as a member of a controlled group of enti-
ties if such entity is controlled (within the 
meaning of section 954(d)(3)) by members 
of such group (including any entity treated 
as a member of such group by reason of 
this sentence). 
‘‘(F) 
SPECIAL
RULE
FOR
CORPORA-
TIONS.—For purposes of this paragraph, in the 
case of a corporation, the determination of 
whether property is held in connection with a 
trade or business shall be determined as if the 
taxpayer were an individual. 
‘‘(4) SPECIFIED
ASSET.—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)), cash or cash equivalents, or options 
or derivative contracts with respect to any of the 
foregoing. 
‘‘(5) RELATED PERSONS.— 
‘‘(A) IN
GENERAL.—A person shall be 
treated as related to another person if the rela-
tionship between such persons is described in 
section 267(b) or 707(b). 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00017
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
‘‘(B) ATTRIBUTION
OF
PARTNER
SERV-
ICES.—Any service described in paragraph (2) 
which is provided by a partner of a partnership 
shall be treated as also provided by such part-
nership. 
‘‘(d) EXCEPTION
FOR CERTAIN CAPITAL INTER-
ESTS.— 
‘‘(1) IN GENERAL.—In the case of any portion 
of an investment services partnership interest which 
is a qualified capital interest, all items of gain and 
loss (and any dividends) which are allocated to such 
qualified capital interest shall not be taken into ac-
count under subsection (a) if— 
‘‘(A) allocations of items are made by the 
partnership to such qualified capital interest in 
the same manner as such allocations are made 
to other qualified capital interests held by part-
ners who do not provide any services described 
in subsection (c)(2) and who are not related to 
the partner holding the qualified capital inter-
est, and 
‘‘(B) the allocations made to such other in-
terests are significant compared to the alloca-
tions made to such qualified capital interest. 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00018
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO 
ALLOCATION
REQUIREMENTS.—To the extent pro-
vided by the Secretary in regulations or other guid-
ance— 
‘‘(A) ALLOCATIONS TO PORTION OF QUALI-
FIED CAPITAL INTEREST.—Paragraph (1) may 
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. 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00019
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
‘‘(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 
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-
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00020
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
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-
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. 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00021
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur-
poses of this section— 
‘‘(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— 
‘‘(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-
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00022
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
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). 
‘‘(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) MERGER, CONSOLIDATION, DIVISION, 
ETC., DISREGARDED.—No increase or decrease 
in the qualified capital interest of any partner 
shall result from a merger, consolidation, or di-
vision described in section 708, or any similar 
transaction. 
‘‘(8) TREATMENT OF CERTAIN LOANS.— 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00023
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
‘‘(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 
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 the date of the enactment of this section 
unless such repayment is made with the pro-
ceeds of a loan or other advance 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 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00024
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
(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. 
‘‘(9) SPECIAL
RULE
FOR
QUALIFIED
FAMILY 
PARTNERSHIPS.— 
‘‘(A) IN
GENERAL.—In the case of any 
specified family partnership interest, paragraph 
(1)(A) shall be applied without regard to the 
phrase ‘and who are not related to the partner 
holding the qualified capital interest’. 
‘‘(B) SPECIFIED FAMILY PARTNERSHIP IN-
TEREST.—For purposes of this paragraph, the 
term ‘specified family partnership interest’ 
means any investment services partnership in-
terest if— 
‘‘(i) such interest is an interest in a 
qualified family partnership, 
‘‘(ii) such interest is held by a natural 
person or by a trust with respect to which 
each beneficiary is a grantor or a person 
whose relationship to the grantor is de-
scribed in section 267(b)(1), and 
‘‘(iii) all other interests in such quali-
fied family partnership with respect to 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00025
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
which significant allocations are made 
(within the meaning of paragraph (1)(B) 
and in comparison to the allocations made 
to the interest described in clause (ii)) are 
held by persons who— 
‘‘(I) are related to the natural 
person or trust referred to in clause 
(ii), or 
‘‘(II) provide services described 
in subsection (c)(2). 
‘‘(C) QUALIFIED FAMILY PARTNERSHIP.— 
For purposes of this paragraph, the term 
‘qualified family partnership’ means any part-
nership if— 
‘‘(i) all of the capital and profits in-
terests of such partnership are held by— 
‘‘(I) specified family members, 
‘‘(II) any person closely related 
(within the meaning of subsection 
(c)(3)(C)(ii)) to a specified family 
member, or 
‘‘(III) any other person (not de-
scribed in subclause (I) or (II)) if 
such interest is an investment services 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00026
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
partnership interest with respect to 
such person, and 
‘‘(ii) such partnership does not hold 
itself out to the public as an investment 
advisor. 
‘‘(D) SPECIFIED FAMILY MEMBERS.—For 
purposes of subparagraph (C), individuals shall 
be treated as specified family members if such 
individuals would be treated as one person 
under the rules of section 1361(c)(1) if the ap-
plicable date (within the meaning of subpara-
graph (B)(iii) thereof) were the latest of— 
‘‘(i) the date of the establishment of 
the partnership, 
‘‘(ii) the earliest date that the com-
mon ancestor holds a capital or profits in-
terest in the partnership, or 
‘‘(iii) the date of the enactment of this 
section. 
‘‘(e) 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 
investment entity, 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00027
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS
‘‘(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 subsections (a)(5) and (d) shall apply 
for purposes of this subsection. 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) DISQUALIFIED INTEREST.— 
‘‘(i) IN
GENERAL.—The term ‘dis-
qualified interest’ means, with respect to 
any investment entity— 
‘‘(I) any interest in such entity 
other than indebtedness, 
‘‘(II) convertible or contingent 
debt of such entity, 
VerDate Sep 11 2014 
03:44 Apr 25, 2023
Jkt 039200
PO 00000
Frm 00028
Fmt 6652
Sfmt 6201
E:\BILLS\H2686.IH
H2686
kjohnson on DSK79L0C42PROD with BILLS