2005 BOMA recognized the signing of this energy bill by President Bush as a victory for commercial real estate professionals. In addition, the incentive is expected to help moderate demand for natural gas, conserve electric power and reduce the risk of electricity blackouts and price spikes. The bill provides for tax incentives totaling $1.80 per square foot for energy efficient upgrades that result in performance exceeding the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 90.1 Standard by 50%. Partial credit is also available for upgrades to lighting, HVAC, etc. The incentives will be in effect through December 31, 2007. BOMA International will continue its work with the Dept. of Energy to implement the program.

Terrorism Risk Insurance Act (TRIA) - Initially the Terrorism Risk Insurance Act (TRIA) was passed by Congress in November 2002 and then extended until the end of 2005, after a lobbying effort which included BOMA International. The TRIA mandatory availability provision mandates that insurance companies make available terrorism insurance on the same terms and conditions as property and casualty insurance. After amendments by both the House and Senate, President Bush signed a one year extension. BOMA International will be monitoring this bill as the issue arises again at the end of 2006.

Capital Gains Tax - BOMA worked diligently for the passage of the “Tax Relief Extension Reconciliation Act of 2005” (H.R. 4297) which passed the House, followed by the Senate in May 2006, and now awaits the President’s signature. It extends for two years, until 2010, the BOMA International-supported tax cut on capital gains and dividends that were set to expire in 2008.

BOMA International Testifies Before Congress - Recently Dick Purtell testified on behalf of BOMA International before a Congressional Subcommittee hearing on how the recent housing and financial “credit crunch” is seeping into the commercial market and affecting federal leasing and construction, and on the difficulty in securing capital for new projects and renovations impacting public as well as private sector buildings. The full testimony is up on www.boma.org. The full press release is also up in our press room here: http://www.boma.org/AboutBOMA/pressroom/press073008.htm.

Some of the other bills, still pending, that BOMA International is monitoring:

• ADA Notification Act
• Efficient Energy Through Certified Technologies (EFFECT)
• Community Choice in Real Estate Act of 2003