208 
the formula factors described under subpara-
graph (A)(i). 
(e) USE OF FUNDS.— 
(1) IN GENERAL.—The funds under this section 
shall be used to provide subsidized employment for 
unemployed, low-income adults. The State and local 
entities described in subsection (d)(1) may use a va-
riety of strategies in recruiting employers and identi-
fying appropriate employment opportunities, with a 
priority to be provided to employment opportunities 
likely to lead to unsubsidized employment in emerg-
ing or in-demand occupations in the local area. 
Funds under this section may be used to provide 
support services, such as transportation and child 
care, that are necessary to enable the participation 
of individuals in subsidized employment opportuni-
ties. 
(2) LEVEL OF SUBSIDY AND DURATION.—The 
States or local entities described in subsection (d)(1) 
may determine the percentage of the wages and 
costs of employing a participant for which an em-
ployer may receive a subsidy with the funds provided 
under this section, and the duration of such subsidy, 
in accordance with guidance issued by the Secretary. 
The State or local entities may establish criteria for 
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209 
determining such percentage or duration using ap-
propriate factors such as the size of the employer 
and types of employment. 
(f) COORDINATION OF FEDERAL ADMINISTRATION.— 
The Secretary of Labor shall administer this section in 
coordination with the Secretary of Health and Human 
Services to ensure the effective implementation of this sec-
tion. 
SEC. 365. SUMMER EMPLOYMENT AND YEAR-ROUND EM-
PLOYMENT 
OPPORTUNITIES 
FOR 
LOW-IN-
COME YOUTH. 
(a) IN GENERAL.—From the funds available under 
section 363(a)(2), the Secretary of Labor shall make an 
allotment under subsection (c) to each State that has a 
State plan modification (or other form of request for funds 
specified in guidance under subsection (b)) approved 
under subsection (d) and to each outlying area and Native 
American grantee under section 166 of the Workforce In-
vestment Act of 1998 that meets the requirements of this 
section, for the purpose of providing summer employment 
and year-round employment opportunities to low-income 
youth. 
(b) GUIDANCE
AND APPLICATION
OF REQUIRE-
MENTS.— 
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(1) GUIDANCE.—Not later than 20 days after 
the date of enactment of this Act, the Secretary of 
Labor shall issue guidance regarding the implemen-
tation of this section. Such guidance shall, consistent 
with this section, include procedures for the submis-
sion and approval of State plan modifications, or for 
forms of requests for funds by the State as may be 
identified in such guidance, local plan modifications, 
or other forms of requests for funds from local work-
force investment areas as may be identified in such 
guidance, and the allotment and allocation of funds, 
including reallotment and reallocation of such funds, 
that promote the expeditious and effective implemen-
tation of the activities authorized under this section. 
(2) REQUIREMENTS.—Except as otherwise pro-
vided in the guidance described in paragraph (1) 
and in this section and other provisions of this Act, 
the funds provided for activities under this section 
shall be administered in accordance with subtitles B 
and E of title I of the Workforce Investment Act of 
1998 relating to youth activities. 
(c) STATE ALLOTMENTS.— 
(1) RESERVATIONS FOR OUTLYING AREAS AND 
TRIBES.—Of the funds described subsection (a), the 
Secretary shall reserve— 
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(A) not more than one-quarter of one per-
cent to provide assistance to outlying areas to 
provide summer and year-round employment 
opportunities to low-income youth; and 
(B) 1.5 percent to provide assistance to 
grantees of the Native American programs 
under section 166 of the Workforce Investment 
Act of 1998 to provide summer and year-round 
employment opportunities to low-income youth. 
(2) STATES.—After determining the amounts to 
be reserved under paragraph (1), the Secretary of 
Labor shall allot the remainder of the amounts de-
scribed in subsection (a) among the States in ac-
cordance with the factors described in section 
364(b)(2) of this Act. 
(3) REALLOTMENT.—If the Governor of a State 
does not submit a State plan modification or other 
request for funds specified in guidance under sub-
section (b) by the time specified in subsection 
(d)(2)(B), or a State does not receive approval of 
such State plan modification or request, the amount 
the State would have been eligible to receive pursu-
ant to the formula under paragraph (2) shall be 
added to the amounts available for the competitive 
grants under section 363(a)(3). 
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(d) STATE PLAN MODIFICATION.— 
(1) IN GENERAL.—For a State to be eligible to 
receive an allotment of the funds under subsection 
(c), the Governor of the State shall submit to the 
Secretary of Labor a modification to a State plan 
approved under section 112 of the Workforce Invest-
ment Act of 1998, or other request for funds de-
scribed in guidance in subsection (b), in such form 
and containing such information as the Secretary 
may require. At a minimum, such plan modification 
or request shall include— 
(A) a description of the strategies and ac-
tivities to be carried out to provide summer em-
ployment opportunities and year-round employ-
ment opportunities, including the linkages to 
educational activities, consistent with subsection 
(f); 
(B) a description of the requirements the 
States will apply relating to the eligibility of 
low-income 
youth, 
consistent 
with 
section 
368(4), for summer employment opportunities 
and 
year-round 
employment 
opportunities, 
which may include criteria to target assistance 
to particular categories of such low-income 
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youth, such as youth with disabilities, con-
sistent with subsection (f); 
(C) a description of the performance out-
comes to be achieved by the State through the 
activities carried out under this section and the 
processes the State will use to track perform-
ance, consistent with guidance provided by the 
Secretary of Labor regarding such outcomes 
and processes and with section 367(b); 
(D) a description of the timelines for im-
plementation of the activities described in sub-
paragraph (A), and the number of low-income 
youth expected to be placed in summer employ-
ment opportunities, and year-round employment 
opportunities, respectively, by quarter; 
(E) assurances that the State will report 
such information as the Secretary may require 
relating to fiscal, performance and other mat-
ters that the Secretary determines is necessary 
to effectively monitor the activities carried out 
under this section; and 
(F) assurances that the State will ensure 
compliance with the labor standards protections 
described in section 367(a). 
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may be used for the costs of administration of 
this section. 
(2) LOCAL PLAN.— 
(A) SUBMISSION.—In order to receive an 
allocation under paragraph (1)(B), the local 
workforce investment board, in partnership with 
the chief elected official for the local workforce 
investment area involved, shall submit to the 
Governor a modification to a local plan ap-
proved under section 118 of the Workforce In-
vestment Act of 1998, or other form of request 
for funds as may be identified in the guidance 
issued under subsection (b), not later than 30 
days after the submission by the State of the 
modification to the State plan or other request 
for funds identified in subsection (b), describing 
the strategies and activities to be carried out 
under this section. 
(B) APPROVAL.—The Governor shall ap-
prove the local plan submitted under subpara-
graph (A) within 30 days after submission, un-
less the Governor determines that the plan is 
inconsistent with requirements of this section. 
