On August 1, 2008, Senators Ron Wyden (D-Ore.) and Charles Grassley (R-Iowa) proposed legislation that would make the tax code even more complicated and obtuse and would curtail the use of so-called “foreign blockers” by tax-exempt investors.  The one sentence take-away on the Wyden-Grassley bill is that it would eliminate long-term capital gains treatment, as well as preferential treatment for tax-exempt entities, on profits from investments in the oil and gas markets, beginning in 2008.  In this article, guest contributors Mark Leeds and Rita Cameron, shareholder and associate, respectively, at Greenberg Traurig, provide a lucid, informed and critical analysis of the proposal.  In their view, the proposal could have a profound and adverse effect on tax-exempt US investors in offshore hedge funds.  In the worst case scenario, it could even trigger provisions sometimes found in offshore feeder documents that allow tax-exempt investors to redeem if there is a change in law (or in some cases even a proposed change in law) that would adversely affect the tax treatment of their investments.  On the positive side, the proposal has only a slim chance of becoming law, at least in its current form.