Us Congress 2025-2026 Regular Session

Us Congress House Bill HB1091 Compare Versions

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Old	New	Differences
1	1	I
2	2	119THCONGRESS
3	3	1
4	4	STSESSION H. R. 1091
5	5	To amend the Internal Revenue Code of 1986 to provide for the proper
6	6	tax treatment of personal service income earned in pass-thru entities.
7	7	IN THE HOUSE OF REPRESENTATIVES
8	8	FEBRUARY6, 2025
9	9	Ms. P
10	10	EREZ(for herself and Mr. BEYER) introduced the following bill; which
11	11	was referred to the Committee on Ways and Means
12	12	A BILL
13	13	To amend the Internal Revenue Code of 1986 to provide
14	14	for the proper tax treatment of personal service income
15	15	earned in pass-thru entities.
16	16	Be it enacted by the Senate and House of Representa-1
17	17	tives of the United States of America in Congress assembled, 2
18	18	SECTION 1. SHORT TITLE; ETC. 3
19	19	(a) S
20	20	HORTTITLE.—This Act may be cited as the 4
21	21	‘‘Carried Interest Fairness Act of 2025’’. 5
22	22	(b) A
23	23	MENDMENT OF 1986 CODE.—Except as other-6
24	24	wise expressly provided, whenever in this Act an amend-7
25	25	ment or repeal is expressed in terms of an amendment 8
26	26	to, or repeal of, a section or other provision, the reference 9
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29	29	•HR 1091 IH
30	30	shall be considered to be made to a section or other provi-1
31	31	sion of the Internal Revenue Code of 1986. 2
32	32	(c) T
33	33	ABLE OFCONTENTS.—The table of contents for 3
34	34	this Act is as follows: 4
35	35	Sec. 1. Short title; etc.
36	36	Sec. 2. Partnership interests transferred in connection with performance of
37	37	services.
38	38	Sec. 3. Special rules for partners providing investment management services to
39	39	partnerships.
40	40	SEC. 2. PARTNERSHIP INTERESTS TRANSFERRED IN CON-
41	41	5
42	42	NECTION WITH PERFORMANCE OF SERVICES. 6
43	43	(a) M
44	44	ODIFICATION TOELECTIONTOINCLUDEPART-7
45	45	NERSHIPINTEREST IN GROSSINCOME IN YEAR OF 8
46	46	T
47	47	RANSFER.—Subsection (c) of section 83 is amended by 9
48	48	redesignating paragraph (4) as paragraph (5) and by in-10
49	49	serting after paragraph (3) the following new paragraph: 11
50	50	‘‘(4) P
51	51	ARTNERSHIP INTERESTS .—Except as 12
52	52	provided by the Secretary— 13
53	53	‘‘(A) I
54	54	N GENERAL.—In the case of any 14
55	55	transfer of an interest in a partnership in con-15
56	56	nection with the provision of services to (or for 16
57	57	the benefit of) such partnership— 17
58	58	‘‘(i) the fair market value of such in-18
59	59	terest shall be treated for purposes of this 19
60	60	section as being equal to the amount of the 20
61	61	distribution which the partner would re-21
62	62	ceive if the partnership sold (at the time of 22
63	63	the transfer) all of its assets at fair market 23
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67	67	value and distributed the proceeds of such 1
68	68	sale (reduced by the liabilities of the part-2
69	69	nership) to its partners in liquidation of 3
70	70	the partnership, and 4
71	71	‘‘(ii) the person receiving such interest 5
72	72	shall be treated as having made the elec-6
73	73	tion under subsection (b)(1) unless such 7
74	74	person makes an election under this para-8
75	75	graph to have such subsection not apply. 9
76	76	‘‘(B) E
77	77	LECTION.—The election under sub-10
78	78	paragraph (A)(ii) shall be made under rules 11
79	79	similar to the rules of subsection (b)(2).’’. 12
80	80	(b) E
81	81	FFECTIVEDATE.—The amendments made by 13
82	82	this section shall apply to interests in partnerships trans-14
83	83	ferred after the date of the enactment of this Act. 15
84	84	SEC. 3. SPECIAL RULES FOR PARTNERS PROVIDING IN-16
85	85	VESTMENT MANAGEMENT SERVICES TO 17
86	86	PARTNERSHIPS. 18
87	87	(a) I
88	88	NGENERAL.—Part I of subchapter K of chapter 19
89	89	1 is amended by adding at the end the following new sec-20
90	90	tion: 21
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94	94	‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN-1
95	95	VESTMENT MANAGEMENT SERVICES TO 2
96	96	PARTNERSHIPS. 3
97	97	‘‘(a) T
98	98	REATMENT OF DISTRIBUTIVESHARE OF 4
99	99	P
100	100	ARTNERSHIPITEMS.—For purposes of this title, in the 5
101	101	case of an investment services partnership interest— 6
102	102	‘‘(1) I
103	103	N GENERAL.—Notwithstanding section 7
104	104	702(b)— 8
105	105	‘‘(A) an amount equal to the net capital 9
106	106	gain with respect to such interest for any part-10
107	107	nership taxable year shall be treated as ordi-11
108	108	nary income, and 12
109	109	‘‘(B) subject to the limitation of paragraph 13
110	110	(2), an amount equal to the net capital loss 14
111	111	with respect to such interest for any partner-15
112	112	ship taxable year shall be treated as an ordi-16
113	113	nary loss. 17
114	114	‘‘(2) R
115	115	ECHARACTERIZATION OF LOSSES LIM -18
116	116	ITED TO RECHARACTERIZED GAINS .—The amount 19
117	117	treated as ordinary loss under paragraph (1)(B) for 20
118	118	any taxable year shall not exceed the excess (if any) 21
119	119	of— 22
120	120	‘‘(A) the aggregate amount treated as ordi-23
121	121	nary income under paragraph (1)(A) with re-24
122	122	spect to the investment services partnership in-25
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125	125	•HR 1091 IH
126	126	terest for all preceding partnership taxable 1
127	127	years to which this section applies, over 2
128	128	‘‘(B) the aggregate amount treated as or-3
129	129	dinary loss under paragraph (1)(B) with re-4
130	130	spect to such interest for all preceding partner-5
131	131	ship taxable years to which this section applies. 6
132	132	‘‘(3) A
133	133	LLOCATION TO ITEMS OF GAIN AND 7
134	134	LOSS.— 8
135	135	‘‘(A) N
136	136	ET CAPITAL GAIN.—The amount 9
137	137	treated as ordinary income under paragraph 10
138	138	(1)(A) shall be allocated ratably among the 11
139	139	items of long-term capital gain taken into ac-12
140	140	count in determining such net capital gain. 13
141	141	‘‘(B) N
142	142	ET CAPITAL LOSS.—The amount 14
143	143	treated as ordinary loss under paragraph (1)(B) 15
144	144	shall be allocated ratably among the items of 16
145	145	long-term capital loss and short-term capital 17
146	146	loss taken into account in determining such net 18
147	147	capital loss. 19
148	148	‘‘(4) T
149	149	ERMS RELATING TO CAPITAL GAINS AND 20
150	150	LOSSES.—For purposes of this section— 21
151	151	‘‘(A) I
152	152	N GENERAL.—Net capital gain, long- 22
153	153	term capital gain, and long-term capital loss, 23
154	154	with respect to any investment services partner-24
155	155	ship interest for any taxable year, shall be de-25
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159	159	termined under section 1222, except that such 1
160	160	section shall be applied— 2
161	161	‘‘(i) without regard to the recharacter-3
162	162	ization of any item as ordinary income or 4
163	163	ordinary loss under this section, 5
164	164	‘‘(ii) by only taking into account items 6
165	165	of gain and loss taken into account by the 7
166	166	holder of such interest under section 702 8
167	167	(other than subsection (a)(9) thereof) with 9
168	168	respect to such interest for such taxable 10
169	169	year, and 11
170	170	‘‘(iii) by treating property which is 12
171	171	taken into account in determining gains 13
172	172	and losses to which section 1231 applies as 14
173	173	capital assets held for more than 1 year. 15
174	174	‘‘(B) N
175	175	ET CAPITAL LOSS.—The term ‘net 16
176	176	capital loss’ means the excess of the losses from 17
