I 

116TH CONGRESS 

1ST SESSION H. R. 3848 

To require the Securities and Exchange Commission to issue rules requiring 

private funds to publicly disclose certain information, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 18, 2019 

Mr. POCAN (for himself, Ms. JAYAPAL, Mr. GARCI ́A of Illinois, Mr. GRIJALVA, 

Mr. KHANNA, Ms. LEE of California, Ms. PRESSLEY, Ms. SCHAKOWSKY, 

and Ms. TLAIB) introduced the following bill; which was referred to the 

Committee on Ways and Means, and in addition to the Committees on 

Financial Services, the Judiciary, and Education and Labor, for a period 

to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee 

concerned 

A BILL 

To require the Securities and Exchange Commission to issue 

rules requiring private funds to publicly disclose certain 

information, 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; TABLE OF CONTENTS. 

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

5 ‘‘Stop Wall Street Looting Act’’. 

6 (b) TABLE OF CONTENTS.—The table of contents for 

7 this Act is as follows: 


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Sec. 1. Short title; table of contents. 

Sec. 2. Findings. 

Sec. 3. Definitions. 

TITLE I—CORPORATE RESPONSIBILITY 

Sec. 101. Joint and several liability for controlling private funds. 

Sec. 102. Joint and several liability for holders of economic interests in controlling private funds. 

Sec. 103. Indemnification void as against public policy. 

TITLE II—ANTI-LOOTING 

Sec. 201. Limitations on post-acquisition dividends, distributions, redemptions, 

and buybacks. 

Sec. 202. Prevention of fraudulent transfers. 

Sec. 203. Surtax on certain amounts received by investment firms from controlled target firms. 

Sec. 204. Limitation on deduction for business interest of certain businesses 

owned by private funds. 

TITLE III—PROTECTING WORKERS WHEN COMPANIES GO 

BANKRUPT 

Sec. 301. Increased priority for wages. 

Sec. 302. Priority for severance pay and contributions to employee benefit 

plans. 

Sec. 303. Priority for violations of Federal and State laws. 

Sec. 304. Limitation on executive compensation enhancements. 

Sec. 305. Prohibition against special compensation payments. 

Sec. 306. Executive compensation upon exit from bankruptcy. 

Sec. 307. Collateral surcharge for employee obligations. 

Sec. 308. Voidability of preferential compensation transfers. 

Sec. 309. Protection for employees in a sale of assets. 

Sec. 310. Protection of gift card purchasers. 

Sec. 311. Commercial real estate. 

TITLE IV—CLOSING THE CARRIED INTEREST LOOPHOLE 

Sec. 401. Amendment of 1986 Code. 

Sec. 402. Partnership interests transferred in connection with performance of 

services. 

Sec. 403. Special rules for partners providing investment management services 

to partnerships. 

TITLE V—INVESTOR PROTECTION AND MARKET TRANSPARENCY 

Sec. 501. Disclosure of fees and returns. 

Sec. 502. Fiduciary obligations. 

Sec. 503. Disclosures relating to the marketing of private equity funds. 

TITLE VI—RESTRICTIONS ON SECURITIZING RISKY CORPORATE 

DEBT 

Sec. 601. Risk retention requirements for securitization of corporate debt. 

TITLE VII—MISCELLANEOUS 


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Sec. 701. Anti-evasion. 

Sec. 702. Severability. 

1 SEC. 2. FINDINGS. 

2 Congress finds the following: 

3 (1) During the 20-year period preceding the 

4 date of enactment of this Act, activity by private eq5 uity funds has exploded. 

6 (2) Millions of people in communities across the 

7 United States rely on companies that are owned by 

8 private equity funds, including almost 5,800,000 in9 dividuals who work for companies owned by those 

10 funds. For millions of additional individuals, a pri11 vate investment fund acts as a landlord, a lender, or 

12 an owner of a local grocery store, newspaper, or hos13 pital. Many pension funds are also investors in pri14 vate investment funds. 

15 (3) Private investment funds have taken con16 trolling stakes in companies in a wide variety of in17 dustries, including the financial services, real estate, 

18 media, and healthcare industries, but some of the 

19 largest impacts from private investment funds have 

20 been in the retail sector. In the 2 years preceding 

21 the date of enactment of this Act, cases have been 

22 commenced under title 11, United States Code, with 

23 respect to dozens of retailers in the United States, 

24 including Sears, Toys ‘‘R’’ Us, Shopko, Payless 


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1 ShoeSource, Charlotte Russe, Bon-Ton, Nine West, 

2 David’s Bridal, Claire’s, and Southeastern Grocers, 

3 which was the parent company for BI–LO and 

4 Winn-Dixie. 

5 (4) Private investment funds have also targeted 

6 entities that serve low-income or vulnerable popu7 lations, including affordable housing developments, 

8 for-profit colleges, payday lenders, medical providers, 

9 and nursing homes. 

10 (5) While private investment funds often pur11 port to take over struggling companies and make 

12 those companies viable, the opposite is often true. 

13 Leveraged buyouts impose enormous debt loads on 

14 otherwise viable companies and then strip those 

15 companies of assets, hobbling the operations of those 

16 companies and preventing them from making nec17 essary investments for future growth. If an invest18 ment goes well, the fund reaps most of the rewards, 

19 but if the investment does not go well, workers and 

20 customers of the company, and the community rely21 ing on the company, suffer. 

22 (6) Regardless of the performance of a private 

23 investment fund, the managers of the fund often 

24 make profits through fees, dividends, and other fi25 nancial engineering. Private funds should have a 


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1 stake in the outcome of their investments, enjoying 

2 returns if those investments are successful but ab3 sorbing losses if those investments fail. 

4 (7) When a case is commenced under title 11, 

5 United States Code, with respect to a portfolio com6 pany, workers not only lose jobs, but also lose wages 

7 and benefits that are owed, severance pay that has 

8 been promised, and pensions that have been earned. 

9 Workers should not be sent to the back of the line 

10 behind other creditors if, through no fault of those 

11 workers, an investment fails. 

12 (8) The performance of private investment 

13 funds is cloaked in secrecy. Those funds have full 

14 control over the information that the funds disclose 

15 to investors, which allows the funds to manufacture 

16 their own performance metrics and makes it difficult 

17 for an investor to compare the returns to other in18 vestment options. Funds also increasingly require in19 vestors to waive the fiduciary obligations applicable 

20 to the funds. Investors should have the information 

21 and bargaining power to take control over their own 

22 investments. 

23 (9) An increasing amount of risky debt is being 

24 introduced into the market and the quality of that 

25 debt is deteriorating, raising concerns with reguVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 lators and lawmakers about systemic risk. The insti2 tutions that make and securitize risky loans collect 

3 large fees and then pass on risk to unwitting inves4 tors. The financial system should not bear all of the 

5 risk while lenders and securitizers reap the rewards. 

6 (10) The Federal Government should— 

7 (A) protect workers, companies, con8 sumers, and investors in the United States; and 

9 (B) put an end to the practice of looting 

10 of economically viable companies for the enrich11 ment of private investment fund managers. 

12 SEC. 3. DEFINITIONS. 

13 In this Act: 

14 (1) AFFILIATE.—The term ‘‘affiliate’’ means— 

15 (A) a person that directly or indirectly 

16 owns, controls, or holds with power to vote, 20 

17 percent or more of the outstanding voting secu18 rities of another entity, other than a person 

19 that holds such securities— 

20 (i) in a fiduciary or agency capacity 

21 without sole discretionary power to vote 

22 such securities; or 

23 (ii) solely to secure a debt, if such en24 tity has not in fact exercised such power to 

25 vote; 


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1 (B) a corporation 20 percent or more of 

2 whose outstanding voting securities are directly 

3 or indirectly owned, controlled, or held with 

4 power to vote, by another entity (referred to in 

5 this subparagraph as a ‘‘covered entity’’), or by 

6 an entity that directly or indirectly owns, con7 trols, or holds with power to vote, 20 percent or 

8 more of the outstanding voting securities of the 

9 covered entity, other than an entity that holds 

10 such securities— 

11 (i) in a fiduciary or agency capacity 

12 without sole discretionary power to vote 

13 such securities; or 

14 (ii) solely to secure a debt, if such en15 tity has not in fact exercised such power to 

16 vote; 

17 (C) a person whose business is operated 

18 under a lease or operating agreement by an19 other entity, or person substantially all of whose 

20 property is operated under an operating agree21 ment with that other entity; or 

22 (D) an entity that operates the business or 

23 substantially all of the property of another enti24 ty under a lease or operating agreement. 


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1 (2) CAPITAL DISTRIBUTION.—The term ‘‘cap2 ital distribution’’ means— 

3 (A) a cash or share dividend; 

4 (B) a share repurchase; 

5 (C) a share redemption; 

6 (D) a share buyback; 

7 (E) a payment of interest or fee on a share 

8 of stock; and 

9 (F) any other transaction similar to a 

10 transaction described in subparagraphs (A) 

11 through (E). 

12 (3) CHANGE IN CONTROL.—The term ‘‘change 

13 in control’’ means a change of economic interest 

14 with respect to— 

15 (A) the power to vote more than 50 per 

16 centum of any class of voting securities of a 

17 corporation that engages in interstate com18 merce; or 

19 (B) any lesser per centum of any class of 

20 voting securities of a corporation that engages 

21 in interstate commerce that is sufficient to 

22 make the acquirer of such an interest a person 

23 that has the ability to direct the actions of that 

24 corporation. 


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1 (4) CHANGE IN CONTROL TRANSACTION.—The 

2 term ‘‘change in control transaction’’ means a trans3 action that effects a change in control. 

4 (5) COMMISSION.—The term ‘‘Commission’’ 

5 means the Securities and Exchange Commission. 

6 (6) CONTROL PERSON.—The term ‘‘control per7 son’’— 

8 (A) means— 

9 (i) a person— 

10 (I) that directly or indirectly 

11 owns, controls, or holds with power to 

12 vote, including through coordination 

13 with other persons, 20 percent or 

14 more of the outstanding voting inter15 ests of a target firm; or 

16 (II) that operates the business or 

17 substantially all of the property of a 

18 target firm under a lease or operating 

19 agreement; 

20 (ii) a corporation, other than a target 

21 firm, that has 20 percent or more of its 

22 outstanding voting interests directly or in23 directly owned, controlled, or held with 

24 power to vote by a person that directly or 

25 indirectly owns, controls, or holds with 


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1 power to vote, including through coordina2 tion with other persons, 20 percent or 

3 more of the outstanding voting interests of 

4 a target firm; and 

5 (iii) a person that otherwise has the 

6 ability to direct the actions of a target 

7 firm; and 

8 (B) does not include a person that— 

9 (i) holds the voting interests of a cor10 poration solely— 

11 (I) in a fiduciary or agency ca12 pacity without sole discretionary 

13 power to vote the securities; or 

14 (II) to secure a debt, if the per15 son has not exercised the power to 

16 vote; or 

17 (ii)(I) is a limited partner with respect 

18 to a person described in subparagraph (A) 

19 that is a partnership; and 

20 (II) does not participate in the direc21 tion of the management or policy of a cor22 poration. 

23 (7) CORPORATION.—The term ‘‘corporation’’ 

24 means— 

25 (A) a joint-stock company; 


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1 (B) a company or partnership association 

2 organized under a law that makes only the cap3 ital subscribed or callable up to a specified 

4 amount responsible for the debts of the associa5 tion, including a limited partnership and a lim6 ited liability company; 

7 (C) a trust; and 

8 (D) an association having a power or privi9 lege that a private corporation, but not an indi10 vidual or a partnership, possesses. 

11 (8) HOLDER OF AN ECONOMIC INTEREST.—The 

12 term ‘‘holder of an economic interest’’— 

13 (A) means a person that directly or indi14 rectly has an economic interest in a corporation 

15 or a right to participate in the governance of a 

16 corporation, without regard to the form or 

17 source of that interest or right; 

18 (B) if the economic interest described in 

19 subparagraph (A) is a security, does not in20 clude— 

21 (i) an individual who is engaged in 

22 business as an underwriter of securities 

23 and who acquires that security through the 

24 good faith participation of the individual in 

25 a firm commitment underwriting registered 


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1 under the Securities Act of 1933 (15 

2 U.S.C. 77b) until the date that is 40 days 

3 after the date on which that acquisition oc4 curs; or 

5 (ii) a member of a national securities 

6 exchange solely because that member is the 

7 record holder of that security and, under 

8 the rules of that exchange— 

9 (I) may direct the vote of that se10 curity, without instruction, on— 

11 (aa) other than contested 

12 matters; or 

13 (bb) matters that may sub14 stantially affect the rights or 

15 privileges of the holders of the 

16 security to be voted; and 

17 (II) is otherwise precluded from 

18 voting without instruction; and 

19 (C) does not include— 

20 (i) a person that holds an economic 

21 interest solely to secure a debt if that per22 son does not exercise any voting other gov23 ernance rights with respect to the interest; 

24 or 


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1 (ii) a person that is not an insider 

2 with respect to a control person. 

3 (9) INSIDER.—The term ‘‘insider’’ means any— 

4 (A) director of a corporation; 

5 (B) officer of a corporation; 

6 (C) managing agent of a corporation; 

7 (D) control person with respect to a cor8 poration; 

9 (E) affiliate of a corporation; 

10 (F) consultant or contractor retained by a 

11 corporation; 

12 (G) affiliate, relative, or agent of a person 

13 described in any of subparagraphs (A) through 

14 (E); and 

15 (H) affiliate, relative, or agent of a person 

16 described in subparagraph (G). 

