II 

118TH CONGRESS 

2D SESSION S. 4123 

To amend the Internal Revenue Code of 1986 to provide for the proper 

tax treatment of personal service income earned in pass-thru entities. 

IN THE SENATE OF THE UNITED STATES 

APRIL 15, 2024 

Ms. BALDWIN (for herself, Mr. MANCHIN, Mr. BROWN, Mr. WHITEHOUSE, 

Mr. VAN HOLLEN, Mr. MARKEY, Ms. WARREN, Ms. KLOBUCHAR, Mr. 

SANDERS, Mr. REED, Mr. KAINE, Mr. WELCH, Mr. BOOKER, Ms. 

HIRONO, and Mr. SCHATZ) introduced the following bill; which was read 

twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for the proper tax treatment of personal service income 

earned in pass-thru entities. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Carried Interest Fairness Act of 2024’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 


ssavage on LAPJG3WLY3PROD with BILLS
2 

•S 4123 IS

1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents for 

5 this Act is as follows: 

Sec. 1. Short title; etc. 

Sec. 2. Partnership interests transferred in connection with performance of 

services. 

Sec. 3. Special rules for partners providing investment management services to 

partnerships. 

6 SEC. 2. PARTNERSHIP INTERESTS TRANSFERRED IN CON7 NECTION WITH PERFORMANCE OF SERVICES. 

8 (a) MODIFICATION TO ELECTION TO INCLUDE PART9 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

10 TRANSFER.—Subsection (c) of section 83 is amended by 

11 redesignating paragraph (4) as paragraph (5) and by in12 serting after paragraph (3) the following new paragraph: 

13 ‘‘(4) PARTNERSHIP INTERESTS.—Except as 

14 provided by the Secretary— 

15 ‘‘(A) IN GENERAL.—In the case of any 

16 transfer of an interest in a partnership in con17 nection with the provision of services to (or for 

18 the benefit of) such partnership— 

19 ‘‘(i) the fair market value of such in20 terest shall be treated for purposes of this 

21 section as being equal to the amount of the 

22 distribution which the partner would re23 ceive if the partnership sold (at the time of 


ssavage on LAPJG3WLY3PROD with BILLS
3 

•S 4123 IS

1 the transfer) all of its assets at fair market 

2 value and distributed the proceeds of such 

3 sale (reduced by the liabilities of the part4 nership) to its partners in liquidation of 

5 the partnership, and 

6 ‘‘(ii) the person receiving such interest 

7 shall be treated as having made the elec8 tion under subsection (b)(1) unless such 

9 person makes an election under this para10 graph to have such subsection not apply. 

11 ‘‘(B) ELECTION.—The election under sub12 paragraph (A)(ii) shall be made under rules 

13 similar to the rules of subsection (b)(2).’’. 

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to interests in partnerships trans16 ferred after the date of the enactment of this Act. 

17 SEC. 3. SPECIAL RULES FOR PARTNERS PROVIDING IN18 VESTMENT MANAGEMENT SERVICES TO 

19 PARTNERSHIPS. 

20 (a) IN GENERAL.—Part I of subchapter K of chapter 

21 1 is amended by adding at the end the following new sec22 tion: 


ssavage on LAPJG3WLY3PROD with BILLS
4 

•S 4123 IS

1 ‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN2 VESTMENT MANAGEMENT SERVICES TO 

3 PARTNERSHIPS. 

4 ‘‘(a) TREATMENT OF DISTRIBUTIVE SHARE OF

5 PARTNERSHIP ITEMS.—For purposes of this title, in the 

6 case of an investment services partnership interest— 

7 ‘‘(1) IN GENERAL.—Notwithstanding section 

8 702(b)— 

9 ‘‘(A) an amount equal to the net capital 

10 gain with respect to such interest for any part11 nership taxable year shall be treated as ordi12 nary income, and 

13 ‘‘(B) subject to the limitation of paragraph 

14 (2), an amount equal to the net capital loss 

15 with respect to such interest for any partner16 ship taxable year shall be treated as an ordi17 nary loss. 

18 ‘‘(2) RECHARACTERIZATION OF LOSSES LIM19 ITED TO RECHARACTERIZED GAINS.—The amount 

20 treated as ordinary loss under paragraph (1)(B) for 

21 any taxable year shall not exceed the excess (if any) 

22 of— 

23 ‘‘(A) the aggregate amount treated as ordi24 nary income under paragraph (1)(A) with re25 spect to the investment services partnership inVerDate Sep 11 2014 20:06 Apr 24, 2024 Jkt 049200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S4123.IS S4123

ssavage on LAPJG3WLY3PROD with BILLS
5 

•S 4123 IS

1 terest for all preceding partnership taxable 

2 years to which this section applies, over 

3 ‘‘(B) the aggregate amount treated as or4 dinary loss under paragraph (1)(B) with re5 spect to such interest for all preceding partner6 ship taxable years to which this section applies. 

7 ‘‘(3) ALLOCATION TO ITEMS OF GAIN AND

8 LOSS.— 

9 ‘‘(A) NET CAPITAL GAIN.—The amount 

10 treated as ordinary income under paragraph 

11 (1)(A) shall be allocated ratably among the 

12 items of long-term capital gain taken into ac13 count in determining such net capital gain. 

14 ‘‘(B) NET CAPITAL LOSS.—The amount 

15 treated as ordinary loss under paragraph (1)(B) 

16 shall be allocated ratably among the items of 

17 long-term capital loss and short-term capital 

18 loss taken into account in determining such net 

19 capital loss. 

20 ‘‘(4) TERMS RELATING TO CAPITAL GAINS AND

21 LOSSES.—For purposes of this section— 

22 ‘‘(A) IN GENERAL.—Net capital gain, long23 term capital gain, and long-term capital loss, 

24 with respect to any investment services partner25 ship interest for any taxable year, shall be deVerDate Sep 11 2014 20:06 Apr 24, 2024 Jkt 049200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S4123.IS S4123

ssavage on LAPJG3WLY3PROD with BILLS
6 

•S 4123 IS

1 termined under section 1222, except that such 

2 section shall be applied— 

3 ‘‘(i) without regard to the recharacter4 ization of any item as ordinary income or 

5 ordinary loss under this section, 

6 ‘‘(ii) by only taking into account items 

7 of gain and loss taken into account by the 

8 holder of such interest under section 702 

9 (other than subsection (a)(9) thereof) with 

10 respect to such interest for such taxable 

11 year, and 

12 ‘‘(iii) by treating property which is 

13 taken into account in determining gains 

14 and losses to which section 1231 applies as 

15 capital assets held for more than 1 year. 

16 ‘‘(B) NET CAPITAL LOSS.—The term ‘net 

17 capital loss’ means the excess of the losses from 

18 sales or exchanges of capital assets over the 

19 gains from such sales or exchanges. Rules simi20 lar to the rules of clauses (i) through (iii) of 

21 subparagraph (A) shall apply for purposes of 

22 the preceding sentence. 