177	177	sales or exchanges of capital assets over the 18
178	178	gains from such sales or exchanges. Rules simi-19
179	179	lar to the rules of clauses (i) through (iii) of 20
180	180	subparagraph (A) shall apply for purposes of 21
181	181	the preceding sentence. 22
182	182	‘‘(5) S
183	183	PECIAL RULE FOR DIVIDENDS .—Any div-23
184	184	idend allocated with respect to any investment serv-24
185	185	ices partnership interest shall not be treated as 25
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188	188	•HR 1091 IH
189	189	qualified dividend income for purposes of section 1
190	190	1(h). 2
191	191	‘‘(6) S
192	192	PECIAL RULE FOR QUALIFIED SMALL 3
193	193	BUSINESS STOCK.—Section 1202 shall not apply to 4
194	194	any gain from the sale or exchange of qualified small 5
195	195	business stock (as defined in section 1202(c)) allo-6
196	196	cated with respect to any investment services part-7
197	197	nership interest. 8
198	198	‘‘(b) D
199	199	ISPOSITIONS OFPARTNERSHIPINTERESTS.— 9
200	200	‘‘(1) G
201	201	AIN.— 10
202	202	‘‘(A) I
203	203	N GENERAL.—Any gain on the dis-11
204	204	position of an investment services partnership 12
205	205	interest shall be— 13
206	206	‘‘(i) treated as ordinary income, and 14
207	207	‘‘(ii) recognized notwithstanding any 15
208	208	other provision of this subtitle. 16
209	209	‘‘(B) G
210	210	IFT AND TRANSFERS AT DEATH .— 17
211	211	In the case of a disposition of an investment 18
212	212	services partnership interest by gift or by rea-19
213	213	son of death of the taxpayer— 20
214	214	‘‘(i) subparagraph (A) shall not apply, 21
215	215	‘‘(ii) such interest shall be treated as 22
216	216	an investment services partnership interest 23
217	217	in the hands of the person acquiring such 24
218	218	interest, and 25
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222	222	‘‘(iii) any amount that would have 1
223	223	been treated as ordinary income under this 2
224	224	subsection had the decedent sold such in-3
225	225	terest immediately before death shall be 4
226	226	treated as an item of income in respect of 5
227	227	a decedent under section 691. 6
228	228	‘‘(2) L
229	229	OSS.—Any loss on the disposition of an 7
230	230	investment services partnership interest shall be 8
231	231	treated as an ordinary loss to the extent of the ex-9
232	232	cess (if any) of— 10
233	233	‘‘(A) the aggregate amount treated as ordi-11
234	234	nary income under subsection (a) with respect 12
235	235	to such interest for all partnership taxable 13
236	236	years to which this section applies, over 14
237	237	‘‘(B) the aggregate amount treated as or-15
238	238	dinary loss under subsection (a) with respect to 16
239	239	such interest for all partnership taxable years 17
240	240	to which this section applies. 18
241	241	‘‘(3) E
242	242	LECTION WITH RESPECT TO CERTAIN EX -19
243	243	CHANGES.—Paragraph (1)(A)(ii) shall not apply to 20
244	244	the contribution of an investment services partner-21
245	245	ship interest to a partnership in exchange for an in-22
246	246	terest in such partnership if— 23
247	247	‘‘(A) the taxpayer makes an irrevocable 24
248	248	election to treat the partnership interest re-25
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251	251	•HR 1091 IH
252	252	ceived in the exchange as an investment serv-1
253	253	ices partnership interest, and 2
254	254	‘‘(B) the taxpayer agrees to comply with 3
255	255	such reporting and recordkeeping requirements 4
256	256	as the Secretary may prescribe. 5
257	257	‘‘(4) D
258	258	ISTRIBUTIONS OF PARTNERSHIP PROP -6
259	259	ERTY.— 7
260	260	‘‘(A) I
261	261	N GENERAL.—In the case of any dis-8
262	262	tribution of property by a partnership with re-9
263	263	spect to any investment services partnership in-10
264	264	terest held by a partner, the partner receiving 11
265	265	such property shall recognize gain equal to the 12
266	266	excess (if any) of— 13
267	267	‘‘(i) the fair market value of such 14
268	268	property at the time of such distribution, 15
269	269	over 16
270	270	‘‘(ii) the adjusted basis of such prop-17
271	271	erty in the hands of such partner (deter-18
272	272	mined without regard to subparagraph 19
273	273	(C)). 20
274	274	‘‘(B) T
275	275	REATMENT OF GAIN AS ORDINARY 21
276	276	INCOME.—Any gain recognized by such partner 22
277	277	under subparagraph (A) shall be treated as or-23
278	278	dinary income to the same extent and in the 24
279	279	same manner as the increase in such partner’s 25
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283	283	distributive share of the taxable income of the 1
284	284	partnership would be treated under subsection 2
285	285	(a) if, immediately prior to the distribution, the 3
286	286	partnership had sold the distributed property at 4
287	287	fair market value and all of the gain from such 5
288	288	disposition were allocated to such partner. For 6
289	289	purposes of applying subsection (a)(2), any gain 7
290	290	treated as ordinary income under this subpara-8
291	291	graph shall be treated as an amount treated as 9
292	292	ordinary income under subsection (a)(1)(A). 10
293	293	‘‘(C) A
294	294	DJUSTMENT OF BASIS.—In the case 11
295	295	a distribution to which subparagraph (A) ap-12
296	296	plies, the basis of the distributed property in 13
297	297	the hands of the distributee partner shall be the 14
298	298	fair market value of such property. 15
299	299	‘‘(D) S
300	300	PECIAL RULES WITH RESPECT TO 16
301	301	MERGERS AND DIVISIONS .—In the case of a 17
302	302	taxpayer which satisfies requirements similar to 18
303	303	the requirements of subparagraphs (A) and (B) 19
304	304	of paragraph (3), this paragraph and paragraph 20
305	305	(1)(A)(ii) shall not apply to the distribution of 21
306	306	a partnership interest if such distribution is in 22
307	307	connection with a contribution (or deemed con-23
308	308	tribution) of any property of the partnership to 24
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311	311	•HR 1091 IH
312	312	which section 721 applies pursuant to a trans-1
313	313	action described in section 708(b)(2). 2
314	314	‘‘(c) I
315	315	NVESTMENTSERVICESPARTNERSHIPINTER-3
316	316	EST.—For purposes of this section— 4
317	317	‘‘(1) I
318	318	N GENERAL.—The term ‘investment serv-5
319	319	ices partnership interest’ means any interest in an 6
320	320	investment partnership acquired or held by any per-7
321	321	son in connection with the conduct of a trade or 8
322	322	business described in paragraph (2) by such person 9
323	323	(or any person related to such person). An interest 10
324	324	in an investment partnership held by any person— 11
325	325	‘‘(A) shall not be treated as an investment 12
326	326	services partnership interest for any period be-13
327	327	fore the first date on which it is so held in con-14
328	328	nection with such a trade or business, 15
329	329	‘‘(B) shall not cease to be an investment 16
330	330	services partnership interest merely because 17
331	331	such person holds such interest other than in 18
332	332	connection with such a trade or business, and 19
333	333	‘‘(C) shall be treated as an investment 20
334	334	services partnership interest if acquired from a 21
335	335	related person in whose hands such interest was 22
336	336	an investment services partnership interest. 23
337	337	‘‘(2) B
338	338	USINESSES TO WHICH THIS SECTION AP -24
339	339	PLIES.—A trade or business is described in this 25
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343	343	paragraph if such trade or business primarily in-1
344	344	volves the performance of any of the following serv-2