17 (10) INVESTMENT ADVISER.—The term ‘‘in18 vestment adviser’’ has the meaning given the term 

19 in section 202(a) of the Investment Advisers Act of 

20 1940 (15 U.S.C. 80b–2(a)). 

21 (11) ISSUER.—The term ‘‘issuer’’ has the 

22 meaning given the term in section 3(a) of the Secu23 rities Exchange Act of 1934 (15 U.S.C. 78c(a)). 

24 (12) NATIONAL SECURITIES EXCHANGE.—The 

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1 change that is registered as a national securities ex2 change under section 6 of the Securities Exchange 

3 Act of 1934 (15 U.S.C. 78f). 

4 (13) PRIVATE FUND.—Except as otherwise ex5 pressly provided, the term ‘‘private fund’’— 

6 (A) means a company or partnership 

7 that— 

8 (i) would be considered an investment 

9 company under section 3 of the Investment 

10 Company Act of 1940 (15 U.S.C. 80a–3) 

11 but for the application of paragraph (1) or 

12 (7) of subsection (c) of such section 3; 

13 (ii) directly or through an affiliate, 

14 acts as a control person; and 

15 (iii) is not a venture capital fund, as 

16 defined in section 275.203(l)–1 of title 17, 

17 Code of Federal Regulations, as in effect 

18 on the date of enactment of this Act; and 

19 (B) does not include an institution selected 

20 under section 107 of the Community Develop21 ment Banking and Financial Institutions Act of 

22 1994 (12 U.S.C. 4706). 

23 (14) RELATIVE.—The term ‘‘relative’’ has the 

24 meaning given the term in section 101 of title 11, 

25 United States Code. 


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1 (15) TARGET FIRM.—The term ‘‘target firm’’ 

2 means a corporation that is acquired in a change in 

3 control transaction. 

4 TITLE I—CORPORATE 

5 RESPONSIBILITY 

6 SEC. 101. JOINT AND SEVERAL LIABILITY FOR CONTROL7 LING PRIVATE FUNDS. 

8 (a) IN GENERAL.—Notwithstanding any other provi9 sion of law, or the terms of any contract or agreement, 

10 a private fund shall be jointly and severally liable for all 

11 liabilities of each target firm with respect to the private 

12 fund, and any affiliate of such a target firm, including— 

13 (1) any debt incurred by the target firm or an 

14 affiliate of the target firm, including as part of the 

15 acquisition of the target firm by the private fund; 

16 (2) any Federal or State civil monetary penalty, 

17 or obligation under a settlement or consent order 

18 with a Federal or State governmental agency or in19 strumentality, including a consumer restitution obli20 gation, for which the target firm, or an affiliate of 

21 the target firm, is liable; 

22 (3) any liability resulting from a violation of 

23 section 3 of the Worker Adjustment and Retraining 

24 Notification Act (29 U.S.C. 2102) by the target firm 

25 or an affiliate of the target firm; 


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1 (4) any withdrawal liability determined under 

2 part 1 of subtitle E of title IV of the Employee Re3 tirement Income Security Act of 1974 (29 U.S.C. 

4 1381 et seq.) that is incurred by the target firm or 

5 an affiliate of the target firm; and 

6 (5) any claim for unfunded benefit liabilities 

7 owed to the Pension Benefit Guaranty Corporation 

8 under subtitle D of title IV of the Employee Retire9 ment Income Security Act of 1974 (29 U.S.C. 1361 

10 et seq.) with respect to the termination of a pension 

11 plan sponsored by the target firm or an affiliate of 

12 the target firm. 

13 (b) RULE OF CONSTRUCTION.—Nothing in this sec14 tion may be construed to diminish existing, as of the date 

15 of this Act, controlled group liability under the Employee 

16 Retirement Income Security Act of 1974 (29 U.S.C. 1001 

17 et seq.). 

18 SEC. 102. JOINT AND SEVERAL LIABILITY FOR HOLDERS OF 

19 ECONOMIC INTERESTS IN CONTROLLING PRI20 VATE FUNDS. 

21 (a) IN GENERAL.—Notwithstanding any other provi22 sion of law, or the terms of any contract or agreement, 

23 a holder of an economic interest in a private fund shall 

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1 get firm with respect to the private fund, and any affiliate 

2 of such a target firm, including— 

3 (1) any debt incurred by the target firm or an 

4 affiliate of the target firm, including as part of the 

5 acquisition of the target firm by the private fund; 

6 (2) any Federal or State civil monetary penalty, 

7 or obligation under a settlement or consent order 

8 with a Federal or State governmental agency or in9 strumentality, including a consumer restitution obli10 gation, for which the target firm, or an affiliate of 

11 the target firm, is liable; 

12 (3) any liability resulting from a violation of 

13 section 3 of the Worker Adjustment and Retraining 

14 Notification Act (29 U.S.C. 2102) by the target firm 

15 or an affiliate of the target firm; 

16 (4) any withdrawal liability determined under 

17 part 1 of subtitle E of title IV of the Employee Re18 tirement Income Security Act of 1974 (29 U.S.C. 

19 1381 et seq.) that is incurred by the target firm or 

20 an affiliate of the target firm; and 

21 (5) any claim for unfunded benefit liabilities 

22 owed to the Pension Benefit Guaranty Corporation 

23 under subtitle D of title IV of the Employee Retire24 ment Income Security Act of 1974 (29 U.S.C. 1361 

25 et seq.) with respect to the termination of a pension 


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1 plan sponsored by the target firm or an affiliate of 

2 the target firm. 

3 (b) RULE OF CONSTRUCTION.—Nothing in this sec4 tion may be construed to diminish existing, as of the date 

5 of this Act, controlled group liability under the Employee 

6 Retirement Income Security Act of 1974 (29 U.S.C. 1001 

7 et seq.). 

8 SEC. 103. INDEMNIFICATION VOID AS AGAINST PUBLIC 

9 POLICY. 

10 It shall be void as against public policy for a target 

11 firm, or an affiliate of a target firm, to indemnify a private 

12 fund that is a control person with respect to the target 

13 firm, or any affiliate of the target firm, with respect to 

14 the liabilities of the fund or the affiliate, as applicable, 

15 under sections 101 and 102. 

16 TITLE II—ANTI-LOOTING 

17 SEC. 201. LIMITATIONS ON POST-ACQUISITION DIVIDENDS, 

18 DISTRIBUTIONS, REDEMPTIONS, AND 

19 BUYBACKS. 

20 (a) IN GENERAL.—No target firm may, during the 

21 2-year period beginning on the closing date of a change 

22 in control transaction that results in control of the target 

23 firm by a private fund— 

24 (1) make a capital distribution or similarly re25 duce the equity capital of the target firm; or 


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1 (2) incur an obligation that commits the target 

2 firm to making a capital distribution or a similar re3 duction of the equity capital of the target firm after 

4 the end of that 2-year period. 

5 (b) VOID.—Any transfer made or obligation incurred 

6 by a target firm or an affiliate with respect to a target 

7 firm in violation of subsection (a) shall be void. 

8 (c) JOINT AND SEVERAL LIABILITY FOR AIDERS AND

9 ABETTORS.—Any control person that is a private fund, 

10 any holder of an economic interest in a control person that 

11 is a private fund, or any affiliate of a target firm that 

12 aids, abets, facilitates, supports, or instructs any violation 

13 of subsection (a) shall be jointly and severally liable under 

14 this subsection for any transfer made or obligation in15 curred, including for reasonable attorney’s fees and costs 

16 awarded to a plaintiff under subsection (d)(2). 

17 (d) CAUSE OF ACTION.— 

18 (1) IN GENERAL.—Any employee or creditor, or 

19 representative of an employee or creditor, of a target 

20 firm that is a debtor under title 11, United States 

21 Code, or of an affiliate of a target firm that is such 

22 a debtor, may bring an action in an appropriate dis23 trict court of the United States against the direct or 

24 indirect transferee or obligee or beneficiary of the 

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1 tion and recover any transferred property for the 

2 target firm. 

3 (2) AWARD.—In a successful action to recover 

4 a transfer, the court shall also award the plaintiff 

5 reasonable attorney’s fees and costs. 

6 SEC. 202. PREVENTION OF FRAUDULENT TRANSFERS. 

7 (a) LIMITATION ON SAFE HARBORS.—Section 546(e) 

8 of title 11, United States Code, is amended by inserting 

9 after ‘‘548(b) of this title,’’ the following: ‘‘and except in 

10 the case of a transfer made in connection with a change 

11 in control transaction, as defined in section 3 of the Stop 

12 Wall Street Looting Act, or during the protected period, 

13 as defined in section 548(f) of this title,’’. 

14 (b) PRESUMPTION OF INSOLVENCY IN TRANSFERS

15 UNDERTAKEN IN CONNECTION WITH CHANGE IN CON16 TROL TRANSACTIONS.—Section 548 of title 11, United 

17 States Code, is amended by adding at the end the fol18 lowing: 

19 ‘‘(f)(1) In this subsection— 

20 ‘‘(A) the terms ‘change in control transaction’, 

21 ‘control person’, and ‘target firm’ have the meanings 

22 given those terms in section 3 of the Stop Wall 

23 Street Looting Act; and 

24 ‘‘(B) the term ‘protected period’ means the 

25 shorter of— 


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1 ‘‘(i) the 8-year period beginning on the 

2 date on which a change in control transaction 

3 closed; or 

4 ‘‘(ii) the period beginning on the date on 

5 which a change in control transaction closed 

6 and ending on the earliest subsequent date on 

7 which a public offering of a controlling share of 

8 the common equity securities of the target firm 

9 occurs. 

10 ‘‘(2) For purposes of this section, the debtor is pre11 sumed to have made a transfer or incurred an obligation 

12 described in subparagraphs (A) and (B) of subsection 

13 (a)(1) if— 

14 ‘‘(A) the transfer is made to or obligation is in15 curred by a target firm or an affiliate in connection 

16 with a change in control transaction; or 

17 ‘‘(B) the transfer is made to a target firm or 

18 an affiliate by, or obligation is incurred by a target 

19 firm or an affiliate from, a control person, an affil20 iate, or an insider during a protected period. 

21 ‘‘(3) For the purposes of this section, a court shall, 

22 in analyzing related transactions, link together as a single 

23 transaction any interrelated yet formally distinct steps in 

24 an integrated transaction (commonly known as the ‘step 

25 transaction doctrine’).’’. 


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1 (c) STATUTE OF LIMITATIONS.—Section 3306(b) of 

2 title 28, United States Code, is amended— 

3 (1) in paragraph (2), by striking ‘‘or’’ at the 

4 end; 

5 (2) in paragraph (3), by striking the period at 

6 the end and inserting ‘‘; or’’; and 

7 (3) by adding at the end the following: 

8 ‘‘(4) within 8 years after the transfer was made 

9 or the obligation was incurred, if the transfer was 

10 made or the obligation was incurred— 

11 ‘‘(A) in connection with a change in con12 trol transaction, as defined in section 3 of the 

13 Stop Wall Street Looting Act; or 

14 ‘‘(B) during a protected period, as defined 

15 in section 548(f) of title 11.’’. 

16 SEC. 203. SURTAX ON CERTAIN AMOUNTS RECEIVED BY IN17 VESTMENT FIRMS FROM CONTROLLED TAR18 GET FIRMS. 

19 (a) IMPOSITION OF TAX.—Subchapter A of chapter 

20 1 of the Internal Revenue Code of 1986 is amended by 

21 adding at the end the following new part: 

22 ‘‘PART VIII—SURTAX ON CERTAIN AMOUNTS 

23 RECEIVED BY INVESTMENT FIRMS 

‘‘Sec. 59B. Surtax on certain amounts received by investment firms from controlled target firms. 


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1 ‘‘SEC. 59B. SURTAX ON CERTAIN AMOUNTS RECEIVED BY 

2 INVESTMENT FIRMS FROM CONTROLLED 

3 TARGET FIRMS. 

4 ‘‘(a) IMPOSITION OF TAX.— 

5 ‘‘(1) IN GENERAL.—If one or more applicable 

6 payments are included in the gross income of a tax7 payer for any taxable year, then there is hereby im8 posed on the taxpayer for the taxable year a tax 

9 equal to the applicable percentage of the aggregate 

10 amount of such payments. Such tax shall be in addi11 tion to any other tax imposed by this subtitle. 

12 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

13 of this subsection, the term ‘applicable percentage’ 

14 means 100 percent, minus the highest rate of tax 

15 under section 1 or 11 (whichever is applicable) for 

16 the taxable year. 

17 ‘‘(b) APPLICABLE PAYMENT.—For purposes of this 

18 section— 

19 ‘‘(1) IN GENERAL.—The term ‘applicable pay20 ment’ means any amount paid or incurred by an ap21 plicable entity (or any person related within the 

22 meaning of section 267(b) or 707(b) to such entity) 

23 to any other person which, at the time such amount 

24 is paid or incurred, is an applicable controlling enti25 ty. An amount shall be treated as an applicable pay26 ment without regard to whether it is paid or inVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00023 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 curred to the taxpayer including it in gross income 

2 and to which subsection (a) applies. 

3 ‘‘(2) EXCEPTIONS.—Such term shall not in4 clude any of the following: 

5 ‘‘(A) INTEREST.—Any amount paid or in6 curred which is treated as interest for purposes 

7 of this chapter. 