23 ‘‘(5) SPECIAL RULE FOR DIVIDENDS.—Any div24 idend allocated with respect to any investment serv25 ices partnership interest shall not be treated as 


ssavage on LAPJG3WLY3PROD with BILLS
7 

•S 4123 IS

1 qualified dividend income for purposes of section 

2 1(h). 

3 ‘‘(6) SPECIAL RULE FOR QUALIFIED SMALL

4 BUSINESS STOCK.—Section 1202 shall not apply to 

5 any gain from the sale or exchange of qualified small 

6 business stock (as defined in section 1202(c)) allo7 cated with respect to any investment services part8 nership interest. 

9 ‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 

10 ‘‘(1) GAIN.— 

11 ‘‘(A) IN GENERAL.—Any gain on the dis12 position of an investment services partnership 

13 interest shall be— 

14 ‘‘(i) treated as ordinary income, and 

15 ‘‘(ii) recognized notwithstanding any 

16 other provision of this subtitle. 

17 ‘‘(B) GIFT AND TRANSFERS AT DEATH.— 

18 In the case of a disposition of an investment 

19 services partnership interest by gift or by rea20 son of death of the taxpayer— 

21 ‘‘(i) subparagraph (A) shall not apply, 

22 ‘‘(ii) such interest shall be treated as 

23 an investment services partnership interest 

24 in the hands of the person acquiring such 

25 interest, and 


ssavage on LAPJG3WLY3PROD with BILLS
8 

•S 4123 IS

1 ‘‘(iii) any amount that would have 

2 been treated as ordinary income under this 

3 subsection had the decedent sold such in4 terest immediately before death shall be 

5 treated as an item of income in respect of 

6 a decedent under section 691. 

7 ‘‘(2) LOSS.—Any loss on the disposition of an 

8 investment services partnership interest shall be 

9 treated as an ordinary loss to the extent of the ex10 cess (if any) of— 

11 ‘‘(A) the aggregate amount treated as ordi12 nary income under subsection (a) with respect 

13 to such interest for all partnership taxable 

14 years to which this section applies, over 

15 ‘‘(B) the aggregate amount treated as or16 dinary loss under subsection (a) with respect to 

17 such interest for all partnership taxable years 

18 to which this section applies. 

19 ‘‘(3) ELECTION WITH RESPECT TO CERTAIN EX20 CHANGES.—Paragraph (1)(A)(ii) shall not apply to 

21 the contribution of an investment services partner22 ship interest to a partnership in exchange for an in23 terest in such partnership if— 

24 ‘‘(A) the taxpayer makes an irrevocable 

25 election to treat the partnership interest reVerDate Sep 11 2014 20:06 Apr 24, 2024 Jkt 049200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S4123.IS S4123

ssavage on LAPJG3WLY3PROD with BILLS
9 

•S 4123 IS

1 ceived in the exchange as an investment serv2 ices partnership interest, and 

3 ‘‘(B) the taxpayer agrees to comply with 

4 such reporting and recordkeeping requirements 

5 as the Secretary may prescribe. 

6 ‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP7 ERTY.— 

8 ‘‘(A) IN GENERAL.—In the case of any dis9 tribution of property by a partnership with re10 spect to any investment services partnership in11 terest held by a partner, the partner receiving 

12 such property shall recognize gain equal to the 

13 excess (if any) of— 

14 ‘‘(i) the fair market value of such 

15 property at the time of such distribution, 

16 over 

17 ‘‘(ii) the adjusted basis of such prop18 erty in the hands of such partner (deter19 mined without regard to subparagraph 

20 (C)). 

21 ‘‘(B) TREATMENT OF GAIN AS ORDINARY

22 INCOME.—Any gain recognized by such partner 

23 under subparagraph (A) shall be treated as or24 dinary income to the same extent and in the 

25 same manner as the increase in such partner’s 


ssavage on LAPJG3WLY3PROD with BILLS
10 

•S 4123 IS

1 distributive share of the taxable income of the 

2 partnership would be treated under subsection 

3 (a) if, immediately prior to the distribution, the 

4 partnership had sold the distributed property at 

5 fair market value and all of the gain from such 

6 disposition were allocated to such partner. For 

7 purposes of applying subsection (a)(2), any gain 

8 treated as ordinary income under this subpara9 graph shall be treated as an amount treated as 

10 ordinary income under subsection (a)(1)(A). 

11 ‘‘(C) ADJUSTMENT OF BASIS.—In the case 

12 a distribution to which subparagraph (A) ap13 plies, the basis of the distributed property in 

14 the hands of the distributee partner shall be the 

15 fair market value of such property. 

16 ‘‘(D) SPECIAL RULES WITH RESPECT TO

17 MERGERS AND DIVISIONS.—In the case of a 

18 taxpayer which satisfies requirements similar to 

19 the requirements of subparagraphs (A) and (B) 

20 of paragraph (3), this paragraph and paragraph 

21 (1)(A)(ii) shall not apply to the distribution of 

22 a partnership interest if such distribution is in 

23 connection with a contribution (or deemed con24 tribution) of any property of the partnership to 


ssavage on LAPJG3WLY3PROD with BILLS
11 

•S 4123 IS

1 which section 721 applies pursuant to a trans2 action described in section 708(b)(2). 

3 ‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER4 EST.—For purposes of this section— 

5 ‘‘(1) IN GENERAL.—The term ‘investment serv6 ices partnership interest’ means any interest in an 

7 investment partnership acquired or held by any per8 son in connection with the conduct of a trade or 

9 business described in paragraph (2) by such person 

10 (or any person related to such person). An interest 

11 in an investment partnership held by any person— 

12 ‘‘(A) shall not be treated as an investment 

13 services partnership interest for any period be14 fore the first date on which it is so held in con15 nection with such a trade or business, 

16 ‘‘(B) shall not cease to be an investment 

17 services partnership interest merely because 

18 such person holds such interest other than in 

19 connection with such a trade or business, and 

20 ‘‘(C) shall be treated as an investment 

21 services partnership interest if acquired from a 

22 related person in whose hands such interest was 

23 an investment services partnership interest. 

24 ‘‘(2) BUSINESSES TO WHICH THIS SECTION AP25 PLIES.—A trade or business is described in this 


ssavage on LAPJG3WLY3PROD with BILLS
12 

•S 4123 IS

1 paragraph if such trade or business primarily in2 volves the performance of any of the following serv3 ices with respect to assets held (directly or indi4 rectly) by one or more investment partnerships re5 ferred to in paragraph (1): 

6 ‘‘(A) Advising as to the advisability of in7 vesting in, purchasing, or selling any specified 

8 asset. 

