380 
be applied separately with respect to a portion 
of a qualified capital interest. 
‘‘(B) NO OR INSIGNIFICANT ALLOCATIONS 
TO NONSERVICE PROVIDERS.—In any case in 
which the requirements of paragraph (1)(B) are 
not satisfied, items of gain and loss (and any 
dividends) shall not be taken into account under 
subsection (a) to the extent that such items are 
properly allocable under such regulations or 
other guidance to qualified capital interests. 
‘‘(C) ALLOCATIONS
TO
SERVICE
PRO-
VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH 
ARE LESS THAN OTHER ALLOCATIONS.—Alloca-
tions shall not be treated as failing to meet the 
requirement of paragraph (1)(A) merely be-
cause the allocations to the qualified capital in-
terest represent a lower return than the alloca-
tions made to the other qualified capital inter-
ests referred to in such paragraph. 
‘‘(3) SPECIAL RULE FOR CHANGES IN SERVICES 
AND CAPITAL CONTRIBUTIONS.—In the case of an 
interest in a partnership which was not an invest-
ment services partnership interest and which, by 
reason of a change in the services with respect to as-
sets held (directly or indirectly) by the partnership 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00380
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
381 
or by reason of a change in the capital contributions 
to such partnership, becomes an investment services 
partnership interest, the qualified capital interest of 
the holder of such partnership interest immediately 
after such change shall not, for purposes of this sub-
section, be less than the fair market value of such 
interest 
(determined 
immediately 
before 
such 
change). 
‘‘(4) SPECIAL
RULE
FOR
TIERED
PARTNER-
SHIPS.—Except as otherwise provided by the Sec-
retary, in the case of tiered partnerships, all items 
which are allocated in a manner which meets the re-
quirements of paragraph (1) to qualified capital in-
terests in a lower-tier partnership shall retain such 
character to the extent allocated on the basis of 
qualified capital interests in any upper-tier partner-
ship. 
‘‘(5) 
EXCEPTION
FOR
NO-SELF-CHARGED 
CARRY
AND
MANAGEMENT
FEE
PROVISIONS.—Ex-
cept as otherwise provided by the Secretary, an in-
terest shall not fail to be treated as satisfying the 
requirement of paragraph (1)(A) merely because the 
allocations made by the partnership to such interest 
do not reflect the cost of services described in sub-
section (c)(2) which are provided (directly or indi-
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00381
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
382 
rectly) to the partnership by the holder of such in-
terest (or a related person). 
‘‘(6) SPECIAL RULE FOR DISPOSITIONS.—In the 
case of any investment services partnership interest 
any portion of which is a qualified capital interest, 
subsection (b) shall not apply to so much of any 
gain or loss as bears the same proportion to the en-
tire amount of such gain or loss as— 
‘‘(A) the distributive share of gain or loss 
that would have been allocated to the qualified 
capital interest (consistent with the require-
ments of paragraph (1)) if the partnership had 
sold all of its assets at fair market value imme-
diately before the disposition, bears to 
‘‘(B) the distributive share of gain or loss 
that would have been so allocated to the invest-
ment services partnership interest of which such 
qualified capital interest is a part. 
‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur-
poses of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
capital interest’ means so much of a partner’s 
interest in the capital of the partnership as is 
attributable to— 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00382
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
383 
‘‘(i) the fair market value of any 
money or other property contributed to the 
partnership in exchange for such interest 
(determined without regard to section 
752(a)), 
‘‘(ii) any amounts which have been in-
cluded in gross income under section 83 
with respect to the transfer of such inter-
est, and 
‘‘(iii) the excess (if any) of— 
‘‘(I) any items of income and 
gain taken into account under section 
702 with respect to such interest, over 
‘‘(II) any items of deduction and 
loss so taken into account. 