8 ‘‘(B) DISTRIBUTIONS OF PROPERTY WITH

9 RESPECT TO STOCK.—Any distribution of prop10 erty (as defined in section 317(a)) to which sec11 tion 301(a) applies. 

12 ‘‘(c) DEFINITIONS RELATING TO ENTITIES.—For 

13 purposes of this section— 

14 ‘‘(1) APPLICABLE ENTITY.—The term ‘applica15 ble entity’ means any person— 

16 ‘‘(A) which is engaged in the active con17 duct of a trade or business, and 

18 ‘‘(B) with respect to which any other per19 son conducts activities in connection with an 

20 applicable trade or business. 

21 ‘‘(2) APPLICABLE CONTROLLING ENTITY.—The 

22 term ‘applicable controlling entity’ means, with re23 spect to any applicable entity, any person— 

24 ‘‘(A) which is engaged in an applicable 

25 trade or business some or all of the activities of 


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1 which are conducted in connection with the ap2 plicable entity, and 

3 ‘‘(B) which controls (or is related within 

4 the meaning of section 267(b) or 707(b) to a 

5 person which controls) the applicable entity. 

6 ‘‘(3) APPLICABLE TRADE OR BUSINESS.—The 

7 term ‘applicable trade or business’ means any activ8 ity conducted on a regular, continuous, and substan9 tial basis which, regardless of whether the activity is 

10 conducted in one or more entities, consists, in whole 

11 or in part, of— 

12 ‘‘(A) raising or returning capital, and 

13 ‘‘(B) either— 

14 ‘‘(i) investing in or disposing of speci15 fied assets (or identifying specified assets 

16 for such investing or disposition), or 

17 ‘‘(ii) developing specified assets. 

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

19 asset’ means— 

20 ‘‘(A) securities (as defined in section 

21 475(c)(2) but without regard to the phrase 

22 ‘widely held or publicly traded’ in subparagraph 

23 (B) thereof and without regard to the last sen24 tence thereof), and 


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1 ‘‘(B) real estate held for rental or invest2 ment. 

3 ‘‘(d) RULES AND DEFINITIONS RELATING TO OWN4 ERSHIP ATTRIBUTION AND CONTROL.—For purposes of 

5 this section— 

6 ‘‘(1) CONSTRUCTIVE OWNERSHIP RULES USED

7 IN DETERMINING RELATED PARTY.—In determining 

8 whether persons are related within the meaning of 

9 section 267(b) or 707(b), the constructive ownership 

10 rules of section 318 shall apply in lieu of the con11 structive ownership rules which would otherwise 

12 apply, except that in applying such rules the term 

13 ‘stock’ shall include capital, profits, or other bene14 ficial interests in persons other than corporations. 

15 ‘‘(2) CONTROL.— 

16 ‘‘(A) CORPORATIONS.—In the case of a 

17 corporation, the term ‘control’ has the meaning 

18 given such term by section 304(c) (without re19 gard to paragraph (3)(B) thereof). 

20 ‘‘(B) OTHER ENTITIES.—In the case of a 

21 person other than a corporation, such term 

22 means the ownership, directly or indirectly, of 

23 at least 50 percent of the capital, profits, or 

24 other beneficial interests in the person. 


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1 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

2 such regulations or other guidance as may be necessary 

3 or appropriate to carry out the provisions of this section, 

4 including regulations— 

5 ‘‘(1) providing for such adjustments to the ap6 plication of this section as are necessary to prevent 

7 the avoidance of the purposes of this section, includ8 ing through the use of unrelated persons, or conduit 

9 transactions, and 

10 ‘‘(2) modifying the constructive ownership rules 

11 under section 318 to the extent necessary to apply 

12 such rules to capital, profits, or other beneficial in13 terests as well as stock.’’. 

14 (b) DISALLOWANCE OF CREDITS AGAINST TAX.— 

15 Subparagraph (B) of section 26(b)(2) of the Internal Rev16 enue Code of 1986 is amended by inserting ‘‘or section 

17 59B (relating to surtax on certain amounts received by 

18 investment firms from controlled target firms)’’ after 

19 ‘‘anti-abuse tax)’’. 

20 (c) CONFORMING AMENDMENTS.— 

21 (1) The table of parts for subchapter A of chap22 ter 1 of the Internal Revenue Code of 1986 is 

23 amended by adding after the item relating to part 

24 VII the following new item: 

‘‘PART VIII. SURTAX ON CERTAIN AMOUNTS RECEIVED BY INVESTMENT

FIRMS’’. 


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1 (2) Section 871(b)(1) of such Code is amended 

2 by inserting ‘‘and shall be taxable as provided in sec3 tion 59B on applicable payments included in gross 

4 income which are effectively connected with the con5 duct of a trade or business within the United 

6 States’’ after ‘‘United States’’. 

7 (3) Section 882(a)(1) of such Code is amended 

8 by inserting ‘‘and shall be taxable as provided in sec9 tion 59B on applicable payments included in gross 

10 income which are effectively connected with the con11 duct of a trade or business within the United 

12 States’’ after ‘‘United States’’. 

13 (4) Subparagraph (A) of section 6425(c)(1) of 

14 such Code is amended by striking ‘‘plus’’ at the end 

15 of clause (i), by striking ‘‘over’’ at the end of clause 

16 (ii) and inserting ‘‘plus’’ and by adding at the end 

17 the following new clause: 

18 ‘‘(iii) the tax imposed by section 59B, 

19 over’’. 

20 (5) Paragraph (1) of section 6654(f) of such 

21 Code is amended by striking ‘‘tax’’ each place it ap22 pears and inserting ‘‘taxes’’. 

23 (6) Subparagraph (A) of section 6655(g)(1) of 

24 such Code is amended by striking ‘‘plus’’ at the end 

25 of clause (ii), by redesignating clause (iii) as clause 


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1 (iv), and by inserting after clause (ii) the following 

2 new clause: 

3 ‘‘(iii) the tax imposed by section 59B, 

4 plus’’. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to applicable payments (as defined 

7 in section 59B(b) of the Internal Revenue Code of 1986, 

8 as added by this section) paid or accrued on or after the 

9 date of enactment of this Act. 

10 SEC. 204. LIMITATION ON DEDUCTION FOR BUSINESS IN11 TEREST OF CERTAIN BUSINESSES OWNED BY 

12 PRIVATE FUNDS. 

13 (a) IN GENERAL.—Section 163(j) of the Internal 

14 Revenue Code of 1986 is amended by redesignating para15 graph (10) as paragraph (11) and by inserting after para16 graph (9) the following new paragraph: 

17 ‘‘(10) MODIFICATION OF LIMITATION FOR CER18 TAIN BUSINESSES OWNED BY PRIVATE FIRMS.— 

19 ‘‘(A) IN GENERAL.—In the case of a tax20 payer which is an applicable entity controlled by 

21 an applicable controlling entity (or any person 

22 related within the meaning of section 267(b) or 

23 707(b) to such entity) at any time during the 

24 taxable year— 


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1 ‘‘(i) if the ratio of debt to equity of 

2 the taxpayer as of the close of the taxable 

3 year (or on any other day during the tax4 able year as the Secretary may prescribe in 

5 regulations) exceeds 1, then paragraph (1) 

6 shall be applied by substituting ‘lll 

7 percent’ for ‘30 percent’, and 

8 ‘‘(ii) in the case of the election under 

9 paragraph (7)(B) to treat any trade or 

10 business of the taxpayer as an electing real 

11 property trade or business— 

12 ‘‘(I) the taxpayer may not make 

13 any such election during such taxable 

14 year, and 

15 ‘‘(II) any such election of the 

16 taxpayer in effect as of the close of 

17 the taxable year preceding such tax18 able year with respect to a trade or 

19 business shall be revoked, effective for 

20 such taxable year and all succeeding 

21 taxable years. 

22 ‘‘(B) RATIO OF DEBT TO EQUITY.—For 

23 purposes of this paragraph, the term ‘ratio of 

24 debt to equity’ means, with respect to any tax25 payer, the ratio which the total indebtedness of 


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1 the taxpayer bears to the sum of the taxpayer’s 

2 money and all other assets reduced (but not 

3 below zero) by such total indebtedness. For 

4 purposes of the preceding sentence— 

5 ‘‘(i) the amount taken into account 

6 with respect to any asset shall be the ad7 justed basis thereof for purposes of deter8 mining gain, 

9 ‘‘(ii) the amount taken into account 

10 with respect to any indebtedness with 

11 original issue discount shall be its issue 

12 price plus the portion of the original issue 

13 discount previously accrued as determined 

14 under the rules of section 1272 (deter15 mined without regard to subsection (a)(7) 

16 or (b)(4) thereof), and 

17 ‘‘(iii) there shall be such other adjust18 ments as the Secretary may by regulations 

19 prescribe. 

20 ‘‘(C) COORDINATION WITH DEPRECIATION

21 RULES.—If the alternative depreciation system 

22 under section 168(g) applies to property by rea23 son of an election under paragraph (7)(B) 

24 which is revoked under subparagraph 

25 (A)(ii)(II), then the depreciation deduction 


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1 under section 167(a) with respect to such prop2 erty for the taxable year of revocation and all 

3 succeeding taxable years shall be determined 

4 under section 168 in the same manner as if 

5 such revocation were a change in use of the 

6 property under section 168(i)(5) and the regu7 lations thereunder. 

8 ‘‘(D) DEFINITIONS AND RULES.—For pur9 poses of this paragraph— 

10 ‘‘(i) any term used in this paragraph 

11 which is also used in section 59B shall 

12 have the same meaning as when used in 

13 such section, and 

14 ‘‘(ii) the constructive ownership rules 

15 of section 318 shall apply in the same 

16 manner as such rules apply for purposes of 

17 section 59B.’’. 

18 (b) EFFECTIVE DATES.— 

19 (1) IN GENERAL.—The amendments made by 

20 this section shall apply to taxable years beginning on 

21 or after the date of enactment of this Act. 

22 (2) REVOCATION OF ELECTIONS.—Subpara23 graphs (A)(ii)(II) and (C) of section 163(j)(10) of 

24 the Internal Revenue Code of 1986, as added by this 

25 section, shall apply to taxable years beginning on or 


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1 after the date of enactment of this Act, with respect 

2 to elections under section 163(j)(7)(B) of such Code 

3 made before, on, or after such date. 

4 TITLE III—PROTECTING WORK5 ERS WHEN COMPANIES GO 

6 BANKRUPT 

7 SEC. 301. INCREASED PRIORITY FOR WAGES. 

8 Section 507(a) of title 11, United States Code, is 

9 amended— 

10 (1) in paragraph (4)— 

11 (A) by redesignating subparagraphs (A) 

12 and (B) as clauses (i) and (ii), respectively; 

13 (B) in the matter preceding clause (i), as 

14 so redesignated, by inserting ‘‘(A)’’ before 

15 ‘‘Fourth’’; 

16 (C) in subparagraph (A), as so designated, 

17 in the matter preceding clause (i), as so redes18 ignated— 

19 (i) by striking ‘‘$10,000’’ and insert20 ing ‘‘$20,000’’; 

21 (ii) by striking ‘‘within 180 days’’; 

22 and 

23 (iii) by striking ‘‘or the date of the 

24 cessation of the debtor’s business, which25 ever occurs first’’; and 


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1 (D) by adding at the end the following: 

2 ‘‘(B) Severance pay described in subparagraph 

3 (A)(i) shall be deemed earned in full upon the layoff 

4 or termination of employment of the individual to 

5 whom the severance pay is owed.’’; and 

6 (2) in paragraph (5)— 

7 (A) in subparagraph (A)— 

8 (i) by striking ‘‘within 180 days’’; and 

9 (ii) by striking ‘‘or the date of the 

10 cessation of the debtor’s business, which11 ever occurs first’’; and 

12 (B) by striking subparagraph (B) and in13 serting the following: 

14 ‘‘(B) for each such plan, to the extent of 

15 the number of employees covered by each such 

16 plan multiplied by $20,000.’’. 

17 SEC. 302. PRIORITY FOR SEVERANCE PAY AND CONTRIBU18 TIONS TO EMPLOYEE BENEFIT PLANS. 

19 Section 503(b) of title 11, United States Code, is 

20 amended— 

21 (1) in paragraph (8)(B), by striking ‘‘and’’ at 

22 the end; 

23 (2) in paragraph (9), by striking the period and 

24 inserting a semicolon; and 

25 (3) by adding at the end the following: 


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1 ‘‘(10) severance pay owed to employees of the 

2 debtor (other than to an insider of the debtor or a 

3 senior executive officer of the debtor), under a plan, 

4 program, or policy generally applicable to employees 

5 of the debtor (but not under an individual contract 

6 of employment), or owed pursuant to a collective 

7 bargaining agreement, for layoff or termination on 

8 or after the date of the filing of the petition, which 

9 pay shall be deemed earned in full upon such layoff 

10 or termination of employment; and 

11 ‘‘(11) any contribution due on or after the date 

12 of the filing of the petition under an employee ben13 efit plan.’’. 

14 SEC. 303. PRIORITY FOR VIOLATIONS OF FEDERAL AND 

15 STATE LAWS. 

16 (a) ALLOWANCE OF ADMINISTRATIVE EXPENSES IN

17 BANKRUPTCY CASES.—Section 503(b)(1)(A)(ii) of title 

18 11, United States Code, is amended by inserting after 

19 ‘‘(ii)’’ the following: ‘‘any back pay, civil penalty, or dam20 ages for a violation of any Federal or State labor and em21 ployment law, including the Worker Adjustment and Re22 training Notification Act (29 U.S.C. 2101 et seq.) and any 

23 comparable State law, and’’. 

