‘‘(II) convertible or contingent 
debt of such entity, 
‘‘(III) any option or other right 
to acquire property described in sub-
clause (I) or (II), and 
‘‘(IV) any derivative instrument 
entered into (directly or indirectly) 
with such entity or any investor in 
such entity. 
‘‘(ii) EXCEPTIONS.—Such term shall 
not include— 
‘‘(I) a partnership interest, 
‘‘(II) except as provided by the 
Secretary, any interest in a taxable 
corporation (other than a special pur-
pose acquisition company), and 
‘‘(III) except as provided by the 
Secretary, stock in an S corporation. 
‘‘(B) TAXABLE CORPORATION.—The term 
‘taxable corporation’ means— 
‘‘(i) a domestic C corporation, or 
‘‘(ii) a foreign corporation substan-
tially all of the income of which is— 
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‘‘(I) effectively connected with 
the conduct of a trade or business in 
the United States, or 
‘‘(II) subject to a comprehensive 
foreign income tax (as defined in sec-
tion 457A(d)(2)). 
‘‘(C) INVESTMENT
MANAGEMENT
SERV-
ICES.—The term ‘investment management serv-
ices’ means a substantial quantity of any of the 
services described in subsection (c)(2). 
‘‘(D) INVESTMENT ENTITY.—The term ‘in-
vestment entity’ means any entity which, if it 
were a partnership, would be an investment 
partnership. 
‘‘(E) SPECIAL PURPOSE ACQUISITION COM-
PANY.—The term ‘special purpose acquisition 
company’ means any corporation that— 
‘‘(i) is formed for the purpose of ac-
quiring a privately held company, 
‘‘(ii) is publicly traded on an estab-
lished securities market or its interests are 
readily tradable on a secondary market (or 
the substantial equivalent thereof), and 
‘‘(iii) is required to report an acquisi-
tion under Item 2.01 or make a disclosure 
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under Item 5.06 of Form 8-K (or any suc-
cessor form) with the Securities and Ex-
change Commission. 
‘‘(f) EXCEPTION FOR DOMESTIC C CORPORATIONS.— 
Except as otherwise provided by the Secretary, in the case 
of a domestic C corporation (other than a special purpose 
acquisition company, as defined in subsection (e)(2)(E))— 
‘‘(1) subsections (a) and (b) shall not apply to 
any item allocated to such corporation with respect 
to any investment services partnership interest (or 
to any gain or loss with respect to the disposition of 
such an interest), and 
‘‘(2) subsection (e) shall not apply. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as is necessary or ap-
propriate to carry out the purposes of this section, includ-
ing regulations or other guidance to— 
‘‘(1) require such reporting and recordkeeping 
by any person in such manner and at such time as 
the Secretary may prescribe for purposes of enabling 
the partnership to meet the requirements of section 
6031 with respect to any item described in section 
702(a)(9), 
‘‘(2) provide modifications to the application of 
this section (including treating related persons as 
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not related to one another) to the extent such modi-
fication is consistent with the purposes of this sec-
tion, 
‘‘(3) prevent the avoidance of the purposes of 
this section (including through the use of qualified 
family partnerships), and 
‘‘(4) coordinate this section with the other pro-
visions of this title. 
‘‘(h) CROSS REFERENCE.—For 40 percent penalty on 
certain underpayments due to the avoidance of this sec-
tion, see section 6662.’’. 
(b) APPLICATION OF SECTION 751 TO INDIRECT DIS-
POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS.— 
(1) IN
GENERAL.—Subsection (a) of section 
751 is amended by striking ‘‘or’’ at the end of para-
graph (1), by inserting ‘‘or’’ at the end of paragraph 
(2), and by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(3) investment services partnership interests 
held by the partnership,’’. 
(2) CERTAIN
DISTRIBUTIONS
TREATED
AS 
SALES OR EXCHANGES.—Subparagraph (A) of sec-
tion 751(b)(1) is amended by striking ‘‘or’’ at the 
end of clause (i), by inserting ‘‘or’’ at the end of 
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clause (ii), and by inserting after clause (ii) the fol-
lowing new clause: 
‘‘(iii) investment services partnership 
interests held by the partnership,’’. 