If the Governor has not made a determination 
within 30 days, the plan shall be considered ap-
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proved. If the plan is disapproved, the Governor 
may provide a reasonable period of time in 
which a disapproved plan may be amended and 
resubmitted for approval. The Governor shall 
allocate funds to local workforce investment 
areas with approved plans within 30 days after 
approval. 
(3) REALLOCATION.—If a local workforce in-
vestment board does not submit a local plan modi-
fication (or other request for funds identified in 
guidance under subsection (b)) by the time specified 
in paragraph (2), or does not receive approval of a 
local plan, the amount the local workforce invest-
ment area would have been eligible to receive pursu-
ant to the formula under paragraph (1)(B) shall be 
allocated to local workforce investment areas that re-
ceive approval of the local plan modification or re-
quest for funds under paragraph (2). Such realloca-
tions shall be made in accordance with the relative 
share of the allocations to such local workforce in-
vestment areas applying the formula factors de-
scribed under paragraph (1)(B). 
(f) USE OF FUNDS.— 
(1) IN GENERAL.—The funds provided under 
this section shall be used— 
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(A) to provide summer employment oppor-
tunities for low-income youth, ages 16 through 
24, with direct linkages to academic and occu-
pational learning, and may include the provision 
of supportive services, such as transportation or 
child care, necessary to enable such youth to 
participate; and 
(B) to provide year round employment op-
portunities, which may be combined with other 
activities authorized under section 129 of the 
Workforce Investment Act of 1998,to low-in-
come youth, ages 16 through 24, with a priority 
to out-of school youth who are— 
(i) high school dropouts; or 
(ii) recipients of a secondary school 
diploma or its equivalent but who are basic 
skills deficient unemployed or under-
employed. 
(2) PROGRAM
PRIORITIES.—In administering 
the funds under this section, the local board and 
local chief elected officials shall give a priority to— 
(A) identifying employment opportunities 
that are— 
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219 
(i) in emerging or in-demand occupa-
tions in the local workforce investment 
area; or 
(ii) in the public or nonprofit sector 
that meet community needs; and 
(B) linking year-round program partici-
pants to training and educational activities that 
will provide such participants an industry-recog-
nized certificate or credential. 
(3) PERFORMANCE ACCOUNTABILITY.—For ac-
tivities funded under this section, in lieu of the re-
quirements described in section 136 of the Work-
force Investment Act of 1998, State and local work-
force investment areas shall provide such reports as 
the Secretary of Labor may require regarding the 
performance 
outcomes 
described 
in 
section 
367(a)(5). 
SEC. 366. WORK-BASED EMPLOYMENT STRATEGIES OF 
DEMONSTRATED EFFECTIVENESS. 
(a) IN GENERAL.—From the funds available under 
section 363(a)(3), the Secretary of Labor shall award 
grants on a competitive basis to eligible entities to carry 
out work-based strategies of demonstrated effectiveness. 
(b) USE OF FUNDS.—The grants awarded under this 
section shall be used to support strategies and activities 
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of demonstrated effectiveness that are designed to provide 
unemployed, low-income adults or low-income youth with 
the skills that will lead to employment as part of or upon 
completion of participation in such activities. Such strate-
gies and activities may include— 
(1) on-the-job training, registered apprentice-
ship programs, or other programs that combine work 
with skills development; 
(2) sector-based training programs that have 
been designed to meet the specific requirements of 
an employer or group of employers in that sector 
and where employers are committed to hiring indi-
viduals upon successful completion of the training; 
(3) training that supports an industry sector or 
an employer-based or labor-management committee 
industry partnership which includes a significant 
work-experience component; 
(4) acquisition of industry-recognized creden-
tials in a field identified by the State or local work-
force investment area as a growth sector or demand 
industry in which there are likely to be significant 
job opportunities in the short term; 
(5) connections to immediate work opportuni-
ties, including subsidized employment opportunities, 
or summer employment opportunities for youth, that 
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includes concurrent skills training and other sup-
ports; 
(6) career academies that provide students with 
the academic preparation and training, including 
paid internships and concurrent enrollment in com-
munity colleges or other postsecondary institutions, 
needed to pursue a career pathway that leads to 
postsecondary credentials and high-demand jobs; 
and 
(7) adult basic education and integrated basic 
education and training models for low-skilled adults, 
hosted at community colleges or at other sites, to 
prepare individuals for jobs that are in demand in 
a local area. 
(c) ELIGIBLE ENTITY.—An eligible entity shall in-
clude a local chief elected official, in collaboration with the 
local workforce investment board for the local workforce 
investment area involved (which may include a partnership 
with of such officials and boards in the region and in the 
State), or an entity eligible to apply for an Indian and 
Native American grant under section 166 of the Work-
force Investment Act of 1998, and may include, in part-
nership with such officials, boards, and entities, the fol-
lowing— 
(1) employers or employer associations; 
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(2) adult education providers and postsecondary 
educational institutions, including community col-
leges; 
(3) community-based organizations; 
(4) joint labor-management committees; 
(5) work-related intermediaries; or 
(6) other appropriate organizations. 
(d) APPLICATION.—An eligible entity seeking to re-
ceive a grant under this section shall submit to the Sec-
retary of Labor an application at such time, in such man-
ner, and containing such information as the Secretary may 
require. At a minimum, the application shall— 
(1) describe the strategies and activities of dem-
onstrated effectiveness that the eligible entities will 
carry out to provide unemployed, low-income adults 
and low-income youth with the skills that will lead 
to employment upon completion of participation in 
such activities; 
(2) describe the requirements that will apply re-
lating to the eligibility of unemployed, low-income 
adults or low-income youth, consistent with para-
graphs (4) and (6) of section 368, for activities car-
ried out under this section, which may include cri-
teria to target assistance to particular categories of 
such adults and youth, such as individuals with dis-
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abilities or individuals who have exhausted all rights 
to unemployment compensation; 
(3) describe how the strategies and activities 
address the needs of the target populations identi-
fied in paragraph (2) and the needs of employers in 
the local area; 
(4) describe the expected outcomes to be 
achieved by implementing the strategies and activi-
ties; 
(5) provide evidence that the funds provided 
may be expended expeditiously and efficiently to im-
plement the strategies and activities; 
(6) describe how the strategies and activities 
will be coordinated with other Federal, State and 
local programs providing employment, education and 
supportive activities; 
(7) provide evidence of employer commitment to 
participate in the activities funded under this sec-
tion, including identification of anticipated occupa-
tional and skill needs; 
(8) provide assurances that the grant recipient 
will report such information as the Secretary may 
require relating to fiscal, performance and other 
matters that the Secretary determines is necessary 
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224 
to effectively monitor the activities carried out under 
this section; and 
(9) provide assurances that the use of the funds 
provided under this section will comply with the 
labor standards and protections described section 
367(a). 
(e) PRIORITY
IN AWARDS.—In awarding grants 
under this section, the Secretary of Labor shall give a pri-
ority to applications submitted by eligible entities from 
areas of high poverty and high unemployment, as defined 
by the Secretary, such as Public Use Microdata Areas 
(PUMAs) as designated by the Census Bureau. 