24 (b) ADMINISTRATION AND ENFORCEMENT OF WORK25 ER ADJUSTMENT AND RETRAINING NOTIFICATION REVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00035 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 QUIREMENTS.—Section 5(a)(1) of the Worker Adjustment 

2 and Retraining Notification Act (29 U.S.C. 2104(a)(1)) 

3 is amended, in the matter following subparagraph (B)— 

4 (1) by inserting ‘‘which for purposes of this 

5 sentence shall consist of the days, in the notification 

6 period, that are or that follow the date of the pro7 hibited closing or layoff under this Act,’’ after ‘‘pe8 riod of the violation,’’; and 

9 (2) by inserting ‘‘calendar’’ after ‘‘60’’. 

10 SEC. 304. LIMITATION ON EXECUTIVE COMPENSATION EN11 HANCEMENTS. 

12 Section 503(c) of title 11, United States Code, is 

13 amended— 

14 (1) in the matter preceding paragraph (1), by 

15 inserting ‘‘and subject to section 363(b)(3),’’ after 

16 ‘‘Notwithstanding subsection (b),’’; 

17 (2) in paragraph (1), in the matter preceding 

18 subparagraph (A)— 

19 (A) by inserting ‘‘, a senior executive offi20 cer of the debtor, or any of the 20 next most 

21 highly compensated employees of the debtor, de22 partment or division managers of the debtor, or 

23 consultants providing services to the debtor (re24 gardless of whether the executive officer, emVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00036 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 ployee, manager, or consultant is an insider)’’ 

2 after ‘‘insider of the debtor’’; 

3 (B) by inserting ‘‘or for the payment of 

4 performance or incentive compensation, a bonus 

5 of any kind, or any other financial return de6 signed to replace or enhance incentive, stock, or 

7 other compensation in effect before the date of 

8 the commencement of the case,’’ after ‘‘remain 

9 with the debtor’s business,’’; and 

10 (C) by inserting ‘‘clear and convincing’’ be11 fore ‘‘evidence in the record’’; 

12 (3) in paragraph (2), in the matter preceding 

13 subparagraph (A), by inserting ‘‘, a senior executive 

14 officer of the debtor, or any of the 20 next most 

15 highly compensated employees of the debtor, depart16 ment or division managers of the debtor, or consult17 ants providing services to the debtor (regardless of 

18 whether the executive officer, employee, manager, or 

19 consultant is an insider)’’ after ‘‘an insider of the 

20 debtor’’; and 

21 (4) by striking paragraph (3) and inserting the 

22 following: 

23 ‘‘(3) any other transfer or obligation to or for 

24 the benefit of an insider of the debtor, a senior exec25 utive officer of the debtor, or any of the 20 next 


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1 most highly compensated employees of the debtor, 

2 department or division managers of the debtor, or 

3 consultants providing services to the debtor (regard4 less of whether the executive officer, employee, man5 ager, or consultant is an insider), absent a finding 

6 by the court, based upon clear and convincing evi7 dence in the record, and without deference to a re8 quest by the debtor for such payment, that— 

9 ‘‘(A) because of the essential and particu10 larized nature of the services provided by the 

11 insider, executive officer, employee, manager, or 

12 consultant, the transfer or obligation is essen13 tial to— 

14 ‘‘(i) the survival of the business of the 

15 debtor; or 

16 ‘‘(ii) in a case in which some or all of 

17 the assets of the debtor are liquidated, the 

18 orderly liquidation of the assets; 

19 ‘‘(B) in the case of a transfer or obligation 

20 under an incentive program, the transfer or ob21 ligation is part of a workforce incentive pro22 gram generally applicable to the nonmanage23 ment workforce of the debtor; and 

24 ‘‘(C) the cost of the transfer or obliga25 tion— 


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1 ‘‘(i) is reasonable; 

2 ‘‘(ii) is not excessive in the context of 

3 the financial circumstances of the debtor; 

4 and 

5 ‘‘(iii) is not disproportionate in light 

6 of any economic loss incurred by the non7 management workforce of the debtor dur8 ing the case.’’. 

9 SEC. 305. PROHIBITION AGAINST SPECIAL COMPENSATION 

10 PAYMENTS. 

11 Section 363 of title 11, United States Code, is 

12 amended— 

13 (1) in subsection (b), by adding at the end the 

14 following: 

15 ‘‘(3) No plan, program, or other transfer or obliga16 tion to or for the benefit of an insider of the debtor, a 

17 senior executive officer of the debtor, or any of the 20 

18 next most highly compensated employees of the debtor, de19 partment or division managers of the debtor, or consult20 ants providing services to the debtor (regardless of wheth21 er the executive officer, employee, manager, or consultant 

22 is an insider) shall be approved if the debtor has, on or 

23 after the date that is 1 year before the date of the filing 

24 of the petition— 


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1 ‘‘(A) discontinued any plan, program, policy or 

2 practice of paying severance pay to the nonmanage3 ment workforce of the debtor; or 

4 ‘‘(B) modified any plan, program, policy, or 

5 practice described in subparagraph (A) in order to 

6 reduce benefits under the plan, program, policy or 

7 practice.’’; and 

8 (2) in subsection (c)(1), by inserting before the 

9 period at the end the following: ‘‘, except that, for 

10 any transaction that constitutes a transfer or obliga11 tion subject to section 503(c), the trustee shall be 

12 required to obtain the prior approval of the court 

13 after notice and an opportunity for a hearing’’. 

14 SEC. 306. EXECUTIVE COMPENSATION UPON EXIT FROM 

15 BANKRUPTCY. 

16 Section 1129(a) of title 11, United States Code, is 

17 amended— 

18 (1) in paragraph (4), by adding at the end the 

19 following: ‘‘Except for compensation subject to re20 view under paragraph (5), any payment or other dis21 tribution under the plan to or for the benefit of an 

22 insider of the debtor, a senior executive officer of the 

23 debtor, or any of the 20 next most highly com24 pensated employees of the debtor, department or di25 vision managers of the debtor, or consultants proVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00040 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 viding services to the debtor (regardless of whether 

2 the executive officer, employee, manager, or consult3 ant is an insider), shall not be approved by the court 

4 except as part of a program of payments or distribu5 tions generally applicable to employees of the debtor, 

6 and only to the extent that the court determines 

7 that the payment or other distribution is not exces8 sive or disproportionate in comparison to payments 

9 or other distributions to the nonmanagement work10 force of the debtor.’’; and 

11 (2) in paragraph (5)— 

12 (A) in subparagraph (A)(ii), by striking 

13 ‘‘and’’ at the end; 

14 (B) in subparagraph (B), by striking the 

15 period at the end and inserting ‘‘; and’’; and 

16 (C) by adding at the end the following: 

17 ‘‘(C) the compensation disclosed pursuant to 

18 subparagraph (B) has been approved by, or is sub19 ject to the approval of, the court as— 

20 ‘‘(i) reasonable in comparison to compensa21 tion paid to individuals holding comparable po22 sitions at comparable companies in the same in23 dustry; and 


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1 ‘‘(ii) not disproportionate in light of any 

2 economic concession made by the nonmanage3 ment workforce of the debtor during the case.’’. 

4 SEC. 307. COLLATERAL SURCHARGE FOR EMPLOYEE OBLI5 GATIONS. 

6 Section 506(c) of title 11, United States Code, is 

7 amended— 

8 (1) by inserting ‘‘(1)’’ before ‘‘The trustee’’; 

9 and 

10 (2) by adding at the end the following: 

11 ‘‘(2) If one or more employees of the debtor have not 

12 received wages, accrued vacation, severance, or any other 

13 compensation owed under a plan, program, policy, or prac14 tice of the debtor, or pursuant to the terms of a collective 

15 bargaining agreement, for services rendered on or after 

16 the date of the commencement of the case, or the debtor 

17 has not made a contribution due under an employee ben18 efit plan on or after the date of the commencement of the 

19 case, such unpaid obligations shall be— 

20 ‘‘(A) deemed— 

21 ‘‘(i) reasonable, necessary costs and ex22 penses of preserving, or disposing of, property 

23 securing an allowed secured claim; and 

24 ‘‘(ii) benefiting the holder of the allowed 

25 secured claim; and 


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1 ‘‘(B) recovered by the trustee for payment to 

2 the employees or the employee benefit plan, as appli3 cable, even if the trustee, or a predecessor or suc4 cessor in interest, has otherwise waived the provi5 sions of this subsection under an agreement with the 

6 holder of the allowed secured claim or a successor or 

7 predecessor in interest of the holder of the allowed 

8 secured claim.’’. 

9 SEC. 308. VOIDABILITY OF PREFERENTIAL COMPENSATION 

10 TRANSFERS. 

11 Section 547 of title 11, United States Code, is 

12 amended by adding at the end the following: 

13 ‘‘(j)(1) The trustee may avoid a transfer to or for 

14 the benefit of an insider of the debtor, a senior executive 

15 officer of the debtor, or any of the 20 next most highly 

16 compensated employees of the debtor, department or divi17 sion managers of the debtor, or consultants providing serv18 ices to the debtor (regardless of whether the executive offi19 cer, employee, manager, or consultant is an insider), 

20 that— 

21 ‘‘(A) is made or incurred under a retention, 

22 bonus, or incentive plan devised before the date of 

23 the filing of the petition; and 

24 ‘‘(B) does not meet the requirements under sec25 tion 363(b)(3) or 503(c). 


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1 ‘‘(2) Subsection (c) shall not constitute a defense 

2 against the recovery of a transfer under paragraph (1) of 

3 this subsection. 

4 ‘‘(3)(A) The trustee, or a committee appointed under 

5 section 1102, may commence an action to recover a trans6 fer under paragraph (1) of this subsection. 

7 ‘‘(B) If neither the trustee nor a committee com8 mences an action to recover a transfer under subpara9 graph (A) before the date of the commencement of a hear10 ing on the confirmation of a plan, any party in interest 

11 may apply to the court for authority to recover the trans12 fer for the benefit of the estate, in which case the costs 

13 of recovery shall be borne by the estate.’’. 

14 SEC. 309. PROTECTION FOR EMPLOYEES IN A SALE OF AS15 SETS. 

16 (a) REQUIREMENT RELATING TO PRESERVING JOBS

17 AND MAINTAINING TERMS AND CONDITIONS RELATING

18 TO EMPLOYMENT.—Section 363 of title 11, United States 

19 Code, is amended by adding at the end the following: 

20 ‘‘(q)(1) In approving a sale or lease of property of 

21 the estate under this section, or under a plan under chap22 ter 11, the court shall give substantial weight to the extent 

23 to which a prospective purchaser or lessee, respectively, 

24 of the property will— 


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1 ‘‘(A) preserve the jobs of the workforce of the 

2 debtor; and 

3 ‘‘(B) maintain the terms and conditions of em4 ployment of the workforce of the debtor. 

5 ‘‘(2) If there are 2 or more offers to purchase or lease 

6 property of the estate under this section, or under a plan 

7 under chapter 11, that qualify under the procedures for 

8 the sale or lease, respectively, approved by the court, the 

9 court shall approve the offer that best— 

10 ‘‘(A) preserves the jobs of the workforce of the 

11 debtor; and 

12 ‘‘(B) maintains the terms and conditions of em13 ployment of the workforce of the debtor. 

14 ‘‘(r)(1) Any party seeking to purchase or lease prop15 erty of the estate under this section, or under a plan under 

16 chapter 11, shall represent to the court the effect of such 

17 a transaction with respect to— 

18 ‘‘(A) the preservation of the jobs of the work19 force of the debtor; and 

20 ‘‘(B) the maintenance of the terms and condi21 tions of employment of the workforce of the debtor. 

22 ‘‘(2) The court shall expressly include in an order ap23 proving a purchase or lease of property of the estate under 

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1 resentation made by a purchaser or lessee of the property 

2 under paragraph (1). 

3 ‘‘(3) With respect to a purchase or lease of property 

4 of the estate under this section, or under a plan under 

5 chapter 11— 

6 ‘‘(A) the court shall have jurisdiction over the 

7 purchaser or lessee of the property in order to en8 force the terms of the order approving the purchase 

9 or lease; 

10 ‘‘(B) the purchaser or lessee shall promptly dis11 close to the court any material noncompliance with 

12 the terms of the order described in subparagraph 

13 (A) and explain the basis for such noncompliance; 

14 and 

15 ‘‘(C) with respect to material noncompliance de16 scribed in subparagraph (B), the court may impose 

17 any appropriate remedy, including injunctive relief, 

18 to address the noncompliance.’’. 

19 (b) PLANS UNDER CHAPTER 11.— 

20 (1) CONTENTS OF PLAN.—Section 1123(b)(4) 

21 of title 11, United States Code, is amended by in22 serting ‘‘, which sale shall be subject to the require23 ments under subsections (q) and (r) of section 363 

24 of this title,’’ after ‘‘property of the estate’’. 


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1 (2) CONFIRMATION OF PLAN.—Section 1129(a) 

2 of title 11, United States Code, is amended by add3 ing at the end the following: 

4 ‘‘(17) If the plan provides for the sale of all or 

5 substantially all of the property of the estate, the 

6 sale meets the requirements under subsections (q) 

7 and (r) of section 363 of this title.’’. 

8 SEC. 310. PROTECTION OF GIFT CARD PURCHASERS. 

9 (a) DEFINITION OF GIFT CARD.—Section 101(a) of 

10 title 11, United States Code, is amended by inserting after 

11 paragraph (26) the following: 

12 ‘‘(26A) The term ‘gift card’ means a paper or 

13 electronic promise, plastic card, or other payment 

14 code or device that is— 

15 ‘‘(A) redeemable at— 

16 ‘‘(i) a single merchant; or 

17 ‘‘(ii) an affiliated group of merchants 

18 that share the same name, mark, or logo; 

19 ‘‘(B) issued in a specified amount, regard20 less of whether that amount may be increased 

21 in value or reloaded at the request of the hold22 er; 

23 ‘‘(C) purchased on a prepaid basis in ex24 change for payment; and 


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1 ‘‘(D) honored by the single merchant or af2 filiated group of merchants described in sub3 paragraph (A) upon presentation for goods or 

4 services.’’. 