(3) APPLICATION OF SPECIAL RULES IN THE 
CASE OF TIERED PARTNERSHIPS.—Subsection (f) of 
section 751 is amended— 
(A) by striking ‘‘or’’ at the end of para-
graph (1), by inserting ‘‘or’’ at the end of para-
graph (2), and by inserting after paragraph (2) 
the following new paragraph: 
‘‘(3) an investment services partnership interest 
held by the partnership,’’, and 
(B) by striking ‘‘partner.’’ and inserting 
‘‘partner (other than a partnership in which it 
holds an investment services partnership inter-
est).’’. 
(4) INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 
751 is amended by adding at the end the following 
new subsection: 
‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER-
ESTS.—For purposes of this section— 
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‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership interest’ has the meaning given 
such term by section 710(c). 
‘‘(2) ADJUSTMENTS
FOR
QUALIFIED
CAPITAL 
INTERESTS.—The amount to which subsection (a) 
applies by reason of paragraph (3) thereof shall not 
include so much of such amount as is attributable 
to any portion of the investment services partnership 
interest which is a qualified capital interest (deter-
mined under rules similar to the rules of section 
710(d)). 
‘‘(3) EXCEPTION FOR PUBLICLY TRADED PART-
NERSHIPS.—Except as otherwise provided by the 
Secretary, in the case of an exchange of an interest 
in a publicly traded partnership (as defined in sec-
tion 7704) to which subsection (a) applies— 
‘‘(A) this section shall be applied without 
regard to subsections (a)(3), (b)(1)(A)(iii), and 
(f)(3), and 
‘‘(B) such partnership shall be treated as 
owning its proportionate share of the property 
of any other partnership in which it is a part-
ner. 
‘‘(4) RECOGNITION OF GAINS.—Any gain with 
respect to which subsection (a) applies by reason of 
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paragraph (3) thereof shall be recognized notwith-
standing any other provision of this title. 
‘‘(5) 
COORDINATION
WITH
INVENTORY 
ITEMS.—An investment services partnership interest 
held by the partnership shall not be treated as an 
inventory item of the partnership. 
‘‘(6) PREVENTION
OF
DOUBLE
COUNTING.— 
Under regulations or other guidance prescribed by 
the Secretary, subsection (a)(3) shall not apply with 
respect to any amount to which section 710 applies. 
‘‘(7) VALUATION
METHODS.—The Secretary 
shall prescribe regulations or other guidance which 
provide the acceptable methods for valuing invest-
ment services partnership interests for purposes of 
this section.’’. 
(c) TREATMENT
FOR
PURPOSES
OF
SECTION 
7704.—Subsection (d) of section 7704 is amended by add-
ing at the end the following new paragraph: 
‘‘(6) INCOME FROM CERTAIN CARRIED INTER-
ESTS NOT QUALIFIED.— 
‘‘(A) IN GENERAL.—Specified carried in-
terest income shall not be treated as qualifying 
income. 
‘‘(B) SPECIFIED
CARRIED
INTEREST
IN-
COME.—For purposes of this paragraph— 
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‘‘(i) IN GENERAL.—The term ‘speci-
fied carried interest income’ means— 
‘‘(I) any item of income or gain 
allocated to an investment services 
partnership interest (as defined in 
section 710(c)) held by the partner-
ship, 
‘‘(II) any gain on the disposition 
of an investment services partnership 
interest (as so defined) or a partner-
ship interest to which (in the hands of 
the partnership) section 751 applies, 
and 
‘‘(III) any income or gain taken 
into account by the partnership under 
subsection (b)(4) or (e) of section 
710. 
‘‘(ii) EXCEPTION FOR QUALIFIED CAP-
ITAL
INTERESTS.—A rule similar to the 
rule of section 710(d) shall apply for pur-
poses of clause (i). 
‘‘(C) COORDINATION WITH OTHER PROVI-
SIONS.—Subparagraph (A) shall not apply to 
any item described in paragraph (1)(E) (or so 
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much of paragraph (1)(F) as relates to para-
graph (1)(E)). 
‘‘(D) SPECIAL RULES FOR CERTAIN PART-
NERSHIPS.— 
‘‘(i) CERTAIN PARTNERSHIPS OWNED 
BY REAL ESTATE INVESTMENT TRUSTS.— 
Subparagraph (A) shall not apply in the 
case of a partnership which meets each of 
the following requirements: 
‘‘(I) Such partnership is treated 
as publicly traded under this section 
solely by reason of interests in such 
partnership being convertible into in-
terests in a real estate investment 
trust which is publicly traded. 