(f) COORDINATION OF FEDERAL ADMINISTRATION.— 
The Secretary of Labor shall administer this section in 
coordination with the Secretary of Education, Secretary 
of Health and Human Services, and other appropriate 
agency heads, to ensure the effective implementation of 
this section. 
SEC. 367. GENERAL REQUIREMENTS. 
(a) LABOR STANDARDS AND PROTECTIONS.—Activi-
ties provided with funds under this Act shall be subject 
to the requirements and restrictions, including the labor 
standards, described in section 181 of the Workforce In-
vestment Act of 1998 and the nondiscrimination provi-
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sions of section 188 of such Act, in addition to other appli-
cable Federal laws. 
(b) REPORTING.—The Secretary may require the re-
porting of information relating to fiscal, performance and 
other matters that the Secretary determines is necessary 
to effectively monitor the activities carried out with funds 
provided under this Act. At a minimum, grantees and sub-
grantees shall provide information relating to— 
(1) the number individuals participating in ac-
tivities with funds provided under this Act and the 
number of such individuals who have completed such 
participation; 
(2) the expenditures of funds provided under 
the Act; 
(3) the number of jobs created pursuant to the 
activities carried out under this Act; 
(4) the demographic characteristics of individ-
uals participating in activities under this Act; and 
(5) the performance outcomes of individuals 
participating in activities under this Act, including— 
(A) for adults participating in activities 
funded under section 364 of this Act— 
(i) entry in unsubsidized employment, 
(ii) retention in unsubsidized employ-
ment, and 
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(iii) earnings in unsubsidized employ-
ment; 
(B) for low-income youth participating in 
summer employment activities under sections 
365 and 366— 
(i) work readiness skill attainment 
using an employer validated checklist; and 
(ii) placement in or return to sec-
ondary or postsecondary education or 
training, or entry into unsubsidized em-
ployment; 
(C) for low-income youth participating in 
year-round employment activities under section 
365 or in activities under section 366— 
(i) placement in or return to post-sec-
ondary education; 
(ii) attainment of high school diploma 
or its equivalent; 
(iii) attainment of an industry-recog-
nized credential; and 
(iv) entry into unsubsidized employ-
ment, retention, and earnings as described 
in subparagraph (A); and 
(D) for unemployed, low-income adults 
participating in activities under section 366— 
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(i) entry into unsubsidized employ-
ment, retention, and earnings as described 
in subparagraph (A); and 
(ii) the attainment of industry-recog-
nized credentials. 
(c) ACTIVITIES REQUIRED TO BE ADDITIONAL.— 
Funds provided under this Act shall only be used for ac-
tivities that are in addition to activities that would other-
wise be available in the State or local area in the absence 
of such funds. 
(d) ADDITIONAL REQUIREMENTS.—The Secretary of 
Labor may establish such additional requirements as the 
Secretary determines may be necessary to ensure fiscal in-
tegrity, effective monitoring, and the appropriate and 
prompt implementation of the activities under this Act. 
(e) REPORT OF INFORMATION AND EVALUATIONS TO 
CONGRESS AND THE PUBLIC.—The Secretary of Labor 
shall provide to the appropriate Committees of the Con-
gress and make available to the public the information re-
ported pursuant to subsection (b) and the evaluations of 
activities carried out pursuant to the funds reserved under 
section 363(b). 
SEC. 368. DEFINITIONS. 
In this Act: 
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State plans, local plans, and applications for 
funds, may increase the income level specified 
in subparagraph (B)(i) of such section to an 
amount not in excess of 200 percent of the pov-
erty line for purposes of determining eligibility 
for participation in activities under sections 365 
and 366 of this Act; and 
(C) is in one or more of the categories 
specified in section 101(13)(C) of the Work-
force Investment Act of 1998. 
(5) OUTLYING
AREA.—The term ‘‘outlying 
area’’ means the United States Virgin Islands, 
Guam, American Samoa, the Commonwealth of the 
Northern Mariana Islands, and the Republic of 
Palau. 
(6) UNEMPLOYED, LOW-INCOME ADULT.—The 
term ‘‘unemployed, low-income adult’’ means an in-
dividual who— 
(A) is age 18 or older; 
(B) is without employment and is seeking 
assistance under this Act to obtain employment; 
and 
(C) meets the definition of a ‘‘low-income 
individual’’ under section 101(25) of the Work-
force Investment Act of 1998, except that for 
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that States, local entities described in section 
364(d)(1) and eligible entities under section 
366(c), subject to approval in the applicable 
State plans, local plans, and applications for 
funds, may increase the income level specified 
in subparagraph (B)(i) of such section to an 
amount not in excess of 200 percent of the pov-
erty line for purposes of determining eligibility 
for participation in activities under sections 364 
and 366 of this Act. 
(7) STATE.—The term ‘‘State’’ means each of 
the several States of the United States, the District 
of Columbia, and Puerto Rico. 
Subtitle 
D—Prohibition 
of 
Dis-
crimination in Employment on 
the Basis of an Individual’s Sta-
tus as Unemployed 
SEC. 371. SHORT TITLE. 
This subtitle may be cited as the ‘‘Fair Employment 
Opportunity Act of 2013’’. 
SEC. 372. FINDINGS AND PURPOSE. 
(a) FINDINGS.—Congress finds that denial of em-
ployment opportunities to individuals because of their sta-
tus as unemployed is discriminatory and burdens com-
merce by— 
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(1) reducing personal consumption and under-
mining economic stability and growth; 
(2) squandering human capital essential to the 
Nation’s economic vibrancy and growth; 
(3) increasing demands for Federal and State 
unemployment insurance benefits, reducing trust 
fund assets, and leading to higher payroll taxes for 
employers, cuts in benefits for jobless workers, or 
both; 
(4) imposing additional burdens on publicly 
funded health and welfare programs; and 
(5) depressing income, property, and other tax 
revenues that the Federal Government, States, and 
localities rely on to support operations and institu-
tions essential to commerce. 
(b) PURPOSES.—The purposes of this subtitle are— 
(1) to prohibit employers and employment agen-
cies from disqualifying an individual from employ-
ment opportunities because of that individual’s sta-
tus as unemployed; 
(2) to prohibit employers and employment agen-
cies from publishing or posting any advertisement or 
announcement for an employment opportunity that 
indicates that an individual’s status as unemployed 
disqualifies that individual for the opportunity; and 
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(3) to eliminate the burdens imposed on com-
merce due to the exclusion of such individuals from 
employment. 
SEC. 373. DEFINITIONS. 