5 (b) CONSUMER DEPOSIT.—Section 507(a) of title 11, 

6 United States Code, is amended by striking paragraph (7) 

7 and inserting the following: 

8 ‘‘(7) Seventh, allowed unsecured claims of indi9 viduals, to the extent of $1,800 for each such indi10 vidual, arising from the deposit, before the com11 mencement of the case, of money in connection 

12 with— 

13 ‘‘(A) the purchase, lease, or rental of prop14 erty; 

15 ‘‘(B) the purchase of services, for the per16 sonal, family, or household use of such individ17 uals, that were not delivered or provided; or 

18 ‘‘(C) the purchase of a gift card with re19 spect to which funds exist that have not been 

20 redeemed.’’. 

21 SEC. 311. COMMERCIAL REAL ESTATE. 

22 Section 365(d) of title 11, United States Code, is 

23 amended— 

24 (1) by striking paragraph (4); and 


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1 (2) by redesignating paragraph (5) as para2 graph (4). 

3 TITLE IV—CLOSING THE 

4 CARRIED INTEREST LOOPHOLE 

5 SEC. 401. AMENDMENT OF 1986 CODE. 

6 Except as otherwise expressly provided, whenever in 

7 this title an amendment or repeal is expressed in terms 

8 of an amendment to, or repeal of, a section or other provi9 sion, the reference shall be considered to be made to a 

10 section or other provision of the Internal Revenue Code 

11 of 1986. 

12 SEC. 402. PARTNERSHIP INTERESTS TRANSFERRED IN 

13 CONNECTION WITH PERFORMANCE OF SERV14 ICES. 

15 (a) MODIFICATION TO ELECTION TO INCLUDE PART16 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

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

18 redesignating paragraph (4) as paragraph (5) and by in19 serting after paragraph (3) the following new paragraph: 

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

21 provided by the Secretary— 

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

23 transfer of an interest in a partnership in con24 nection with the provision of services to (or for 

25 the benefit of) such partnership— 


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1 ‘‘(i) the fair market value of such in2 terest shall be treated for purposes of this 

3 section as being equal to the amount of the 

4 distribution which the partner would re5 ceive if the partnership sold (at the time of 

6 the transfer) all of its assets at fair market 

7 value and distributed the proceeds of such 

8 sale (reduced by the liabilities of the part9 nership) to its partners in liquidation of 

10 the partnership, and 

11 ‘‘(ii) the person receiving such interest 

12 shall be treated as having made the elec13 tion under subsection (b)(1) unless such 

14 person makes an election under this para15 graph to have such subsection not apply. 

16 ‘‘(B) ELECTION.—The election under sub17 paragraph (A)(ii) shall be made under rules 

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

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

20 this section shall apply to interests in partnerships trans21 ferred after the date of enactment of this Act. 


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1 SEC. 403. SPECIAL RULES FOR PARTNERS PROVIDING IN2 VESTMENT MANAGEMENT SERVICES TO 

3 PARTNERSHIPS. 

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

5 1 is amended by adding at the end the following new sec6 tion: 

7 ‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN8 VESTMENT MANAGEMENT SERVICES TO 

9 PARTNERSHIPS. 

10 ‘‘(a) TREATMENT OF DISTRIBUTIVE SHARE OF

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

12 case of an investment services partnership interest— 

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

14 702(b)— 

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

16 gain with respect to such interest for any part17 nership taxable year shall be treated as ordi18 nary income, and 

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

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

21 with respect to such interest for any partner22 ship taxable year shall be treated as an ordi23 nary loss. 

24 ‘‘(2) RECHARACTERIZATION OF LOSSES LIM25 ITED TO RECHARACTERIZED GAINS.—The amount 

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


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

2 of— 

3 ‘‘(A) the aggregate amount treated as ordi4 nary income under paragraph (1)(A) with re5 spect to the investment services partnership in6 terest for all preceding partnership taxable 

7 years to which this section applies, over 

8 ‘‘(B) the aggregate amount treated as or9 dinary loss under paragraph (1)(B) with re10 spect to such interest for all preceding partner11 ship taxable years to which this section applies. 

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

13 LOSS.— 

14 ‘‘(A) NET CAPITAL GAIN.—The amount 

15 treated as ordinary income under paragraph 

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

17 items of long-term capital gain taken into ac18 count in determining such net capital gain. 

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

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

21 shall be allocated ratably among the items of 

22 long-term capital loss and short-term capital 

23 loss taken into account in determining such net 

24 capital loss. 


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

2 LOSSES.—For purposes of this section— 

3 ‘‘(A) IN GENERAL.—Net capital gain, long4 term capital gain, and long-term capital loss, 

5 with respect to any investment services partner6 ship interest for any taxable year, shall be de7 termined under section 1222, except that such 

8 section shall be applied— 

9 ‘‘(i) without regard to the recharacter10 ization of any item as ordinary income or 

11 ordinary loss under this section, 

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

13 of gain and loss taken into account by the 

14 holder of such interest under section 702 

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

16 respect to such interest for such taxable 

17 year, and 

18 ‘‘(iii) by treating property which is 

19 taken into account in determining gains 

20 and losses to which section 1231 applies as 

21 capital assets held for more than 1 year. 

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

23 capital loss’ means the excess of the losses from 

24 sales or exchanges of capital assets over the 

25 gains from such sales or exchanges. Rules simiVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00053 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 lar to the rules of clauses (i) through (iii) of 

2 subparagraph (A) shall apply for purposes of 

3 the preceding sentence. 

4 ‘‘(5) SPECIAL RULE FOR DIVIDENDS.—Any div5 idend allocated with respect to any investment serv6 ices partnership interest shall not be treated as 

7 qualified dividend income for purposes of section 

8 1(h). 

9 ‘‘(6) SPECIAL RULE FOR QUALIFIED SMALL

10 BUSINESS STOCK.—Section 1202 shall not apply to 

11 any gain from the sale or exchange of qualified small 

12 business stock (as defined in section 1202(c)) allo13 cated with respect to any investment services part14 nership interest. 

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

16 ‘‘(1) GAIN.— 

17 ‘‘(A) IN GENERAL.—Any gain on the dis18 position of an investment services partnership 

19 interest shall be— 

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

21 ‘‘(ii) recognized notwithstanding any 

22 other provision of this subtitle. 

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

24 In the case of a disposition of an investment 


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1 services partnership interest by gift or by rea2 son of death of the taxpayer— 

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

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

5 an investment services partnership interest 

6 in the hands of the person acquiring such 

7 interest, and 

8 ‘‘(iii) any amount that would have 

9 been treated as ordinary income under this 

10 subsection had the decedent sold such in11 terest immediately before death shall be 

12 treated as an item of income in respect of 

13 a decedent under section 691. 

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

15 investment services partnership interest shall be 

16 treated as an ordinary loss to the extent of the ex17 cess (if any) of— 

18 ‘‘(A) the aggregate amount treated as ordi19 nary income under subsection (a) with respect 

20 to such interest for all partnership taxable 

21 years to which this section applies, over 

22 ‘‘(B) the aggregate amount treated as or23 dinary loss under subsection (a) with respect to 

24 such interest for all partnership taxable years 

25 to which this section applies. 


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1 ‘‘(3) ELECTION WITH RESPECT TO CERTAIN EX2 CHANGES.—Paragraph (1)(A)(ii) shall not apply to 

3 the contribution of an investment services partner4 ship interest to a partnership in exchange for an in5 terest in such partnership if— 

6 ‘‘(A) the taxpayer makes an irrevocable 

7 election to treat the partnership interest re8 ceived in the exchange as an investment serv9 ices partnership interest, and 

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

11 such reporting and recordkeeping requirements 

12 as the Secretary may prescribe. 

13 ‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP14 ERTY.— 

15 ‘‘(A) IN GENERAL.—In the case of any dis16 tribution of property by a partnership with re17 spect to any investment services partnership in18 terest held by a partner, the partner receiving 

19 such property shall recognize gain equal to the 

20 excess (if any) of— 

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

22 property at the time of such distribution, 

23 over 

24 ‘‘(ii) the adjusted basis of such prop25 erty in the hands of such partner (deterVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00056 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 mined without regard to subparagraph 

2 (C)). 

3 ‘‘(B) TREATMENT OF GAIN AS ORDINARY

4 INCOME.—Any gain recognized by such partner 

5 under subparagraph (A) shall be treated as or6 dinary income to the same extent and in the 

7 same manner as the increase in such partner’s 

8 distributive share of the taxable income of the 

9 partnership would be treated under subsection 

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

11 partnership had sold the distributed property at 

12 fair market value and all of the gain from such 

13 disposition were allocated to such partner. For 

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

15 treated as ordinary income under this subpara16 graph shall be treated as an amount treated as 

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

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

19 a distribution to which subparagraph (A) ap20 plies, the basis of the distributed property in 

21 the hands of the distributee partner shall be the 

22 fair market value of such property. 

23 ‘‘(D) SPECIAL RULES WITH RESPECT TO

24 MERGERS AND DIVISIONS.—In the case of a 

25 taxpayer which satisfies requirements similar to 


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

2 of paragraph (3), this paragraph and paragraph 

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

4 a partnership interest if such distribution is in 

5 connection with a contribution (or deemed con6 tribution) of any property of the partnership to 

7 which section 721 applies pursuant to a trans8 action described in section 708(b)(2). 

9 ‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER10 EST.—For purposes of this section— 

11 ‘‘(1) IN GENERAL.—The term ‘investment serv12 ices partnership interest’ means any interest in an 

13 investment partnership acquired or held by any per14 son in connection with the conduct of a trade or 

15 business described in paragraph (2) by such person 

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

17 in an investment partnership held by any person— 

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

19 services partnership interest for any period be20 fore the first date on which it is so held in con21 nection with such a trade or business, 

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

23 services partnership interest merely because 

24 such person holds such interest other than in 

25 connection with such a trade or business, and 


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

2 services partnership interest if acquired from a 

3 related person in whose hands such interest was 

4 an investment services partnership interest. 

5 ‘‘(2) BUSINESSES TO WHICH THIS SECTION AP6 PLIES.—A trade or business is described in this 

7 paragraph if such trade or business primarily in8 volves the performance of any of the following serv9 ices with respect to assets held (directly or indi10 rectly) by one or more investment partnerships re11 ferred to in paragraph (1): 

12 ‘‘(A) Advising as to the advisability of in13 vesting in, purchasing, or selling any specified 

14 asset. 

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

16 any specified asset. 

17 ‘‘(C) Arranging financing with respect to 

18 acquiring specified assets. 

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

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

21 ‘‘(3) INVESTMENT PARTNERSHIP.— 

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

23 partnership’ means any partnership if, at the 

24 end of any two consecutive calendar quarters 


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1 ending after the date of enactment of this sec2 tion— 

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

4 the partnership are specified assets (deter5 mined without regard to any section 197 

6 intangible within the meaning of section 

7 197(d)), and 

8 ‘‘(ii) less than 75 percent of the cap9 ital of the partnership is attributable to 

10 qualified capital interests which constitute 

11 property held in connection with a trade or 

12 business of the owner of such interest. 

13 ‘‘(B) LOOK-THROUGH OF CERTAIN WHOL14 LY OWNED ENTITIES FOR PURPOSES OF DETER15 MINING ASSETS OF THE PARTNERSHIP.— 

16 ‘‘(i) IN GENERAL.—For purposes of 

17 determining the assets of a partnership 

18 under subparagraph (A)(i)— 

19 ‘‘(I) any interest in a specified 

20 entity shall not be treated as an asset 

21 of such partnership, and 

22 ‘‘(II) such partnership shall be 

23 treated as holding its proportionate 

24 share of each of the assets of such 

25 specified entity. 


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1 ‘‘(ii) SPECIFIED ENTITY.—For pur2 poses of clause (i), the term ‘specified enti3 ty’ means, with respect to any partnership 

4 (hereafter referred to as the upper-tier 

5 partnership), any person which engages in 

6 the same trade or business as the upper7 tier partnership and is— 

8 ‘‘(I) a partnership all of the cap9 ital and profits interests of which are 

10 held directly or indirectly by the 

11 upper-tier partnership, or 

12 ‘‘(II) a foreign corporation which 

13 does not engage in a trade or business 

14 in the United States and all of the 

15 stock of which is held directly or indi16 rectly by the upper-tier partnership. 

17 ‘‘(C) SPECIAL RULES FOR DETERMINING

18 IF PROPERTY HELD IN CONNECTION WITH

19 TRADE OR BUSINESS.— 

20 ‘‘(i) IN GENERAL.—Except as other21 wise provided by the Secretary, solely for 

22 purposes of determining whether any inter23 est in a partnership constitutes property 

24 held in connection with a trade or business 

25 under subparagraph (A)(ii)— 


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1 ‘‘(I) a trade or business of any 

2 person closely related to the owner of 

3 such interest shall be treated as a 

4 trade or business of such owner, 

5 ‘‘(II) such interest shall be treat6 ed as held by a person in connection 

7 with a trade or business during any 

8 taxable year if such interest was so 

9 held by such person during any 3 tax10 able years preceding such taxable 

11 year, and 

12 ‘‘(III) paragraph (5)(B) shall not 

13 apply. 

