I 
110TH CONGRESS 
1ST SESSION H. R. 2834 
To amend the Internal Revenue Code of 1986 to treat income received 
by partners for performing investment management services as ordinary 
income received for the performance of services. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 22, 2007 
Mr. LEVIN (for himself, Mr. RANGEL, Mr. STARK, Mr. MCDERMOTT, Mr. 
LEWIS of Georgia, Mr. NEAL of Massachusetts, Mr. POMEROY, Mrs. 
JONES of Ohio, Mr. LARSON of Connecticut, Mr. BLUMENAUER, Mr. 
KIND, Mr. PASCRELL, and Mr. FRANK of Massachusetts) 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 treat in-
come received by partners for performing investment 
management services as ordinary income received for 
the performance of services. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. INCOME OF PARTNERS FOR PERFORMING IN-
VESTMENT MANAGEMENT SERVICES TREAT-
ED AS ORDINARY INCOME RECEIVED FOR 
PERFORMANCE OF SERVICES. 
(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) is amended by adding at the end 
the following new section: 
‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIP. 
‘‘(a) TREATMENT
OF
DISTRIBUTIVE
SHARE
OF 
PARTNERSHIP ITEMS.—For purposes of this title, in the 
case of an investment services partnership interest— 
‘‘(1) IN
GENERAL.—Notwithstanding section 
702(b)— 
‘‘(A) any net income with respect to such 
interest for any partnership taxable year shall 
be treated as ordinary income for the perform-
ance of services, and 
‘‘(B) any net loss with respect to such in-
terest for such year, to the extent not dis-
allowed under paragraph (2) for such year, 
shall be treated as an ordinary loss. 
‘‘(2) TREATMENT OF LOSSES.— 
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‘‘(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) PRIOR
PARTNERSHIP
YEARS.—Any 
reference in this paragraph to prior partnership 
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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. 
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‘‘(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 
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property’ means any property with respect to which 
gain would be determined if sold as described in the 
preceding sentence. 
‘‘(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), in the active 
conduct of a trade or business, a substantial quan-
tity of any of the following services to the partner-
ship: 
‘‘(A) Advising the partnership as to the 
value of any specified asset. 
‘‘(B) Advising the partnership as to the 
advisability of investing in, purchasing, or sell-
ing any specified asset. 
‘‘(C) Managing, acquiring, or disposing of 
any specified asset. 
‘‘(D) Arranging financing with respect to 
acquiring specified assets. 
‘‘(E) Any activity in support of any service 
described in subparagraphs (A) through (D). 
For purposes of this paragraph, the term ‘specified 
asset’ means securities (as defined in section 
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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). 
‘‘(2) EXCEPTION FOR CERTAIN CAPITAL INTER-
ESTS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) a portion of an investment serv-
ices partnership interest is acquired on ac-
count of a contribution of invested capital, 
and 
‘‘(ii) the partnership makes a reason-
able allocation of partnership items be-
tween the portion of the distributive share 
that is with respect to invested capital and 
the portion of such distributive share that 
is not with respect to invested capital, 
then subsection (a) shall not apply to the por-
tion of the distributive share that is with re-
spect to invested capital. An allocation will not 
be treated as reasonable for purposes of this 
subparagraph if such allocation would result in 
the partnership allocating a greater portion of 
income to invested capital than any other part-
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ner not providing services would have been allo-
cated with respect to the same amount of in-
vested capital. 
‘‘(B) SPECIAL RULE FOR DISPOSITIONS.— 
In any case to which subparagraph (A) applies, 
subsection (b) shall not apply to any gain or 
loss allocable to invested capital. The portion of 
any gain or loss attributable to invested capital 
is the proportion of such gain or loss which is 
based on the distributive share of gain or loss 
that would have been allocable to invested cap-
ital under subparagraph (A) if the partnership 
sold all of its assets immediately before the dis-
position. 
‘‘(C) INVESTED
CAPITAL.—For purposes 
of this paragraph, the term ‘invested capital’ 
means, the fair market value at the time of con-
tribution of, any money or other property con-
tributed to the partnership.’’. 
(b) APPLICATION
TO REAL ESTATE INVESTMENT 
TRUSTS.—Subsection (c) of section 856 of such Code is 
amended by adding at the end the following new para-
graph: 
‘‘(8) EXCEPTION FROM RECHARACTERIZATION 
OF INCOME FROM INVESTMENT SERVICES PARTNER-
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SHIP
INTERESTS.—Paragraphs (2), (3), and (4) 
shall be applied without regard to section 710 (relat-
ing to special rules for partners providing investment 
management services to partnership).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Subsection (d) of section 731 of such Code 
is amended by inserting ‘‘section 710(b)(4) (relating 
to distributions of partnership property),’’ before 
‘‘section 736’’. 
(2) Section 741 of such Code is amended by in-
serting ‘‘or section 710 (relating to special rules for 
partners providing investment management services 
to partnership)’’ before the period at the end. 
(3) Paragraph (13) of section 1402(a) of such 
Code is amended— 
(A) by striking ‘‘other than guaranteed’’ 
and inserting ‘‘other than— 
‘‘(A) guaranteed’’, 
(B) by striking the semi-colon at the end 
and inserting ‘‘, and’’, and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(B) any income treated as ordinary in-
come under section 710 received by an indi-
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vidual who provides a substantial quantity of 
the services described in section 710(c)(1);’’. 
(4) Paragraph (12) of section 211(a) of the So-
cial Security Act is amended— 
(A) by striking ‘‘other than guaranteed’’ 
and inserting ‘‘other than— 
‘‘(A) guaranteed’’, 
(B) by striking the semi-colon at the end 
and inserting ‘‘, and’’, and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(B) any income treated as ordinary in-
come under section 710 of the Internal Revenue 
Code of 1986 received by an individual who 
provides a substantial quantity of the services 
described in section 710(c)(1) of such Code;’’. 
(5) The table of sections for part I of sub-
chapter K of chapter 1 of such Code is amended by 
adding at the end the following new item: 
‘‘Sec. 710. Special rules for partners providing investment management services 
to partnership.’’. 
Æ 
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