For years now, bills introduced at the federal and state levels have sought to tax carried interest earned by hedge fund managers – traditionally, 20% of any gains made by the fund – as ordinary income.  To date, none of those bills has gained sufficient traction to become law.  However, the appearance of a line in President Obama’s budget relating to carried interest; a bill recently proposed by Rep. Sander Levin (D-Michigan) addressing and remedying some of the shortcomings that prevented past bills from becoming law; and various New York State and City efforts on the topic all have increased both the momentum and viability of increased tax on carried interest.  In anticipation of such tax changes, hedge fund managers and academic tax experts are thinking about how to revise fee structures to mitigate the adverse impact of such new taxes on net income, returns and incentives.  We detail the relevant provisions in the Obama budget, Rep. Levin’s bill, ideas from various academic experts on how fees might evolve in response to tax law changes and relevant New York State and City proposals.