‘‘(II) Fifty percent or more of 
the capital and profits interests of 
such partnership are owned, directly 
or indirectly, at all times during the 
taxable year by such real estate in-
vestment trust (determined with the 
application of section 267(c)). 
‘‘(III) Such partnership meets 
the requirements of paragraphs (2), 
(3), and (4) of section 856(c). 
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‘‘(ii) CERTAIN
PARTNERSHIPS
OWN-
ING OTHER PUBLICLY TRADED PARTNER-
SHIPS.—Subparagraph (A) shall not apply 
in the case of a partnership which meets 
each of the following requirements: 
‘‘(I) Substantially all of the as-
sets of such partnership consist of in-
terests in one or more publicly traded 
partnerships (determined without re-
gard to subsection (b)(2)). 
‘‘(II) Substantially all of the in-
come of such partnership is ordinary 
income or section 1231 gain (as de-
fined in section 1231(a)(3)). 
‘‘(E) 
TRANSITIONAL
RULE.—Subpara-
graph (A) shall not apply to any taxable year 
of the partnership beginning before the date 
which is 10 years after the date of the enact-
ment of this paragraph.’’. 
(d) IMPOSITION
OF
PENALTY
ON
UNDERPAY-
MENTS.— 
(1) IN
GENERAL.—Subsection (b) of section 
6662 is amended by inserting after paragraph (10) 
the following new paragraph: 
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‘‘(11) The application of section 710(e) or the 
regulations or other guidance prescribed under sec-
tion 710(g) to prevent the avoidance of the purposes 
of section 710.’’. 
(2) AMOUNT OF PENALTY.— 
(A) IN GENERAL.—Section 6662 is amend-
ed by adding at the end the following new sub-
section: 
‘‘(m) INCREASE IN PENALTY IN CASE OF PROPERTY 
TRANSFERRED FOR INVESTMENT MANAGEMENT SERV-
ICES.—In the case of any portion of an underpayment to 
which this section applies by reason of subsection (b)(10), 
subsection (a) shall be applied with respect to such portion 
by substituting ‘40 percent’ for ‘20 percent’.’’. 
(B) CONFORMING AMENDMENT.—Subpara-
graph (B) of section 6662A(e)(2) is amended 
by striking ‘‘or (i)’’ and inserting ‘‘, (i), or 
(m)’’. 
(3) SPECIAL RULES FOR APPLICATION OF REA-
SONABLE CAUSE EXCEPTION.—Subsection (c) of sec-
tion 6664 is amended— 
(A) by redesignating paragraphs (3) and 
(4) as paragraphs (4) and (5), respectively; 
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(B) by striking ‘‘paragraph (3)’’ in para-
graph (5)(A), as so redesignated, and inserting 
‘‘paragraph (4)’’; and 
(C) by inserting after paragraph (2) the 
following new paragraph: 
‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT-
TRIBUTABLE TO INVESTMENT MANAGEMENT SERV-
ICES.— 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply to any portion of an underpayment to 
which section 6662 applies by reason of sub-
section (b)(11) unless— 
‘‘(i) the relevant facts affecting the 
tax treatment of the item are adequately 
disclosed, 
‘‘(ii) there is or was substantial au-
thority for such treatment, and 
‘‘(iii) the taxpayer reasonably believed 
that such treatment was more likely than 
not the proper treatment. 
‘‘(B) RULES
RELATING
TO
REASONABLE 
BELIEF.—Rules similar to the rules of sub-
section (d)(4) shall apply for purposes of sub-
paragraph (A)(iii).’’. 
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(e) INCOME AND LOSS FROM INVESTMENT SERVICES 
PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE-
TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 
(1) INTERNAL REVENUE CODE.— 
(A) IN
GENERAL.—Section 1402(a) is 
amended by striking ‘‘and’’ at the end of para-
graph (16), by striking the period at the end of 
paragraph (17) and inserting ‘‘; and’’, and by 
inserting after paragraph (17) the following 
new paragraph: 
‘‘(18) notwithstanding the preceding provisions 
of this subsection, in the case of any individual en-
gaged in the trade or business of providing services 
described in section 710(c)(2) with respect to any 
entity, investment services partnership income or 
loss (as defined in subsection (m)) of such individual 
with respect to such entity shall be taken into ac-
count in determining the net earnings from self-em-
ployment of such individual.’’. 