345	345	ices with respect to assets held (directly or indi-3
346	346	rectly) by one or more investment partnerships re-4
347	347	ferred to in paragraph (1): 5
348	348	‘‘(A) Advising as to the advisability of in-6
349	349	vesting in, purchasing, or selling any specified 7
350	350	asset. 8
351	351	‘‘(B) Managing, acquiring, or disposing of 9
352	352	any specified asset. 10
353	353	‘‘(C) Arranging financing with respect to 11
354	354	acquiring specified assets. 12
355	355	‘‘(D) Any activity in support of any service 13
356	356	described in subparagraphs (A) through (C). 14
357	357	‘‘(3) I
358	358	NVESTMENT PARTNERSHIP .— 15
359	359	‘‘(A) I
360	360	N GENERAL.—The term ‘investment 16
361	361	partnership’ means any partnership if, at the 17
362	362	end of any two consecutive calendar quarters 18
363	363	ending after the date of enactment of this sec-19
364	364	tion— 20
365	365	‘‘(i) substantially all of the assets of 21
366	366	the partnership are specified assets (deter-22
367	367	mined without regard to any section 197 23
368	368	intangible within the meaning of section 24
369	369	197(d)), and 25
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373	373	‘‘(ii) less than 75 percent of the cap-1
374	374	ital of the partnership is attributable to 2
375	375	qualified capital interests which constitute 3
376	376	property held in connection with a trade or 4
377	377	business of the owner of such interest. 5
378	378	‘‘(B) L
379	379	OOK-THROUGH OF CERTAIN WHOL -6
380	380	LY OWNED ENTITIES FOR PURPOSES OF DETER -7
381	381	MINING ASSETS OF THE PARTNERSHIP .— 8
382	382	‘‘(i) I
383	383	N GENERAL.—For purposes of 9
384	384	determining the assets of a partnership 10
385	385	under subparagraph (A)(i)— 11
386	386	‘‘(I) any interest in a specified 12
387	387	entity shall not be treated as an asset 13
388	388	of such partnership, and 14
389	389	‘‘(II) such partnership shall be 15
390	390	treated as holding its proportionate 16
391	391	share of each of the assets of such 17
392	392	specified entity. 18
393	393	‘‘(ii) S
394	394	PECIFIED ENTITY.—For pur-19
395	395	poses of clause (i), the term ‘specified enti-20
396	396	ty’ means, with respect to any partnership 21
397	397	(hereafter referred to as the upper-tier 22
398	398	partnership), any person which engages in 23
399	399	the same trade or business as the upper- 24
400	400	tier partnership and is— 25
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404	404	‘‘(I) a partnership all of the cap-1
405	405	ital and profits interests of which are 2
406	406	held directly or indirectly by the 3
407	407	upper-tier partnership, or 4
408	408	‘‘(II) a foreign corporation which 5
409	409	does not engage in a trade or business 6
410	410	in the United States and all of the 7
411	411	stock of which is held directly or indi-8
412	412	rectly by the upper-tier partnership. 9
413	413	‘‘(C) S
414	414	PECIAL RULES FOR DETERMINING 10
415	415	IF PROPERTY HELD IN CONNECTION WITH 11
416	416	TRADE OR BUSINESS.— 12
417	417	‘‘(i) I
418	418	N GENERAL.—Except as other-13
419	419	wise provided by the Secretary, solely for 14
420	420	purposes of determining whether any inter-15
421	421	est in a partnership constitutes property 16
422	422	held in connection with a trade or business 17
423	423	under subparagraph (A)(ii)— 18
424	424	‘‘(I) a trade or business of any 19
425	425	person closely related to the owner of 20
426	426	such interest shall be treated as a 21
427	427	trade or business of such owner, 22
428	428	‘‘(II) such interest shall be treat-23
429	429	ed as held by a person in connection 24
430	430	with a trade or business during any 25
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434	434	taxable year if such interest was so 1
435	435	held by such person during any 3 tax-2
436	436	able years preceding such taxable 3
437	437	year, and 4
438	438	‘‘(III) paragraph (5)(B) shall not 5
439	439	apply. 6
440	440	‘‘(ii) C
441	441	LOSELY RELATED PERSONS .— 7
442	442	For purposes of clause (i)(I), a person 8
443	443	shall be treated as closely related to an-9
444	444	other person if, taking into account the 10
445	445	rules of section 267(c), the relationship be-11
446	446	tween such persons is described in— 12
447	447	‘‘(I) paragraph (1) or (9) of sec-13
448	448	tion 267(b), or 14
449	449	‘‘(II) section 267(b)(4), but solely 15
450	450	in the case of a trust with respect to 16
451	451	which each current beneficiary is the 17
452	452	grantor or a person whose relationship 18
453	453	to the grantor is described in para-19
454	454	graph (1) or (9) of section 267(b). 20
455	455	‘‘(D) A
456	456	NTIABUSE RULES.—The Secretary 21
457	457	may issue regulations or other guidance which 22
458	458	prevent the avoidance of the purposes of sub-23
459	459	paragraph (A), including regulations or other 24
460	460	guidance which treat convertible and contingent 25
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464	464	debt (and other debt having the attributes of 1
465	465	equity) as a capital interest in the partnership. 2
466	466	‘‘(E) C
467	467	ONTROLLED GROUPS OF ENTI -3
468	468	TIES.— 4
469	469	‘‘(i) I
470	470	N GENERAL.—In the case of a 5
471	471	controlled group of entities, if an interest 6
472	472	in the partnership received in exchange for 7
473	473	a contribution to the capital of the part-8
474	474	nership by any member of such controlled 9
475	475	group would (in the hands of such mem-10
476	476	ber) constitute property held in connection 11
477	477	with a trade or business, then any interest 12
478	478	in such partnership held by any member of 13
479	479	such group shall be treated for purposes of 14
480	480	subparagraph (A) as constituting (in the 15
481	481	hands of such member) property held in 16
482	482	connection with a trade or business. 17
483	483	‘‘(ii) C
484	484	ONTROLLED GROUP OF ENTI -18
485	485	TIES.—For purposes of clause (i), the term 19
486	486	‘controlled group of entities’ means a con-20
487	487	trolled group of corporations as defined in 21
488	488	section 1563(a)(1), applied without regard 22
489	489	to subsections (a)(4) and (b)(2) of section 23
490	490	1563. A partnership or any other entity 24
491	491	(other than a corporation) shall be treated 25
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494	494	•HR 1091 IH
495	495	as a member of a controlled group of enti-1
496	496	ties if such entity is controlled (within the 2
497	497	meaning of section 954(d)(3)) by members 3
498	498	of such group (including any entity treated 4
499	499	as a member of such group by reason of 5
500	500	this sentence). 6
501	501	‘‘(F) S
502	502	PECIAL RULE FOR CORPORA -7
503	503	TIONS.—For purposes of this paragraph, in the 8
504	504	case of a corporation, the determination of 9
505	505	whether property is held in connection with a 10
506	506	trade or business shall be determined as if the 11
507	507	taxpayer were an individual. 12
508	508	‘‘(4) S
509	509	PECIFIED ASSET.—The term ‘specified 13
510	510	asset’ means securities (as defined in section 14
511	511	475(c)(2) without regard to the last sentence there-15
512	512	of), real estate held for rental or investment, inter-16
513	513	ests in partnerships, commodities (as defined in sec-17
514	514	tion 475(e)(2)), cash or cash equivalents, or options 18
515	515	or derivative contracts with respect to any of the 19
516	516	foregoing. 20
517	517	‘‘(5) R
518	518	ELATED PERSONS.— 21
519	519	‘‘(A) I
520	520	N GENERAL.—A person shall be 22
521	521	treated as related to another person if the rela-23
522	522	tionship between such persons is described in 24
