Congress is debating the biggest rewrite of U.S. partnershiprules in 60 years, which may lead to higher taxes for real estateand finance businesses or prompt them to restructure operations toavoid new costs.

The more dramatic of two options from Dave Camp, the topRepublican tax writer in Congress, would remove some of theflexibility that has made partnerships attractive legal structuresfor real estate investors and hedge funds. He also offered analternative with lesser changes to simplify some rules and leavethe core of the current system in place.

The broader proposal surprised tax law specialists, who hadn'tanticipated a major policy shift for the 3.2 million U.S.partnerships. The plan may alter existing arrangements by making itmore difficult to allocate income and property among partnerswithout triggering tax consequences. Lawyers said they have spentthe past week scouring Representative Camp's draft bill, especiallyhis new second option.