Invest deal-by-deal.

    Investment partnerships usually work through a fund, which pools the contributions of each partner for the life of the fund. But private equity and buyout firms could work on a deal-by-deal basis instead. The general partner could buy common stock in the firm's portfolio companies, and the limited partners could buy preferred stock. When the general partners sell their common stock, any profits would be treated as capital gains. Victor Fleischer, an associate professor of law at the University of Colorado, says some fund agreements already give the general partners some latitude to restructure the fund should tax law change. But in most cases, he expects the limited partners to resist this sort of change. Under the current system, the profitability of the fund is determined after the fate of all the portfolio companies is known. Working deal-by-deal, the general partners would get 20% of each profitable investment, rather than 20% of the fund's overall profits. "I'm pretty confident the limited partners will push back and not allow the economics to be screwed up simply to let general partners avoid paying their share of tax," says Fleischer.

Organize as a C Corp.

    The proposed legislation does not apply to companies organized as C Corps. But unlike partnerships that would be affected by a new law, C Corps are subject to corporate level taxes. In a year when returns are bad, paying corporate tax may not be that much of a burden. Should returns recover, C Corps are unlikely to remain attractive.

Go offshore.

    This isn't as easy as it sounds. Under the proposed legislation, the firm would have to organize as a foreign corporation in a country with 'a comprehensive' tax system, and a 'comprehensive' tax treaty with the U.S. It's possible the foreign taxes may not be much less than the U.S. ones.

Form a REIT.

    It's possible that some real estate development companies could choose to organize as real estate investment trusts rather than as partnerships. But it's unclear if REITs would fall under the exemption for C Corps, and REITs can't be used for typical development-and-sale projects (such as converting a hotel to condos).