14 ‘‘(ii) CLOSELY RELATED PERSONS.— 

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

16 shall be treated as closely related to an17 other person if, taking into account the 

18 rules of section 267(c), the relationship be19 tween such persons is described in— 

20 ‘‘(I) paragraph (1) or (9) of sec21 tion 267(b), or 

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

23 in the case of a trust with respect to 

24 which each current beneficiary is the 

25 grantor or a person whose relationship 


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1 to the grantor is described in para2 graph (1) or (9) of section 267(b). 

3 ‘‘(D) ANTI-ABUSE RULES.—The Secretary 

4 may issue regulations or other guidance which 

5 prevent the avoidance of the purposes of sub6 paragraph (A), including regulations or other 

7 guidance which treat convertible and contingent 

8 debt (and other debt having the attributes of 

9 equity) as a capital interest in the partnership. 

10 ‘‘(E) CONTROLLED GROUPS OF ENTI11 TIES.— 

12 ‘‘(i) IN GENERAL.—In the case of a 

13 controlled group of entities, if an interest 

14 in the partnership received in exchange for 

15 a contribution to the capital of the part16 nership by any member of such controlled 

17 group would (in the hands of such mem18 ber) constitute property held in connection 

19 with a trade or business, then any interest 

20 in such partnership held by any member of 

21 such group shall be treated for purposes of 

22 subparagraph (A) as constituting (in the 

23 hands of such member) property held in 

24 connection with a trade or business. 


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1 ‘‘(ii) CONTROLLED GROUP OF ENTI2 TIES.—For purposes of clause (i), the term 

3 ‘controlled group of entities’ means a con4 trolled group of corporations as defined in 

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

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

7 1563. A partnership or any other entity 

8 (other than a corporation) shall be treated 

9 as a member of a controlled group of enti10 ties if such entity is controlled (within the 

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

12 of such group (including any entity treated 

13 as a member of such group by reason of 

14 this sentence). 

15 ‘‘(F) SPECIAL RULE FOR CORPORA16 TIONS.—For purposes of this paragraph, in the 

17 case of a corporation, the determination of 

18 whether property is held in connection with a 

19 trade or business shall be determined as if the 

20 taxpayer were an individual. 

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

22 asset’ means securities (as defined in section 

23 475(c)(2) without regard to the last sentence there24 of), real estate held for rental or investment, inter25 ests in partnerships, commodities (as defined in secVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00064 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 tion 475(e)(2)), cash or cash equivalents, or options 

2 or derivative contracts with respect to any of the 

3 foregoing. 

4 ‘‘(5) RELATED PERSONS.— 

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

6 treated as related to another person if the rela7 tionship between such persons is described in 

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

9 ‘‘(B) ATTRIBUTION OF PARTNER SERV10 ICES.—Any service described in paragraph (2) 

11 which is provided by a partner of a partnership 

12 shall be treated as also provided by such part13 nership. 

14 ‘‘(d) EXCEPTION FOR CERTAIN CAPITAL INTER15 ESTS.— 

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

17 of an investment services partnership interest which 

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

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

20 qualified capital interest shall not be taken into ac21 count under subsection (a) if— 

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

23 partnership to such qualified capital interest in 

24 the same manner as such allocations are made 

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1 ners who do not provide any services described 

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

3 the partner holding the qualified capital inter4 est, and 

5 ‘‘(B) the allocations made to such other in6 terests are significant compared to the alloca7 tions made to such qualified capital interest. 

8 ‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO

9 ALLOCATION REQUIREMENTS.—To the extent pro10 vided by the Secretary in regulations or other guid11 ance— 

12 ‘‘(A) ALLOCATIONS TO PORTION OF QUALI13 FIED CAPITAL INTEREST.—Paragraph (1) may 

14 be applied separately with respect to a portion 

15 of a qualified capital interest. 

16 ‘‘(B) NO OR INSIGNIFICANT ALLOCATIONS

17 TO NONSERVICE PROVIDERS.—In any case in 

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

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

20 dividends) shall not be taken into account under 

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

22 properly allocable under such regulations or 

23 other guidance to qualified capital interests. 

24 ‘‘(C) ALLOCATIONS TO SERVICE PRO25 VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH


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1 ARE LESS THAN OTHER ALLOCATIONS.—Alloca2 tions shall not be treated as failing to meet the 

3 requirement of paragraph (1)(A) merely be4 cause the allocations to the qualified capital in5 terest represent a lower return than the alloca6 tions made to the other qualified capital inter7 ests referred to in such paragraph. 

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

9 AND CAPITAL CONTRIBUTIONS.—In the case of an 

10 interest in a partnership which was not an invest11 ment services partnership interest and which, by 

12 reason of a change in the services with respect to as13 sets held (directly or indirectly) by the partnership 

14 or by reason of a change in the capital contributions 

15 to such partnership, becomes an investment services 

16 partnership interest, the qualified capital interest of 

17 the holder of such partnership interest immediately 

18 after such change shall not, for purposes of this sub19 section, be less than the fair market value of such 

20 interest (determined immediately before such 

21 change). 

22 ‘‘(4) SPECIAL RULE FOR TIERED PARTNER23 SHIPS.—Except as otherwise provided by the Sec24 retary, in the case of tiered partnerships, all items 

25 which are allocated in a manner which meets the reVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00067 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 quirements of paragraph (1) to qualified capital in2 terests in a lower-tier partnership shall retain such 

3 character to the extent allocated on the basis of 

4 qualified capital interests in any upper-tier partner5 ship. 

6 ‘‘(5) EXCEPTION FOR NO-SELF-CHARGED

7 CARRY AND MANAGEMENT FEE PROVISIONS.—Ex8 cept as otherwise provided by the Secretary, an in9 terest shall not fail to be treated as satisfying the 

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

11 allocations made by the partnership to such interest 

12 do not reflect the cost of services described in sub13 section (c)(2) which are provided (directly or indi14 rectly) to the partnership by the holder of such in15 terest (or a related person). 

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

17 case of any investment services partnership interest 

18 any portion of which is a qualified capital interest, 

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

20 gain or loss as bears the same proportion to the en21 tire amount of such gain or loss as— 

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

23 that would have been allocated to the qualified 

24 capital interest (consistent with the require25 ments of paragraph (1)) if the partnership had 


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1 sold all of its assets at fair market value imme2 diately before the disposition, bears to 

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

4 that would have been so allocated to the invest5 ment services partnership interest of which such 

6 qualified capital interest is a part. 

7 ‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur8 poses of this section— 

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

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

11 interest in the capital of the partnership as is 

12 attributable to— 

13 ‘‘(i) the fair market value of any 

14 money or other property contributed to the 

15 partnership in exchange for such interest 

16 (determined without regard to section 

17 752(a)), 

18 ‘‘(ii) any amounts which have been in19 cluded in gross income under section 83 

20 with respect to the transfer of such inter21 est, and 

22 ‘‘(iii) the excess (if any) of— 

23 ‘‘(I) any items of income and 

24 gain taken into account under section 

25 702 with respect to such interest, over 


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1 ‘‘(II) any items of deduction and 

2 loss so taken into account. 

3 ‘‘(B) ADJUSTMENT TO QUALIFIED CAPITAL

4 INTEREST.— 

5 ‘‘(i) DISTRIBUTIONS AND LOSSES.— 

6 The qualified capital interest shall be re7 duced by distributions from the partner8 ship with respect to such interest and by 

9 the excess (if any) of the amount described 

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

11 amount described in subparagraph 

12 (A)(iii)(I). 

13 ‘‘(ii) SPECIAL RULE FOR CONTRIBU14 TIONS OF PROPERTY.—In the case of any 

15 contribution of property described in sub16 paragraph (A)(i) with respect to which the 

17 fair market value of such property is not 

18 equal to the adjusted basis of such prop19 erty immediately before such contribution, 

20 proper adjustments shall be made to the 

21 qualified capital interest to take into ac22 count such difference consistent with such 

23 regulations or other guidance as the Sec24 retary may provide. 


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1 ‘‘(C) TECHNICAL TERMINATIONS, ETC., 

2 DISREGARDED.—No increase or decrease in the 

3 qualified capital interest of any partner shall re4 sult from a termination, merger, consolidation, 

5 or division described in section 708, or any 

6 similar transaction. 

7 ‘‘(8) TREATMENT OF CERTAIN LOANS.— 

8 ‘‘(A) PROCEEDS OF PARTNERSHIP LOANS

9 NOT TREATED AS QUALIFIED CAPITAL INTER10 EST OF SERVICE PROVIDING PARTNERS.—For 

11 purposes of this subsection, an investment serv12 ices partnership interest shall not be treated as 

13 a qualified capital interest to the extent that 

14 such interest is acquired in connection with the 

15 proceeds of any loan or other advance made or 

16 guaranteed, directly or indirectly, by any other 

17 partner or the partnership (or any person re18 lated to any such other partner or the partner19 ship). The preceding sentence shall not apply to 

20 the extent the loan or other advance is repaid 

21 before the date of enactment of this section un22 less such repayment is made with the proceeds 

23 of a loan or other advance described in the pre24 ceding sentence. 


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1 ‘‘(B) REDUCTION IN ALLOCATIONS TO

2 QUALIFIED CAPITAL INTERESTS FOR LOANS

3 FROM NONSERVICE-PROVIDING PARTNERS TO

4 THE PARTNERSHIP.—For purposes of this sub5 section, any loan or other advance to the part6 nership made or guaranteed, directly or indi7 rectly, by a partner not providing services de8 scribed in subsection (c)(2) to the partnership 

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

10 taken into account in determining the qualified 

11 capital interests of the partners in the partner12 ship. 

13 ‘‘(9) SPECIAL RULE FOR QUALIFIED FAMILY

14 PARTNERSHIPS.— 

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

16 specified family partnership interest, paragraph 

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

18 phrase ‘and who are not related to the partner 

19 holding the qualified capital interest’. 

20 ‘‘(B) SPECIFIED FAMILY PARTNERSHIP IN21 TEREST.—For purposes of this paragraph, the 

22 term ‘specified family partnership interest’ 

23 means any investment services partnership in24 terest if— 


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

2 qualified family partnership, 

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

4 person or by a trust with respect to which 

5 each beneficiary is a grantor or a person 

6 whose relationship to the grantor is de7 scribed in section 267(b)(1), and 

8 ‘‘(iii) all other interests in such quali9 fied family partnership with respect to 

10 which significant allocations are made 

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

12 and in comparison to the allocations made 

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

14 held by persons who— 

15 ‘‘(I) are related to the natural 

16 person or trust referred to in clause 

17 (ii), or 

18 ‘‘(II) provide services described 

19 in subsection (c)(2). 

20 ‘‘(C) QUALIFIED FAMILY PARTNERSHIP.— 

21 For purposes of this paragraph, the term 

22 ‘qualified family partnership’ means any part23 nership if— 

24 ‘‘(i) all of the capital and profits in25 terests of such partnership are held by— 


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1 ‘‘(I) specified family members, 

2 ‘‘(II) any person closely related 

3 (within the meaning of subsection 

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

5 member, or 

6 ‘‘(III) any other person (not de7 scribed in subclause (I) or (II)) if 

8 such interest is an investment services 

9 partnership interest with respect to 

10 such person, and 

11 ‘‘(ii) such partnership does not hold 

12 itself out to the public as an investment 

13 advisor. 

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

15 purposes of subparagraph (C), individuals shall 

16 be treated as specified family members if such 

17 individuals would be treated as one person 

18 under the rules of section 1361(c)(1) if the ap19 plicable date (within the meaning of subpara20 graph (B)(iii) thereof) were the latest of— 

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

22 the partnership, 

23 ‘‘(ii) the earliest date that the com24 mon ancestor holds a capital or profits in25 terest in the partnership, or 


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

2 section. 

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

4 WITH INVESTMENT MANAGEMENT SERVICES.— 

5 ‘‘(1) IN GENERAL.—If— 

6 ‘‘(A) a person performs (directly or indi7 rectly) investment management services for any 

8 investment entity, 

9 ‘‘(B) such person holds (directly or indi10 rectly) a disqualified interest with respect to 

11 such entity, and 

12 ‘‘(C) the value of such interest (or pay13 ments thereunder) is substantially related to 

14 the amount of income or gain (whether or not 

15 realized) from the assets with respect to which 

16 the investment management services are per17 formed, 

18 any income or gain with respect to such interest 

19 shall be treated as ordinary income. Rules similar to 

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

21 for purposes of this subsection. 

22 ‘‘(2) DEFINITIONS.—For purposes of this sub23 section— 

24 ‘‘(A) DISQUALIFIED INTEREST.— 


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1 ‘‘(i) IN GENERAL.—The term ‘dis2 qualified interest’ means, with respect to 

3 any investment entity— 

4 ‘‘(I) any interest in such entity 

5 other than indebtedness, 

6 ‘‘(II) convertible or contingent 

7 debt of such entity, 

8 ‘‘(III) any option or other right 

9 to acquire property described in sub10 clause (I) or (II), and 

11 ‘‘(IV) any derivative instrument 

12 entered into (directly or indirectly) 

13 with such entity or any investor in 

14 such entity. 

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

16 not include— 

17 ‘‘(I) a partnership interest, 

18 ‘‘(II) except as provided by the 

19 Secretary, any interest in a taxable 

20 corporation, and 

21 ‘‘(III) except as provided by the 

22 Secretary, stock in an S corporation. 

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

24 ‘taxable corporation’ means— 

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


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1 ‘‘(ii) a foreign corporation substan2 tially all of the income of which is— 

3 ‘‘(I) effectively connected with 

4 the conduct of a trade or business in 

5 the United States, or 

6 ‘‘(II) subject to a comprehensive 

7 foreign income tax (as defined in sec8 tion 457A(d)(2)). 