523	523	section 267(b) or 707(b). 25
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526	526	•HR 1091 IH
527	527	‘‘(B) ATTRIBUTION OF PARTNER SERV -1
528	528	ICES.—Any service described in paragraph (2) 2
529	529	which is provided by a partner of a partnership 3
530	530	shall be treated as also provided by such part-4
531	531	nership. 5
532	532	‘‘(d) E
533	533	XCEPTION FOR CERTAINCAPITALINTER-6
534	534	ESTS.— 7
535	535	‘‘(1) I
536	536	N GENERAL.—In the case of any portion 8
537	537	of an investment services partnership interest which 9
538	538	is a qualified capital interest, all items of gain and 10
539	539	loss (and any dividends) which are allocated to such 11
540	540	qualified capital interest shall not be taken into ac-12
541	541	count under subsection (a) if— 13
542	542	‘‘(A) allocations of items are made by the 14
543	543	partnership to such qualified capital interest in 15
544	544	the same manner as such allocations are made 16
545	545	to other qualified capital interests held by part-17
546	546	ners who do not provide any services described 18
547	547	in subsection (c)(2) and who are not related to 19
548	548	the partner holding the qualified capital inter-20
549	549	est, and 21
550	550	‘‘(B) the allocations made to such other in-22
551	551	terests are significant compared to the alloca-23
552	552	tions made to such qualified capital interest. 24
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555	555	•HR 1091 IH
556	556	‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO 1
557	557	ALLOCATION REQUIREMENTS .—To the extent pro-2
558	558	vided by the Secretary in regulations or other guid-3
559	559	ance— 4
560	560	‘‘(A) A
561	561	LLOCATIONS TO PORTION OF QUALI -5
562	562	FIED CAPITAL INTEREST .—Paragraph (1) may 6
563	563	be applied separately with respect to a portion 7
564	564	of a qualified capital interest. 8
565	565	‘‘(B) N
566	566	O OR INSIGNIFICANT ALLOCATIONS 9
567	567	TO NONSERVICE PROVIDERS .—In any case in 10
568	568	which the requirements of paragraph (1)(B) are 11
569	569	not satisfied, items of gain and loss (and any 12
570	570	dividends) shall not be taken into account under 13
571	571	subsection (a) to the extent that such items are 14
572	572	properly allocable under such regulations or 15
573	573	other guidance to qualified capital interests. 16
574	574	‘‘(C) A
575	575	LLOCATIONS TO SERVICE PRO -17
576	576	VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH 18
577	577	ARE LESS THAN OTHER ALLOCATIONS .—Alloca-19
578	578	tions shall not be treated as failing to meet the 20
579	579	requirement of paragraph (1)(A) merely be-21
580	580	cause the allocations to the qualified capital in-22
581	581	terest represent a lower return than the alloca-23
582	582	tions made to the other qualified capital inter-24
583	583	ests referred to in such paragraph. 25
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586	586	•HR 1091 IH
587	587	‘‘(3) SPECIAL RULE FOR CHANGES IN SERVICES 1
588	588	AND CAPITAL CONTRIBUTIONS .—In the case of an 2
589	589	interest in a partnership which was not an invest-3
590	590	ment services partnership interest and which, by 4
591	591	reason of a change in the services with respect to as-5
592	592	sets held (directly or indirectly) by the partnership 6
593	593	or by reason of a change in the capital contributions 7
594	594	to such partnership, becomes an investment services 8
595	595	partnership interest, the qualified capital interest of 9
596	596	the holder of such partnership interest immediately 10
597	597	after such change shall not, for purposes of this sub-11
598	598	section, be less than the fair market value of such 12
599	599	interest (determined immediately before such 13
600	600	change). 14
601	601	‘‘(4) S
602	602	PECIAL RULE FOR TIERED PARTNER -15
603	603	SHIPS.—Except as otherwise provided by the Sec-16
604	604	retary, in the case of tiered partnerships, all items 17
605	605	which are allocated in a manner which meets the re-18
606	606	quirements of paragraph (1) to qualified capital in-19
607	607	terests in a lower-tier partnership shall retain such 20
608	608	character to the extent allocated on the basis of 21
609	609	qualified capital interests in any upper-tier partner-22
610	610	ship. 23
611	611	‘‘(5) E
612	612	XCEPTION FOR NO -SELF-CHARGED 24
613	613	CARRY AND MANAGEMENT FEE PROVISIONS .—Ex-25
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616	616	•HR 1091 IH
617	617	cept as otherwise provided by the Secretary, an in-1
618	618	terest shall not fail to be treated as satisfying the 2
619	619	requirement of paragraph (1)(A) merely because the 3
620	620	allocations made by the partnership to such interest 4
621	621	do not reflect the cost of services described in sub-5
622	622	section (c)(2) which are provided (directly or indi-6
623	623	rectly) to the partnership by the holder of such in-7
624	624	terest (or a related person). 8
625	625	‘‘(6) S
626	626	PECIAL RULE FOR DISPOSITIONS .—In the 9
627	627	case of any investment services partnership interest 10
628	628	any portion of which is a qualified capital interest, 11
629	629	subsection (b) shall not apply to so much of any 12
630	630	gain or loss as bears the same proportion to the en-13
631	631	tire amount of such gain or loss as— 14
632	632	‘‘(A) the distributive share of gain or loss 15
633	633	that would have been allocated to the qualified 16
634	634	capital interest (consistent with the require-17
635	635	ments of paragraph (1)) if the partnership had 18
636	636	sold all of its assets at fair market value imme-19
637	637	diately before the disposition, bears to 20
638	638	‘‘(B) the distributive share of gain or loss 21
639	639	that would have been so allocated to the invest-22
640	640	ment services partnership interest of which such 23
641	641	qualified capital interest is a part. 24
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644	644	•HR 1091 IH
645	645	‘‘(7) QUALIFIED CAPITAL INTEREST .—For pur-1
646	646	poses of this section— 2
647	647	‘‘(A) I
648	648	N GENERAL.—The term ‘qualified 3
649	649	capital interest’ means so much of a partner’s 4
650	650	interest in the capital of the partnership as is 5
651	651	attributable to— 6
652	652	‘‘(i) the fair market value of any 7
653	653	money or other property contributed to the 8
654	654	partnership in exchange for such interest 9
655	655	(determined without regard to section 10
656	656	752(a)), 11
657	657	‘‘(ii) any amounts which have been in-12
658	658	cluded in gross income under section 83 13
659	659	with respect to the transfer of such inter-14
660	660	est, and 15
661	661	‘‘(iii) the excess (if any) of— 16
662	662	‘‘(I) any items of income and 17
663	663	gain taken into account under section 18
664	664	702 with respect to such interest, over 19
665	665	‘‘(II) any items of deduction and 20
666	666	loss so taken into account. 21
667	667	‘‘(B) A
668	668	DJUSTMENT TO QUALIFIED CAPITAL 22
669	669	INTEREST.— 23
670	670	‘‘(i) D
671	671	ISTRIBUTIONS AND LOSSES .— 24
672	672	The qualified capital interest shall be re-25
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674	674	ssavage on LAPJG3WLY3PROD with BILLS 23
675	675	•HR 1091 IH
676	676	duced by distributions from the partner-1
677	677	ship with respect to such interest and by 2
678	678	the excess (if any) of the amount described 3
679	679	in subparagraph (A)(iii)(II) over the 4
680	680	amount described in subparagraph 5
681	681	(A)(iii)(I). 6
682	682	‘‘(ii) S
683	683	PECIAL RULE FOR CONTRIBU -7
684	684	TIONS OF PROPERTY.—In the case of any 8
