‘‘(b) MAXIMUM CREDIT.—The credit determined 
under this section with respect to any taxpayer for any 
taxable year shall not exceed $100,000. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED EQUITY INVESTMENT.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
equity investment’ means any equity investment 
in a qualified research intensive small business 
concern if such investment is acquired by the 
taxpayer at its original issue (directly or 
through an underwriter) solely in exchange for 
cash. 
‘‘(B) EQUITY
INVESTMENT.—The term 
‘equity investment’ means— 
‘‘(i) any stock (other than non-
qualified preferred stock as defined in sec-
tion 351(g)(2)) in an entity which is a cor-
poration, and 
‘‘(ii) any capital interest in an entity 
which is a partnership. 
‘‘(C) REDEMPTIONS.—A rule similar to the 
rule of section 1202(c)(3) shall apply for pur-
poses of this subsection. 
‘‘(2) QUALIFIED RESEARCH INTENSIVE SMALL 
BUSINESS CONCERN.—The term ‘qualified research 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
intensive small business concern’ means, with re-
spect to any taxable year, any small business con-
cern (as defined in section 3 of the Small Business 
Act) if— 
‘‘(A) such taxable year begins not later 
than 10 years after the date on which such en-
tity is established, 
‘‘(B) such entity employs an average of 
fewer than 100 employees on business days dur-
ing such year, and 
‘‘(C) at least 30 percent of the gross ex-
penditures of such entity for such year are re-
search or experimental expenditures under sec-
tion 174. 
‘‘(d) CERTAIN
TAXPAYERS
NOT
ELIGIBLE.—No 
credit shall be determined under this section for any eq-
uity investment in any qualified research intensive small 
business concern made by any individual who, at the time 
of the investment, is— 
‘‘(1) an employee of such concern, or 
‘‘(2) a member of the family (within the mean-
ing of section 267(c)(4)) of an employee of such con-
cern. 
‘‘(e) BASIS REDUCTION.—The basis of any qualified 
equity investment shall be reduced by the amount of any 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
credit determined under this section with respect to such 
investment. This subsection shall not apply for purposes 
of sections 1202, 1400B, and 1400F. 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be appropriate to carry out this 
section, including regulations— 
‘‘(1) which prevent the abuse of the purposes of 
this section, 
‘‘(2) which impose appropriate reporting re-
quirements, and 
‘‘(3) which apply the provisions of this section 
to newly formed entities.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 (relating to current 
year business credit) is amended by striking ‘‘plus’’ at the 
end of paragraph (36), by striking the period at the end 
of paragraph (37) and inserting ‘‘, plus’’, and by adding 
at the end the following new paragraph: 
‘‘(38) the research intensive investment tax 
credit determined under section 45T.’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new item: 
‘‘Sec. 45T. Research intensive investment tax credit.’’. 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6211
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to investments made after Decem-
ber 31, 2018, in taxable years ending after such date. 
SEC. 3. RESEARCH EMPLOYMENT TAX CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1, as amended by the preceding pro-
visions of this Act, is amended by adding at the end the 
following new section: 
‘‘SEC. 45U. RESEARCH EMPLOYMENT TAX CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec-
tion 38, in the case of a qualified research intensive small 
business concern, the research employment tax credit de-
termined under this section for the taxable year is an 
amount equal to 5 percent of the qualified first-year re-
search wages paid or incurred by such concern to full-time 
research employees during such year. 
‘‘(b) DOLLAR LIMITATIONS.— 
‘‘(1) PER EMPLOYEE LIMITATION.—The credit 
determined under subsection (a) with respect to any 
employee for any taxable year shall not exceed 
$2,500 (reduced by the amount of any credit deter-
mined under subsection (a) with respect to such em-
ployee for the previous taxable year). 
‘‘(2) AGGREGATE LIFETIME EMPLOYER LIMITA-
TION.—The credit determined under subsection (a) 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
with respect to any taxpayer for any taxable year 
shall not exceed— 
‘‘(A) $25,000, reduced by 
‘‘(B) the taxpayer’s (and any prede-
cessor’s) aggregate credits determined under 
this section for all prior taxable years. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED RESEARCH INTENSIVE SMALL 
BUSINESS CONCERN.—The term ‘qualified research 
intensive small business concern’ has the meaning 
given such term under section 45T. 
‘‘(2) 
QUALIFIED
FIRST-YEAR
RESEARCH 
WAGES.—The term ‘qualified first-year research 
wages’ means, with respect to any full-time research 
employee, the wages paid or incurred by the tax-
payer to such employee during the 1-year period be-
ginning with the day such employee begins work for 
the employer. 
