determining the taxable income of the partner-
ship), 
‘‘(B) such property shall be treated for 
purposes of subpart B of part II as money dis-
tributed to such partner in an amount equal to 
such fair market value, and 
‘‘(C) the basis of such property in the 
hands of such partner shall be such fair market 
value. 
Subsection (b) of section 734 shall be applied with-
out regard to the preceding sentence. 
‘‘(5) APPLICATION OF SECTION 751.—In apply-
ing section 751(a), an investment services partner-
ship interest shall be treated as an inventory item. 
‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER-
EST.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership interest’ means any interest in a 
partnership which is held (directly or indirectly) by 
any person if it was reasonably expected (at the time 
that such person acquired such interest) that such 
person (or any person related to such person) would 
provide (directly or indirectly) a substantial quantity 
of any of the following services with respect to assets 
held (directly or indirectly) by the partnership: 
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‘‘(A) Advising as to the advisability of in-
vesting in, purchasing, or selling any specified 
asset. 
‘‘(B) Managing, acquiring, or disposing of 
any specified asset. 
‘‘(C) Arranging financing with respect to 
acquiring specified assets. 
‘‘(D) Any activity in support of any service 
described in subparagraphs (A) through (C). 
For purposes of this paragraph, the term ‘specified 
asset’ means securities (as defined in section 
475(c)(2) without regard to the last sentence there-
of), real estate held for rental or investment, inter-
ests in partnerships, commodities (as defined in sec-
tion 475(e)(2)), or options or derivative contracts 
with respect to any of the foregoing. 
‘‘(2) EXCEPTION FOR CERTAIN CAPITAL INTER-
ESTS.— 
‘‘(A) IN
GENERAL.—In the case of any 
portion of an investment services partnership 
interest which is a qualified capital interest, all 
items of income, gain, loss, and deduction which 
are allocated to such qualified capital interest 
shall not be taken into account under sub-
section (a) if— 
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‘‘(i) allocations of items are made by 
the partnership to such qualified capital 
interest in the same manner as such allo-
cations are made to other qualified capital 
interests held by partners who do not pro-
vide any services described in paragraph 
(1) and who are not related to the partner 
holding the qualified capital interest, and 
‘‘(ii) the allocations made to such 
other interests are significant compared to 
the allocations made to such qualified cap-
ital interest. 
‘‘(B) SPECIAL RULE FOR NO OR INSIGNIFI-
CANT
ALLOCATIONS
TO
NONSERVICE
PRO-
VIDERS.—To the extent provided by the Sec-
retary in regulations or other guidance, in any 
case in which the requirements of subparagraph 
(A)(ii) are not satisfied, items of income, gain, 
loss, and deduction shall not be taken into ac-
count under subsection (a) to the extent that 
such items are properly allocable under such 
regulations or other guidance to qualified cap-
ital interests. 
‘‘(C) SPECIAL RULE FOR DISPOSITIONS.— 
In the case of any investment services partner-
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ship 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 entire amount of such 
gain or loss as— 
‘‘(i) the distributive share of gain or 
loss that would have been allocable to the 
qualified capital interest under subpara-
graph (A) if the partnership sold all of its 
assets immediately before the disposition, 
bears to 
‘‘(ii) the distributive share of gain or 
loss that would have been so allocable to 
the investment services partnership inter-
est of which such qualified capital interest 
is a part. 
‘‘(D) QUALIFIED CAPITAL INTEREST.—For 
purposes of this paragraph, the term ‘qualified 
capital interest’ means so much of a partner’s 
interest in the capital of the partnership as is 
attributable to— 
‘‘(i) the fair market value of any 
money or other property contributed to the 
partnership in exchange for such interest 
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(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 for 
taxable years to which this section ap-
plies, over 
‘‘(II) any items of deduction and 
loss so taken into account. 
The qualified capital interest shall be reduced 
by distributions from the partnership with re-
spect to such interest for taxable years to which 
this section applies and by the excess (if any) 
of the amount described in clause (iii)(II) over 
the amount described in clause (iii)(I). 
‘‘(E) TREATMENT OF CERTAIN LOANS.— 
‘‘(i) 
PROCEEDS
OF
PARTNERSHIP 
LOANS NOT TREATED AS QUALIFIED CAP-
ITAL
INTEREST
OF
SERVICE
PROVIDING 
PARTNERS.—For purposes of this para-
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mstockstill on DSK4VPTVN1PROD with BILLS
graph, an investment services partnership 
interest shall not be treated as a qualified 
capital interest to the extent that such in-
terest 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 related to any such other part-
ner or the partnership). 
‘‘(ii) REDUCTION IN ALLOCATIONS TO 
QUALIFIED
CAPITAL
INTERESTS
FOR 
LOANS
FROM
NONSERVICE
PROVIDING 
PARTNERS
TO
THE
PARTNERSHIP.—For 
purposes of this paragraph, any loan or 
other advance to the partnership made or 
guaranteed, directly or indirectly, by a 
partner not providing services described in 
paragraph (1) 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 partnership. 
‘‘(3) RELATED
PERSONS.—A person shall be 
treated as related to another person if the relation-
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ship between such persons would result in a dis-
allowance of losses under section 267 or 707(b). 
‘‘(d) OTHER INCOME
AND GAIN
IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) a person performs (directly or indi-
rectly) investment management services for any 
entity, 
‘‘(B) such person holds (directly or indi-
rectly) a disqualified interest with respect to 
such entity, and 
‘‘(C) the value of such interest (or pay-
ments thereunder) is substantially related to 
the amount of income or gain (whether or not 
realized) from the assets with respect to which 
the investment management services are per-
formed, 
any income or gain with respect to such interest 
shall be treated as ordinary income. Rules similar to 
the rules of subsection (c)(2) shall apply for pur-
poses of this subsection. 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) DISQUALIFIED INTEREST.— 
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