II 

117TH CONGRESS 

1ST SESSION S. 2617 

To amend the Internal Revenue Code of 1986 to revise the treatment of 

partnership interests received in connection with the performance of 

services, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

AUGUST 5, 2021 

Mr. WYDEN (for himself and Mr. WHITEHOUSE) 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 revise 

the treatment of partnership interests received in connection with the performance of services, and for other 

purposes. 

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. 

4 This Act may be cited as the ‘‘Ending the Carried 

5 Interest Loophole Act’’. 


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1 SEC. 2. PARTNERSHIP INTERESTS TRANSFERRED IN CON2 NECTION WITH PERFORMANCE OF SERVICES. 

3 (a) MODIFICATION OF ELECTION TO INCLUDE PART4 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

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

6 redesignating paragraph (4) as paragraph (5) and by in7 serting after paragraph (3) the following new paragraph: 

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

9 provided by the Secretary— 

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

11 transfer of an interest in a partnership in con12 nection with the performance of services— 

13 ‘‘(i) the fair market value of such in14 terest shall be treated for purposes of this 

15 section as being equal to the amount which 

16 the partner would receive if the partner17 ship sold (at the time of the transfer) all 

18 of its assets for cash at their fair market 

19 value in a fully taxable transaction and 

20 distributed the proceeds of such sale (re21 duced by the liabilities of the partnership) 

22 to its partners in complete liquidation, and 

23 ‘‘(ii) the person receiving such interest 

24 shall be treated as having made the elec25 tion under subsection (b)(1) unless such 


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1 person makes an election under this para2 graph to have such subsection not apply. 

3 ‘‘(B) COORDINATION WITH OTHER PART4 NERSHIP RULES.—Except as otherwise provided 

5 by the Secretary, if, by reason of subparagraph 

6 (A), subsection (b)(1) applies to a partnership 

7 interest transferred to a person, then the 

8 amount included in the gross income of such 

9 person by reason of such subsection shall (at 

10 the time of the transfer)— 

11 ‘‘(i) be treated as an addition to the 

12 capital account of such person with respect 

13 to such partnership for purposes of sub14 chapter K, and 

15 ‘‘(ii) if such interest is an applicable 

16 partnership interest under section 1299 at 

17 any time, be treated as invested capital of 

18 such person with respect to such interest 

19 for purposes of such section. 

20 ‘‘(C) ELECTION.—The election under sub21 paragraph (A)(ii) shall be made under rules 

22 similar to the rules of subsection (b)(2). 

23 ‘‘(D) PARTNERSHIP INTEREST.— 

24 ‘‘(i) IN GENERAL.—For purposes of 

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1 strument or contract (as defined in section 

2 1299(b)(2)(B)) or interest in an entity 

3 other than a partnership which is treated 

4 as an applicable partnership interest under 

5 section 1299(b)(2) shall be treated as an 

6 interest in a partnership. 

7 ‘‘(ii) REGULATIONS.—The Secretary 

8 shall prescribe such regulations or other 

9 guidance as the Secretary determines nec10 essary or appropriate to carry out this 

11 paragraph, including regulations for the 

12 application of this paragraph to applicable 

13 financial instruments or contracts (as so 

14 defined) or interests in entities other than 

15 partnerships which are treated as partner16 ship interests under clause (i).’’. 

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

18 this section shall apply to interests in partnerships trans19 ferred after the date of the enactment of this Act. 

20 SEC. 3. TREATMENT OF CERTAIN PARTNERSHIP INTER21 ESTS RECEIVED IN CONNECTION WITH PER22 FORMANCE OF SERVICES. 

23 (a) IN GENERAL.—Subchapter P of chapter 1 of the 

24 Internal Revenue Code of 1986 is amended by adding at 

25 the end the following new part: 


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1 ‘‘PART VII—TREATMENT OF CERTAIN PARTNER2 SHIP INTERESTS RECEIVED IN CONNECTION 

3 WITH PERFORMANCE OF SERVICES 

‘‘Sec. 1299. Treatment of certain partnership interests received in connection 

with performance of services. 

4 ‘‘SEC. 1299. TREATMENT OF CERTAIN PARTNERSHIP INTER5 ESTS RECEIVED IN CONNECTION WITH PER6 FORMANCE OF SERVICES. 

7 ‘‘(a) IN GENERAL.—In the case of a taxpayer who 

8 holds 1 or more applicable partnership interests in any 

9 partnership at any time during any taxable year of the 

10 partnership ending with or within the taxable year of the 

11 taxpayer— 

12 ‘‘(1) there shall be included in the gross income 

13 of the taxpayer as ordinary income an amount equal 

14 to the aggregate of the deemed compensation 

15 amounts determined under subsection (c) with re16 spect to such interests in all partnerships, and 

17 ‘‘(2) the taxpayer shall be treated as having for 

18 such taxable year of the taxpayer a long-term capital 

19 loss equal to the aggregate of such deemed com20 pensation amounts. 