9 ‘‘(B) Managing, acquiring, or disposing of 

10 any specified asset. 

11 ‘‘(C) Arranging financing with respect to 

12 acquiring specified assets. 

13 ‘‘(D) Any activity in support of any service 

14 described in subparagraphs (A) through (C). 

15 ‘‘(3) INVESTMENT PARTNERSHIP.— 

16 ‘‘(A) IN GENERAL.—The term ‘investment 

17 partnership’ means any partnership if, at the 

18 end of any two consecutive calendar quarters 

19 ending after the date of enactment of this sec20 tion— 

21 ‘‘(i) substantially all of the assets of 

22 the partnership are specified assets (deter23 mined without regard to any section 197 

24 intangible within the meaning of section 

25 197(d)), and 


ssavage on LAPJG3WLY3PROD with BILLS
13 

•S 4123 IS

1 ‘‘(ii) less than 75 percent of the cap2 ital of the partnership is attributable to 

3 qualified capital interests which constitute 

4 property held in connection with a trade or 

5 business of the owner of such interest. 

6 ‘‘(B) LOOK-THROUGH OF CERTAIN WHOL7 LY OWNED ENTITIES FOR PURPOSES OF DETER8 MINING ASSETS OF THE PARTNERSHIP.— 

9 ‘‘(i) IN GENERAL.—For purposes of 

10 determining the assets of a partnership 

11 under subparagraph (A)(i)— 

12 ‘‘(I) any interest in a specified 

13 entity shall not be treated as an asset 

14 of such partnership, and 

15 ‘‘(II) such partnership shall be 

16 treated as holding its proportionate 

17 share of each of the assets of such 

18 specified entity. 

19 ‘‘(ii) SPECIFIED ENTITY.—For pur20 poses of clause (i), the term ‘specified enti21 ty’ means, with respect to any partnership 

22 (hereafter referred to as the upper-tier 

23 partnership), any person which engages in 

24 the same trade or business as the upper25 tier partnership and is— 


ssavage on LAPJG3WLY3PROD with BILLS
14 

•S 4123 IS

1 ‘‘(I) a partnership all of the cap2 ital and profits interests of which are 

3 held directly or indirectly by the 

4 upper-tier partnership, or 

5 ‘‘(II) a foreign corporation which 

6 does not engage in a trade or business 

7 in the United States and all of the 

8 stock of which is held directly or indi9 rectly by the upper-tier partnership. 

10 ‘‘(C) SPECIAL RULES FOR DETERMINING

11 IF PROPERTY HELD IN CONNECTION WITH

12 TRADE OR BUSINESS.— 

13 ‘‘(i) IN GENERAL.—Except as other14 wise provided by the Secretary, solely for 

15 purposes of determining whether any inter16 est in a partnership constitutes property 

17 held in connection with a trade or business 

18 under subparagraph (A)(ii)— 

19 ‘‘(I) a trade or business of any 

20 person closely related to the owner of 

21 such interest shall be treated as a 

22 trade or business of such owner, 

23 ‘‘(II) such interest shall be treat24 ed as held by a person in connection 

25 with a trade or business during any 


ssavage on LAPJG3WLY3PROD with BILLS
15 

•S 4123 IS

1 taxable year if such interest was so 

2 held by such person during any 3 tax3 able years preceding such taxable 

4 year, and 

5 ‘‘(III) paragraph (5)(B) shall not 

6 apply. 

7 ‘‘(ii) CLOSELY RELATED PERSONS.— 

8 For purposes of clause (i)(I), a person 

9 shall be treated as closely related to an10 other person if, taking into account the 

11 rules of section 267(c), the relationship be12 tween such persons is described in— 

13 ‘‘(I) paragraph (1) or (9) of sec14 tion 267(b), or 

15 ‘‘(II) section 267(b)(4), but solely 

16 in the case of a trust with respect to 

17 which each current beneficiary is the 

18 grantor or a person whose relationship 

19 to the grantor is described in para20 graph (1) or (9) of section 267(b). 

21 ‘‘(D) ANTIABUSE RULES.—The Secretary 

22 may issue regulations or other guidance which 

23 prevent the avoidance of the purposes of sub24 paragraph (A), including regulations or other 

25 guidance which treat convertible and contingent 


ssavage on LAPJG3WLY3PROD with BILLS
16 

•S 4123 IS

1 debt (and other debt having the attributes of 

2 equity) as a capital interest in the partnership. 

3 ‘‘(E) CONTROLLED GROUPS OF ENTI4 TIES.— 

5 ‘‘(i) IN GENERAL.—In the case of a 

6 controlled group of entities, if an interest 

7 in the partnership received in exchange for 

8 a contribution to the capital of the part9 nership by any member of such controlled 

10 group would (in the hands of such mem11 ber) constitute property held in connection 

12 with a trade or business, then any interest 

13 in such partnership held by any member of 

14 such group shall be treated for purposes of 

15 subparagraph (A) as constituting (in the 

16 hands of such member) property held in 

17 connection with a trade or business. 

18 ‘‘(ii) CONTROLLED GROUP OF ENTI19 TIES.—For purposes of clause (i), the term 

20 ‘controlled group of entities’ means a con21 trolled group of corporations as defined in 

22 section 1563(a)(1), applied without regard 

23 to subsections (a)(4) and (b)(2) of section 

24 1563. A partnership or any other entity 

25 (other than a corporation) shall be treated 


ssavage on LAPJG3WLY3PROD with BILLS
17 

•S 4123 IS

1 as a member of a controlled group of enti2 ties if such entity is controlled (within the 

3 meaning of section 954(d)(3)) by members 

4 of such group (including any entity treated 

5 as a member of such group by reason of 

6 this sentence). 

7 ‘‘(F) SPECIAL RULE FOR CORPORA8 TIONS.—For purposes of this paragraph, in the 

9 case of a corporation, the determination of 

10 whether property is held in connection with a 

11 trade or business shall be determined as if the 

12 taxpayer were an individual. 

13 ‘‘(4) SPECIFIED ASSET.—The term ‘specified 

14 asset’ means securities (as defined in section 

15 475(c)(2) without regard to the last sentence there16 of), real estate held for rental or investment, inter17 ests in partnerships, commodities (as defined in sec18 tion 475(e)(2)), cash or cash equivalents, or options 

19 or derivative contracts with respect to any of the 

20 foregoing. 

21 ‘‘(5) RELATED PERSONS.— 

22 ‘‘(A) IN GENERAL.—A person shall be 

23 treated as related to another person if the rela24 tionship between such persons is described in 

25 section 267(b) or 707(b). 


ssavage on LAPJG3WLY3PROD with BILLS
18 

•S 4123 IS

1 ‘‘(B) ATTRIBUTION OF PARTNER SERV2 ICES.—Any service described in paragraph (2) 

3 which is provided by a partner of a partnership 

4 shall be treated as also provided by such part5 nership. 