As used in this subtitle— 
(1) the term ‘‘affected individual’’ means any 
person who was subject to an unlawful employment 
practice solely because of that individual’s status as 
unemployed; 
(2) the term ‘‘Commission’’ means the Equal 
Employment Opportunity Commission; 
(3) the term ‘‘employee’’ means— 
(A) an employee as defined in section 
701(f) of the Civil Rights Act of 1964 (42 
U.S.C. 2000e(f)); 
(B) a State employee to which section 
302(a)(1) of the Government Employee Rights 
Act of 1991 (42 U.S.C. 2000e–16b(a)(1)) ap-
plies; 
(C) a covered employee, as defined in sec-
tion 101 of the Congressional Accountability 
Act of 1995 (2 U.S.C. 1301) or section 411(c) 
of title 3, United States Code; or 
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(D) an employee or applicant to which sec-
tion 717(a) of the Civil Rights Act of 1964 (42 
U.S.C. 2000e–16(a)) applies; 
(4) the term ‘‘employer’’ means— 
(A) a person engaged in an industry affect-
ing commerce (as defined in section 701(h) of 
the Civil Rights Act of 1964 (42 U.S.C. 
2000e(h)) who has 15 or more employees for 
each working day in each of 20 or more cal-
endar weeks in the current or preceding cal-
endar year, and any agent of such a person, but 
does not include a bona fide private member-
ship club that is exempt from taxation under 
section 501(c) of the Internal Revenue Code of 
1986; 
(B) an employing authority to which sec-
tion 302(a)(1) of the Government Employee 
Rights Act of 1991 applies; 
(C) an employing office, as defined in sec-
tion 101 of the Congressional Accountability 
Act of 1995 or section 411(c) of title 3, United 
States Code; or 
(D) an entity to which section 717(a) of 
the Civil Rights Act of 1964 (42 U.S.C. 2000e– 
16(a)) applies; 
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(5) the term ‘‘employment agency’’ means any 
person regularly undertaking with or without com-
pensation to procure employees for an employer or 
to procure for individuals opportunities to work as 
employees for an employer and includes an agent of 
such a person, and any person who maintains an 
Internet website or print medium that publishes ad-
vertisements or announcements of openings in jobs 
for employees; 
(6) the term ‘‘person’’ has the meaning given 
the term in section 701(a) of the Civil Rights Act 
of 1964 (42 U.S.C. 2000e(a)); and 
(7) the term ‘‘status as unemployed’’, used with 
respect to an individual, means that the individual, 
at the time of application for employment or at the 
time of action alleged to violate this subtitle, does 
not have a job, is available for work and is searching 
for work. 
SEC. 374. PROHIBITED ACTS. 
(a) EMPLOYERS.—It shall be an unlawful employ-
ment practice for an employer to— 
(1) publish in print, on the Internet, or in any 
other medium, an advertisement or announcement 
for an employee for any job that includes— 
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(2) fail or refuse to hire, to discharge, or in any 
other manner to discriminate against any individual, 
as an employee, because such individual— 
(A) opposed any practice made unlawful by 
this subtitle; 
(B) has asserted any right, filed any 
charge, or has instituted or caused to be insti-
tuted any proceeding, under or related to this 
subtitle; 
(C) has given, or is about to give, any in-
formation in connection with any inquiry or 
proceeding relating to any right provided under 
this subtitle; or 
(D) has testified, or is about to testify, in 
any inquiry or proceeding relating to any right 
provided under this subtitle. 
(d) CONSTRUCTION.—Nothing in this subtitle is in-
tended to preclude an employer or employment agency 
from considering an individual’s employment history, or 
from examining the reasons underlying an individual’s sta-
tus as unemployed, in assessing an individual’s ability to 
perform a job or in otherwise making employment deci-
sions about that individual. Such consideration or exam-
ination may include an assessment of whether an individ-
ual’s employment in a similar or related job for a period 
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of time reasonably proximate to the consideration of such 
individual for employment is job-related or consistent with 
business necessity. 
SEC. 375. ENFORCEMENT. 
(a) ENFORCEMENT POWERS.—With respect to the 
administration and enforcement of this subtitle— 
(1) the Commission shall have the same powers 
as the Commission has to administer and enforce— 
(A) title VII of the Civil Rights Act of 
1964 (42 U.S.C. 2000e et seq.); or 
(B) sections 302 and 304 of the Govern-
ment Employee Rights Act of 1991 (42 U.S.C. 
2000e–16b and 2000e–16c), in the case of an 
affected individual who would be covered by 
such title, or by section 302(a)(1) of the Gov-
ernment Employee Rights Act of 1991 (42 
U.S.C. 2000e–16b(a)(1)), respectively; 
(2) the Librarian of Congress shall have the 
same powers as the Librarian of Congress has to ad-
minister and enforce title VII of the Civil Rights Act 
of 1964 (42 U.S.C. 2000e et seq.) in the case of an 
affected individual who would be covered by such 
title; 
(3) the Board (as defined in section 101 of the 
Congressional Accountability Act of 1995 (2 U.S.C. 
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1301)) shall have the same powers as the Board has 
to administer and enforce the Congressional Ac-
countability Act of 1995 (2 U.S.C. 1301 et seq.) in 
the case of an affected individual who would be cov-
ered by section 201(a)(1) of such Act (2 U.S.C. 
1311(a)(1)); 
(4) the Attorney General shall have the same 
powers as the Attorney General has to administer 
and enforce— 
(A) title VII of the Civil Rights Act of 
1964 (42 U.S.C. 2000e et seq.); or 
(B) sections 302 and 304 of the Govern-
ment Employee Rights Act of 1991 (42 U.S.C. 
2000e–16b and 2000e–16c); in the case of an 
affected individual who would be covered by 
such title, or of section 302(a)(1) of the Gov-
ernment Employee Rights Act of 1991 (42 
U.S.C. 2000e–16b(a)(1)), respectively; 
(5) the President, the Commission, and the 
Merit Systems Protection Board shall have the same 
powers as the President, the Commission, and the 
Board, respectively, have to administer and enforce 
chapter 5 of title 3, United States Code, in the case 
of an affected individual who would be covered by 
section 411 of such title; and 
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(6) a court of the United States shall have the 
same jurisdiction and powers as the court has to en-
force— 
(A) title VII of the Civil Rights Act of 
1964 (42 U.S.C. 2000e et seq.) in the case of 
a claim alleged by such individual for a viola-
tion of such title; 
(B) sections 302 and 304 of the Govern-
ment Employee Rights Act of 1991 (42 U.S.C. 
2000e–16b and 2000e–16c) in the case of a 
claim alleged by such individual for a violation 
of section 302(a)(1) of such Act (42 U.S.C. 
2000e–16b(a)(1)); 
(C) the Congressional Accountability Act 
of 1995 (2 U.S.C. 1301 et seq.) in the case of 
a claim alleged by such individual for a viola-
tion of section 201(a)(1) of such Act (2 U.S.C. 
1311(a)(1)); and 
(D) chapter 5 of title 3, United States 
Code, in the case of a claim alleged by such in-
dividual for a violation of section 411 of such 
title. 
(b) PROCEDURES.—The procedures applicable to a 
claim alleged by an individual for a violation of this sub-
title are— 
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(1) the procedures applicable for a violation of 
title VII of the Civil Rights Act of 1964 (42 U.S.C. 