‘‘(B) ADJUSTMENT TO QUALIFIED CAPITAL 
INTEREST.— 
‘‘(i) DISTRIBUTIONS
AND
LOSSES.— 
The qualified capital interest shall be re-
duced by distributions from the partner-
ship with respect to such interest and by 
the excess (if any) of the amount described 
in subparagraph (A)(iii)(II) over the 
amount 
described 
in 
subparagraph 
(A)(iii)(I). 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00383
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
384 
‘‘(ii) SPECIAL RULE FOR CONTRIBU-
TIONS OF PROPERTY.—In the case of any 
contribution of property described in sub-
paragraph (A)(i) with respect to which the 
fair market value of such property is not 
equal to the adjusted basis of such prop-
erty immediately before such contribution, 
proper adjustments shall be made to the 
qualified capital interest to take into ac-
count such difference consistent with such 
regulations or other guidance as the Sec-
retary may provide. 
‘‘(C) TECHNICAL
TERMINATIONS, 
ETC., 
DISREGARDED.—No increase or decrease in the 
qualified capital interest of any partner shall re-
sult from a termination, merger, consolidation, 
or division described in section 708, or any 
similar transaction. 
‘‘(8) TREATMENT OF CERTAIN LOANS.— 
‘‘(A) PROCEEDS OF PARTNERSHIP LOANS 
NOT TREATED AS QUALIFIED CAPITAL INTER-
EST OF SERVICE PROVIDING PARTNERS.—For 
purposes of this subsection, an investment serv-
ices partnership interest shall not be treated as 
a qualified capital interest to the extent that 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00384
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
385 
such interest is acquired in connection with the 
proceeds of any loan or other advance made or 
guaranteed, directly or indirectly, by any other 
partner or the partnership (or any person re-
lated to any such other partner or the partner-
ship). The preceding sentence shall not apply to 
the extent the loan or other advance is repaid 
before January 1, 2013 unless such repayment 
is made with the proceeds of a loan or other ad-
vance described in the preceding sentence. 
‘‘(B) REDUCTION
IN
ALLOCATIONS
TO 
QUALIFIED
CAPITAL
INTERESTS
FOR
LOANS 
FROM
NONSERVICE-PROVIDING
PARTNERS
TO 
THE PARTNERSHIP.—For purposes of this sub-
section, any loan or other advance to the part-
nership made or guaranteed, directly or indi-
rectly, by a partner not providing services de-
scribed in subsection (c)(2) to the partnership 
(or any person related to such partner) shall be 
taken into account in determining the qualified 
capital interests of the partners in the partner-
ship. 
‘‘(e) OTHER INCOME
AND GAIN
IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.— 
‘‘(1) IN GENERAL.—If— 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00385
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
387 
‘‘(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, 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— 
‘‘(I) effectively connected with 
the conduct of a trade or business in 
the United States, or 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00387
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
388 
‘‘(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. 
‘‘(f) 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) provide modifications to the application of 
this section (including treating related persons as 
not related to one another) to the extent such modi-
fication is consistent with the purposes of this sec-
tion, and 
‘‘(2) coordinate this section with the other pro-
visions of this title. 
‘‘(g) CROSS REFERENCE.—For 40 percent penalty on 
certain underpayments due to the avoidance of this sec-
tion, see section 6662.’’. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00388
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
389 
(b) APPLICATION OF SECTION 751 TO INDIRECT DIS-
POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS.— 
(1) IN
GENERAL.—Subsection (a) of section 
751 of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘or’’ at the end of paragraph (1), by 
inserting ‘‘or’’ at the end of paragraph (2), and by 
inserting after paragraph (2) the following 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) of the Internal Revenue Code of 1986 
is amended by striking ‘‘or’’ at the end of clause (i), 
by inserting ‘‘or’’ at the end of clause (ii), and by 
inserting after clause (ii) the following 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 of the Internal Revenue Code of 1986 
is amended by striking ‘‘or’’ at the end of paragraph 
(1), by inserting ‘‘or’’ at the end of paragraph (2), 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00389
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
390 
and by inserting after paragraph (2) the following 
new paragraph: 
‘‘(3) investment services partnership interests 
held by the partnership,’’. 