6 ‘‘(d) EXCEPTION FOR CERTAIN CAPITAL INTER7 ESTS.— 

8 ‘‘(1) IN GENERAL.—In the case of any portion 

9 of an investment services partnership interest which 

10 is a qualified capital interest, all items of gain and 

11 loss (and any dividends) which are allocated to such 

12 qualified capital interest shall not be taken into ac13 count under subsection (a) if— 

14 ‘‘(A) allocations of items are made by the 

15 partnership to such qualified capital interest in 

16 the same manner as such allocations are made 

17 to other qualified capital interests held by part18 ners who do not provide any services described 

19 in subsection (c)(2) and who are not related to 

20 the partner holding the qualified capital inter21 est, and 

22 ‘‘(B) the allocations made to such other in23 terests are significant compared to the alloca24 tions made to such qualified capital interest. 


ssavage on LAPJG3WLY3PROD with BILLS
19 

•S 4123 IS

1 ‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO

2 ALLOCATION REQUIREMENTS.—To the extent pro3 vided by the Secretary in regulations or other guid4 ance— 

5 ‘‘(A) ALLOCATIONS TO PORTION OF QUALI6 FIED CAPITAL INTEREST.—Paragraph (1) may 

7 be applied separately with respect to a portion 

8 of a qualified capital interest. 

9 ‘‘(B) NO OR INSIGNIFICANT ALLOCATIONS

10 TO NONSERVICE PROVIDERS.—In any case in 

11 which the requirements of paragraph (1)(B) are 

12 not satisfied, items of gain and loss (and any 

13 dividends) shall not be taken into account under 

14 subsection (a) to the extent that such items are 

15 properly allocable under such regulations or 

16 other guidance to qualified capital interests. 

17 ‘‘(C) ALLOCATIONS TO SERVICE PRO18 VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH

19 ARE LESS THAN OTHER ALLOCATIONS.—Alloca20 tions shall not be treated as failing to meet the 

21 requirement of paragraph (1)(A) merely be22 cause the allocations to the qualified capital in23 terest represent a lower return than the alloca24 tions made to the other qualified capital inter25 ests referred to in such paragraph. 


ssavage on LAPJG3WLY3PROD with BILLS
20 

•S 4123 IS

1 ‘‘(3) SPECIAL RULE FOR CHANGES IN SERVICES

2 AND CAPITAL CONTRIBUTIONS.—In the case of an 

3 interest in a partnership which was not an invest4 ment services partnership interest and which, by 

5 reason of a change in the services with respect to as6 sets held (directly or indirectly) by the partnership 

7 or by reason of a change in the capital contributions 

8 to such partnership, becomes an investment services 

9 partnership interest, the qualified capital interest of 

10 the holder of such partnership interest immediately 

11 after such change shall not, for purposes of this sub12 section, be less than the fair market value of such 

13 interest (determined immediately before such 

14 change). 

15 ‘‘(4) SPECIAL RULE FOR TIERED PARTNER16 SHIPS.—Except as otherwise provided by the Sec17 retary, in the case of tiered partnerships, all items 

18 which are allocated in a manner which meets the re19 quirements of paragraph (1) to qualified capital in20 terests in a lower-tier partnership shall retain such 

21 character to the extent allocated on the basis of 

22 qualified capital interests in any upper-tier partner23 ship. 

24 ‘‘(5) EXCEPTION FOR NO-SELF-CHARGED

25 CARRY AND MANAGEMENT FEE PROVISIONS.—ExVerDate Sep 11 2014 20:06 Apr 24, 2024 Jkt 049200 PO 00000 Frm 00020 Fmt 6652 Sfmt 6201 E:\BILLS\S4123.IS S4123

ssavage on LAPJG3WLY3PROD with BILLS
21 

•S 4123 IS

1 cept as otherwise provided by the Secretary, an in2 terest shall not fail to be treated as satisfying the 

3 requirement of paragraph (1)(A) merely because the 

4 allocations made by the partnership to such interest 

5 do not reflect the cost of services described in sub6 section (c)(2) which are provided (directly or indi7 rectly) to the partnership by the holder of such in8 terest (or a related person). 

9 ‘‘(6) SPECIAL RULE FOR DISPOSITIONS.—In the 

10 case of any investment services partnership interest 

11 any portion of which is a qualified capital interest, 

12 subsection (b) shall not apply to so much of any 

13 gain or loss as bears the same proportion to the en14 tire amount of such gain or loss as— 

15 ‘‘(A) the distributive share of gain or loss 

16 that would have been allocated to the qualified 

17 capital interest (consistent with the require18 ments of paragraph (1)) if the partnership had 

19 sold all of its assets at fair market value imme20 diately before the disposition, bears to 

21 ‘‘(B) the distributive share of gain or loss 

22 that would have been so allocated to the invest23 ment services partnership interest of which such 

24 qualified capital interest is a part. 


ssavage on LAPJG3WLY3PROD with BILLS
22 

•S 4123 IS

1 ‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur2 poses of this section— 

3 ‘‘(A) IN GENERAL.—The term ‘qualified 

4 capital interest’ means so much of a partner’s 

5 interest in the capital of the partnership as is 

6 attributable to— 

7 ‘‘(i) the fair market value of any 

8 money or other property contributed to the 

9 partnership in exchange for such interest 

10 (determined without regard to section 

11 752(a)), 

12 ‘‘(ii) any amounts which have been in13 cluded in gross income under section 83 

14 with respect to the transfer of such inter15 est, and 

16 ‘‘(iii) the excess (if any) of— 

17 ‘‘(I) any items of income and 

18 gain taken into account under section 

19 702 with respect to such interest, over 

20 ‘‘(II) any items of deduction and 

21 loss so taken into account. 

22 ‘‘(B) ADJUSTMENT TO QUALIFIED CAPITAL

23 INTEREST.— 

24 ‘‘(i) DISTRIBUTIONS AND LOSSES.— 

25 The qualified capital interest shall be reVerDate Sep 11 2014 20:06 Apr 24, 2024 Jkt 049200 PO 00000 Frm 00022 Fmt 6652 Sfmt 6201 E:\BILLS\S4123.IS S4123

ssavage on LAPJG3WLY3PROD with BILLS
23 

•S 4123 IS

1 duced by distributions from the partner2 ship with respect to such interest and by 

3 the excess (if any) of the amount described 

4 in subparagraph (A)(iii)(II) over the 

5 amount described in subparagraph 

6 (A)(iii)(I). 

7 ‘‘(ii) SPECIAL RULE FOR CONTRIBU8 TIONS OF PROPERTY.—In the case of any 

9 contribution of property described in sub10 paragraph (A)(i) with respect to which the 

11 fair market value of such property is not 

12 equal to the adjusted basis of such prop13 erty immediately before such contribution, 

14 proper adjustments shall be made to the 

15 qualified capital interest to take into ac16 count such difference consistent with such 

17 regulations or other guidance as the Sec18 retary may provide. 

