Blackstone will plough ahead with its initial public offering this month, despite fears that the flotation could be threatened by proposed legislation that could reduce the buyout firm’s market value by an estimated $8 billion (£4 billion).

Two leading members of the Senate Finance Committee have proposed legislation that would require listed partnerships such as Blackstone to pay the standard corporation tax rate of 35 per cent, rather than the 15 per cent they pay under the present arrangement.

The change would add about $250 million to Blackstone’s tax bill, based on last year’s profits. If the legislation is passed, it would knock an estimated $8 billion, or 20 per cent, off the group’s $40 billion valuation.

The senators, Max Baucus and Chuck Grassley, argue that the partnership tax arrangement should only apply to firms that make their money passively, for example from dividends or interest.

They plan to close a loophole so that companies that make their income actively, as Blackstone does by investing funds for insitutions and wealthy investors, would be considered corporations and taxed as such.

Blackstone would not be liable to pay the higher tax until 2012 because it had already filed to list when Mr Baucus and Mr Grassley announced their proposals.

But if the “Blackstone Bill” becomes law, any private equity or hedge funds applying to float from now on would be taxed at the higher rate as soon as they list.

Blackstone yesterday filed an amended prospectus with the Securities and Exchange Commission. It admitted that the legislation, if enacted, would cause “a material increase in our tax liability when such legislation begins to apply to us”. It also said changes that precluded it from qualifying under publicly traded partnership rules might “result in a reduction in the value of our common units”.

Industry experts said that the path of the bill would be arduous as it would need to be approved first by the other members of the Senate Finance Committee, then the Senate at large, the House of Representatives and, finally, the President.

They predicted that the path could take up to five years as the various constituencies voted and proposed their own amendments to the bill.

Scott Sweet, the managing partner of IPO Boutique, the US advisory firm, said: “If the other IPO buyout candidates believe there is teeth in the bill and that it will get passed, it will probably speed up their own plans as they look to get in while the legislation is still some way in the distance.”

Rival buyout firms such as Carlyle Group, Apollo Managers and Kohlberg Kravis Roberts are known to be seriously considering their own initial share offerings. They are waiting to see how successful the Blackstone float is before making a final decision.

Blackstone declined to comment on whether the proposed new legislation would affect its value or to talk about any aspect of the IPO.

The proposed legislation, which had been in the pipeline for several months, was announced shortly after it emerged that Stephen Schwarzman, Blackstone’s chief executive, would see his stake valued at about $8 billion in the float.

The Senate finance committee is also examining the “carried interest”, or share of the investment profits, made by private equity practitioners. These profits are taxed at the 15 per cent capital gains tax rate, but some tax experts argue that at least some of the takings should be charged at the 35 per cent corporation tax rate.

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