21 ‘‘(b) APPLICABLE PARTNERSHIP INTEREST.—For 

22 purposes of this section— 


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1 ‘‘(1) IN GENERAL.—Except as provided in this 

2 subsection, the term ‘applicable partnership interest’ 

3 means any interest in a partnership which— 

4 ‘‘(A) is directly or indirectly transferred to 

5 (or held by) the taxpayer in connection with the 

6 performance of services by the taxpayer, or any 

7 other person, in any applicable trade or busi8 ness, or 

9 ‘‘(B) is held by a taxpayer who received an 

10 applicable loan. 

11 Such term shall not include any interest which is ac12 quired pursuant to a sale or disposition to which 

13 subsection (c)(5) applies. 

14 ‘‘(2) DETERMINATION OF INTEREST IN A PART15 NERSHIP.— 

16 ‘‘(A) IN GENERAL.—For purposes of para17 graph (1), the term ‘interest in a partnership’ 

18 includes— 

19 ‘‘(i) any applicable financial instru20 ment or contract, or 

21 ‘‘(ii) to the extent provided by the 

22 Secretary, any interest in an entity other 

23 than a partnership if such interest would 

24 be treated as an applicable partnership in25 terest if such entity were a partnership. 


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1 ‘‘(B) APPLICABLE FINANCIAL INSTRUMENT

2 OR CONTRACT.—For purposes of this para3 graph— 

4 ‘‘(i) IN GENERAL.—The term ‘applica5 ble financial instrument or contract’ means 

6 any financial instrument or contract the 

7 value of which is determined in whole or in 

8 part by reference to any partnership or 

9 partnership-related item (including the 

10 amount of partnership distributions, the 

11 value of partnership assets, or the results 

12 of partnership operations). 

13 ‘‘(ii) EXCEPTION FOR NON-CONVERT14 IBLE DEBT.—Such term shall not include 

15 a financial instrument or contract if such 

16 instrument or contract— 

17 ‘‘(I) is treated as debt for Fed18 eral tax purposes, and 

19 ‘‘(II) is not convertible into or 

20 exchangeable for any partnership in21 terest and does not provide for a pay22 ment of similar or equivalent value. 

23 ‘‘(3) APPLICABLE TRADE OR BUSINESS.— 

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1)(A), the term ‘applicable trade or 


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1 business’ means any activity conducted on a 

2 regular, continuous, and substantial basis 

3 which, regardless of whether the activity is con4 ducted in one or more entities, consists, in 

5 whole or in part, of— 

6 ‘‘(i) raising or returning capital, and 

7 ‘‘(ii) either— 

8 ‘‘(I) investing in (including ac9 quiring or disposing of) specified as10 sets (or identifying specified assets for 

11 such investing, acquisition, or disposi12 tion), or 

13 ‘‘(II) developing specified assets. 

14 ‘‘(B) SPECIFIED ASSETS.— 

15 ‘‘(i) IN GENERAL.—The term ‘speci16 fied assets’ means securities, commodities, 

17 real estate held for rental or investment, 

18 cash or cash equivalents, options or deriva19 tive contracts with respect to any of the 

20 foregoing, and an interest in a partnership 

21 if such partnership has a direct or indirect 

22 interest in any of the foregoing. 

23 ‘‘(ii) SECURITIES.—For purposes of 

24 clause (i), the term ‘securities’ has the 


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1 meaning given such term under section 

2 475(c)(2), determined— 

3 ‘‘(I) by applying subparagraph 

4 (B) thereof without regard to whether 

5 the partnership or trust is widely held 

6 or publicly traded, and 

7 ‘‘(II) without regard to the last 

8 sentence thereof. 

9 ‘‘(iii) COMMODITIES.—For purposes 

10 of clause (i), the term ‘commodities’ has 

11 the meaning given such term under section 

12 475(e)(2), except that such term shall not 

13 include commodities held in connection 

14 with the active conduct of a commodities 

15 business as a producer, processor, mer16 chant, or handler of commodities. 

17 ‘‘(4) APPLICABLE LOAN.— 

18 ‘‘(A) IN GENERAL.—The term ‘applicable 

19 loan’ means, with respect to any partnership in20 terest, any loan issued directly or indirectly 

21 from the partnership, any other partner of the 

22 partnership, or any person related to such other 

23 partner or such partnership. 

24 ‘‘(B) SAFE HARBOR.—The term ‘applicable 

25 loan’ does not include any loan which— 


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1 ‘‘(i) is fully recourse to the borrower 

2 or fully secured by the borrower’s assets, 

3 and 

4 ‘‘(ii) requires payments of interest 

5 with a stated rate not less than the speci6 fied rate determined under subsection 

7 (c)(2). 