19 ‘‘(C) MERGERS, CONSOLIDATIONS, ETC., 

20 DISREGARDED.—No increase or decrease in the 

21 qualified capital interest of any partner shall re22 sult from a merger, consolidation, or division 

23 described in section 708, or any similar trans24 action. 

25 ‘‘(8) TREATMENT OF CERTAIN LOANS.— 


ssavage on LAPJG3WLY3PROD with BILLS
24 

•S 4123 IS

1 ‘‘(A) PROCEEDS OF PARTNERSHIP LOANS

2 NOT TREATED AS QUALIFIED CAPITAL INTER3 EST OF SERVICE PROVIDING PARTNERS.—For 

4 purposes of this subsection, an investment serv5 ices partnership interest shall not be treated as 

6 a qualified capital interest to the extent that 

7 such interest is acquired in connection with the 

8 proceeds of any loan or other advance made or 

9 guaranteed, directly or indirectly, by any other 

10 partner or the partnership (or any person re11 lated to any such other partner or the partner12 ship). The preceding sentence shall not apply to 

13 the extent the loan or other advance is repaid 

14 before the date of the enactment of this section 

15 unless such repayment is made with the pro16 ceeds of a loan or other advance described in 

17 the preceding sentence. 

18 ‘‘(B) REDUCTION IN ALLOCATIONS TO

19 QUALIFIED CAPITAL INTERESTS FOR LOANS

20 FROM NONSERVICE-PROVIDING PARTNERS TO

21 THE PARTNERSHIP.—For purposes of this sub22 section, any loan or other advance to the part23 nership made or guaranteed, directly or indi24 rectly, by a partner not providing services de25 scribed in subsection (c)(2) to the partnership 


ssavage on LAPJG3WLY3PROD with BILLS
25 

•S 4123 IS

1 (or any person related to such partner) shall be 

2 taken into account in determining the qualified 

3 capital interests of the partners in the partner4 ship. 

5 ‘‘(9) SPECIAL RULE FOR QUALIFIED FAMILY

6 PARTNERSHIPS.— 

7 ‘‘(A) IN GENERAL.—In the case of any 

8 specified family partnership interest, paragraph 

9 (1)(A) shall be applied without regard to the 

10 phrase ‘and who are not related to the partner 

11 holding the qualified capital interest’. 

12 ‘‘(B) SPECIFIED FAMILY PARTNERSHIP IN13 TEREST.—For purposes of this paragraph, the 

14 term ‘specified family partnership interest’ 

15 means any investment services partnership in16 terest if— 

17 ‘‘(i) such interest is an interest in a 

18 qualified family partnership, 

19 ‘‘(ii) such interest is held by a natural 

20 person or by a trust with respect to which 

21 each beneficiary is a grantor or a person 

22 whose relationship to the grantor is de23 scribed in section 267(b)(1), and 

24 ‘‘(iii) all other interests in such quali25 fied family partnership with respect to 


ssavage on LAPJG3WLY3PROD with BILLS
26 

•S 4123 IS

1 which significant allocations are made 

2 (within the meaning of paragraph (1)(B) 

3 and in comparison to the allocations made 

4 to the interest described in clause (ii)) are 

5 held by persons who— 

6 ‘‘(I) are related to the natural 

7 person or trust referred to in clause 

8 (ii), or 

9 ‘‘(II) provide services described 

10 in subsection (c)(2). 

11 ‘‘(C) QUALIFIED FAMILY PARTNERSHIP.— 

12 For purposes of this paragraph, the term 

13 ‘qualified family partnership’ means any part14 nership if— 

15 ‘‘(i) all of the capital and profits in16 terests of such partnership are held by— 

17 ‘‘(I) specified family members, 

18 ‘‘(II) any person closely related 

19 (within the meaning of subsection 

20 (c)(3)(C)(ii)) to a specified family 

21 member, or 

22 ‘‘(III) any other person (not de23 scribed in subclause (I) or (II)) if 

24 such interest is an investment services 


ssavage on LAPJG3WLY3PROD with BILLS
27 

•S 4123 IS

1 partnership interest with respect to 

2 such person, and 

3 ‘‘(ii) such partnership does not hold 

4 itself out to the public as an investment 

5 advisor. 

6 ‘‘(D) SPECIFIED FAMILY MEMBERS.—For 

7 purposes of subparagraph (C), individuals shall 

8 be treated as specified family members if such 

9 individuals would be treated as one person 

10 under the rules of section 1361(c)(1) if the ap11 plicable date (within the meaning of subpara12 graph (B)(iii) thereof) were the latest of— 

13 ‘‘(i) the date of the establishment of 

14 the partnership, 

15 ‘‘(ii) the earliest date that the com16 mon ancestor holds a capital or profits in17 terest in the partnership, or 

18 ‘‘(iii) the date of the enactment of this 

19 section. 

20 ‘‘(e) OTHER INCOME AND GAIN IN CONNECTION

21 WITH INVESTMENT MANAGEMENT SERVICES.— 

22 ‘‘(1) IN GENERAL.—If— 

23 ‘‘(A) a person performs (directly or indi24 rectly) investment management services for any 


ssavage on LAPJG3WLY3PROD with BILLS
28 

•S 4123 IS

1 investment entity or special purpose acquisition 

2 company, 

3 ‘‘(B) such person holds (directly or indi4 rectly) a disqualified interest with respect to 

5 such entity or such company (as the case may 

6 be), and 

7 ‘‘(C) the value of such interest (or pay8 ments thereunder) is substantially related to 

9 the amount of income or gain (whether or not 

10 realized) from the assets with respect to which 

11 the investment management services are per12 formed, 

13 any income or gain with respect to such interest 

14 shall be treated as ordinary income. Rules similar to 

15 the rules of subsections (a)(5) and (d) shall apply 

16 for purposes of this subsection. 

17 ‘‘(2) DEFINITIONS.—For purposes of this sub18 section— 

19 ‘‘(A) DISQUALIFIED INTEREST.— 

20 ‘‘(i) IN GENERAL.—The term ‘dis21 qualified interest’ means, with respect to 

22 any investment entity— 

23 ‘‘(I) any interest in such entity 

24 other than indebtedness, 


ssavage on LAPJG3WLY3PROD with BILLS
29 

•S 4123 IS

1 ‘‘(II) convertible or contingent 

2 debt of such entity, 

3 ‘‘(III) any option or other right 

4 to acquire property described in sub5 clause (I) or (II), and 

6 ‘‘(IV) any derivative instrument 

7 entered into (directly or indirectly) 

8 with such entity or any investor in 

9 such entity. 

