II 

116TH CONGRESS 

1ST SESSION S. 1639 

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

partnership interests received in connection with the performance of 

services, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 23 (legislative day, MAY 22), 2019 

Mr. WYDEN (for himself and Mr. WHITEHOUSE) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to revise 

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

purposes. 

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

3 SECTION 1. SHORT TITLE. 

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

5 Interest Loophole Act’’. 


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

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

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

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

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

9 provided by the Secretary— 

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

11 transfer of an interest in a partnership in con12 nection with the performance of services for (or 

13 for the benefit of) such partnership— 

14 ‘‘(i) the fair market value of such in15 terest shall be treated for purposes of this 

16 section as being equal to the amount of the 

17 distribution which the partner would re18 ceive if the partnership sold (at the time of 

19 the transfer) all of its assets at fair market 

20 value and distributed the proceeds of such 

21 sale (reduced by the liabilities of the part22 nership) to its partners in liquidation of 

23 the partnership, and 

24 ‘‘(ii) the person receiving such interest 

25 shall be treated as having made the elec26 tion under subsection (b)(1) unless such 


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

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

5 by the Secretary, if, by reason of subparagraph 

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

7 interest transferred to a person, then the 

8 amount included in the gross income of such 

9 person by reason of such subsection shall (at 

10 the time of the transfer)— 

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

12 capital account of such person with respect 

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

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

16 partnership interest under section 1299 at 

17 any time, be treated as invested capital of 

18 such person with respect to such interest 

19 for purposes of such section. 

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

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

23 ‘‘(D) PARTNERSHIP INTEREST.— 

24 ‘‘(i) IN GENERAL.—For purposes of 

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1 strument or contract (as defined in section 

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

3 other than a partnership which is treated 

4 as an applicable partnership interest under 

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

6 interest in a partnership. 

7 ‘‘(ii) REGULATIONS.—The Secretary 

8 shall by regulations provide rules for the 

9 application of this paragraph to applicable 

10 financial instruments or contracts (as so 

11 defined) or interests in entities other than 

12 partnerships which are treated as partner13 ship interests under clause (i).’’. 

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

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

17 SEC. 3. TREATMENT OF CERTAIN PARTNERSHIP INTER18 ESTS RECEIVED IN CONNECTION WITH PER19 FORMANCE OF SERVICES. 

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

21 Internal Revenue Code of 1986 is amended by adding at 

22 the end the following new part: 


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

3 WITH PERFORMANCE OF SERVICES 

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

with performance of services. 

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

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

8 holds 1 or more applicable partnership interests in any 

9 partnership at any time during any taxable year of the 

10 partnership ending with or within the taxable year of the 

11 taxpayer— 

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

13 of the taxpayer as ordinary income an amount equal 

14 to the aggregate of the deemed compensation 

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

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

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

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

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

22 purposes of this section— 


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

2 subsection, the term ‘applicable partnership interest’ 

3 means any interest in a partnership which— 

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

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

6 performance of services by the taxpayer, or any 

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

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

10 applicable loan. 

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

13 subsection (c)(5) applies. 

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

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

18 includes— 

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

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

22 Secretary, any interest in an entity other 

23 than a partnership if such interest would 

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


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1 ‘‘(B) APPLICABLE FINANCIAL INSTRUMENT

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

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

6 any financial instrument or contract the 

7 value of which is determined in whole or in 

8 part by reference to the partnership (in9 cluding the amount of partnership dis10 tributions, the value of partnership assets, 

11 or the results of partnership operations). 

12 ‘‘(ii) EXCEPTION FOR NON-CONVERT13 IBLE DEBT.—Such term shall not include 

14 a financial instrument or contract if such 

15 instrument or contract— 

16 ‘‘(I) is treated as debt for Fed17 eral tax purposes, and 

18 ‘‘(II) is not convertible into or 

19 exchangeable for an interest in the 

20 capital or profits of the partnership 

21 and does not provide for a payment of 

22 equivalent value. 