(4) INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 
751 of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following new sub-
section: 
‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER-
ESTS.—For purposes of this section— 
‘‘(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) RECOGNITION OF GAINS.—Any gain with 
respect to which subsection (a) applies by reason of 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00390
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
391 
paragraph (3) thereof shall be recognized notwith-
standing any other provision of this title. 
‘‘(4) 
COORDINATION
WITH
INVENTORY 
ITEMS.—An investment services partnership interest 
held by the partnership shall not be treated as an 
inventory item of the partnership. 
‘‘(5) 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 ap-
plies.’’. 
(c) TREATMENT
FOR
PURPOSES
OF
SECTION 
7704.—Subsection (d) of section 7704 of the Internal 
Revenue Code of 1986 is amended by adding 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— 
‘‘(i) IN GENERAL.—The term ‘speci-
fied carried interest income’ means— 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00391
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
392 
‘‘(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 
much of paragraph (1)(F) as relates to para-
graph (1)(E)). 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00392
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
393 
‘‘(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) 50 percent or more of the 
capital and profits interests of such 
partnership are owned, directly or in-
directly, at all times during the tax-
able year by such real estate invest-
ment trust (determined with the ap-
plication of section 267(c)). 
‘‘(III) Such partnership meets 
the requirements of paragraphs (2), 
(3), and (4) of section 856(c). 
‘‘(ii) CERTAIN
PARTNERSHIPS
OWN-
ING OTHER PUBLICLY TRADED PARTNER-
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00393
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
394 
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 January 1, 2013’’. 
(d) IMPOSITION
OF
PENALTY
ON
UNDERPAY-
MENTS.— 
(1) IN
GENERAL.—Subsection (b) of section 
6662 of the Internal Revenue Code of 1986 is 
amended by inserting after paragraph (7) the fol-
lowing new paragraph: 
‘‘(8) The application of section 710(e) or the 
regulations or other guidance prescribed under sec-
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00394
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
395 
tion 710(h) to prevent the avoidance of the purposes 
of section 710.’’. 
(2) AMOUNT OF PENALTY.— 
(A) IN GENERAL.—Section 6662 of the In-
ternal Revenue Code of 1986 is amended by 
adding at the end the following new subsection: 
‘‘(k) 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)(8), 
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 (k)’’. 
(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; 
(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: 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00395
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
396 
‘‘(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)(8) 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)(3) shall apply for purposes of sub-
paragraph (A)(iii).’’. 
(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) of the 
Internal Revenue Code of 1986 is amended by 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00396
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
397 
striking ‘‘and’’ at the end of paragraph (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 of the Inter-
nal Revenue Code is amended by adding at the 
end the following new subsection: 
‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME 
OR LOSS.—For purposes of subsection (a)— 
‘‘(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)), the net of— 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00397
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
398 
‘‘(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)(ii).’’. 
(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: 
‘‘(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 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00398
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
399 
in section 1402(m) of such Code) shall be taken into 
account in determining the net earnings from self- 
employment of such individual.’’. 
(f) CONFORMING AMENDMENTS.— 
(1) Subsection (d) of section 731 of the Inter-
nal Revenue Code of 1986 is amended by inserting 
‘‘section 710(b)(4) (relating to distributions of part-
nership property),’’ after ‘‘to the extent otherwise 
provided by’’. 
(2) Section 741 of the Internal Revenue Code 
of 1986 is amended by inserting ‘‘or section 710 (re-
lating to special rules for partners providing invest-
ment management services to partnerships)’’ before 
the period at the end. 
(3) The table of sections for part I of sub-
chapter K of chapter 1 of the Internal Revenue Code 
of 1986 is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 710. Special rules for partners providing investment management services 
to partnerships.’’. 
(g) 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 
December 31, 2012. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00399
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
400 
(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 January 1, 2013, the 
amount of the net income referred to in such section 
shall be treated as being the lesser of the net income 
for the entire partnership taxable year or the net in-
come determined 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 December 
31, 2012. 
(B) INDIRECT DISPOSITIONS.—The amend-
ments made by subsection (b) shall apply to 
transactions after December 31, 2012. 
