I
106TH CONGRESS
1ST SESSION
H. R. 1708
To amend the Internal Revenue Code of 1986 to provide a simplified method
for determining a partner’s share of items of a partnership which is
a qualified investment club.
IN THE HOUSE OF REPRESENTATIVES
MAY 5, 1999
Mr. RAMSTAD (for himself and Mrs. THURMAN) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
a simplified method for determining a partner’s share
of items of a partnership which is a qualified investment
club.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Small Investors Tax
Simplification Act of 1999’’.
SEC. 2. ELECTION TO USE SIMPLIFIED METHOD FOR
QUALIFIED INVESTMENT CLUBS.
(a) IN GENERAL.—Part I of subchapter K of chapter
1 of the Internal Revenue Code of 1986 (relating to deter-
mination of tax liability of partners and partnerships) is
amended by inserting after section 704 the following new
section:
‘‘SEC. 704A. ELECTION TO USE SIMPLIFIED METHOD FOR
QUALIFIED INVESTMENT CLUBS.
‘‘(a) IN GENERAL.—Notwithstanding any other pro-
vision of this subchapter, a partner’s distributive share of
all items of income, gain, loss, deduction, or credit of a
qualified investment club shall be determined under the
simplified method.
‘‘(b) SIMPLIFIED METHOD.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘simplified meth-
od’ means a method pursuant to which a partnership
allocates each of the items of income, gain, loss, de-
duction, and credit for its taxable year to its part-
ners based on their proportionate interests on the
last day of such taxable year in partnership profits.
‘‘(2) EXCEPTION FOR DISTRIBUTIONS DURING
YEAR.—The partnership may take into account the
partners’ varying interests in partnership profits re-
sulting from distributions during the taxable year in
determining the partners’ interests in partnership
profits for purposes of paragraph (1).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) 
QUALIFIED
INVESTMENT
CLUB.—The
term ‘qualified investment club’ means, with respect
to any taxable year, any partnership—
‘‘(A) which is not required to be registered
under the Investment Company Act of 1940,
‘‘(B) for which no person who is registered
as an investment adviser under the Investment
Advisers Act of 1940 substantially participates
in the management or investment decisions
thereof,
‘‘(C) all of the partners of which are quali-
fied partners for the calendar year in which the
taxable year of the partnership ends,
‘‘(D) at least 90 percent of the gross in-
come of which is derived from items described
in section 851(b)(2),
‘‘(E) at least 90 percent of the value of the
total assets of which, at the end of each quarter
of such year, consists of cash, cash items (in-
cluding receivables), and securities,
‘‘(F) the taxable year of which is the cal-
endar year, and
any calendar year if the aggregate con-
tributions to qualified investment clubs
(determined without regard to paragraph
(1)(C)) during such calendar year by such
trust exceeds the excess of—
‘‘(I) the product of $3,000 and
the number of years before such cal-
endar year that such trust held any
asset, over
‘‘(II) the aggregate contributions
made to qualified investment clubs (as
so determined) by such trust during
all prior calendar years.
‘‘(ii) 
AGGREGATION
OF
RELATED
TRUSTS.—For 
purposes 
of 
this
subparagraph—
‘‘(I) all trusts having the same
beneficiary shall be treated as 1 trust,
and
‘‘(II) only the trust having the
longest period described in clause
(i)(I) shall be taken into account
thereunder.
‘‘(iii) FRACTIONS
OF
A
YEAR.—For
purposes of clause (i)(I), a fraction of a
year shall be counted as a whole year.
‘‘(D) NO ATTRIBUTION BETWEEN INDIVID-
UALS AND TRUSTS.—Notwithstanding any other
provision of this title, there shall be no attribu-
tion of contributions between a trust and an in-
dividual.
‘‘(3) SECURITIES.—
‘‘(A) DEFINITION.—The term ‘security’
has the meaning given to such term by section
475(c)(2) (determined without regard to sub-
paragraph (F) thereof).
‘‘(B) CERTAIN
RULES
TO
APPLY.—For
purposes of paragraph (1)(E), rules similar to
the rules of paragraphs (4) and (5) of section
851(c), shall apply.
‘‘(d) INFLATION ADJUSTMENT.—In the case of cal-
endar years after 1999, the $3,000 amounts contained in
subsection (c)(2) shall each be increased for any calendar
year after 2000 by an amount equal to—
‘‘(1) $3,000, multiplied by
‘‘(2) the cost-of-living adjustment under section
1(f)(3) for such calendar year, determined by sub-
stituting ‘calendar year 1999’ for ‘calendar year
1992’ in subparagraph (B) thereof.
Any increase under this subsection which is not a multiple
of $50 shall be rounded to the nearest multiple of $50.
‘‘(e) ELECTION.—An election under this subsection
shall be made on the return for the taxable year for which
it is made and shall apply to such taxable year and all
subsequent taxable years for which the partnership is a
qualified investment club, unless the election is revoked
with the consent of the Secretary.
‘‘(f) TERMINATION
OF
QUALIFIED
INVESTMENT
CLUB STATUS.—An election under subsection (e) shall
terminate as of the 1st day of any taxable year during
which the partnership ceases to be a qualified investment
club and, solely for purposes of section 704(c), each part-
ner shall be treated as contributing on such first day such
partner’s pro rata share of the partnership’s assets and
liabilities on such first day to a new partnership.
‘‘(g) INADVERTENT INVALID ELECTIONS OR TERMI-
NATIONS.—The Secretary shall provide a relief mechanism
for treating a partnership as a qualified investment club
in circumstances where—
‘‘(1) an election under subsection (e) was not
effective for the taxable year for which made by rea-
son of an inadvertent failure to satisfy any require-
ment of subsection (c), or
‘‘(2) there is an inadvertent termination under
subsection (f) of such an election.
‘‘(h) ELECTION AFTER TERMINATION.—If an elec-
tion under subsection (e) by a partnership is terminated
or revoked, such partnership shall not be eligible to make
an election under subsection (e) for any taxable year be-
fore its 5th taxable year which begins after the 1st taxable
year for which such termination or revocation is effective,
unless the Secretary consents to such election.
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section, including regulations regarding the
status of an individual or trust as a qualified partner.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter K of chapter 1 of such Code is
amended by inserting after the item relating to section
704 the following new item:
‘‘Sec. 704A. Election to use simplified method for qualified invest-
ment clubs’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
Æ