2000e et seq.) in the case of a claim alleged by such 
individual for a violation of such title; 
(2) the procedures applicable for a violation of 
section 302(a)(1) of the Government Employee 
Rights Act of 1991 (42 U.S.C. 2000e–16b(a)(1)) in 
the case of a claim alleged by such individual for a 
violation of such section; 
(3) the procedures applicable for a violation of 
section 201(a)(1) of the Congressional Account-
ability Act of 1995 (2 U.S.C. 1311(a)(1)) in the 
case of a claim alleged by such individual for a viola-
tion of such section; and 
(4) the procedures applicable for a violation of 
section 411 of title 3, United States Code, in the 
case of a claim alleged by such individual for a viola-
tion of such section. 
(c) REMEDIES.— 
(1) In any claim alleging a violation of section 
374(a)(1) or 374(b)(1) of this subtitle, an indi-
vidual, or any person acting on behalf of the indi-
vidual as set forth in section 375(a) of this subtitle, 
may be awarded, as appropriate: 
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242 
(A) An order enjoining the respondent 
from engaging in the unlawful employment 
practice. 
(B) Reimbursement of costs expended as a 
result of the unlawful employment practice. 
(C) An amount in liquidated damages not 
to exceed $1,000 for each day of the violation. 
(D) Reasonable attorney’s fees (including 
expert fees) and costs attributable to the pur-
suit of a claim under this subtitle, except that 
no person identified in section 733(a) of this 
subtitle shall be eligible to receive attorney’s 
fees. 
(2) In any claim alleging a violation of any 
other subsection of this subtitle, an individual, or 
any person acting on behalf of the individual as set 
forth in section 375(a) of this subtitle, may be 
awarded, as appropriate, the remedies available for 
a violation of title VII of the Civil Rights Act of 
1964 (42 U.S.C. 2000e et seq.), section 302(a)(1) of 
the Government Employee Rights Act of 1991 (42 
U.S.C. 2000e–16b(a)(1)), section 201(a)(1) of the 
Congressional Accountability Act of 1995 (2 U.S.C. 
1311(a)(1)), and section 411 of title 3, United 
States Code, except that in a case in which wages, 
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243 
salary, employment benefits, or other compensation 
have not been denied or lost to the individual, dam-
ages may be awarded in an amount not to exceed 
$5,000. 
SEC. 376. FEDERAL AND STATE IMMUNITY. 
(a) ABROGATION
OF STATE IMMUNITY.—A State 
shall not be immune under the 11th Amendment to the 
Constitution from a suit brought in a Federal court of 
competent jurisdiction for a violation of this subtitle. 
(b) WAIVER OF STATE IMMUNITY.— 
(1) IN GENERAL.— 
(A) WAIVER.—A State’s receipt or use of 
Federal financial assistance for any program or 
activity of a State shall constitute a waiver of 
sovereign immunity, under the 11th Amend-
ment to the Constitution or otherwise, to a suit 
brought by an employee or applicant for em-
ployment of that program or activity under this 
subtitle for a remedy authorized under section 
375(c) of this subtitle. 
(B) DEFINITION.—In this paragraph, the 
term ‘‘program or activity’’ has the meaning 
given the term in section 606 of the Civil 
Rights Act of 1964 (42 U.S.C. 2000d–4a). 
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244 
(2) EFFECTIVE DATE.—With respect to a par-
ticular program or activity, paragraph (1) applies to 
conduct occurring on or after the day, after the date 
of enactment of this Act, on which a State first re-
ceives or uses Federal financial assistance for that 
program or activity. 
(c) REMEDIES AGAINST STATE OFFICIALS.—An offi-
cial of a State may be sued in the official capacity of the 
official by any employee or applicant for employment who 
has complied with the applicable procedures of this sub-
title, for relief that is authorized under this subtitle. 
(d) REMEDIES AGAINST THE UNITED STATES AND 
THE STATES.—Notwithstanding any other provision of 
this subtitle, in an action or administrative proceeding 
against the United States or a State for a violation of this 
subtitle, remedies (including remedies at law and in eq-
uity) are available for the violation to the same extent as 
such remedies would be available against a non-govern-
mental entity. 
SEC. 377. RELATIONSHIP TO OTHER LAWS. 
This subtitle shall not invalidate or limit the rights, 
remedies, or procedures available to an individual claiming 
discrimination prohibited under any other Federal law or 
regulation or any law or regulation of a State or political 
subdivision of a State. 
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SEC. 378. SEVERABILITY. 
If any provision of this subtitle, or the application 
of the provision to any person or circumstance, is held to 
be invalid, the remainder of this subtitle and the applica-
tion of the provision to any other person or circumstances 
shall not be affected by the invalidity. 
SEC. 379. EFFECTIVE DATE. 
This subtitle shall take effect on the date of enact-
ment of this Act and shall not apply to conduct occurring 
before the effective date. 
TITLE IV—OFFSETS 
Subtitle A—28 Percent Limitation 
on Certain Deductions and Ex-
clusions 
SEC. 401. 28 PERCENT LIMITATION ON CERTAIN DEDUC-
TIONS AND EXCLUSIONS. 
(a) IN GENERAL.—Part I of subchapter B of chapter 
1 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new section: 
‘‘SEC. 69. LIMITATION ON CERTAIN DEDUCTIONS AND EX-
CLUSIONS. 
‘‘(a) IN GENERAL.—In the case of an individual for 
any taxable year, if— 
‘‘(1) the taxpayer’s adjusted gross income is 
above— 
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‘‘(A) $250,000 in the case of a joint return 
within the meaning of section 6013, 
‘‘(B) $225,000 in the case of a head of 
household return, 
‘‘(C) $125,000 in the case of a married fil-
ing separately return, or 
‘‘(D) $200,000 in all other cases; and 
‘‘(2) the taxpayer’s adjusted taxable income for 
such taxable year exceeds the minimum marginal 
rate amount, then the tax imposed under section 1 
with respect to such taxpayer for such taxable year 
shall be increased by the amount determined under 
subsection (b). If the taxpayer is subject to tax 
under section 55, then in lieu of an increase in tax 
under section 1, the tax imposed under section 55 
with respect to such taxpayer for such taxable year 
shall be increased by the amount determined under 
subsection (c). 
‘‘(b) ADDITIONAL AMOUNT.—The amount deter-
mined under this subsection with respect to any taxpayer 
for any taxable year is the excess (if any) of— 
‘‘(1) the tax which would be imposed under sec-
tion 1 with respect to such taxpayer for such taxable 
year if ‘adjusted taxable income’ were substituted 
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for ‘taxable income’ each place it appears therein, 
over 
‘‘(2) the sum of— 
‘‘(A) the tax which would be imposed 
under such section with respect to such tax-
payer for such taxable year on the greater of— 
‘‘(i) taxable income, or 
‘‘(ii) the minimum marginal rate 
amount, plus 
‘‘(B) 28 percent of the excess (if any) of 
the taxpayer’s adjusted taxable income over the 
greater of— 
‘‘(i) the taxpayer’s taxable income, or 
‘‘(ii) the minimum marginal rate 
amount. 
