Changing the way private equity and hedge funds are taxed? Now it's not just talk in Washington.

On Thursday, Senator Max Baucus, the Democratic chairman of the Senate Finance Committee, and Senator Charles Grassley, the ranking Republican on the committee, introduced legislation that would take away the tax advantages of certain publicly traded partnerships.

The soon-to-be-public Blackstone Group is the partnership the senators have in mind.

The bill would change the tax code to treat partnerships that derive income "from providing investment adviser and related asset management services" as corporations.

The legislation could move forward soon after Blackstone sells a $4.7 billion stake in a stock offering later this month. Another company that manages hedge funds and private equity funds, Fortress Investment Group, went public earlier this year.

"It's unfair to allow a publicly traded company to act like a corporation but not pay corporate tax, contrary to the intent of the tax code," Grassley said in a statement.

"If left unaddressed, the tax concerns presented by the public offerings of investment managers, like private equity and hedge fund management firms, could fundamentally erode the corporate tax base."

The two senators wrote letters to Treasury Secretary Henry Paulson and Christopher Cox, the chairman of the Securities and Exchange Commission, expressing their concerns about the Blackstone offering and those of other hedge fund and private equity firms.

Any progress on the bill could chill plans by other big private equity firms that have been said to be weighing similar public offerings.