10 ‘‘(ii) EXCEPTIONS.—Such term shall 

11 not include— 

12 ‘‘(I) a partnership interest, 

13 ‘‘(II) except as provided by the 

14 Secretary, any interest in a taxable 

15 corporation (other than a special pur16 pose acquisition company), and 

17 ‘‘(III) except as provided by the 

18 Secretary, stock in an S corporation. 

19 ‘‘(B) TAXABLE CORPORATION.—The term 

20 ‘taxable corporation’ means— 

21 ‘‘(i) a domestic C corporation, or 

22 ‘‘(ii) a foreign corporation substan23 tially all of the income of which is— 


ssavage on LAPJG3WLY3PROD with BILLS
30 

•S 4123 IS

1 ‘‘(I) effectively connected with 

2 the conduct of a trade or business in 

3 the United States, or 

4 ‘‘(II) subject to a comprehensive 

5 foreign income tax (as defined in sec6 tion 457A(d)(2)). 

7 ‘‘(C) INVESTMENT MANAGEMENT SERV8 ICES.—The term ‘investment management serv9 ices’ means a substantial quantity of any of the 

10 services described in subsection (c)(2). 

11 ‘‘(D) INVESTMENT ENTITY.—The term ‘in12 vestment entity’ means any entity which, if it 

13 were a partnership, would be an investment 

14 partnership. 

15 ‘‘(E) SPECIAL PURPOSE ACQUISITION COM16 PANY.—The term ‘special purpose acquisition 

17 company’ means any corporation that— 

18 ‘‘(i) is formed for the purpose of ac19 quiring a privately held company, 

20 ‘‘(ii) is publicly traded on an estab21 lished securities market or its interests are 

22 readily tradable on a secondary market (or 

23 the substantial equivalent thereof), and 

24 ‘‘(iii) is required to report an acquisi25 tion under Item 2.01 or make a disclosure 


ssavage on LAPJG3WLY3PROD with BILLS
31 

•S 4123 IS

1 under Item 5.06 of Form 8-K (or any suc2 cessor form) with the Securities and Ex3 change Commission. 

4 ‘‘(f) EXCEPTION FOR DOMESTIC C CORPORATIONS.— 

5 Except as otherwise provided by the Secretary, in the case 

6 of a domestic C corporation (other than a special purpose 

7 acquisition company, as defined in subsection (e)(2)(E))— 

8 ‘‘(1) subsections (a) and (b) shall not apply to 

9 any item allocated to such corporation with respect 

10 to any investment services partnership interest (or 

11 to any gain or loss with respect to the disposition of 

12 such an interest), and 

13 ‘‘(2) subsection (e) shall not apply. 

14 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

15 such regulations or other guidance as is necessary or ap16 propriate to carry out the purposes of this section, includ17 ing regulations or other guidance to— 

18 ‘‘(1) require such reporting and recordkeeping 

19 by any person in such manner and at such time as 

20 the Secretary may prescribe for purposes of enabling 

21 the partnership to meet the requirements of section 

22 6031 with respect to any item described in section 

23 702(a)(9), 

24 ‘‘(2) provide modifications to the application of 

25 this section (including treating related persons as 


ssavage on LAPJG3WLY3PROD with BILLS
32 

•S 4123 IS

1 not related to one another) to the extent such modi2 fication is consistent with the purposes of this sec3 tion, 

4 ‘‘(3) prevent the avoidance of the purposes of 

5 this section (including through the use of qualified 

6 family partnerships), and 

7 ‘‘(4) coordinate this section with the other pro8 visions of this title. 

9 ‘‘(h) CROSS REFERENCE.—For 40 percent penalty on 

10 certain underpayments due to the avoidance of this sec11 tion, see section 6662.’’. 

12 (b) APPLICATION OF SECTION 751 TO INDIRECT DIS13 POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN14 TERESTS.— 

15 (1) IN GENERAL.—Subsection (a) of section 

16 751 is amended by striking ‘‘or’’ at the end of para17 graph (1), by inserting ‘‘or’’ at the end of paragraph 

18 (2), and by inserting after paragraph (2) the fol19 lowing new paragraph: 

20 ‘‘(3) investment services partnership interests 

21 held by the partnership,’’. 

22 (2) CERTAIN DISTRIBUTIONS TREATED AS

23 SALES OR EXCHANGES.—Subparagraph (A) of sec24 tion 751(b)(1) is amended by striking ‘‘or’’ at the 

25 end of clause (i), by inserting ‘‘or’’ at the end of 


ssavage on LAPJG3WLY3PROD with BILLS
33 

•S 4123 IS

1 clause (ii), and by inserting after clause (ii) the fol2 lowing new clause: 

3 ‘‘(iii) investment services partnership 

4 interests held by the partnership,’’. 

5 (3) APPLICATION OF SPECIAL RULES IN THE

6 CASE OF TIERED PARTNERSHIPS.—Subsection (f) of 

7 section 751 is amended— 

8 (A) by striking ‘‘or’’ at the end of para9 graph (1), by inserting ‘‘or’’ at the end of para10 graph (2), and by inserting after paragraph (2) 

11 the following new paragraph: 

12 ‘‘(3) an investment services partnership interest 

13 held by the partnership,’’, and 

14 (B) by striking ‘‘partner.’’ and inserting 

15 ‘‘partner (other than a partnership in which it 

16 holds an investment services partnership inter17 est).’’. 

18 (4) INVESTMENT SERVICES PARTNERSHIP IN19 TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 

20 751 is amended by adding at the end the following 

21 new subsection: 

22 ‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER23 ESTS.—For purposes of this section— 


ssavage on LAPJG3WLY3PROD with BILLS
34 

•S 4123 IS

1 ‘‘(1) IN GENERAL.—The term ‘investment serv2 ices partnership interest’ has the meaning given 

3 such term by section 710(c). 

4 ‘‘(2) ADJUSTMENTS FOR QUALIFIED CAPITAL

5 INTERESTS.—The amount to which subsection (a) 

6 applies by reason of paragraph (3) thereof shall not 

7 include so much of such amount as is attributable 

8 to any portion of the investment services partnership 

9 interest which is a qualified capital interest (deter10 mined under rules similar to the rules of section 

11 710(d)). 

12 ‘‘(3) EXCEPTION FOR PUBLICLY TRADED PART13 NERSHIPS.—Except as otherwise provided by the 

14 Secretary, in the case of an exchange of an interest 

15 in a publicly traded partnership (as defined in sec16 tion 7704) to which subsection (a) applies— 

17 ‘‘(A) this section shall be applied without 

18 regard to subsections (a)(3), (b)(1)(A)(iii), and 

19 (f)(3), and 

20 ‘‘(B) such partnership shall be treated as 

21 owning its proportionate share of the property 

22 of any other partnership in which it is a part23 ner. 