(B) INVESTMENT SERVICES PARTNERSHIP 
INCOME OR LOSS.—Section 1402 is amended by 
adding at the end the following new subsection: 
‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME 
OR LOSS.—For purposes of subsection (a)— 
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‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership income or loss’ means, with respect 
to any investment services partnership interest (as 
defined in section 710(c)) or disqualified interest (as 
defined in section 710(e)), the net of— 
‘‘(A) the amounts treated as ordinary in-
come or ordinary loss under subsections (b) and 
(e) of section 710 with respect to such interest, 
‘‘(B) all items of income, gain, loss, and 
deduction allocated to such interest, and 
‘‘(C) the amounts treated as realized from 
the sale or exchange of property other than a 
capital asset under section 751 with respect to 
such interest. 
‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN-
TERESTS.—A rule similar to the rule of section 
710(d) shall apply for purposes of applying para-
graph (1)(B).’’. 
(2) SOCIAL SECURITY ACT.—Section 211(a) of 
the Social Security Act is amended by striking 
‘‘and’’ at the end of paragraph (15), by striking the 
period at the end of paragraph (16) and inserting ‘‘; 
and’’, and by inserting after paragraph (16) the fol-
lowing new paragraph: 
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‘‘(17) Notwithstanding the preceding provisions 
of this subsection, in the case of any individual en-
gaged in the trade or business of providing services 
described in section 710(c)(2) of the Internal Rev-
enue Code of 1986 with respect to any entity, invest-
ment services partnership income or loss (as defined 
in section 1402(m) of such Code) shall be taken into 
account in determining the net earnings from self- 
employment of such individual.’’. 
(f) SEPARATE ACCOUNTING BY PARTNER.—Section 
702(a) is amended by striking ‘‘and’’ at the end of para-
graph (7), by striking the period at the end of paragraph 
(8) and inserting ‘‘, and’’, and by inserting after para-
graph (8) the following: 
‘‘(9) any amount treated as ordinary income or 
loss under subsection (a), (b), or (e) of section 
710.’’. 
(g) CONFORMING AMENDMENTS.— 
(1) Subsection (d) of section 731 is amended by 
inserting ‘‘section 710(b)(4) (relating to distribu-
tions of partnership property),’’ after ‘‘to the extent 
otherwise provided by’’. 
(2) Section 741 is amended by inserting ‘‘or 
section 710 (relating to special rules for partners 
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providing investment management services to part-
nerships)’’ before the period at the end. 
(3) The table of sections for part I of sub-
chapter K of chapter 1 is amended by adding at the 
end the following new item: 
‘‘Sec. 710. Special rules for partners providing investment management services 
to partnerships.’’. 
(4)(A) Part IV of subchapter O of chapter 1 is 
amended by striking section 1061. 
(B) The table of sections for part IV of sub-
chapter O of chapter 1 is amended by striking the 
item relating to section 1061. 
(h) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to taxable years ending after 
the date of the enactment of this Act. 
(2) PARTNERSHIP TAXABLE YEARS WHICH IN-
CLUDE
EFFECTIVE
DATE.—In applying section 
710(a) of the Internal Revenue Code of 1986 (as 
added by this section) in the case of any partnership 
taxable year which includes the date of the enact-
ment of this Act, the amount of the net capital gain 
referred to in such section shall be treated as being 
the lesser of the net capital gain for the entire part-
nership taxable year or the net capital gain deter-
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mined by only taking into account items attributable 
to the portion of the partnership taxable year which 
is after such date. 
(3) DISPOSITIONS
OF
PARTNERSHIP
INTER-
ESTS.— 
(A) IN GENERAL.—Section 710(b) of such 
Code (as added by this section) shall apply to 
dispositions and distributions after the date of 
the enactment of this Act. 
(B) INDIRECT DISPOSITIONS.—The amend-
ments made by subsection (b) shall apply to 
transactions after the date of the enactment of 
this Act. 
(4) OTHER INCOME AND GAIN IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.—Sec-
tion 710(e) of such Code (as added by this section) 
shall take effect on the date of the enactment of this 
Act. 
Æ 
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