8 ‘‘(c) DEEMED COMPENSATION AMOUNT.—For pur9 poses of this section— 

10 ‘‘(1) DEEMED COMPENSATION AMOUNT.— 

11 ‘‘(A) IN GENERAL.—The term ‘deemed 

12 compensation amount’ means, with respect to 

13 any applicable partnership interest for any 

14 partnership taxable year, an amount equal to 

15 the product of— 

16 ‘‘(i) the specified rate determined 

17 under paragraph (2) for the calendar year 

18 in which such taxable year begins, multi19 plied by 

20 ‘‘(ii) the excess (if any) of— 

21 ‘‘(I) an amount equal to the ap22 plicable percentage of the weighted 

23 average of the aggregate of invested 

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1 ship on each measurement date occur2 ring within such taxable year, over 

3 ‘‘(II) the weighted average of in4 vested capital with respect to the ap5 plicable partnership interest on each 

6 measurement date occurring within 

7 such taxable year. 

8 ‘‘(B) MEASUREMENT DATE.—For purposes 

9 of subparagraph (A), the term ‘measurement 

10 date’ means— 

11 ‘‘(i) the last day of the partnership 

12 taxable year, 

13 ‘‘(ii) any date specified in the regula14 tions under subchapter K as a date on 

15 which to revalue property of the partner16 ship for purposes of adjusting capital ac17 counts of the partner (without regard to 

18 whether the partnership capital accounts 

19 are adjusted on that date), and 

20 ‘‘(iii) any other date specified by the 

21 Secretary. 

22 ‘‘(2) SPECIFIED RATE.—The term ‘specified 

23 rate’ means, with respect to any calendar year, a 

24 percentage equal to the sum of— 


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1 ‘‘(A) the first segment rate (as defined in 

2 section 430(h)(2)(C)(i)) for the first month of 

3 such calendar year, plus 

4 ‘‘(B) 9 percentage points. 

5 ‘‘(3) APPLICABLE PERCENTAGE.— 

6 ‘‘(A) IN GENERAL.—The term ‘applicable 

7 percentage’ means, with respect to any applica8 ble partnership interest, the highest percentage 

9 of profits of the partnership which could be al10 located to such interest (consistent with the 

11 partnership agreement and determined as if all 

12 performance targets with respect to such inter13 est had been met). 

14 ‘‘(B) SECRETARIAL AUTHORITY.—The Sec15 retary shall prescribe rules for the determina16 tion of the applicable percentage in cases in 

17 which the percentage of profits of a partnership 

18 which may be allocated to the applicable part19 nership interest under the partnership agree20 ment may temporarily exceed the highest per21 centage determined under subparagraph (A). 

22 ‘‘(4) INVESTED CAPITAL.— 

23 ‘‘(A) IN GENERAL.—The term ‘invested 

24 capital’ means, with respect to any partner as 

25 of any day, the excess of— 


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1 ‘‘(i) the sum of— 

2 ‘‘(I) the total cumulative value, 

3 determined at the time of contribu4 tion, of all money or other property 

5 contributed by the partner to the 

6 partnership on or before such day (net 

7 of any liabilities the partnership is 

8 considered to assume or take subject 

9 to), plus 

10 ‘‘(II) the aggregate amounts of 

11 the partner’s distributive share of in12 come and gain as of such day, over 

13 ‘‘(ii) the sum of— 

14 ‘‘(I) the aggregate value, deter15 mined at the time of distribution, of 

16 all money or other property distrib17 uted to the partner from the partner18 ship on or before such day (net of any 

19 liabilities the partner is considered to 

20 assume or take subject to), plus 

21 ‘‘(II) the aggregate amount of 

22 the partner’s distributive share of loss 

23 and deductions of the partnership as 

24 of such day. 

25 ‘‘(B) SPECIAL RULES.— 


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1 ‘‘(i) IN GENERAL.—For purposes of 

2 subparagraph (A), invested capital shall be 

3 determined— 

4 ‘‘(I) without regard to amounts 

5 considered as a contribution of money 

6 or as a distribution of money by rea7 son of subsection (a) or (B) of section 

8 752, and 

9 ‘‘(II) without regard to income 

10 required to be recognized by a con11 tributing partner under section 704(c) 

12 with respect to property described in 

13 subparagraph (A)(i)(I). 

14 ‘‘(ii) ADJUSTMENTS.—The Secretary 

15 may provide for rules making such adjust16 ments as the Secretary determines nec17 essary to the determination of invested 

18 capital under subparagraph (A) in order to 

19 carry out the purposes of this section. 