24 ‘‘(4) RECOGNITION OF GAINS.—Any gain with 

25 respect to which subsection (a) applies by reason of 


ssavage on LAPJG3WLY3PROD with BILLS
35 

•S 4123 IS

1 paragraph (3) thereof shall be recognized notwith2 standing any other provision of this title. 

3 ‘‘(5) COORDINATION WITH INVENTORY

4 ITEMS.—An investment services partnership interest 

5 held by the partnership shall not be treated as an 

6 inventory item of the partnership. 

7 ‘‘(6) PREVENTION OF DOUBLE COUNTING.— 

8 Under regulations or other guidance prescribed by 

9 the Secretary, subsection (a)(3) shall not apply with 

10 respect to any amount to which section 710 applies. 

11 ‘‘(7) VALUATION METHODS.—The Secretary 

12 shall prescribe regulations or other guidance which 

13 provide the acceptable methods for valuing invest14 ment services partnership interests for purposes of 

15 this section.’’. 

16 (c) TREATMENT FOR PURPOSES OF SECTION

17 7704.—Subsection (d) of section 7704 is amended by add18 ing at the end the following new paragraph: 

19 ‘‘(6) INCOME FROM CERTAIN CARRIED INTER20 ESTS NOT QUALIFIED.— 

21 ‘‘(A) IN GENERAL.—Specified carried in22 terest income shall not be treated as qualifying 

23 income. 

24 ‘‘(B) SPECIFIED CARRIED INTEREST IN25 COME.—For purposes of this paragraph— 


ssavage on LAPJG3WLY3PROD with BILLS
36 

•S 4123 IS

1 ‘‘(i) IN GENERAL.—The term ‘speci2 fied carried interest income’ means— 

3 ‘‘(I) any item of income or gain 

4 allocated to an investment services 

5 partnership interest (as defined in 

6 section 710(c)) held by the partner7 ship, 

8 ‘‘(II) any gain on the disposition 

9 of an investment services partnership 

10 interest (as so defined) or a partner11 ship interest to which (in the hands of 

12 the partnership) section 751 applies, 

13 and 

14 ‘‘(III) any income or gain taken 

15 into account by the partnership under 

16 subsection (b)(4) or (e) of section 

17 710. 

18 ‘‘(ii) EXCEPTION FOR QUALIFIED CAP19 ITAL INTERESTS.—A rule similar to the 

20 rule of section 710(d) shall apply for pur21 poses of clause (i). 

22 ‘‘(C) COORDINATION WITH OTHER PROVI23 SIONS.—Subparagraph (A) shall not apply to 

24 any item described in paragraph (1)(E) (or so 


ssavage on LAPJG3WLY3PROD with BILLS
37 

•S 4123 IS

1 much of paragraph (1)(F) as relates to para2 graph (1)(E)). 

3 ‘‘(D) SPECIAL RULES FOR CERTAIN PART4 NERSHIPS.— 

5 ‘‘(i) CERTAIN PARTNERSHIPS OWNED

6 BY REAL ESTATE INVESTMENT TRUSTS.— 

7 Subparagraph (A) shall not apply in the 

8 case of a partnership which meets each of 

9 the following requirements: 

10 ‘‘(I) Such partnership is treated 

11 as publicly traded under this section 

12 solely by reason of interests in such 

13 partnership being convertible into in14 terests in a real estate investment 

15 trust which is publicly traded. 

16 ‘‘(II) Fifty percent or more of 

17 the capital and profits interests of 

18 such partnership are owned, directly 

19 or indirectly, at all times during the 

20 taxable year by such real estate in21 vestment trust (determined with the 

22 application of section 267(c)). 

23 ‘‘(III) Such partnership meets 

24 the requirements of paragraphs (2), 

25 (3), and (4) of section 856(c). 


ssavage on LAPJG3WLY3PROD with BILLS
38 

•S 4123 IS

1 ‘‘(ii) CERTAIN PARTNERSHIPS OWN2 ING OTHER PUBLICLY TRADED PARTNER3 SHIPS.—Subparagraph (A) shall not apply 

4 in the case of a partnership which meets 

5 each of the following requirements: 

6 ‘‘(I) Substantially all of the as7 sets of such partnership consist of in8 terests in one or more publicly traded 

9 partnerships (determined without re10 gard to subsection (b)(2)). 

11 ‘‘(II) Substantially all of the in12 come of such partnership is ordinary 

13 income or section 1231 gain (as de14 fined in section 1231(a)(3)). 

15 ‘‘(E) TRANSITIONAL RULE.—Subpara16 graph (A) shall not apply to any taxable year 

17 of the partnership beginning before the date 

18 which is 10 years after the date of the enact19 ment of this paragraph.’’. 

20 (d) IMPOSITION OF PENALTY ON UNDERPAY21 MENTS.— 

22 (1) IN GENERAL.—Subsection (b) of section 

23 6662 is amended by inserting after paragraph (10) 

24 the following new paragraph: 


ssavage on LAPJG3WLY3PROD with BILLS
39 

•S 4123 IS

1 ‘‘(11) The application of section 710(e) or the 

2 regulations or other guidance prescribed under sec3 tion 710(g) to prevent the avoidance of the purposes 

4 of section 710.’’. 

5 (2) AMOUNT OF PENALTY.— 

6 (A) IN GENERAL.—Section 6662 is amend7 ed by adding at the end the following new sub8 section: 

9 ‘‘(m) INCREASE IN PENALTY IN CASE OF PROPERTY

10 TRANSFERRED FOR INVESTMENT MANAGEMENT SERV11 ICES.—In the case of any portion of an underpayment to 

12 which this section applies by reason of subsection (b)(10), 

13 subsection (a) shall be applied with respect to such portion 

14 by substituting ‘40 percent’ for ‘20 percent’.’’. 

15 (B) CONFORMING AMENDMENT.—Subpara16 graph (B) of section 6662A(e)(2) is amended 

17 by striking ‘‘or (i)’’ and inserting ‘‘, (i), or 

18 (m)’’. 

19 (3) SPECIAL RULES FOR APPLICATION OF REA20 SONABLE CAUSE EXCEPTION.—Subsection (c) of sec21 tion 6664 is amended— 

22 (A) by redesignating paragraphs (3) and 

23 (4) as paragraphs (4) and (5), respectively; 


ssavage on LAPJG3WLY3PROD with BILLS
40 

•S 4123 IS

1 (B) by striking ‘‘paragraph (3)’’ in para2 graph (5)(A), as so redesignated, and inserting 

3 ‘‘paragraph (4)’’; and 

4 (C) by inserting after paragraph (2) the 

5 following new paragraph: 

6 ‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT7 TRIBUTABLE TO INVESTMENT MANAGEMENT SERV8 ICES.— 

9 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

10 not apply to any portion of an underpayment to 

11 which section 6662 applies by reason of sub12 section (b)(11) unless— 

13 ‘‘(i) the relevant facts affecting the 

14 tax treatment of the item are adequately 

15 disclosed, 

16 ‘‘(ii) there is or was substantial au17 thority for such treatment, and 

18 ‘‘(iii) the taxpayer reasonably believed 

19 that such treatment was more likely than 

20 not the proper treatment. 