‘‘(c) ADDITIONAL AMT AMOUNT.— 
‘‘(1) The amount determined under this sub-
section with respect to any taxpayer for any taxable 
year is the additional amount computed under sub-
section (b) multiplied by the ratio that— 
‘‘(A) the result of— 
‘‘(i) all itemized deductions (before 
the application of section 68), plus 
‘‘(ii) the specified above-the-line de-
ductions and specified exclusions, minus 
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‘‘(iii) the amount of deductions dis-
allowed under section 56(b)(1)(A) and (B), 
minus 
‘‘(iv) the non-preference disallowed de-
ductions, bears to— 
‘‘(B) the sum of— 
‘‘(i) the total of itemized deductions 
(after the application of section 68), plus 
‘‘(ii) the specified above-the-line de-
ductions and specified exclusions. 
‘‘(2) If the top of the AMT exemption phase- 
out range for the taxpayer exceeds the minimum 
marginal rate amount for the taxpayer and if the 
taxpayer’s alternative minimum taxable income does 
not exceed the top of the AMT exemption phase-out 
range, the taxpayer must increase its additional 
AMT amount by 7 percent of the excess of— 
‘‘(A) the lesser of— 
‘‘(i) the top of the AMT exemption 
phase-out range, or 
‘‘(ii) the taxpayer’s alternative min-
imum taxable income, computed— 
‘‘(I) 
without 
regard 
to 
any 
itemized deduction or any specified 
above-the-line deduction, and 
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‘‘(II) by including the amount of 
any specified exclusion; over 
‘‘(B) the greater of— 
‘‘(i) the taxpayer’s alternative min-
imum taxable income, or 
‘‘(ii) the minimum marginal rate 
amount. 
‘‘(d) MINIMUM MARGINAL RATE AMOUNT.—For pur-
poses of this section, the term ‘minimum marginal rate 
amount’ means, with respect to any taxpayer for any tax-
able year, the highest amount of the taxpayer’s taxable 
income which would be subject to a marginal rate of tax 
under section 1 that is less than 36 percent with respect 
to such taxable year. 
‘‘(e) ADJUSTED TAXABLE INCOME.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The term ‘adjusted taxable 
income’ means taxable income computed— 
‘‘(A) without regard to any itemized deduc-
tion or any specified above-the-line deduction, 
and 
‘‘(B) by including in gross income any 
specified exclusion. 
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‘‘(2) 
SPECIFIED
ABOVE-THE-LINE
DEDUC-
TION.—The term ‘specified above-the-line deduction’ 
means— 
‘‘(A) the deduction provided under section 
162(l) (relating to special rules for health insur-
ance costs of self-employed individuals), 
‘‘(B) the deduction provided under section 
199 (relating to income attributable to domestic 
production activities), and 
‘‘(C) the deductions provided under the fol-
lowing paragraphs of section 62(a): 
‘‘(i) Paragraph (2) (relating to certain 
trade and business deductions of employ-
ees), other than subparagraph (A) thereof. 
‘‘(ii) Paragraph (15) (relating to mov-
ing expenses). 
‘‘(iii) Paragraph (16) (relating to Ar-
cher MSAs). 
‘‘(iv) Paragraph (17) (relating to in-
terest on education loans). 
‘‘(v) Paragraph (18) (relating to high-
er education expenses). 
‘‘(vi) Paragraph (19) (relating to 
health savings accounts). 
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‘‘(3) SPECIFIED EXCLUSION.—The term ‘speci-
fied exclusion’ means— 
‘‘(A) any interest excluded under section 
103, 
‘‘(B) any exclusion with respect to the cost 
described in section 6051(a)(14) (without re-
gard to subparagraph (B) thereof), and 
‘‘(C) any foreign earned income excluded 
under section 911. 
‘‘(f) 
NON-PREFERENCE
DISALLOWED
DEDUC-
TIONS.—For purposes of this section, the term ‘AMT-al-
lowed deductions’ means all itemized deductions dis-
allowed by section 68 multiplied by the ratio that— 
‘‘(1) a taxpayer’s itemized deductions for the 
taxable year that are subject to section 68 (that is, 
not including those excluded under section 68(c)) 
and that are not limited under section 56(b)(1)(A) 
or (B), bears to 
‘‘(2) the taxpayer’s itemized deductions for the 
taxable year that are subject to section 68 (that is, 
not including those excluded under section 68(c)). 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be appropriate to carry out this 
section, including regulations which provide appropriate 
adjustments to the additional AMT amount.’’. 
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252 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning on or 
after January 1, 2013. 
Subtitle B—Tax Carried Interest in 
Investment Partnerships as Or-
dinary Income 
SEC. 411. PARTNERSHIP INTERESTS TRANSFERRED IN 
CONNECTION WITH PERFORMANCE OF SERV-
ICES. 
(a) MODIFICATION TO ELECTION TO INCLUDE PART-
NERSHIP INTEREST
IN GROSS INCOME
IN YEAR
OF 
TRANSFER.—Subsection (c) of section 83 of the Internal 
Revenue Code of 1986 is amended by redesignating para-
graph (4) as paragraph (5) and by inserting after para-
graph (3) the following new paragraph: 
‘‘(4) PARTNERSHIP
INTERESTS.—Except as 
provided by the Secretary— 
‘‘(A) IN
GENERAL.—In the case of any 
transfer of an interest in a partnership in con-
nection with the provision of services to (or for 
the benefit of) such partnership— 
‘‘(i) the fair market value of such in-
terest shall be treated for purposes of this 
section as being equal to the amount of the 
distribution which the partner would re-
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ceive if the partnership sold (at the time of 
the transfer) all of its assets at fair market 
value and distributed the proceeds of such 
sale (reduced by the liabilities of the part-
nership) to its partners in liquidation of 
the partnership, and 
‘‘(ii) the person receiving such interest 
shall be treated as having made the elec-
tion under subsection (b)(1) unless such 
person makes an election under this para-
graph to have such subsection not apply. 
‘‘(B) ELECTION.—The election under sub-
paragraph (A)(ii) shall be made under rules 
similar to the rules of subsection (b)(2).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to interests in partnerships trans-
ferred after December 31, 2013. 
SEC. 412. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIPS. 
(a) IN GENERAL.—Part I of subchapter K of chapter 
1 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new section: 
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254 
‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIPS. 
‘‘(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) an amount equal to the net capital 
gain with respect to such interest for any part-
nership taxable year shall be treated as ordi-
nary income, and 
‘‘(B) subject to the limitation of paragraph 
(2), an amount equal to the net capital loss 
with respect to such interest for any partner-
ship taxable year shall be treated as an ordi-
nary loss. 