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

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


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1 business’ means any activity conducted on a 

2 regular, continuous, and substantial basis 

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

5 whole or in part, of— 

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

7 ‘‘(ii) either— 

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

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

13 ‘‘(II) developing specified assets. 

14 ‘‘(B) SPECIFIED ASSETS.— 

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

17 real estate held for rental or investment, 

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

20 foregoing, and an interest in a partnership 

21 if such partnership has a direct or indirect 

22 interest in any of the foregoing. 

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

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


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1 meaning given such term under section 

2 475(c)(2), determined— 

3 ‘‘(I) by applying subparagraph 

4 (B) thereof without regard to whether 

5 the interest is widely held or publicly 

6 traded, and 

7 ‘‘(II) without regard to the last 

8 sentence thereof. 

9 ‘‘(iii) COMMODITIES.—For purposes 

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

11 the meaning given such term under section 

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

13 include commodities held in connection 

14 with the active conduct of a commodities 

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

17 ‘‘(4) APPLICABLE LOAN.— 

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

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

21 from the partnership, any other partner of the 

22 partnership, or any person related to such other 

23 partner or such partnership. 

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

25 loan’ does not include any loan which— 


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

2 or fully secured by the borrower’s assets, 

3 and 

4 ‘‘(ii) requires payments of interest 

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

7 (c)(2). 

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

10 ‘‘(1) DEEMED COMPENSATION AMOUNT.— 

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

12 compensation amount’ means, with respect to 

13 any applicable partnership interest for any 

14 partnership taxable year, an amount equal to 

15 the product of— 

16 ‘‘(i) the specified rate determined 

17 under paragraph (2) for the calendar year 

18 in which such taxable year begins, multi19 plied by 

20 ‘‘(ii) the excess (if any) of— 

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

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

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

6 measurement date occurring within 

7 such taxable year. 

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

9 of subparagraph (A), the term ‘measurement 

10 date’ means— 

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

12 taxable year, 

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

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

18 whether the partnership capital accounts 

19 are adjusted on that date), and 

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

21 Secretary. 

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

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

24 percentage equal to the sum of— 


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

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

3 such calendar year, plus 

4 ‘‘(B) 9 percentage points. 

5 ‘‘(3) APPLICABLE PERCENTAGE.— 

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

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

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

11 partnership agreement and determined as if all 

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

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

17 which the percentage of profits of a partnership 

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

22 ‘‘(4) INVESTED CAPITAL.— 

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

24 capital’ means, with respect to any partner as 

25 of any day, the excess of— 


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1 ‘‘(i) the sum of— 

2 ‘‘(I) the total cumulative value, 

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

5 contributed by the partner to the 

6 partnership on or before such day (net 

7 of any liabilities the partnership is 

8 considered to assume or take subject 

9 to), plus 

10 ‘‘(II) the aggregate amounts of 

11 the partner’s distributive share of in12 come and gain (other than unrealized 

13 gains resulting from revaluations of 

14 partnership property) as of such day, 

15 over 

16 ‘‘(ii) the sum of— 

17 ‘‘(I) the aggregate value, deter18 mined at the time of distribution, of 

19 all money or other property distrib20 uted to the partner from the partner21 ship on or before such day (net of any 

22 liabilities the partner is considered to 

23 assume or take subject to), plus 

24 ‘‘(II) the aggregate amount of 

25 the partner’s distributive share of loss 


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1 and deductions of the partnership as 

2 of such day (determined without re3 gard to unrealized losses resulting 

4 from revaluations of partnership prop5 erty). 

6 ‘‘(B) TREATMENT OF RELATED PARTY

7 BORROWINGS.—For purposes of paragraph 

8 (1)(A), the amount of invested capital with re9 spect to any applicable partnership interest 

10 shall be reduced by the amount of any applica11 ble loan to a partner who is described in sub12 section (b)(1)(B). 