9 ‘‘(C) INVESTMENT MANAGEMENT SERV10 ICES.—The term ‘investment management serv11 ices’ means a substantial quantity of any of the 

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

13 ‘‘(D) INVESTMENT ENTITY.—The term ‘in14 vestment entity’ means any entity which, if it 

15 were a partnership, would be an investment 

16 partnership. 

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

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

19 of a domestic C corporation— 

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

21 any item allocated to such corporation with respect 

22 to any investment services partnership interest (or 

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

24 such an interest), and 

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


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

2 such regulations or other guidance as is necessary or ap3 propriate to carry out the purposes of this section, includ4 ing regulations or other guidance to— 

5 ‘‘(1) require such reporting and recordkeeping 

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

7 the Secretary may prescribe for purposes of enabling 

8 the partnership to meet the requirements of section 

9 6031 with respect to any item described in section 

10 702(a)(9), 

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

12 this section (including treating related persons as 

13 not related to one another) to the extent such modi14 fication is consistent with the purposes of this sec15 tion, 

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

17 this section (including through the use of qualified 

18 family partnerships), and 

19 ‘‘(4) coordinate this section with the other pro20 visions of this title. 

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

22 certain underpayments due to the avoidance of this sec23 tion, see section 6662.’’. 


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1 (b) APPLICATION OF SECTION 751 TO INDIRECT DIS2 POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN3 TERESTS.— 

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

5 751 is amended by striking ‘‘or’’ at the end of para6 graph (1), by inserting ‘‘or’’ at the end of paragraph 

7 (2), and by inserting after paragraph (2) the fol8 lowing new paragraph: 

9 ‘‘(3) investment services partnership interests 

10 held by the partnership,’’. 

11 (2) CERTAIN DISTRIBUTIONS TREATED AS

12 SALES OR EXCHANGES.—Subparagraph (A) of sec13 tion 751(b)(1) is amended by striking ‘‘or’’ at the 

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

15 clause (ii), and by inserting after clause (ii) the fol16 lowing new clause: 

17 ‘‘(iii) investment services partnership 

18 interests held by the partnership,’’. 

19 (3) APPLICATION OF SPECIAL RULES IN THE

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

21 section 751 is amended— 

22 (A) by striking ‘‘or’’ at the end of para23 graph (1), by inserting ‘‘or’’ at the end of para24 graph (2), and by inserting after paragraph (2) 

25 the following new paragraph: 


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1 ‘‘(3) an investment services partnership interest 

2 held by the partnership,’’, and 

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

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

5 holds an investment services partnership inter6 est).’’. 

7 (4) INVESTMENT SERVICES PARTNERSHIP IN8 TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 

9 751 is amended by adding at the end the following 

10 new subsection: 

11 ‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER12 ESTS.—For purposes of this section— 

13 ‘‘(1) IN GENERAL.—The term ‘investment serv14 ices partnership interest’ has the meaning given 

15 such term by section 710(c). 

16 ‘‘(2) ADJUSTMENTS FOR QUALIFIED CAPITAL

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

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

19 include so much of such amount as is attributable 

20 to any portion of the investment services partnership 

21 interest which is a qualified capital interest (deter22 mined under rules similar to the rules of section 

23 710(d)). 

24 ‘‘(3) EXCEPTION FOR PUBLICLY TRADED PART25 NERSHIPS.—Except as otherwise provided by the 


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

2 in a publicly traded partnership (as defined in sec3 tion 7704) to which subsection (a) applies— 

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

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

6 (f)(3), and 

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

8 owning its proportionate share of the property 

9 of any other partnership in which it is a part10 ner. 

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

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

13 paragraph (3) thereof shall be recognized notwith14 standing any other provision of this title. 

15 ‘‘(5) COORDINATION WITH INVENTORY

16 ITEMS.—An investment services partnership interest 

17 held by the partnership shall not be treated as an 

18 inventory item of the partnership. 

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

20 Under regulations or other guidance prescribed by 

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

22 respect to any amount to which section 710 applies. 

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

24 shall prescribe regulations or other guidance which 

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1 ment services partnership interests for purposes of 

2 this section.’’. 

3 (c) TREATMENT FOR PURPOSES OF SECTION

4 7704.—Subsection (d) of section 7704 is amended by add5 ing at the end the following new paragraph: 

6 ‘‘(6) INCOME FROM CERTAIN CARRIED INTER7 ESTS NOT QUALIFIED.— 

8 ‘‘(A) IN GENERAL.—Specified carried in9 terest income shall not be treated as qualifying 

10 income. 

11 ‘‘(B) SPECIFIED CARRIED INTEREST IN12 COME.—For purposes of this paragraph— 

13 ‘‘(i) IN GENERAL.—The term ‘speci14 fied carried interest income’ means— 

15 ‘‘(I) any item of income or gain 

16 allocated to an investment services 

17 partnership interest (as defined in 

18 section 710(c)) held by the partner19 ship, 

20 ‘‘(II) any gain on the disposition 

21 of an investment services partnership 

22 interest (as so defined) or a partner23 ship interest to which (in the hands of 

24 the partnership) section 751 applies, 

25 and 


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1 ‘‘(III) any income or gain taken 

2 into account by the partnership under 

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

4 710. 

5 ‘‘(ii) EXCEPTION FOR QUALIFIED CAP6 ITAL INTERESTS.—A rule similar to the 

7 rule of section 710(d) shall apply for pur8 poses of clause (i). 

9 ‘‘(C) COORDINATION WITH OTHER PROVI10 SIONS.—Subparagraph (A) shall not apply to 

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

12 much of paragraph (1)(F) as relates to para13 graph (1)(E)). 

14 ‘‘(D) SPECIAL RULES FOR CERTAIN PART15 NERSHIPS.— 

16 ‘‘(i) CERTAIN PARTNERSHIPS OWNED

17 BY REAL ESTATE INVESTMENT TRUSTS.— 

18 Subparagraph (A) shall not apply in the 

19 case of a partnership which meets each of 

20 the following requirements: 

21 ‘‘(I) Such partnership is treated 

22 as publicly traded under this section 

23 solely by reason of interests in such 

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1 terests in a real estate investment 

2 trust which is publicly traded. 

3 ‘‘(II) Fifty percent or more of 

4 the capital and profits interests of 

5 such partnership are owned, directly 

6 or indirectly, at all times during the 

7 taxable year by such real estate in8 vestment trust (determined with the 

9 application of section 267(c)). 

10 ‘‘(III) Such partnership meets 

11 the requirements of paragraphs (2), 

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

13 ‘‘(ii) CERTAIN PARTNERSHIPS OWN14 ING OTHER PUBLICLY TRADED PARTNER15 SHIPS.—Subparagraph (A) shall not apply 

16 in the case of a partnership which meets 

17 each of the following requirements: 

18 ‘‘(I) Substantially all of the as19 sets of such partnership consist of in20 terests in one or more publicly traded 

21 partnerships (determined without re22 gard to subsection (b)(2)). 

23 ‘‘(II) Substantially all of the in24 come of such partnership is ordinary 


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1 income or section 1231 gain (as de2 fined in section 1231(a)(3)). 

3 ‘‘(E) TRANSITIONAL RULE.—Subpara4 graph (A) shall not apply to any taxable year 

5 of the partnership beginning before the date 

6 which is 10 years after the date of enactment 

7 of this paragraph.’’. 

8 (d) IMPOSITION OF PENALTY ON UNDERPAY9 MENTS.— 

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

11 6662 is amended by inserting after paragraph (8) 

12 the following new paragraph: 

13 ‘‘(9) The application of section 710(e) or the 

14 regulations or other guidance prescribed under sec15 tion 710(g) to prevent the avoidance of the purposes 

16 of section 710.’’. 

17 (2) AMOUNT OF PENALTY.— 

18 (A) IN GENERAL.—Section 6662 is amend19 ed by adding at the end the following new sub20 section: 

21 ‘‘(l) INCREASE IN PENALTY IN CASE OF PROPERTY

22 TRANSFERRED FOR INVESTMENT MANAGEMENT SERV23 ICES.—In the case of any portion of an underpayment to 

24 which this section applies by reason of subsection (b)(9), 


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

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

3 (B) CONFORMING AMENDMENT.—Subpara4 graph (B) of section 6662A(e)(2) is amended 

5 by striking ‘‘or (i)’’ and inserting ‘‘, (i), or (l)’’. 

6 (3) SPECIAL RULES FOR APPLICATION OF REA7 SONABLE CAUSE EXCEPTION.—Subsection (c) of sec8 tion 6664 is amended— 

9 (A) by redesignating paragraphs (3) and 

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

11 (B) by striking ‘‘paragraph (3)’’ in para12 graph (5)(A), as so redesignated, and inserting 

13 ‘‘paragraph (4)’’; and 

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

15 following new paragraph: 

16 ‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT17 TRIBUTABLE TO INVESTMENT MANAGEMENT SERV18 ICES.— 

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

20 not apply to any portion of an underpayment to 

21 which section 6662 applies by reason of sub22 section (b)(9) unless— 

23 ‘‘(i) the relevant facts affecting the 

24 tax treatment of the item are adequately 

25 disclosed, 


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1 ‘‘(ii) there is or was substantial au2 thority for such treatment, and 

3 ‘‘(iii) the taxpayer reasonably believed 

4 that such treatment was more likely than 

5 not the proper treatment. 

6 ‘‘(B) RULES RELATING TO REASONABLE

7 BELIEF.—Rules similar to the rules of sub8 section (d)(4) shall apply for purposes of sub9 paragraph (A)(iii).’’. 

10 (e) INCOME AND LOSS FROM INVESTMENT SERVICES

11 PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE12 TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 

13 (1) INTERNAL REVENUE CODE.— 

14 (A) IN GENERAL.—Section 1402(a) is 

15 amended by striking ‘‘and’’ at the end of para16 graph (16), by striking the period at the end of 

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

18 inserting after paragraph (17) the following 

19 new paragraph: 

20 ‘‘(18) notwithstanding the preceding provisions 

21 of this subsection, in the case of any individual en22 gaged in the trade or business of providing services 

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

24 entity, investment services partnership income or 

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


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1 with respect to such entity shall be taken into ac2 count in determining the net earnings from self-em3 ployment of such individual.’’. 

4 (B) INVESTMENT SERVICES PARTNERSHIP

5 INCOME OR LOSS.—Section 1402 is amended by 

6 adding at the end the following new subsection: 

7 ‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME

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

9 ‘‘(1) IN GENERAL.—The term ‘investment serv10 ices partnership income or loss’ means, with respect 

11 to any investment services partnership interest (as 

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

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

14 ‘‘(A) the amounts treated as ordinary in15 come or ordinary loss under subsections (b) and 

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

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

18 deduction allocated to such interest, and 

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

20 the sale or exchange of property other than a 

21 capital asset under section 751 with respect to 

22 such interest. 

23 ‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN24 TERESTS.—A rule similar to the rule of section 


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1 710(d) shall apply for purposes of applying para2 graph (1)(B).’’. 

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

4 the Social Security Act is amended by striking 

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

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

7 and’’, and by inserting after paragraph (16) the fol8 lowing new paragraph: 

9 ‘‘(17) Notwithstanding the preceding provisions 

10 of this subsection, in the case of any individual en11 gaged in the trade or business of providing services 

12 described in section 710(c)(2) of the Internal Rev13 enue Code of 1986 with respect to any entity, invest14 ment services partnership income or loss (as defined 

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

16 account in determining the net earnings from self17 employment of such individual.’’. 

18 (f) SEPARATE ACCOUNTING BY PARTNER.—Section 

19 702(a) is amended by striking ‘‘and’’ at the end of para20 graph (7), by striking the period at the end of paragraph 

21 (8) and inserting ‘‘, and’’, and by inserting after para22 graph (8) the following: 

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

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

25 710.’’. 


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1 (g) CONFORMING AMENDMENTS.— 

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

3 inserting ‘‘section 710(b)(4) (relating to distribu4 tions of partnership property),’’ after ‘‘to the extent 

5 otherwise provided by’’. 

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

7 section 710 (relating to special rules for partners 

8 providing investment management services to part9 nerships)’’ before the period at the end. 

10 (3) The table of sections for part I of sub11 chapter K of chapter 1 is amended by adding at the 

12 end the following new item: 

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

to partnerships.’’. 

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

14 amended by striking section 1061. 

15 (B) The table of sections for part IV of sub16 chapter O of chapter 1 is amended by striking the 

17 item relating to section 1061. 

18 (h) EFFECTIVE DATE.— 

19 (1) IN GENERAL.—Except as otherwise pro20 vided in this subsection, the amendments made by 

21 this section shall apply to taxable years ending after 

22 the date of enactment of this Act. 

23 (2) PARTNERSHIP TAXABLE YEARS WHICH IN24 CLUDE EFFECTIVE DATE.—In applying section 


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1 710(a) of the Internal Revenue Code of 1986 (as 

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

3 taxable year which includes the date of enactment of 

4 this Act, the amount of the net capital gain referred 

5 to in such section shall be treated as being the lesser 

6 of the net capital gain for the entire partnership tax7 able year or the net capital gain determined by only 

8 taking into account items attributable to the portion 

9 of the partnership taxable year which is after such 

10 date. 

11 (3) DISPOSITIONS OF PARTNERSHIP INTER12 ESTS.— 

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

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

15 dispositions and distributions after the date of 

16 enactment of this Act. 

