Rep. Sandy Levin (D-Mich.), the acting chairman of the House Ways and Means Committee, said a House-Senate conference might be needed on the $138 billion tax extenders bill being debated in the Senate.

One reason would be differences between the House and Senate over how the legislation should be paid for, Levin said Tuesday.

The Senate bill is partially paid for, but uses offsets included in President Obama’s health care proposal. Since offsets can’t be used in two bills, that’s a problem.

Levin plans to meet with Ways and Means members Wednesday morning to discuss how to proceed with the Senate extender bill.

Levin has championed an offset that taxes investment compensation paid to hedge fund managers known as as ordinary income. “Carried interest” is nowtaxed as capital gains, which hovers around 15 percent. Levin’s proposal would subject carried interest to rates that go as high as 35 percent.

But key senators have opposed the change, and Levin said he would not hold up the tax package over the issue.

Aside from resuscitating $30 billion in tax breaks aimed at businesses and individuals, the Senate bill extends jobless benefits through 2010, prevents a cut in Medicare reimbursement rates to doctors and provides Medicare funding to states.

Like the president’s health proposal, the Senate bill rescinds the “black liquor” tax break abused by paper companies that claim undeserved alternative fuel tax credits. 

The original “black liquor” loophole expired in December, but late last year Rep. Chris Van Hollen (D-Md.) expanded upon the original provision by restricting the paper industry from capitalizing on cellulosic biofuel tax credits, which past estimates say could raise $24 billion over 10 years.

Obama and Senate proposals also would codify what constitutes an abusive tax shelter, known as the “economic substance doctrine,” which could raise as much as $10 billion over 10 years.

Courts have used the doctrine to determine whether a tax shelter was created for legitimate business reasons or solely devised to avoid paying taxes.  But since the doctrine was not in law, courts had considerable leeway in determining the legality of a tax shelter.

Wednesday’s Ways and Means meeting will also examine a small business tax proposal that temporarily allows certain companies to no longer pay capital gains taxes. Similar efforts have begun in the Senate as well. Levin hopes to mark the bill up in his committee next week.