‘‘(2) TREATMENT OF LOSSES.— 
‘‘(A) LIMITATION.—Any net loss with re-
spect to such interest shall be allowed for any 
partnership taxable year only to the extent that 
such loss does not exceed the excess (if any) 
of— 
‘‘(i) the aggregate net income with re-
spect to such interest for all prior partner-
ship taxable years, over 
‘‘(ii) the aggregate net loss with re-
spect to such interest not disallowed under 
this subparagraph for all prior partnership 
taxable years. 
‘‘(B) CARRYFORWARD.—Any net loss for 
any partnership taxable year which is not al-
lowed by reason of subparagraph (A) shall be 
treated as an item of loss with respect to such 
partnership interest for the succeeding partner-
ship taxable year. 
‘‘(C) BASIS ADJUSTMENT.—No adjustment 
to the basis of a partnership interest shall be 
made on account of any net loss which is not 
allowed by reason of subparagraph (A). 
‘‘(D) EXCEPTION
FOR
BASIS
ATTRIB-
UTABLE TO PURCHASE OF A PARTNERSHIP IN-
TEREST.—In the case of an investment services 
partnership interest acquired by purchase, para-
graph (1)(B) shall not apply to so much of any 
net loss with respect to such interest for any 
taxable year as does not exceed the excess of— 
‘‘(i) the basis of such interest imme-
diately after such purchase, over 
‘‘(ii) the aggregate net loss with re-
spect to such interest to which paragraph 
(1)(B) did not apply by reason of this sub-
paragraph for all prior taxable years. 
Any net loss to which paragraph (1)(B) does 
not apply by reason of this subparagraph shall 
not be taken into account under subparagraph 
(A). 
‘‘(E) PRIOR
PARTNERSHIP
YEARS.—Any 
reference in this paragraph to prior partnership 
taxable years shall only include prior partner-
ship taxable years to which this section applies. 
‘‘(3) NET INCOME AND LOSS.—For purposes of 
this section— 
‘‘(A) NET
INCOME.—The term ‘net in-
come’ means, with respect to any investment 
services partnership interest, for any partner-
ship taxable year, the excess (if any) of—
‘‘(i) all items of income and gain 
taken into account by the holder of such 
interest under section 702 with respect to 
such interest for such year, over 
‘‘(ii) all items of deduction and loss so 
taken into account. 
‘‘(B) NET
LOSS.—The term ‘net loss’ 
means with respect to such interest for such 
year, the excess (if any) of the amount de-
scribed in subparagraph (A)(ii) over the amount 
described in subparagraph (A)(i). 
‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 
‘‘(1) GAIN.—Any gain on the disposition of an 
investment services partnership interest shall be 
treated as ordinary income for the performance of 
services. 
‘‘(2) LOSS.—Any loss on the disposition of an 
investment services partnership interest shall be 
treated as an ordinary loss to the extent of the ex-
cess (if any) of— 
‘‘(A) the aggregate net income with respect 
to such interest for all partnership taxable 
years, over
‘‘(B) the aggregate net loss with respect to 
such interest allowed under subsection (a)(2) 
for all partnership taxable years. 
‘‘(3) DISPOSITION OF PORTION OF INTEREST.— 
In the case of any disposition of an investment serv-
ices partnership interest, the amount of net loss 
which otherwise would have (but for subsection 
(a)(2)(C)) applied to reduce the basis of such inter-
est shall be disregarded for purposes of this section 
for all succeeding partnership taxable years. 
‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP-
ERTY.—In the case of any distribution of appre-
ciated property by a partnership with respect to any 
investment services partnership interest, gain shall 
be recognized by the partnership in the same man-
ner as if the partnership sold such property at fair 
market value at the time of the distribution. For 
purposes of this paragraph, the term ‘appreciated 
property’ means any property with respect to which 
gain would be determined if sold as described in 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 by any person if such per-
son provides (directly or indirectly) a substantial 
quantity of any of the following services with respect 
to the assets of the partnership in the conduct of the 
trade or business of providing such services: 
‘‘(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, commodities (as defined in section 
475(e)(2))), or options or derivative contracts with 
respect to securities (as so defined), real estate, or 
commodities (as so defined).