(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 January 1, 2013. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00400
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
401 
Subtitle C—Close Loophole for 
Corporate Jet Depreciation 
SEC. 421. GENERAL AVIATION AIRCRAFT TREATED AS 7- 
YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (C) of section 
168(e)(3) of the Internal Revenue Code of 1986 (relating 
to classification of certain property) is amended by strik-
ing ‘‘and’’ at the end of clause (iv), by redesignating clause 
(v) as clause (vi), and by inserting after clause (iv) the 
following new clause: 
‘‘(v) any general aviation aircraft, and’’. 
(b) CLASS LIFE.—Paragraph (3) of section 168(g) 
Internal Revenue Code of 1986 is amended by inserting 
after subparagraph (E) the following new subparagraph: 
‘‘(F) General aviation aircraft. In the case 
of any general aviation aircraft, the recovery 
period used for purposes of paragraph (2) shall 
be 12 years.’’. 
(c) GENERAL AVIATION AIRCRAFT.—Subsection (i) 
of section 168 Internal Revenue Code of 1986 is amended 
by inserting after paragraph (19) the following new para-
graph: 
‘‘(20) GENERAL
AVIATION
AIRCRAFT.—The 
term ‘general aviation aircraft’ means any airplane 
or helicopter (including airframes and engines) not 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00401
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
402 
used in commercial or contract carrying of pas-
sengers or freight, but which primarily engages in 
the carrying of passengers.’’. 
(d) EFFECTIVE DATE.—This section shall be effec-
tive for property placed in service after December 31, 
2012. 
Subtitle D—Repeal Oil Subsidies 
SEC. 431. REPEAL OF DEDUCTION FOR INTANGIBLE DRILL-
ING AND DEVELOPMENT COSTS IN THE CASE 
OF OIL AND GAS WELLS. 
(a) IN GENERAL.—Section 263(c) of the Internal 
Revenue Code of 1986 (relating to intangible drilling and 
development costs) is amended by adding at the end the 
following new sentence: ‘‘This subsection shall not apply 
in the case of oil and gas wells with respect to amounts 
paid or incurred after December 31, 2012.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to amounts paid or incurred after 
December 31, 2012. 
SEC. 
432. 
REPEAL 
OF 
DEDUCTION 
FOR 
TERTIARY 
INJECTANTS. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
itemized deductions for individuals and corporations) is 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00402
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
403 
amended by striking section 193 (relating to tertiary 
injectants). 
(b) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 of the Internal 
Revenue Code of 1986 is amended by striking the item 
relating to section 193. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred after 
December 31, 2012. 
SEC. 433. REPEAL OF PERCENTAGE DEPLETION FOR OIL 
AND GAS WELLS. 
(a) IN GENERAL.—Section 613A of the Internal Rev-
enue Code of 1986 (relating to limitation on percentage 
depletion in the case of oil and gas wells) is amended to 
read as follows: 
‘‘SEC. 613A. PERCENTAGE DEPLETION NOT ALLOWED IN 
CASE OF OIL AND GAS WELLS. THE ALLOW-
ANCE FOR DEPLETION UNDER SECTION 611 
WITH RESPECT TO ANY OIL AND GAS WELL 
SHALL BE COMPUTED WITHOUT REGARD TO 
SECTION 613.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00403
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
404 
SEC. 434. SECTION 199 DEDUCTION NOT ALLOWED WITH 
RESPECT TO OIL, NATURAL GAS, OR PRIMARY 
PRODUCTS THEREOF. 
(a) IN GENERAL.—Subparagraph (B) of section 
199(c)(4) of the Internal Revenue Code of 1986 (relating 
to income attributable to domestic production activities) 
is amended— 
(1) by striking ‘‘or’’ at the end of clause (ii), 
(2) by striking the period at the end of clause 
(iii) and inserting in lieu thereof ‘‘, or’’, and 
(3) by adding at the end thereof the following 
new clause: 
‘‘(iv) the production, refining, proc-
essing, transportation, or distribution of 
oil, natural gas, or any primary product 
(within the meaning of subsection (d)(9)) 
thereof.’’. 