‘‘(3) FULL-TIME
RESEARCH
EMPLOYEE.—The 
term ‘full-time research employee’ means any em-
ployee for any taxable year if— 
‘‘(A) such employee is employed an average 
of 35 or more hours per week during such tax-
able year (or the portion of such taxable year 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
for which such employee is employed by the em-
ployer), and 
‘‘(B) a significant portion of the wages 
paid or incurred by the taxpayer with respect to 
such employee during the taxable year are re-
search and experimental expenditures under 
section 174. 
‘‘(4) WAGES.—The term ‘wages’ has the mean-
ing given such term under section 3306(b) deter-
mined without regard to any dollar limitation con-
tained therein. 
‘‘(d) CERTAIN
INDIVIDUALS
INELIGIBLE.—Rules 
similar to the rules of paragraphs (1) and (2) of section 
51(i) shall apply for purposes of this section except that 
the rule of section 51(i)(2) shall not apply for purposes 
of this section with respect to any individual if the hiring 
date of such individual is 6 months or more after the last 
preceding date with respect to which such individual was 
employed by the taxpayer.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38, as amended by the 
preceding provisions of this Act, is amended by striking 
‘‘plus’’ at the end of paragraph (37), by striking the period 
at the end of paragraph (38) and inserting ‘‘, plus’’, and 
by adding at the end the following new paragraph: 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00008
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
as amended by the preceding provisions of this Act, is 
amended by adding at the end the following new item: 
‘‘Sec. 45V. Research expenditure tax credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2018. 
SEC. 5. PARTNERSHIP INTERESTS TRANSFERRED IN CON-
NECTION WITH PERFORMANCE OF SERVICES. 
(a) MODIFICATION TO ELECTION TO INCLUDE PART-
NERSHIP INTEREST
IN GROSS INCOME
IN YEAR
OF 
TRANSFER.—Subsection (c) of section 83 is amended by 
redesignating paragraph (4) as paragraph (5) and by in-
serting after paragraph (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-
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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00011
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 the date of the enactment of this Act. 
SEC. 6. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIPS. 
(a) IN GENERAL.—Part I of subchapter K of chapter 
1 is amended by adding at the end the following new sec-
tion: 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00012
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘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-
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00013
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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-
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00014
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 
(other than subsection (a)(9) thereof) with 
respect to such interest for such taxable 
year, and 
‘‘(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. 
‘‘(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 (iii) of 
subparagraph (A) shall apply for purposes of 
the preceding sentence. 
‘‘(5) SPECIAL RULE FOR DIVIDENDS.—Any div-
idend allocated with respect to any investment serv-
ices partnership interest shall not be treated as 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00015
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
qualified dividend income for purposes of section 
1(h). 
‘‘(6) SPECIAL
RULE
FOR
QUALIFIED
SMALL 
BUSINESS STOCK.—Section 1202 shall not apply to 
any gain from the sale or exchange of qualified small 
business stock (as defined in section 1202(c)) allo-
cated with respect to any investment services part-
nership 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) GIFT AND TRANSFERS AT DEATH.— 
In the case of a disposition of an investment 
services partnership interest by gift or by rea-
son of death of the taxpayer— 
‘‘(i) subparagraph (A) shall not apply, 
‘‘(ii) such interest shall be treated as 
an investment services partnership interest 
in the hands of the person acquiring such 
interest, and 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00016
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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-
dinary income to the same extent and in the 
same manner as the increase in such partner’s 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00018
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 subsection (a)(2), any gain 
treated as ordinary income under this subpara-
graph 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 
interest if such distribution is in connection 
with a contribution (or deemed contribution) of 
any property of the partnership to which sec-
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00019
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 
related person in whose hands such interest was 
an investment services partnership interest. 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00020
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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 one or more investment partnerships re-
ferred 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 two consecutive calendar quarters 
ending after the date of enactment of this sec-
tion— 
‘‘(i) substantially all of the assets of 
the partnership are specified assets (deter-
mined without regard to any section 197 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00021
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
intangible within the meaning of section 
197(d)), and 
‘‘(ii) less than 75 percent of the cap-
ital of the partnership is attributable to 
qualified capital interests which constitute 
property held in connection with a trade or 
business of the owner of such interest. 
‘‘(B) LOOK-THROUGH OF CERTAIN WHOL-
LY-OWNED ENTITIES FOR PURPOSES OF DETER-
MINING ASSETS OF THE PARTNERSHIP.— 
‘‘(i) IN
GENERAL.—For purposes of 
determining the assets of a partnership 
under subparagraph (A)(i)— 
‘‘(I) any interest in a specified 
entity shall not be treated as an asset 
of such partnership, and 
‘‘(II) such partnership shall be 
treated as holding its proportionate 
share of each of the assets of such 
specified entity. 