20 ‘‘(C) TREATMENT OF BORROWINGS FROM

21 PARTNERSHIPS OR OTHER PARTNERS.—For 

22 purposes of paragraph (1)(A), the amount of 

23 invested capital with respect to any applicable 

24 partnership interest shall be reduced by the 


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1 amount of any applicable loan to a partner who 

2 is described in subsection (b)(1)(B). 

3 ‘‘(5) ACCELERATED INCLUSION IN CASE OF

4 DISPOSITION OF APPLICABLE PARTNERSHIP INTER5 EST.— 

6 ‘‘(A) IN GENERAL.—If a taxpayer who 

7 holds an applicable partnership interest sells or 

8 disposes of any portion of such interest during 

9 a taxable year in the applicable period, the 

10 amount determined under this subsection for 

11 such taxable year shall be the sum of— 

12 ‘‘(i) the amount determined under 

13 paragraph (1) for the taxable year (deter14 mined as if no such sale or disposition had 

15 occurred), plus 

16 ‘‘(ii) an amount equal to the product 

17 of— 

18 ‘‘(I) the excess of the amount de19 termined under clause (i) over the 

20 amount determined under paragraph 

21 (1) for the taxable year, and 

22 ‘‘(II) the number of taxable years 

23 beginning after the date of the sale or 

24 disposition and before the last day of 

25 the applicable period. 


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1 ‘‘(B) APPLICABLE PERIOD.—For purposes 

2 of this paragraph, the applicable period is the 

3 10-year period beginning on the later of— 

4 ‘‘(i) the date the taxpayer acquired 

5 the applicable partnership interest, or 

6 ‘‘(ii) the last date described in para7 graph (1)(B)(ii) on which there was an in8 crease in the amount of the taxpayers ap9 plicable percentage of the aggregate in10 vested capital of all partners of the part11 nership. 

12 ‘‘(6) MULTIPLE INTERESTS.—If at any time 

13 during a taxable year a taxpayer holds directly or in14 directly more than 1 applicable partnership interest 

15 in a single partnership, such interests shall be treat16 ed as 1 applicable partnership interest for purposes 

17 of applying this subsection. 

18 ‘‘(d) RELATED PERSON.—For purposes of this sec19 tion, a person shall be treated as related to another person 

20 if the relationship between such persons would be de21 scribed in section 267(b) or 707(b). 

22 ‘‘(e) REPORTING.—A partnership shall report to the 

23 Secretary, and include with the information required to 

24 be furnished under section 6031(b) to each partner, the 

25 amount of the partner’s deemed compensation amount for 


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1 the taxable year, if any. A similar rule applies to any enti2 ty that receives a report of a deemed compensation 

3 amount for the taxable year. 

4 ‘‘(f) REGULATIONS.—The Secretary shall issue such 

5 regulations or other guidance as necessary to carry out 

6 this section, including regulations— 

7 ‘‘(1) to prevent the abuse of the purposes of 

8 this section, including through— 

9 ‘‘(A) the allocation of income to tax indif10 ferent parties, or 

11 ‘‘(B) a reduction or increase in the in12 vested capital of any partner (including at13 tempts to undervalue or overvalue property), 

14 ‘‘(2) which provide for the application of the 

15 rules of subsection (c) to applicable financial instru16 ments and contracts and to entities other than part17 nerships, 

18 ‘‘(3) which provide in appropriate circumstances 

19 for purposes of this section the aggregation of assets 

20 held by related partnerships or for the 

21 disaggregation of assets within 1 partnership, 

22 ‘‘(4) which provide for the application of this 

23 section in cases of tiered structures or entities, 


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1 ‘‘(5) which provide guidance with respect to for2 giveness of any loan described in subsection 

3 (b)(4)(B), and 

4 ‘‘(6) which provide rules for transfers or liq5 uidations of applicable partnership interests by gift, 

6 inheritance, substituted basis transactions, and other 

7 transactions in which income is not recognized at 

8 the time of the transaction.’’. 

9 (b) CONFORMING AMENDMENTS.— 

10 (1)(A) Part IV of subchapter O of chapter 1 of 

11 the Internal Revenue Code of 1986 is amended by 

12 striking section 1061. 

13 (B) The table of sections for part IV of sub14 chapter O of chapter 1 of such Code is amended by 

15 striking the item relating to section 1061. 

16 (2) The table of parts for subchapter P of such 

17 Code is amended by adding at the end the following 

18 new item: 

‘‘PART VII—TREATMENT OF CERTAIN PARTNERSHIP INTERESTS RECEIVED

IN CONNECTION WITH PERFORMANCE OF SERVICES’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years of a taxpayer be21 ginning after date of enactment of this Act, with or within 

22 which ends the taxable year of a partnership which begins 

23 after such date. 

Æ 


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