‘‘(2) RECHARACTERIZATION
OF
LOSSES
LIM-
ITED
TO
RECHARACTERIZED
GAINS.—The amount 
treated as ordinary loss under paragraph (1)(B) for 
any taxable year shall not exceed the excess (if any) 
of— 
‘‘(A) the aggregate amount treated as ordi-
nary income under paragraph (1)(A) with re-
spect to the investment services partnership in-
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terest for all preceding partnership taxable 
years to which this section applies, over 
‘‘(B) the aggregate amount treated as or-
dinary loss under paragraph (1)(B) with re-
spect to such interest for all preceding partner-
ship taxable years to which this section applies. 
‘‘(3) ALLOCATION
TO
ITEMS
OF
GAIN
AND 
LOSS.— 
‘‘(A) NET
CAPITAL
GAIN.—The amount 
treated as ordinary income under paragraph 
(1)(A) shall be allocated ratably among the 
items of long-term capital gain taken into ac-
count in determining such net capital gain. 
‘‘(B) NET
CAPITAL
LOSS.—The amount 
treated as ordinary loss under paragraph (1)(B) 
shall be allocated ratably among the items of 
long-term capital loss and short-term capital 
loss taken into account in determining such net 
capital loss. 
‘‘(4) TERMS RELATING TO CAPITAL GAINS AND 
LOSSES.—For purposes of this section— 
‘‘(A) IN GENERAL.—Net capital gain, long- 
term capital gain, and long-term capital loss, 
with respect to any investment services partner-
ship interest for any taxable year, shall be de-
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256 
termined under section 1222, except that such 
section shall be applied— 
‘‘(i) without regard to the recharacter-
ization of any item as ordinary income or 
ordinary loss under this section, 
‘‘(ii) by only taking into account items 
of gain and loss taken into account by the 
holder of such interest under section 702 
with respect to such interest for such tax-
able year, 
‘‘(iii) by treating property which is 
taken into account in determining gains 
and losses to which section 1231 applies as 
capital assets held for more than 1 year, 
and 
‘‘(iv) without regard to section 1202. 
‘‘(B) NET CAPITAL LOSS.—The term ‘net 
capital loss’ means the excess of the losses from 
sales or exchanges of capital assets over the 
gains from such sales or exchanges. Rules simi-
lar to the rules of clauses (i) through (iv) of 
subparagraph (A) shall apply for purposes of 
the preceding sentence. 
‘‘(5) SPECIAL RULES FOR DIVIDENDS.— 
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‘‘(A) INDIVIDUALS.—Any dividend allo-
cated to any investment services partnership in-
terest shall not be treated as qualified dividend 
income for purposes of section 1(h). 
‘‘(B) CORPORATIONS.—No deduction shall 
be allowed under section 243 or 245 with re-
spect to any dividend allocated to any invest-
ment services partnership interest. 
‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 
‘‘(1) GAIN.— 
‘‘(A) IN GENERAL.—Any gain on the dis-
position of an investment services partnership 
interest shall be— 
‘‘(i) treated as ordinary income, and 
‘‘(ii) recognized notwithstanding any 
other provision of this subtitle. 
‘‘(B) EXCEPTIONS; CERTAIN
TRANSFERS 
TO CHARITIES AND RELATED PERSONS.—Sub-
paragraph (A) shall not apply to— 
‘‘(i) a disposition by gift, 
‘‘(ii) a transfer at death, or 
‘‘(iii) other disposition identified by 
the Secretary as a disposition with respect 
to which it would be inconsistent with the 
purposes of this section to apply subpara-
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graph (A), if such gift, transfer, or other 
disposition is to an organization described 
in section 170(b)(1)(A) (other than any or-
ganization described in section 509(a)(3) 
or any fund or account described in section 
4966(d)(2)) or a person with respect to 
whom the transferred interest is an invest-
ment services partnership interest. 
‘‘(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 amount treated as ordi-
nary income under subsection (a) with respect 
to such interest for all partnership taxable 
years to which this section applies, over 
‘‘(B) the aggregate amount treated as or-
dinary loss under subsection (a) with respect to 
such interest for all partnership taxable years 
to which this section applies. 
‘‘(3) ELECTION WITH RESPECT TO CERTAIN EX-
CHANGES.—Paragraph (1)(A)(ii) shall not apply to 
the contribution of an investment services partner-
ship interest to a partnership in exchange for an in-
terest in such partnership if— 
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‘‘(A) the taxpayer makes an irrevocable 
election to treat the partnership interest re-
ceived in the exchange as an investment serv-
ices partnership interest, and 
‘‘(B) the taxpayer agrees to comply with 
such reporting and recordkeeping requirements 
as the Secretary may prescribe. 
‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP-
ERTY.— 
‘‘(A) IN GENERAL.—In the case of any dis-
tribution of property by a partnership with re-
spect to any investment services partnership in-
terest held by a partner, the partner receiving 
such property shall recognize gain equal to the 
excess (if any) of— 
‘‘(i) the fair market value of such 
property at the time of such distribution, 
over 
‘‘(ii) the adjusted basis of such prop-
erty in the hands of such partner (deter-
mined without regard to subparagraph 
(C)). 
‘‘(B) TREATMENT OF GAIN AS ORDINARY 
INCOME.—Any gain recognized by such partner 
under subparagraph (A) shall be treated as or-
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260 
dinary income to the same extent and in the 
same manner as the increase in such partner’s 
distributive share of the taxable income of the 
partnership would be treated under subsection 
(a) if, immediately prior to the distribution, the 
partnership had sold the distributed property at 
fair market value and all of the gain from such 
disposition were allocated to such partner. For 
purposes of applying paragraphs (2) and (3) of 
subsection (a), any gain treated as ordinary in-
come under this subparagraph shall be treated 
as an amount treated as ordinary income under 
subsection (a)(1)(A). 
‘‘(C) ADJUSTMENT OF BASIS.—In the case 
a distribution to which subparagraph (A) ap-
plies, the basis of the distributed property in 
the hands of the distributee partner shall be the 
fair market value of such property. 
‘‘(D) SPECIAL RULES WITH RESPECT TO 
MERGERS, DIVISIONS, AND TECHNICAL TERMI-
NATIONS.—In the case of a taxpayer which sat-
isfies requirements similar to the requirements 
of subparagraphs (A) and (B) of paragraph (3), 
this paragraph and paragraph (1)(A)(ii) shall 
not apply to the distribution of a partnership 
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interest if such distribution is in connection 
with a contribution (or deemed contribution) of 
any property of the partnership to which sec-
tion 721 applies pursuant to a transaction de-
scribed in paragraph (1)(B) or (2) of section 
708(b). 
‘‘(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 an 
investment partnership acquired or held by any per-
son in connection with the conduct of a trade or 
business described in paragraph (2) by such person 
(or any person related to such person). An interest 
in an investment partnership held by any person— 
‘‘(A) shall not be treated as an investment 
services partnership interest for any period be-
fore the first date on which it is so held in con-
nection with such a trade or business, 
‘‘(B) shall not cease to be an investment 
services partnership interest merely because 
such person holds such interest other than in 
connection with such a trade or business, and 
‘‘(C) shall be treated as an investment 
services partnership interest if acquired from a 
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related person in whose hands such interest was 
an investment services partnership interest. 