685	685	contribution of property described in sub-9
686	686	paragraph (A)(i) with respect to which the 10
687	687	fair market value of such property is not 11
688	688	equal to the adjusted basis of such prop-12
689	689	erty immediately before such contribution, 13
690	690	proper adjustments shall be made to the 14
691	691	qualified capital interest to take into ac-15
692	692	count such difference consistent with such 16
693	693	regulations or other guidance as the Sec-17
694	694	retary may provide. 18
695	695	‘‘(C) M
696	696	ERGERS, CONSOLIDATIONS, ETC., 19
697	697	DISREGARDED.—No increase or decrease in the 20
698	698	qualified capital interest of any partner shall re-21
699	699	sult from a merger, consolidation, or division 22
700	700	described in section 708, or any similar trans-23
701	701	action. 24
702	702	‘‘(8) T
703	703	REATMENT OF CERTAIN LOANS .— 25
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706	706	•HR 1091 IH
707	707	‘‘(A) PROCEEDS OF PARTNERSHIP LOANS 1
708	708	NOT TREATED AS QUALIFIED CAPITAL INTER -2
709	709	EST OF SERVICE PROVIDING PARTNERS .—For 3
710	710	purposes of this subsection, an investment serv-4
711	711	ices partnership interest shall not be treated as 5
712	712	a qualified capital interest to the extent that 6
713	713	such interest is acquired in connection with the 7
714	714	proceeds of any loan or other advance made or 8
715	715	guaranteed, directly or indirectly, by any other 9
716	716	partner or the partnership (or any person re-10
717	717	lated to any such other partner or the partner-11
718	718	ship). The preceding sentence shall not apply to 12
719	719	the extent the loan or other advance is repaid 13
720	720	before the date of the enactment of this section 14
721	721	unless such repayment is made with the pro-15
722	722	ceeds of a loan or other advance described in 16
723	723	the preceding sentence. 17
724	724	‘‘(B) R
725	725	EDUCTION IN ALLOCATIONS TO 18
726	726	QUALIFIED CAPITAL INTERESTS FOR LOANS 19
727	727	FROM NONSERVICE -PROVIDING PARTNERS TO 20
728	728	THE PARTNERSHIP.—For purposes of this sub-21
729	729	section, any loan or other advance to the part-22
730	730	nership made or guaranteed, directly or indi-23
731	731	rectly, by a partner not providing services de-24
732	732	scribed in subsection (c)(2) to the partnership 25
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735	735	•HR 1091 IH
736	736	(or any person related to such partner) shall be 1
737	737	taken into account in determining the qualified 2
738	738	capital interests of the partners in the partner-3
739	739	ship. 4
740	740	‘‘(9) S
741	741	PECIAL RULE FOR QUALIFIED FAMILY 5
742	742	PARTNERSHIPS.— 6
743	743	‘‘(A) I
744	744	N GENERAL.—In the case of any 7
745	745	specified family partnership interest, paragraph 8
746	746	(1)(A) shall be applied without regard to the 9
747	747	phrase ‘and who are not related to the partner 10
748	748	holding the qualified capital interest’. 11
749	749	‘‘(B) S
750	750	PECIFIED FAMILY PARTNERSHIP IN -12
751	751	TEREST.—For purposes of this paragraph, the 13
752	752	term ‘specified family partnership interest’ 14
753	753	means any investment services partnership in-15
754	754	terest if— 16
755	755	‘‘(i) such interest is an interest in a 17
756	756	qualified family partnership, 18
757	757	‘‘(ii) such interest is held by a natural 19
758	758	person or by a trust with respect to which 20
759	759	each beneficiary is a grantor or a person 21
760	760	whose relationship to the grantor is de-22
761	761	scribed in section 267(b)(1), and 23
762	762	‘‘(iii) all other interests in such quali-24
763	763	fied family partnership with respect to 25
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766	766	•HR 1091 IH
767	767	which significant allocations are made 1
768	768	(within the meaning of paragraph (1)(B) 2
769	769	and in comparison to the allocations made 3
770	770	to the interest described in clause (ii)) are 4
771	771	held by persons who— 5
772	772	‘‘(I) are related to the natural 6
773	773	person or trust referred to in clause 7
774	774	(ii), or 8
775	775	‘‘(II) provide services described 9
776	776	in subsection (c)(2). 10
777	777	‘‘(C) Q
778	778	UALIFIED FAMILY PARTNERSHIP .— 11
779	779	For purposes of this paragraph, the term 12
780	780	‘qualified family partnership’ means any part-13
781	781	nership if— 14
782	782	‘‘(i) all of the capital and profits in-15
783	783	terests of such partnership are held by— 16
784	784	‘‘(I) specified family members, 17
785	785	‘‘(II) any person closely related 18
786	786	(within the meaning of subsection 19
787	787	(c)(3)(C)(ii)) to a specified family 20
788	788	member, or 21
789	789	‘‘(III) any other person (not de-22
790	790	scribed in subclause (I) or (II)) if 23
791	791	such interest is an investment services 24
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794	794	•HR 1091 IH
795	795	partnership interest with respect to 1
796	796	such person, and 2
797	797	‘‘(ii) such partnership does not hold 3
798	798	itself out to the public as an investment 4
799	799	advisor. 5
800	800	‘‘(D) S
801	801	PECIFIED FAMILY MEMBERS .—For 6
802	802	purposes of subparagraph (C), individuals shall 7
803	803	be treated as specified family members if such 8
804	804	individuals would be treated as one person 9
805	805	under the rules of section 1361(c)(1) if the ap-10
806	806	plicable date (within the meaning of subpara-11
807	807	graph (B)(iii) thereof) were the latest of— 12
808	808	‘‘(i) the date of the establishment of 13
809	809	the partnership, 14
810	810	‘‘(ii) the earliest date that the com-15
811	811	mon ancestor holds a capital or profits in-16
812	812	terest in the partnership, or 17
813	813	‘‘(iii) the date of the enactment of this 18
814	814	section. 19
815	815	‘‘(e) O
816	816	THERINCOME AND GAIN INCONNECTION 20
817	817	W
818	818	ITHINVESTMENTMANAGEMENTSERVICES.— 21
819	819	‘‘(1) I
820	820	N GENERAL.—If— 22
821	821	‘‘(A) a person performs (directly or indi-23
822	822	rectly) investment management services for any 24
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824	824	ssavage on LAPJG3WLY3PROD with BILLS 28
825	825	•HR 1091 IH
826	826	investment entity or special purpose acquisition 1
827	827	company, 2
828	828	‘‘(B) such person holds (directly or indi-3
829	829	rectly) a disqualified interest with respect to 4
830	830	such entity or such company (as the case may 5
831	831	be), and 6
832	832	‘‘(C) the value of such interest (or pay-7
833	833	ments thereunder) is substantially related to 8
834	834	the amount of income or gain (whether or not 9
835	835	realized) from the assets with respect to which 10
836	836	the investment management services are per-11
837	837	formed, 12
838	838	any income or gain with respect to such interest 13
839	839	shall be treated as ordinary income. Rules similar to 14
840	840	the rules of subsections (a)(5) and (d) shall apply 15
841	841	for purposes of this subsection. 16
842	842	‘‘(2) D
843	843	EFINITIONS.—For purposes of this sub-17
844	844	section— 18
845	845	‘‘(A) D
846	846	ISQUALIFIED INTEREST.— 19
847	847	‘‘(i) I
848	848	N GENERAL.—The term ‘dis-20
849	849	qualified interest’ means, with respect to 21
850	850	any investment entity— 22
851	851	‘‘(I) any interest in such entity 23
852	852	other than indebtedness, 24
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855	855	•HR 1091 IH
856	856	‘‘(II) convertible or contingent 1
857	857	debt of such entity, 2
858	858	‘‘(III) any option or other right 3
859	859	to acquire property described in sub-4
860	860	clause (I) or (II), and 5