(b) CONFORMING AMENDMENT.—Paragraph (9) of 
section 199(d) is amended to read as follows: 
‘‘(9) PRIMARY PRODUCT.—For purposes of sub-
section (c)(4)(B)(iv), the term ‘primary product’ has 
the same meaning as when used in section 
927(a)(2)(C) as in effect before its repeal.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
VerDate Mar 15 2010 
22:52 Sep 27, 2011
Jkt 099200
PO 00000
Frm 00404
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
405 
SEC. 435. REPEAL OIL AND GAS WORKING INTEREST EX-
CEPTION TO PASSIVE ACTIVITY RULES. 
(a) IN GENERAL.—Paragraph (3) of section 469(c) 
of the Internal Revenue Code of 1986 (relating to passive 
activity defined) is amended by adding at the end thereof 
the following new subparagraph— 
‘‘(C) TERMINATION.—Subparagraph (A) 
shall not apply for any taxable year beginning 
after December 31 2012.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
SEC. 436. REPEAL ENHANCED OIL RECOVERY CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1of the Internal Revenue Code of 
1986 (relating to business related credits) is amended by 
striking section 43 (relating to enhanced oil recovery cred-
it). 
(b) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by strik-
ing the item relating to section 43. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00405
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
406 
SEC. 437. UNIFORM SEVEN-YEAR AMORTIZATION FOR GEO-
LOGICAL AND GEOPHYSICAL EXPENDITURES. 
(a) IN GENERAL.—Paragraph (1) of section 167(h) 
of the Internal Revenue Code of 1986 (relating to amorti-
zation of geological and geophysical expenditures) is 
amended by striking ‘‘24-month’’ and inserting in lieu 
thereof ‘‘7-year’’. 
(b) CONFORMING AMENDMENTS.—Section 167(h) is 
amended— 
(1) by striking ‘‘24-month’’ in paragraph (4) 
and inserting in lieu thereof ‘‘7-year’’, and 
(2) by striking paragraph (5). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred after 
December 31, 2012. 
SEC. 438. REPEAL MARGINAL WELL PRODUCTION CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1of the Internal Revenue Code of 
1986 (relating to business related credits) is amended by 
striking section 45I (relating to credit for producing oil 
and gas from marginal wells). 
(b) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by strik-
ing the item relating to section 45I. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00406
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
407 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
Subtitle E—Dual Capacity 
Taxpayers 
SEC. 441. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
APPLICABLE TO DUAL CAPACITY TAXPAYERS. 
(a) IN GENERAL.—Section 901 of the Internal Rev-
enue Code of 1986 (relating to credit for taxes of foreign 
countries and of possessions of the United States) is 
amended by redesignating subsection (n) as subsection (o) 
and by inserting after subsection (m) the following new 
subsection: 
‘‘(n) SPECIAL RULES RELATING TO DUAL CAPACITY 
TAXPAYERS.— 
‘‘(1) GENERAL
RULE.—Notwithstanding any 
other provision of this chapter, any amount paid or 
accrued by a dual capacity taxpayer or any member 
of the worldwide affiliated group of which such dual 
capacity taxpayer is also a member to any foreign 
country or to any possession of the United States 
for any period shall not be considered a tax to the 
extent such amount exceeds the amount (determined 
in accordance with regulations) which would have 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00407
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
408 
been required to be paid if the taxpayer were not a 
dual capacity taxpayer. 
‘‘(2) DUAL
CAPACITY
TAXPAYER.—For pur-
poses of this subsection, the term ‘dual capacity tax-
payer’ means, with respect to any foreign country or 
possession of the United States, a person who— 
‘‘(A) is subject to a levy of such country or 
possession, and 
‘‘(B) receives (or will receive) directly or 
indirectly a specific economic benefit (as deter-
mined in accordance with regulations) from 
such country or possession. 
‘‘(3) REGULATIONS.—The Secretary may issue 
such regulations or other guidance as is necessary or 
appropriate to carry out the purposes of this sub-
section.’’. 