‘‘(ii) SPECIFIED
ENTITY.—For pur-
poses of clause (i), the term ‘specified enti-
ty’ means, with respect to any partnership 
(hereafter referred to as the upper-tier 
partnership), any person which engages in 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00022
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
the same trade or business as the upper- 
tier partnership and is— 
‘‘(I) a partnership all of the cap-
ital and profits interests of which are 
held directly or indirectly by the 
upper-tier partnership, or 
‘‘(II) a foreign corporation which 
does not engage in a trade or business 
in the United States and all of the 
stock of which is held directly or indi-
rectly by the upper-tier partnership. 
‘‘(C) SPECIAL RULES FOR DETERMINING 
IF
PROPERTY
HELD
IN
CONNECTION
WITH 
TRADE OR BUSINESS.— 
‘‘(i) IN GENERAL.—Except as other-
wise provided by the Secretary, solely for 
purposes of determining whether any inter-
est in a partnership constitutes property 
held in connection with a trade or business 
under subparagraph (A)(ii)— 
‘‘(I) a trade or business of any 
person closely related to the owner of 
such interest shall be treated as a 
trade or business of such owner, 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00023
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(II) such interest shall be treat-
ed as held by a person in connection 
with a trade or business during any 
taxable year if such interest was so 
held by such person during any 3 tax-
able years preceding such taxable 
year, and 
‘‘(III) paragraph (5)(B) shall not 
apply. 
‘‘(ii) CLOSELY RELATED PERSONS.— 
For purposes of clause (i)(I), a person 
shall be treated as closely related to an-
other person if, taking into account the 
rules of section 267(c), the relationship be-
tween such persons is described in— 
‘‘(I) paragraph (1) or (9) of sec-
tion 267(b), or 
‘‘(II) section 267(b)(4), but solely 
in the case of a trust with respect to 
which each current beneficiary is the 
grantor or a person whose relationship 
to the grantor is described in para-
graph (1) or (9) of section 267(b). 
‘‘(D) ANTIABUSE RULES.—The Secretary 
may issue regulations or other guidance which 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00024
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
prevent the avoidance of the purposes of sub-
paragraph (A), including regulations or other 
guidance which treat convertible and contingent 
debt (and other debt having the attributes of 
equity) as a capital interest in the partnership. 
‘‘(E) 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 held in connection 
with a trade or business, 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 held in 
connection with a trade or business. 
‘‘(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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00025
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
to subsections (a)(4) and (b)(2) of section 
1563. A partnership or any other entity 
(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). 
‘‘(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.— 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00026
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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. 
‘‘(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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00027
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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 
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-
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00028
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 
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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00029
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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-
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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00030
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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 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. 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00031
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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). 
‘‘(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-
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00032
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 
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-
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00033
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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. 
‘‘(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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00034
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
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 
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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00035
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(III) any other person (not de-
scribed in subclause (I) or (II)) if 
such interest is an investment services 
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— 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00036
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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 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, 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00037
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00038
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(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) EXCEPTION FOR DOMESTIC C CORPORATIONS.— 
Except as otherwise provided by the Secretary, in the case 
of a domestic C corporation— 
‘‘(1) subsections (a) and (b) shall not apply to 
any item allocated to such corporation with respect 
to any investment services partnership interest (or 
to any gain or loss with respect to the disposition of 
such an interest), and 
‘‘(2) subsection (e) shall not apply. 
‘‘(g) 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— 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00039
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
‘‘(1) require such reporting and recordkeeping 
by any person in such manner and at such time as 
the Secretary may prescribe for purposes of enabling 
the partnership to meet the requirements of section 
6031 with respect to any item described in section 
702(a)(9), 
‘‘(2) 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, 
‘‘(3) prevent the avoidance of the purposes of 
this section (including through the use of qualified 
family partnerships), and 
‘‘(4) coordinate this section with the other pro-
visions of this title. 
‘‘(h) CROSS REFERENCE.—For 40-percent penalty 
on certain underpayments due to the avoidance of this sec-
tion, see section 6662.’’. 
(b) APPLICATION OF SECTION 751 TO INDIRECT DIS-
POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS.— 
(1) IN
GENERAL.—Subsection (a) of section 
751 is amended by striking ‘‘or’’ at the end of para-
graph (1), by inserting ‘‘or’’ at the end of paragraph 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00040
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS
(2), and by inserting after paragraph (2) the fol-
lowing 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) 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 fol-
lowing 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 is amended— 
(A) by striking ‘‘or’’ at the end of para-
graph (1), by inserting ‘‘or’’ at the end of para-
graph (2), and by inserting after paragraph (2) 
the following new paragraph: 
‘‘(3) an investment services partnership interest 
held by the partnership,’’, and 
(B) by striking ‘‘partner.’’ and inserting 
‘‘partner (other than a partnership in which it 
holds an investment services partnership inter-
est).’’. 
VerDate Sep 11 2014 
23:30 Apr 12, 2018
Jkt 079200
PO 00000
Frm 00041
Fmt 6652
Sfmt 6201
E:\BILLS\H5463.IH
H5463
lotter on DSKBCFDHB2PROD with BILLS