861	861	‘‘(IV) any derivative instrument 6
862	862	entered into (directly or indirectly) 7
863	863	with such entity or any investor in 8
864	864	such entity. 9
865	865	‘‘(ii) E
866	866	XCEPTIONS.—Such term shall 10
867	867	not include— 11
868	868	‘‘(I) a partnership interest, 12
869	869	‘‘(II) except as provided by the 13
870	870	Secretary, any interest in a taxable 14
871	871	corporation (other than a special pur-15
872	872	pose acquisition company), and 16
873	873	‘‘(III) except as provided by the 17
874	874	Secretary, stock in an S corporation. 18
875	875	‘‘(B) T
876	876	AXABLE CORPORATION .—The term 19
877	877	‘taxable corporation’ means— 20
878	878	‘‘(i) a domestic C corporation, or 21
879	879	‘‘(ii) a foreign corporation substan-22
880	880	tially all of the income of which is— 23
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883	883	•HR 1091 IH
884	884	‘‘(I) effectively connected with 1
885	885	the conduct of a trade or business in 2
886	886	the United States, or 3
887	887	‘‘(II) subject to a comprehensive 4
888	888	foreign income tax (as defined in sec-5
889	889	tion 457A(d)(2)). 6
890	890	‘‘(C) I
891	891	NVESTMENT MANAGEMENT SERV -7
892	892	ICES.—The term ‘investment management serv-8
893	893	ices’ means a substantial quantity of any of the 9
894	894	services described in subsection (c)(2). 10
895	895	‘‘(D) I
896	896	NVESTMENT ENTITY .—The term ‘in-11
897	897	vestment entity’ means any entity which, if it 12
898	898	were a partnership, would be an investment 13
899	899	partnership. 14
900	900	‘‘(E) S
901	901	PECIAL PURPOSE ACQUISITION COM -15
902	902	PANY.—The term ‘special purpose acquisition 16
903	903	company’ means any corporation that— 17
904	904	‘‘(i) is formed for the purpose of ac-18
905	905	quiring a privately held company, 19
906	906	‘‘(ii) is publicly traded on an estab-20
907	907	lished securities market or its interests are 21
908	908	readily tradable on a secondary market (or 22
909	909	the substantial equivalent thereof), and 23
910	910	‘‘(iii) is required to report an acquisi-24
911	911	tion under Item 2.01 or make a disclosure 25
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914	914	•HR 1091 IH
915	915	under Item 5.06 of Form 8-K (or any suc-1
916	916	cessor form) with the Securities and Ex-2
917	917	change Commission. 3
918	918	‘‘(f) E
919	919	XCEPTION FORDOMESTICC CORPORATIONS.— 4
920	920	Except as otherwise provided by the Secretary, in the case 5
921	921	of a domestic C corporation (other than a special purpose 6
922	922	acquisition company, as defined in subsection (e)(2)(E))— 7
923	923	‘‘(1) subsections (a) and (b) shall not apply to 8
924	924	any item allocated to such corporation with respect 9
925	925	to any investment services partnership interest (or 10
926	926	to any gain or loss with respect to the disposition of 11
927	927	such an interest), and 12
928	928	‘‘(2) subsection (e) shall not apply. 13
929	929	‘‘(g) R
930	930	EGULATIONS.—The Secretary shall prescribe 14
931	931	such regulations or other guidance as is necessary or ap-15
932	932	propriate to carry out the purposes of this section, includ-16
933	933	ing regulations or other guidance to— 17
934	934	‘‘(1) require such reporting and recordkeeping 18
935	935	by any person in such manner and at such time as 19
936	936	the Secretary may prescribe for purposes of enabling 20
937	937	the partnership to meet the requirements of section 21
938	938	6031 with respect to any item described in section 22
939	939	702(a)(9), 23
940	940	‘‘(2) provide modifications to the application of 24
941	941	this section (including treating related persons as 25
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944	944	•HR 1091 IH
945	945	not related to one another) to the extent such modi-1
946	946	fication is consistent with the purposes of this sec-2
947	947	tion, 3
948	948	‘‘(3) prevent the avoidance of the purposes of 4
949	949	this section (including through the use of qualified 5
950	950	family partnerships), and 6
951	951	‘‘(4) coordinate this section with the other pro-7
952	952	visions of this title. 8
953	953	‘‘(h) C
954	954	ROSSREFERENCE.—For 40 percent penalty on 9
955	955	certain underpayments due to the avoidance of this sec-10
956	956	tion, see section 6662.’’. 11
957	957	(b) A
958	958	PPLICATION OFSECTION751 TOINDIRECTDIS-12
959	959	POSITIONS OFINVESTMENTSERVICESPARTNERSHIPIN-13
960	960	TERESTS.— 14
961	961	(1) I
962	962	N GENERAL.—Subsection (a) of section 15
963	963	751 is amended by striking ‘‘or’’ at the end of para-16
964	964	graph (1), by inserting ‘‘or’’ at the end of paragraph 17
965	965	(2), and by inserting after paragraph (2) the fol-18
966	966	lowing new paragraph: 19
967	967	‘‘(3) investment services partnership interests 20
968	968	held by the partnership,’’. 21
969	969	(2) C
970	970	ERTAIN DISTRIBUTIONS TREATED AS 22
971	971	SALES OR EXCHANGES .—Subparagraph (A) of sec-23
972	972	tion 751(b)(1) is amended by striking ‘‘or’’ at the 24
973	973	end of clause (i), by inserting ‘‘or’’ at the end of 25
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976	976	•HR 1091 IH
977	977	clause (ii), and by inserting after clause (ii) the fol-1
978	978	lowing new clause: 2
979	979	‘‘(iii) investment services partnership 3
980	980	interests held by the partnership,’’. 4
981	981	(3) A
982	982	PPLICATION OF SPECIAL RULES IN THE 5
983	983	CASE OF TIERED PARTNERSHIPS .—Subsection (f) of 6
984	984	section 751 is amended— 7
985	985	(A) by striking ‘‘or’’ at the end of para-8
986	986	graph (1), by inserting ‘‘or’’ at the end of para-9
987	987	graph (2), and by inserting after paragraph (2) 10
988	988	the following new paragraph: 11
989	989	‘‘(3) an investment services partnership interest 12
990	990	held by the partnership,’’, and 13
991	991	(B) by striking ‘‘partner.’’ and inserting 14
992	992	‘‘partner (other than a partnership in which it 15
993	993	holds an investment services partnership inter-16
994	994	est).’’. 17
995	995	(4) I
996	996	NVESTMENT SERVICES PARTNERSHIP IN -18
997	997	TERESTS; QUALIFIED CAPITAL INTERESTS .—Section 19
998	998	751 is amended by adding at the end the following 20
999	999	new subsection: 21
1000	1000	‘‘(g) I
1001	1001	NVESTMENTSERVICESPARTNERSHIPINTER-22
1002	1002	ESTS.—For purposes of this section— 23
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1005	1005	•HR 1091 IH
1006	1006	‘‘(1) IN GENERAL.—The term ‘investment serv-1
1007	1007	ices partnership interest’ has the meaning given 2
1008	1008	such term by section 710(c). 3
1009	1009	‘‘(2) A
1010	1010	DJUSTMENTS FOR QUALIFIED CAPITAL 4
1011	1011	INTERESTS.—The amount to which subsection (a) 5
1012	1012	applies by reason of paragraph (3) thereof shall not 6
1013	1013	include so much of such amount as is attributable 7
1014	1014	to any portion of the investment services partnership 8
1015	1015	interest which is a qualified capital interest (deter-9
1016	1016	mined under rules similar to the rules of section 10
1017	1017	710(d)). 11
1018	1018	‘‘(3) E
1019	1019	XCEPTION FOR PUBLICLY TRADED PART -12
1020	1020	NERSHIPS.—Except as otherwise provided by the 13
1021	1021	Secretary, in the case of an exchange of an interest 14
1022	1022	in a publicly traded partnership (as defined in sec-15
1023	1023	tion 7704) to which subsection (a) applies— 16
1024	1024	‘‘(A) this section shall be applied without 17
1025	1025	regard to subsections (a)(3), (b)(1)(A)(iii), and 18
1026	1026	(f)(3), and 19
1027	1027	‘‘(B) such partnership shall be treated as 20
1028	1028	owning its proportionate share of the property 21
1029	1029	of any other partnership in which it is a part-22