21 ‘‘(B) RULES RELATING TO REASONABLE

22 BELIEF.—Rules similar to the rules of sub23 section (d)(4) shall apply for purposes of sub24 paragraph (A)(iii).’’. 


ssavage on LAPJG3WLY3PROD with BILLS
41 

•S 4123 IS

1 (e) INCOME AND LOSS FROM INVESTMENT SERVICES

2 PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE3 TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 

4 (1) INTERNAL REVENUE CODE.— 

5 (A) IN GENERAL.—Section 1402(a) is 

6 amended by striking ‘‘and’’ at the end of para7 graph (16), by striking the period at the end of 

8 paragraph (17) and inserting ‘‘; and’’, and by 

9 inserting after paragraph (17) the following 

10 new paragraph: 

11 ‘‘(18) notwithstanding the preceding provisions 

12 of this subsection, in the case of any individual en13 gaged in the trade or business of providing services 

14 described in section 710(c)(2) with respect to any 

15 entity, investment services partnership income or 

16 loss (as defined in subsection (m)) of such individual 

17 with respect to such entity shall be taken into ac18 count in determining the net earnings from self-em19 ployment of such individual.’’. 

20 (B) INVESTMENT SERVICES PARTNERSHIP

21 INCOME OR LOSS.—Section 1402 is amended by 

22 adding at the end the following new subsection: 

23 ‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME

24 OR LOSS.—For purposes of subsection (a)— 


ssavage on LAPJG3WLY3PROD with BILLS
42 

•S 4123 IS

1 ‘‘(1) IN GENERAL.—The term ‘investment serv2 ices partnership income or loss’ means, with respect 

3 to any investment services partnership interest (as 

4 defined in section 710(c)) or disqualified interest (as 

5 defined in section 710(e)), the net of— 

6 ‘‘(A) the amounts treated as ordinary in7 come or ordinary loss under subsections (b) and 

8 (e) of section 710 with respect to such interest, 

9 ‘‘(B) all items of income, gain, loss, and 

10 deduction allocated to such interest, and 

11 ‘‘(C) the amounts treated as realized from 

12 the sale or exchange of property other than a 

13 capital asset under section 751 with respect to 

14 such interest. 

15 ‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN16 TERESTS.—A rule similar to the rule of section 

17 710(d) shall apply for purposes of applying para18 graph (1)(B).’’. 

19 (2) SOCIAL SECURITY ACT.—Section 211(a) of 

20 the Social Security Act is amended by striking 

21 ‘‘and’’ at the end of paragraph (15), by striking the 

22 period at the end of paragraph (16) and inserting ‘‘; 

23 and’’, and by inserting after paragraph (16) the fol24 lowing new paragraph: 


ssavage on LAPJG3WLY3PROD with BILLS
43 

•S 4123 IS

1 ‘‘(17) Notwithstanding the preceding provisions 

2 of this subsection, in the case of any individual en3 gaged in the trade or business of providing services 

4 described in section 710(c)(2) of the Internal Rev5 enue Code of 1986 with respect to any entity, invest6 ment services partnership income or loss (as defined 

7 in section 1402(m) of such Code) shall be taken into 

8 account in determining the net earnings from self9 employment of such individual.’’. 

10 (f) SEPARATE ACCOUNTING BY PARTNER.—Section 

11 702(a) is amended by striking ‘‘and’’ at the end of para12 graph (7), by striking the period at the end of paragraph 

13 (8) and inserting ‘‘, and’’, and by inserting after para14 graph (8) the following: 

15 ‘‘(9) any amount treated as ordinary income or 

16 loss under subsection (a), (b), or (e) of section 

17 710.’’. 

18 (g) CONFORMING AMENDMENTS.— 

19 (1) Subsection (d) of section 731 is amended by 

20 inserting ‘‘section 710(b)(4) (relating to distribu21 tions of partnership property),’’ after ‘‘to the extent 

22 otherwise provided by’’. 

23 (2) Section 741 is amended by inserting ‘‘or 

24 section 710 (relating to special rules for partners 


ssavage on LAPJG3WLY3PROD with BILLS
44 

•S 4123 IS

1 providing investment management services to part2 nerships)’’ before the period at the end. 

3 (3) The table of sections for part I of sub4 chapter K of chapter 1 is amended by adding at the 

5 end the following new item: 

‘‘Sec. 710. Special rules for partners providing investment management services 

to partnerships.’’. 

6 (4)(A) Part IV of subchapter O of chapter 1 is 

7 amended by striking section 1061. 

8 (B) The table of sections for part IV of sub9 chapter O of chapter 1 is amended by striking the 

10 item relating to section 1061. 

11 (h) EFFECTIVE DATE.— 

12 (1) IN GENERAL.—Except as otherwise pro13 vided in this subsection, the amendments made by 

14 this section shall apply to taxable years ending after 

15 the date of the enactment of this Act. 

16 (2) PARTNERSHIP TAXABLE YEARS WHICH IN17 CLUDE EFFECTIVE DATE.—In applying section 

18 710(a) of the Internal Revenue Code of 1986 (as 

19 added by this section) in the case of any partnership 

20 taxable year which includes the date of the enact21 ment of this Act, the amount of the net capital gain 

22 referred to in such section shall be treated as being 

23 the lesser of the net capital gain for the entire part24 nership taxable year or the net capital gain deterVerDate Sep 11 2014 20:06 Apr 24, 2024 Jkt 049200 PO 00000 Frm 00044 Fmt 6652 Sfmt 6201 E:\BILLS\S4123.IS S4123

ssavage on LAPJG3WLY3PROD with BILLS
45 

•S 4123 IS

1 mined by only taking into account items attributable 

2 to the portion of the partnership taxable year which 

3 is after such date. 

4 (3) DISPOSITIONS OF PARTNERSHIP INTER5 ESTS.— 

6 (A) IN GENERAL.—Section 710(b) of such 

7 Code (as added by this section) shall apply to 

8 dispositions and distributions after the date of 

9 the enactment of this Act. 

10 (B) INDIRECT DISPOSITIONS.—The amend11 ments made by subsection (b) shall apply to 

12 transactions after the date of the enactment of 

13 this Act. 

14 (4) OTHER INCOME AND GAIN IN CONNECTION

15 WITH INVESTMENT MANAGEMENT SERVICES.—Sec16 tion 710(e) of such Code (as added by this section) 

17 shall take effect on the date of the enactment of this 

18 Act. 

Æ 


ssavage on LAPJG3WLY3PROD with BILLS