13 ‘‘(5) ACCELERATED INCLUSION IN CASE OF

14 DISPOSITION OF APPLICABLE PARTNERSHIP INTER15 EST.— 

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

17 holds an applicable partnership interest sells or 

18 disposes of any portion of such interest during 

19 a taxable year in the applicable period, the 

20 amount determined under this subsection for 

21 such taxable year shall be the sum of— 

22 ‘‘(i) the amount determined under 

23 paragraph (1) for the taxable year (deter24 mined as if no such sale or disposition had 

25 occurred), plus 


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

2 of— 

3 ‘‘(I) the excess of the amount de4 termined under clause (i) over the 

5 amount determined under paragraph 

6 (1) for the taxable year, and 

7 ‘‘(II) the number of taxable years 

8 beginning after the date of the sale or 

9 disposition and before the last day of 

10 the applicable period. 

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

12 of this paragraph, the applicable period is the 

13 10-year period beginning on the later of— 

14 ‘‘(i) the date the taxpayer acquired 

15 the applicable partnership interest, or 

16 ‘‘(ii) the last date described in para17 graph (1)(B)(ii) on which there was an in18 crease in the amount of the taxpayers ap19 plicable percentage of the aggregate in20 vested capital of all partners of the part21 nership. 

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

23 during a taxable year a taxpayer holds directly or in24 directly more than 1 applicable partnership interest 

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1 ed as 1 applicable partnership interest for purposes 

2 of applying this subsection. 

3 ‘‘(d) RELATED PERSON.—For purposes of this sec4 tion, a person shall be treated as related to another person 

5 if the relationship between such persons would be de6 scribed in section 267(b) or 707(b). 

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

8 Secretary, and include with the information required to 

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

10 amount of the partner’s deemed compensation amount for 

11 the taxable year, if any. A similar rule applies to any enti12 ty that receives a report of a deemed compensation 

13 amount for the taxable year. 

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

15 regulations or other guidance as necessary to carry out 

16 this section, including regulations— 

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

18 this section, including through— 

19 ‘‘(A) the allocation of income to tax indif20 ferent parties, or 

21 ‘‘(B) a reduction or increase in the in22 vested capital of any partner (including at23 tempts to undervalue or overvalue property), 

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

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1 ments and contracts and to entities other than part2 nerships, 

3 ‘‘(3) which provide that partnership interests 

4 shall not fail to be treated as transferred or held in 

5 connection with the performance of services merely 

6 because the taxpayer also made contributions to the 

7 partnership, 

8 ‘‘(4) which provide in appropriate circumstances 

9 for purposes of this section the aggregation of assets 

10 held by related partnerships or for the 

11 disaggregation of assets within 1 partnership, 

12 ‘‘(5) which provide for the application of this 

13 section in cases of tiered structures or entities, 

14 ‘‘(6) which provide guidance with respect to for15 giveness of any loan described in subsection 

16 (b)(4)(B), and 

17 ‘‘(7) which provide rules for transfers or liq18 uidations of applicable partnership interests by gift, 

19 inheritance, substituted basis transactions, and other 

20 transactions in which income is not recognized at 

21 the time of the transaction.’’. 

22 (b) CONFORMING AMENDMENTS.— 

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

24 the Internal Revenue Code of 1986 is amended by 

25 striking section 1061. 


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1 (B) The table of sections for part IV of sub2 chapter O of chapter 1 of such Code is amended by 

3 striking the item relating to section 1061. 

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

5 Code is amended by adding at the end the following 

6 new item: 

‘‘PART VII—TREATMENT OF CERTAIN PARTNERSHIP INTERESTS RECEIVED

IN CONNECTION WITH PERFORMANCE OF SERVICES’’. 

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

8 this section shall apply to taxable years of a taxpayer be9 ginning after date of enactment of this Act, with or within 

10 which ends the taxable year of a partnership which begins 

11 after such date. 

Æ 


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