1030	1030	ner. 23
1031	1031	‘‘(4) R
1032	1032	ECOGNITION OF GAINS .—Any gain with 24
1033	1033	respect to which subsection (a) applies by reason of 25
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1036	1036	•HR 1091 IH
1037	1037	paragraph (3) thereof shall be recognized notwith-1
1038	1038	standing any other provision of this title. 2
1039	1039	‘‘(5) C
1040	1040	OORDINATION WITH INVENTORY 3
1041	1041	ITEMS.—An investment services partnership interest 4
1042	1042	held by the partnership shall not be treated as an 5
1043	1043	inventory item of the partnership. 6
1044	1044	‘‘(6) P
1045	1045	REVENTION OF DOUBLE COUNTING .— 7
1046	1046	Under regulations or other guidance prescribed by 8
1047	1047	the Secretary, subsection (a)(3) shall not apply with 9
1048	1048	respect to any amount to which section 710 applies. 10
1049	1049	‘‘(7) V
1050	1050	ALUATION METHODS .—The Secretary 11
1051	1051	shall prescribe regulations or other guidance which 12
1052	1052	provide the acceptable methods for valuing invest-13
1053	1053	ment services partnership interests for purposes of 14
1054	1054	this section.’’. 15
1055	1055	(c) T
1056	1056	REATMENT FOR PURPOSES OF SECTION 16
1057	1057	7704.—Subsection (d) of section 7704 is amended by add-17
1058	1058	ing at the end the following new paragraph: 18
1059	1059	‘‘(6) I
1060	1060	NCOME FROM CERTAIN CARRIED INTER -19
1061	1061	ESTS NOT QUALIFIED.— 20
1062	1062	‘‘(A) I
1063	1063	N GENERAL.—Specified carried in-21
1064	1064	terest income shall not be treated as qualifying 22
1065	1065	income. 23
1066	1066	‘‘(B) S
1067	1067	PECIFIED CARRIED INTEREST IN -24
1068	1068	COME.—For purposes of this paragraph— 25
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1071	1071	•HR 1091 IH
1072	1072	‘‘(i) IN GENERAL.—The term ‘speci-1
1073	1073	fied carried interest income’ means— 2
1074	1074	‘‘(I) any item of income or gain 3
1075	1075	allocated to an investment services 4
1076	1076	partnership interest (as defined in 5
1077	1077	section 710(c)) held by the partner-6
1078	1078	ship, 7
1079	1079	‘‘(II) any gain on the disposition 8
1080	1080	of an investment services partnership 9
1081	1081	interest (as so defined) or a partner-10
1082	1082	ship interest to which (in the hands of 11
1083	1083	the partnership) section 751 applies, 12
1084	1084	and 13
1085	1085	‘‘(III) any income or gain taken 14
1086	1086	into account by the partnership under 15
1087	1087	subsection (b)(4) or (e) of section 16
1088	1088	710. 17
1089	1089	‘‘(ii) E
1090	1090	XCEPTION FOR QUALIFIED CAP -18
1091	1091	ITAL INTERESTS.—A rule similar to the 19
1092	1092	rule of section 710(d) shall apply for pur-20
1093	1093	poses of clause (i). 21
1094	1094	‘‘(C) C
1095	1095	OORDINATION WITH OTHER PROVI -22
1096	1096	SIONS.—Subparagraph (A) shall not apply to 23
1097	1097	any item described in paragraph (1)(E) (or so 24
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1100	1100	•HR 1091 IH
1101	1101	much of paragraph (1)(F) as relates to para-1
1102	1102	graph (1)(E)). 2
1103	1103	‘‘(D) S
1104	1104	PECIAL RULES FOR CERTAIN PART -3
1105	1105	NERSHIPS.— 4
1106	1106	‘‘(i) C
1107	1107	ERTAIN PARTNERSHIPS OWNED 5
1108	1108	BY REAL ESTATE INVESTMENT TRUSTS .— 6
1109	1109	Subparagraph (A) shall not apply in the 7
1110	1110	case of a partnership which meets each of 8
1111	1111	the following requirements: 9
1112	1112	‘‘(I) Such partnership is treated 10
1113	1113	as publicly traded under this section 11
1114	1114	solely by reason of interests in such 12
1115	1115	partnership being convertible into in-13
1116	1116	terests in a real estate investment 14
1117	1117	trust which is publicly traded. 15
1118	1118	‘‘(II) Fifty percent or more of 16
1119	1119	the capital and profits interests of 17
1120	1120	such partnership are owned, directly 18
1121	1121	or indirectly, at all times during the 19
1122	1122	taxable year by such real estate in-20
1123	1123	vestment trust (determined with the 21
1124	1124	application of section 267(c)). 22
1125	1125	‘‘(III) Such partnership meets 23
1126	1126	the requirements of paragraphs (2), 24
1127	1127	(3), and (4) of section 856(c). 25
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1130	1130	•HR 1091 IH
1131	1131	‘‘(ii) CERTAIN PARTNERSHIPS OWN -1
1132	1132	ING OTHER PUBLICLY TRADED PARTNER -2
1133	1133	SHIPS.—Subparagraph (A) shall not apply 3
1134	1134	in the case of a partnership which meets 4
1135	1135	each of the following requirements: 5
1136	1136	‘‘(I) Substantially all of the as-6
1137	1137	sets of such partnership consist of in-7
1138	1138	terests in one or more publicly traded 8
1139	1139	partnerships (determined without re-9
1140	1140	gard to subsection (b)(2)). 10
1141	1141	‘‘(II) Substantially all of the in-11
1142	1142	come of such partnership is ordinary 12
1143	1143	income or section 1231 gain (as de-13
1144	1144	fined in section 1231(a)(3)). 14
1145	1145	‘‘(E) T
1146	1146	RANSITIONAL RULE .—Subpara-15
1147	1147	graph (A) shall not apply to any taxable year 16
1148	1148	of the partnership beginning before the date 17
1149	1149	which is 10 years after the date of the enact-18
1150	1150	ment of this paragraph.’’. 19
1151	1151	(d) I
1152	1152	MPOSITION OF PENALTY ON UNDERPAY-20
1153	1153	MENTS.— 21
1154	1154	(1) I
1155	1155	N GENERAL.—Subsection (b) of section 22
1156	1156	6662 is amended by inserting after paragraph (10) 23
1157	1157	the following new paragraph: 24
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1160	1160	•HR 1091 IH
1161	1161	‘‘(11) The application of section 710(e) or the 1
1162	1162	regulations or other guidance prescribed under sec-2
1163	1163	tion 710(g) to prevent the avoidance of the purposes 3
1164	1164	of section 710.’’. 4
1165	1165	(2) A
1166	1166	MOUNT OF PENALTY .— 5
1167	1167	(A) I
1168	1168	N GENERAL.—Section 6662 is amend-6
1169	1169	ed by adding at the end the following new sub-7
1170	1170	section: 8
1171	1171	‘‘(m) I
1172	1172	NCREASE INPENALTY INCASE OFPROPERTY 9
1173	1173	T
1174	1174	RANSFERRED FOR INVESTMENT MANAGEMENT SERV-10
1175	1175	ICES.—In the case of any portion of an underpayment to 11
1176	1176	which this section applies by reason of subsection (b)(10), 12
1177	1177	subsection (a) shall be applied with respect to such portion 13
1178	1178	by substituting ‘40 percent’ for ‘20 percent’.’’. 14
1179	1179	(B) C
1180	1180	ONFORMING AMENDMENT .—Subpara-15
1181	1181	graph (B) of section 6662A(e)(2) is amended 16
1182	1182	by striking ‘‘or (i)’’ and inserting ‘‘, (i), or 17
1183	1183	(m)’’. 18
1184	1184	(3) S
1185	1185	PECIAL RULES FOR APPLICATION OF REA -19
1186	1186	SONABLE CAUSE EXCEPTION .—Subsection (c) of sec-20
1187	1187	tion 6664 is amended— 21
1188	1188	(A) by redesignating paragraphs (3) and 22
1189	1189	(4) as paragraphs (4) and (5), respectively; 23
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1192	1192	•HR 1091 IH
1193	1193	(B) by striking ‘‘paragraph (3)’’ in para-1
1194	1194	graph (5)(A), as so redesignated, and inserting 2
1195	1195	‘‘paragraph (4)’’; and 3
1196	1196	(C) by inserting after paragraph (2) the 4
1197	1197	following new paragraph: 5
1198	1198	‘‘(3) S
1199	1199	PECIAL RULE FOR UNDERPAYMENTS AT -6
1200	1200	TRIBUTABLE TO INVESTMENT MANAGEMENT SERV -7
1201	1201	ICES.— 8
1202	1202	‘‘(A) I
1203	1203	N GENERAL.—Paragraph (1) shall 9
1204	1204	not apply to any portion of an underpayment to 10
1205	1205	which section 6662 applies by reason of sub-11
1206	1206	section (b)(11) unless— 12
1207	1207	‘‘(i) the relevant facts affecting the 13
1208	1208	tax treatment of the item are adequately 14