(b) CONTRARY TREATY OBLIGATIONS UPHELD.— 
The amendments made by this section shall not apply to 
the extent contrary to any treaty obligation of the United 
States. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts that, if such amounts 
were an amount of tax paid or accrued, would be consid-
ered paid or accrued in taxable years beginning after De-
cember 31, 2012. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00408
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
409 
SEC. 442. SEPARATE BASKET TREATMENT TAXES PAID ON 
FOREIGN OIL AND GAS INCOME. 
(a) SEPARATE BASKET FOR FOREIGN TAX CRED-
IT.—Paragraph (1) of section 904(d) of the Internal Rev-
enue Code of 1986 is amended by striking ‘‘and’’ at the 
end of subparagraph (A), by striking the period at the 
end of subparagraph (B) and inserting ‘‘, and’’, and by 
adding at the end the following: 
‘‘(C) combined foreign oil and gas income 
(as defined in section 907(b)(1)).’’. 
(b) COORDINATION.—Section 904(d)(2)of such Code 
is amended by redesignating subparagraphs (J) and (K) 
as subparagraphs (K) and (L) and by inserting after sub-
paragraph (I) the following: 
‘‘(J) COORDINATION WITH COMBINED FOR-
EIGN OIL AND GAS INCOME.—For purposes of 
this section, passive category income and gen-
eral category income shall not include combined 
foreign oil and gas income (as defined in section 
907(b)(1)).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 907(a) is hereby repealed. 
(2) Section 907(c)(4) is hereby repealed. 
(3) Section 907(f) is hereby repealed. 
(d) EFFECTIVE DATES.— 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00409
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
410 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2012. 
(2) TRANSITIONAL RULES.— 
(A) CARRYOVERS.—Any unused foreign oil 
and gas taxes which under section 907(f) of 
such Code (as in effect before the amendment 
made by subsection (c)(3)) would have been al-
lowable as a carryover to the taxpayer’s first 
taxable year beginning after December 31, 
2012 (without regard to the limitation of para-
graph (2) of such section 907(f) for first tax-
able year) shall be allowed as carryovers under 
section 904(c) of such Code in the same man-
ner as if such taxes were unused taxes under 
such section 904(c) with respect to foreign oil 
and gas extraction income. 
(B) LOSSES.—The amendment made by 
subsection (c)(2) shall not apply to foreign oil 
and gas extraction losses arising in taxable 
years beginning on or before the date of the en-
actment of this Act. 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00410
Fmt 6652
Sfmt 6201
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS
411 
Subtitle F—Increased Target and 
Trigger for Joint Select Com-
mittee on Deficit Reduction 
SEC. 451. INCREASED TARGET AND TRIGGER FOR JOINT 
SELECT COMMITTEE ON DEFICIT REDUC-
TION. 
(a) INCREASED TARGET FOR JOINT SELECT COM-
MITTEE.—Section 401(b)(2) of the Budget Control Act of 
2011 is amended by striking ‘‘$1,500,000,000,000’’ and 
inserting ‘‘$1,950,000,000,000’’. 
(b) TRIGGER FOR JOINT SELECT COMMITTEE.—Sec-
tion 302 of the Budget Control Act of 2011 is amended 
by redesignating subsection (b) as subsection (c) and by 
inserting after subsection (a) the following new subsection: 
‘‘(b) TRIGGER.—If a joint committee bill achieving 
an amount greater than ‘$1,650,000,000,000’ in deficit 
reduction as provided in section 401(b)(3)(B)(i)(II) of this 
Act is enacted by January 15, 2012, then the amendments 
to the Internal Revenue Code of 1986 made by subtitles 
A through E of title IV of the American Jobs Act of 2011, 
shall not be in effect for any taxable year.’’. 
Æ 
VerDate Mar 15 2010 
05:20 Sep 23, 2011
Jkt 099200
PO 00000
Frm 00411
Fmt 6652
Sfmt 6301
E:\BILLS\H12.IH
H12
pwalker on DSK5TPTVN1PROD with BILLS