‘‘(2) BUSINESSES TO WHICH THIS SECTION AP-
PLIES.—A trade or business is described in this 
paragraph if such trade or business primarily in-
volves the performance of any of the following serv-
ices with respect to assets held (directly or indi-
rectly) by the investment partnership referred to in 
paragraph (1): 
‘‘(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). 
‘‘(3) INVESTMENT PARTNERSHIP.— 
‘‘(A) IN GENERAL.—The term ‘investment 
partnership’ means any partnership if, at the 
end of any calendar quarter ending after De-
cember 31, 2012— 
‘‘(i) substantially all of the assets of 
the partnership are specified assets (deter-
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263 
mined without regard to any section 197 
intangible within the meaning of section 
197(d)), and 
‘‘(ii) more than half of the contributed 
capital of the partnership is attributable to 
contributions of property by one or more 
persons in exchange for interests in the 
partnership which (in the hands of such 
persons) constitute property held for the 
production of income. 
‘‘(B) SPECIAL RULES FOR DETERMINING 
IF PROPERTY HELD FOR THE PRODUCTION OF 
INCOME.—Except as otherwise provided by the 
Secretary, for purposes of determining whether 
any interest in a partnership constitutes prop-
erty held for the production of income under 
subparagraph (A)(ii)— 
‘‘(i) any election under subsection (e) 
or (f) of section 475 shall be disregarded, 
and 
‘‘(ii) paragraph (5)(B) shall not apply. 
‘‘(C) ANTIABUSE
RULES.—The Secretary 
may issue regulations or other guidance which 
prevent the avoidance of the purposes of sub-
paragraph (A), including regulations or other 
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264 
guidance which treat convertible and contingent 
debt (and other debt having the attributes of 
equity) as a capital interest in the partnership. 
‘‘(D) CONTROLLED
GROUPS
OF
ENTI-
TIES.— 
‘‘(i) IN GENERAL.—In the case of a 
controlled group of entities, if an interest 
in the partnership received in exchange for 
a contribution to the capital of the part-
nership by any member of such controlled 
group would (in the hands of such mem-
ber) constitute property not held for the 
production of income, then any interest in 
such partnership held by any member of 
such group shall be treated for purposes of 
subparagraph (A) as constituting (in the 
hands of such member) property not held 
for the production of income. 
‘‘(ii) CONTROLLED GROUP OF ENTI-
TIES.—For purposes of clause (i), the term 
‘controlled group of entities’ means a con-
trolled group of corporations as defined in 
section 1563(a)(1), applied without regard 
to subsections (a)(4) and (b)(2) of section 
1563. A partnership or any other entity 
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265 
(other than a corporation) shall be treated 
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). 
‘‘(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). 
‘‘(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. 
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266 
‘‘(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. 
‘‘(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 
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267 
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. 
‘‘(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 
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268 
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-
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-
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269 
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. 
‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur-
poses of this subsection— 
‘‘(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— 
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‘‘(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-
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). 
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271 
‘‘(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) TECHNICAL
TERMINATIONS, 
ETC., 
DISREGARDED.—No increase or decrease in the 
qualified capital interest of any partner shall re-
sult from a termination, merger, consolidation, 
or division described in section 708, or any 
similar transaction. 
‘‘(8) TREATMENT OF CERTAIN LOANS.— 
‘‘(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 
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272 
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 January 1, 2013 unless such repayment 
is made with the proceeds of a loan or other ad-
vance 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 
(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. 
‘‘(e) OTHER INCOME
AND GAIN
IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.— 
‘‘(1) IN GENERAL.—If— 
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273 
‘‘(A) a person performs (directly or indi-
rectly) investment management services for any 
investment 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 subsections (a)(5) 
and (d) shall apply for purposes of this sub-
section. 
‘‘(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, 
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274 
‘‘(II) convertible or contingent 
debt of such entity, 
‘‘(III) any option or other right 
to acquire property described in sub-
clause (I) or (II), and 
‘‘(IV) any derivative instrument 
entered into (directly or indirectly) 
with such entity or any investor in 
such entity. 
‘‘(ii) EXCEPTIONS.—Such term shall 
not include— 
‘‘(I) a partnership interest, 
‘‘(II) except as provided by the 
Secretary, any interest in a taxable 
corporation, and 
‘‘(III) except as provided by the 
Secretary, stock in an S corporation. 
‘‘(B) TAXABLE CORPORATION.—The term 
‘taxable corporation’ means— 
‘‘(i) a domestic C corporation, or 
‘‘(ii) a foreign corporation substan-
tially all of the income of which is— 
‘‘(I) effectively connected with 
the conduct of a trade or business in 
the United States, or 
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275 
‘‘(II) subject to a comprehensive 
foreign income tax (as defined in sec-
tion 457A(d)(2)). 
‘‘(C) INVESTMENT
MANAGEMENT
SERV-
ICES.—The term ‘investment management serv-
ices’ means a substantial quantity of any of the 
services described in subsection (c)(2). 
‘‘(D) INVESTMENT ENTITY.—The term ‘in-
vestment entity’ means any entity which, if it 
were a partnership, would be an investment 
partnership. 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as is necessary or ap-
propriate to carry out the purposes of this section, includ-
ing regulations or other guidance to— 
‘‘(1) provide modifications to the application of 
this section (including treating related persons as 
not related to one another) to the extent such modi-
fication is consistent with the purposes of this sec-
tion, and 
‘‘(2) coordinate this section with the other pro-
visions of this title. 
‘‘(g) CROSS REFERENCE.—For 40 percent penalty on 
certain underpayments due to the avoidance of this sec-
tion, see section 6662.’’. 
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276 
(b) APPLICATION OF SECTION 751 TO INDIRECT DIS-
POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS.— 
(1) IN
GENERAL.—Subsection (a) of section 
751 of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘or’’ at the end of paragraph (1), by 
inserting ‘‘or’’ at the end of paragraph (2), and by 
inserting after paragraph (2) the following new 
paragraph: 
‘‘(3) investment services partnership interests 
held by the partnership,’’. 
(2) CERTAIN
DISTRIBUTIONS
TREATED
AS 
SALES OR EXCHANGES.—Subparagraph (A) of sec-
tion 751(b)(1) of the Internal Revenue Code of 1986 
is amended by striking ‘‘or’’ at the end of clause (i), 
by inserting ‘‘or’’ at the end of clause (ii), and by 
inserting after clause (ii) the following new clause: 
‘‘(iii) investment services partnership 
interests held by the partnership,’’. 
(3) APPLICATION OF SPECIAL RULES IN THE 
CASE OF TIERED PARTNERSHIPS.—Subsection (f) of 
section 751 of the Internal Revenue Code of 1986 
is amended by striking ‘‘or’’ at the end of paragraph 
(1), by inserting ‘‘or’’ at the end of paragraph (2), 
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