1209	1209	disclosed, 15
1210	1210	‘‘(ii) there is or was substantial au-16
1211	1211	thority for such treatment, and 17
1212	1212	‘‘(iii) the taxpayer reasonably believed 18
1213	1213	that such treatment was more likely than 19
1214	1214	not the proper treatment. 20
1215	1215	‘‘(B) R
1216	1216	ULES RELATING TO REASONABLE 21
1217	1217	BELIEF.—Rules similar to the rules of sub-22
1218	1218	section (d)(4) shall apply for purposes of sub-23
1219	1219	paragraph (A)(iii).’’. 24
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1222	1222	•HR 1091 IH
1223	1223	(e) INCOME ANDLOSSFROMINVESTMENTSERVICES 1
1224	1224	P
1225	1225	ARTNERSHIPINTERESTSTAKENINTOACCOUNT INDE-2
1226	1226	TERMININGNETEARNINGSFROMSELF-EMPLOYMENT.— 3
1227	1227	(1) I
1228	1228	NTERNAL REVENUE CODE .— 4
1229	1229	(A) I
1230	1230	N GENERAL.—Section 1402(a) is 5
1231	1231	amended by striking ‘‘and’’ at the end of para-6
1232	1232	graph (16), by striking the period at the end of 7
1233	1233	paragraph (17) and inserting ‘‘; and’’, and by 8
1234	1234	inserting after paragraph (17) the following 9
1235	1235	new paragraph: 10
1236	1236	‘‘(18) notwithstanding the preceding provisions 11
1237	1237	of this subsection, in the case of any individual en-12
1238	1238	gaged in the trade or business of providing services 13
1239	1239	described in section 710(c)(2) with respect to any 14
1240	1240	entity, investment services partnership income or 15
1241	1241	loss (as defined in subsection (m)) of such individual 16
1242	1242	with respect to such entity shall be taken into ac-17
1243	1243	count in determining the net earnings from self-em-18
1244	1244	ployment of such individual.’’. 19
1245	1245	(B) I
1246	1246	NVESTMENT SERVICES PARTNERSHIP 20
1247	1247	INCOME OR LOSS.—Section 1402 is amended by 21
1248	1248	adding at the end the following new subsection: 22
1249	1249	‘‘(m) I
1250	1250	NVESTMENTSERVICESPARTNERSHIPINCOME 23
1251	1251	ORLOSS.—For purposes of subsection (a)— 24
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1254	1254	•HR 1091 IH
1255	1255	‘‘(1) IN GENERAL.—The term ‘investment serv-1
1256	1256	ices partnership income or loss’ means, with respect 2
1257	1257	to any investment services partnership interest (as 3
1258	1258	defined in section 710(c)) or disqualified interest (as 4
1259	1259	defined in section 710(e)), the net of— 5
1260	1260	‘‘(A) the amounts treated as ordinary in-6
1261	1261	come or ordinary loss under subsections (b) and 7
1262	1262	(e) of section 710 with respect to such interest, 8
1263	1263	‘‘(B) all items of income, gain, loss, and 9
1264	1264	deduction allocated to such interest, and 10
1265	1265	‘‘(C) the amounts treated as realized from 11
1266	1266	the sale or exchange of property other than a 12
1267	1267	capital asset under section 751 with respect to 13
1268	1268	such interest. 14
1269	1269	‘‘(2) E
1270	1270	XCEPTION FOR QUALIFIED CAPITAL IN -15
1271	1271	TERESTS.—A rule similar to the rule of section 16
1272	1272	710(d) shall apply for purposes of applying para-17
1273	1273	graph (1)(B).’’. 18
1274	1274	(2) S
1275	1275	OCIAL SECURITY ACT.—Section 211(a) of 19
1276	1276	the Social Security Act is amended by striking 20
1277	1277	‘‘and’’ at the end of paragraph (15), by striking the 21
1278	1278	period at the end of paragraph (16) and inserting ‘‘; 22
1279	1279	and’’, and by inserting after paragraph (16) the fol-23
1280	1280	lowing new paragraph: 24
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1283	1283	•HR 1091 IH
1284	1284	‘‘(17) Notwithstanding the preceding provisions 1
1285	1285	of this subsection, in the case of any individual en-2
1286	1286	gaged in the trade or business of providing services 3
1287	1287	described in section 710(c)(2) of the Internal Rev-4
1288	1288	enue Code of 1986 with respect to any entity, invest-5
1289	1289	ment services partnership income or loss (as defined 6
1290	1290	in section 1402(m) of such Code) shall be taken into 7
1291	1291	account in determining the net earnings from self- 8
1292	1292	employment of such individual.’’. 9
1293	1293	(f) S
1294	1294	EPARATEACCOUNTING BYPARTNER.—Section 10
1295	1295	702(a) is amended by striking ‘‘and’’ at the end of para-11
1296	1296	graph (7), by striking the period at the end of paragraph 12
1297	1297	(8) and inserting ‘‘, and’’, and by inserting after para-13
1298	1298	graph (8) the following: 14
1299	1299	‘‘(9) any amount treated as ordinary income or 15
1300	1300	loss under subsection (a), (b), or (e) of section 16
1301	1301	710.’’. 17
1302	1302	(g) C
1303	1303	ONFORMINGAMENDMENTS.— 18
1304	1304	(1) Subsection (d) of section 731 is amended by 19
1305	1305	inserting ‘‘section 710(b)(4) (relating to distribu-20
1306	1306	tions of partnership property),’’ after ‘‘to the extent 21
1307	1307	otherwise provided by’’. 22
1308	1308	(2) Section 741 is amended by inserting ‘‘or 23
1309	1309	section 710 (relating to special rules for partners 24
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1312	1312	•HR 1091 IH
1313	1313	providing investment management services to part-1
1314	1314	nerships)’’ before the period at the end. 2
1315	1315	(3) The table of sections for part I of sub-3
1316	1316	chapter K of chapter 1 is amended by adding at the 4
1317	1317	end the following new item: 5
1318	1318	‘‘Sec. 710. Special rules for partners providing investment management services
1319	1319	to partnerships.’’.
1320	1320	(4)(A) Part IV of subchapter O of chapter 1 is 6
1321	1321	amended by striking section 1061. 7
1322	1322	(B) The table of sections for part IV of sub-8
1323	1323	chapter O of chapter 1 is amended by striking the 9
1324	1324	item relating to section 1061. 10
1325	1325	(h) E
1326	1326	FFECTIVEDATE.— 11
1327	1327	(1) I
1328	1328	N GENERAL.—Except as otherwise pro-12
1329	1329	vided in this subsection, the amendments made by 13
1330	1330	this section shall apply to taxable years ending after 14
1331	1331	the date of the enactment of this Act. 15
1332	1332	(2) P
1333	1333	ARTNERSHIP TAXABLE YEARS WHICH IN -16
1334	1334	CLUDE EFFECTIVE DATE .—In applying section 17
1335	1335	710(a) of the Internal Revenue Code of 1986 (as 18
1336	1336	added by this section) in the case of any partnership 19
1337	1337	taxable year which includes the date of the enact-20
1338	1338	ment of this Act, the amount of the net capital gain 21
1339	1339	referred to in such section shall be treated as being 22
1340	1340	the lesser of the net capital gain for the entire part-23
1341	1341	nership taxable year or the net capital gain deter-24
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1345	1345	mined by only taking into account items attributable 1
1346	1346	to the portion of the partnership taxable year which 2
1347	1347	is after such date. 3
1348	1348	(3) D
1349	1349	ISPOSITIONS OF PARTNERSHIP INTER -4
1350	1350	ESTS.— 5
1351	1351	(A) I
1352	1352	N GENERAL.—Section 710(b) of such 6
1353	1353	Code (as added by this section) shall apply to 7
1354	1354	dispositions and distributions after the date of 8
1355	1355	the enactment of this Act. 9
1356	1356	(B) I
1357	1357	NDIRECT DISPOSITIONS.—The amend-10
1358	1358	ments made by subsection (b) shall apply to 11
1359	1359	transactions after the date of the enactment of 12
1360	1360	this Act. 13
1361	1361	(4) O
1362	1362	THER INCOME AND GAIN IN CONNECTION 14
1363	1363	WITH INVESTMENT MANAGEMENT SERVICES .—Sec-15
1364	1364	tion 710(e) of such Code (as added by this section) 16
1365	1365	shall take effect on the date of the enactment of this 17
1366	1366	Act. 18
1367	1367	Æ
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