17 (B) INDIRECT DISPOSITIONS.—The amend18 ments made by subsection (b) shall apply to 

19 transactions after the date of enactment of this 

20 Act. 

21 (4) OTHER INCOME AND GAIN IN CONNECTION

22 WITH INVESTMENT MANAGEMENT SERVICES.—Sec23 tion 710(e) of such Code (as added by this section) 

24 shall take effect on the date of enactment of this 

25 Act. 


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1 TITLE V—INVESTOR PROTEC2 TION AND MARKET TRANS3 PARENCY 

4 SEC. 501. DISCLOSURE OF FEES AND RETURNS. 

5 The Investment Company Act of 1940 (15 U.S.C. 

6 80a–1 et seq.) is amended by adding at the end the fol7 lowing: 

8 ‘‘SEC. 66. DISCLOSURE OF FEES AND RETURNS. 

9 ‘‘(a) DEFINITIONS.—In this section, the terms ‘pri10 vate fund’ and ‘target firm’ have the meanings given the 

11 terms in section 3 of the Stop Wall Street Looting Act. 

12 ‘‘(b) RULES.—Not later than 1 year after the date 

13 of enactment of this section, the Commission shall issue 

14 final rules that require a private fund to, using generally 

15 accepted accounting principles, annually report the fol16 lowing information with respect to that private fund: 

17 ‘‘(1) The name, address, and vintage year of 

18 the fund. 

19 ‘‘(2) The name of each general partner of the 

20 fund. 

21 ‘‘(3) The name of each limited partner of the 

22 fund. 

23 ‘‘(4) A list of each entity with respect to which 

24 the fund owns a percentage. 


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1 ‘‘(5) In dollars, the total amount of regulatory 

2 assets under management by the fund. 

3 ‘‘(6) In dollars, the total amount of net assets 

4 under management by the fund. 

5 ‘‘(7) The percentage of fund equity contributed 

6 by the general partners of the fund and the percent7 age of fund equity contributed by the limited part8 ners of the fund. 

9 ‘‘(8) Information on the debt held by the fund, 

10 including— 

11 ‘‘(A) the dollar amount of total debt; 

12 ‘‘(B) the percentage of debt for which the 

13 creditor is a financial institution in the United 

14 States; 

15 ‘‘(C) the percentage of debt for which the 

16 creditor is a financial institution outside of the 

17 United States; 

18 ‘‘(D) the percentage of debt for which the 

19 creditor is an entity that is located in the 

20 United States and is not a financial institution; 

21 and 

22 ‘‘(E) the percentage of debt for which the 

23 creditor is an entity that is located outside of 

24 the United States and is not a financial institu25 tion. 


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1 ‘‘(9) The gross performance of the fund during 

2 the year covered by the report. 

3 ‘‘(10) For the year covered by the report, the 

4 difference obtained by subtracting the financial 

5 gains of the fund by the fees that the general part6 ners of the fund charged to the limited partners of 

7 the fund (commonly referred to as the ‘performance 

8 net of fees’). 

9 ‘‘(11) For the year covered by the report, an 

10 annual financial statement, which shall include in11 come statements, a balance sheet, and cash flow 

12 statements. 

13 ‘‘(12) The average debt-to-equity ratio of each 

14 target firm with respect to the fund and the debt15 to-equity ratio of each such target firm. 

16 ‘‘(13) The total gross asset value of each target 

17 firm with respect to the fund and the gross asset 

18 value of each such target firm. 

19 ‘‘(14) The total amount of debt held by each 

20 target firm with respect to the fund and the total 

21 amount of debt held by each such target firm. 

22 ‘‘(15) The total amount of debt held by each 

23 target firm with respect to the fund that, as of the 

24 date on which the report is submitted, are catVerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00094 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848

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1 egorized as liabilities, long-term liabilities, and pay2 ment in kind or zero coupon debt. 

3 ‘‘(16) The total number of target firms with re4 spect to the fund that experienced default during the 

5 period covered by the report, including the name of 

6 any such target firm. 

7 ‘‘(17) The total number of the target firms with 

8 respect to the fund with respect to which a case was 

9 commenced under title 11, United States Code, dur10 ing the period covered by the report, including the 

11 name of any such target firm. 

12 ‘‘(18) The percentage of the equity of the fund 

13 that is owned by— 

14 ‘‘(A) citizens of the United States; 

15 ‘‘(B) individuals who are not citizens of the 

16 United States; 

17 ‘‘(C) brokers or dealers; 

18 ‘‘(D) insurance companies; 

19 ‘‘(E) investment companies that are reg20 istered with the Commission under this Act; 

21 ‘‘(F) private funds and other investment 

22 companies not required to be registered with 

23 the Commission; 

24 ‘‘(G) nonprofit organizations; 


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1 ‘‘(H) pension plans maintained by State or 

2 local governments (or an agency or instrumen3 tality of either); 

4 ‘‘(I) pension plans maintained by non5 governmental employers; 

6 ‘‘(J) State or municipal government enti7 ties; 

8 ‘‘(K) banking or thrift institutions; 

9 ‘‘(L) sovereign wealth funds; and 

10 ‘‘(M) other investors. 

11 ‘‘(19) The total dollar amount of aggregate fees 

12 and expenses collected by the fund, the manager of 

13 the fund, or related parties from target firms with 

14 respect to the fund, which shall— 

15 ‘‘(A) be categorized by the type of fee; and 

16 ‘‘(B) include a description of the purpose 

17 of the fees. 

18 ‘‘(20) The total dollar amount of aggregate fees 

19 and expenses collected by the fund, the manager of 

20 the fund, or related parties from the limited part21 ners of the fund, which shall— 

22 ‘‘(A) be categorized by the type of fee; and 

23 ‘‘(B) include a description of the purpose 

24 of the fees. 


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1 ‘‘(21) The total carried interest claimed by the 

2 fund, the manager of the fund, or related parties 

3 and the total dollar amount of carried interest dis4 tributed to the limited partners of the fund. 

5 ‘‘(22) A description of, during the year covered 

6 by the report, any material changes in risk factors 

7 at the fund level, including— 

8 ‘‘(A) concentration risk; 

9 ‘‘(B) foreign exchange risk; and 

10 ‘‘(C) extra-financial risk, including envi11 ronmental, social, and corporate governance 

12 risk. 

13 ‘‘(23) Any other information that the Commis14 sion determines is necessary and appropriate for the 

15 protection of investors. 

16 ‘‘(c) PERIODIC REVIEW.—The Commission shall, 

17 with respect to the rules issued under subsection (b)— 

18 ‘‘(1) review the rules once every 5 years; and 

19 ‘‘(2) revise the rules as necessary to ensure that 

20 the disclosures required under the rules reflect con21 temporary (as of the date on which the rules are re22 vised) trends and characteristics with respect to pri23 vate investment markets. 

24 ‘‘(d) PUBLIC AVAILABILITY.—Notwithstanding any 

25 provision of section 204 of the Investment Advisers Act 


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1 of 1940 (15 U.S.C. 80b–4), the information disclosed 

2 under the rules issued under subsection (b) shall be made 

3 available to the public.’’. 

4 SEC. 502. FIDUCIARY OBLIGATIONS. 

5 (a) FIDUCIARY DUTIES UNDER ERISA.—Section 

6 401(b)(1) of the Employee Retirement Income Security 

7 Act of 1974 (29 U.S.C. 1101(b)(1)) is amended— 

8 (1) by inserting ‘‘or a private fund (as defined 

9 in section 3 of the Stop Wall Street Looting Act)’’ 

10 before ‘‘, the assets’’; and 

11 (2) by inserting ‘‘or such private fund, as appli12 cable’’ before the period at the end. 

13 (b) PROHIBITION AGAINST WAIVING FIDUCIARY DU14 TIES.—Section 211(h) of the Investment Advisers Act of 

15 1940 (15 U.S.C. 80b–11(h)) is amended— 

16 (1) in paragraph (1), by striking ‘‘and’’ at the 

17 end; 

18 (2) in paragraph (2), by striking the period at 

19 the end and inserting ‘‘; and’’; and 

20 (3) by adding at the end the following: 

21 ‘‘(3) promulgate rules that prohibit an invest22 ment adviser from requiring any person to which the 

23 investment adviser provides investment advice, in24 cluding a pension plan (as defined in section 3 of the 

25 Employee Retirement Income Security Act of 1974 


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1 (29 U.S.C. 1002)) that is subject to title I of the 

2 Employee Retirement Income Security Act of 1974 

3 (29 U.S.C. 1001 et seq.), to, as a condition of the 

4 investment adviser providing that advice, sign a con5 tract or other agreement in which that person waives 

6 a fiduciary duty owed by that person to another per7 son.’’. 

8 (c) APPLICABILITY OF BENEFITS.—The general 

9 partner of a private fund may not provide any term or 

10 benefit to any limited partner of the fund unless the gen11 eral partner provides that term or benefit to all limited 

12 partners of the fund. 

13 SEC. 503. DISCLOSURES RELATING TO THE MARKETING OF 

14 PRIVATE EQUITY FUNDS. 

15 Any investment adviser to a private fund shall dis16 close to potential investors with respect to the other pri17 vate funds, as defined in section 202(a) of the Investment 

18 Advisers Act of 1940 (15 U.S.C. 80b–2(a)), managed by 

19 that investment adviser (referred to in this section as 

20 ‘‘managed firms’’) the following information: 

21 (1) A list of all managed firms with respect to 

22 the investment adviser, including those managed 

23 firms that, as of the date on which the disclosure is 

24 made— 

25 (A) have active investments; and 


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1 (B) have liquidated the assets of the firms. 

2 (2) For each managed firm listed under para3 graph (1), the following information: 

4 (A) As applicable, the total term of the 

5 listed firm beginning with the commencement of 

6 the commitment period with respect to the firm 

7 and ending on the date on which the firm is 

8 dissolved, including, with respect to a listed 

9 firm that, as of the date on which the disclosure 

10 is made, is actively investing— 

11 (i) the term specified by any limited 

12 partnership agreement; and 

13 (ii) the nature of any provisions that 

14 would allow for the extension of that term. 

15 (B) The performance of the listed firm’s 

16 net of fees, as measured by the public market 

17 equivalent or a similar measure. 

18 (C) A list of target firms with respect to 

19 which the listed firm was a control person and 

20 the period of that control. 

21 (D) The number of employees at each tar22 get firm identified under subparagraph (C), as 

23 of the date on which the listed firm became a 

24 control person with respect to the target firm, 

25 and the date on which the listed firm ceased to 


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1 be a control person with respect to the target 

2 firm. 

3 (E) A list of target firms with respect to 

4 the listed firm with respect to which a case has 

5 been commenced under title 11, United States 

6 Code. 

7 (F) For each target firm with respect to 

8 the listed firm, and with respect to which the 

9 listed firm is a control person— 

10 (i) a list of actions taken by any State 

11 or local regulatory agency; and 

12 (ii) any legal or regulatory penalties 

13 paid, or settlements entered into, by the 

14 general partners of the target firm or the 

15 target firm itself. 

16 (3) The percentage breakdown of the means 

17 employed by the investment adviser to divest owner18 ship or control of target firms, including— 

19 (A) the sale of target firms to other pri20 vate funds; 

21 (B) the sale of target firms to private enti22 ties; 

23 (C) the sale of target firms to issuers, the 

24 securities of which are traded on a national se25 curities exchange; 


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1 (D) the commencement of cases under title 

2 11, United States Code, with respect to target 

3 firms; and 

4 (E) initial public offerings with respect to 

5 target firms. 

6 TITLE VI—RESTRICTIONS ON 

7 SECURITIZING RISKY COR8 PORATE DEBT 

9 SEC. 601. RISK RETENTION REQUIREMENTS FOR 

10 SECURITIZATION OF CORPORATE DEBT. 

11 Section 15G of the Securities Exchange Act of 1934 

12 (15 U.S.C. 78o–11) is amended— 

13 (1) in subsection (a)(3)— 

14 (A) in subparagraph (A), by striking ‘‘or’’ 

15 at the end; 

16 (B) in subparagraph (B), by striking 

17 ‘‘and’’ at the end and inserting ‘‘or’’; and 

18 (C) by adding at the end the following: 

19 ‘‘(C) a manager of a collateralized debt ob20 ligation; and’’; 

21 (2) by redesignating subsection (i) as subsection 

22 (j); and 

23 (3) by inserting after subsection (h) the fol24 lowing: 


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1 ‘‘(i) RULES OF CONSTRUCTION.—With respect to a 

2 securitizer described in subsection (a)(3)(C)— 

3 ‘‘(1) any provision of this section that requires 

4 that securitizer to retain a portion of the credit risk 

5 for an asset that such securitizer does not hold, or 

6 has never held, shall be construed as requiring that 

7 securitizer to obtain that portion of the credit risk 

8 for that asset; and 

9 ‘‘(2) any reference in this section to an asset 

10 transferred by the securitizer shall be construed to 

11 include any transfer caused by the securitizer.’’. 

12 TITLE VII—MISCELLANEOUS 

13 SEC. 701. ANTI-EVASION. 

14 It shall be unlawful to conduct any activity, including 

15 by entering into an agreement or contract, engaging in 

16 a transaction, or structuring an entity, to willfully evade 

17 or attempt to evade any provision of this Act. 

18 SEC. 702. SEVERABILITY. 

19 If any provision of this Act or the application of such 

20 a provision to any person or circumstance is held to be 

21 invalid or unconstitutional, the remainder of this Act and 

22 the application of the provisions of this Act to any person 

23 or circumstance shall remain and shall not be affected by 

24 that holding. 

Æ 


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