256 
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: 
‘‘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 
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257 
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-
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. 
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‘‘(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-
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 
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259 
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.— 
‘‘(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, 
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‘‘(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-
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. 
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261 
‘‘(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— 
‘‘(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-
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262 
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 
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-
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263 
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-
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, 
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264 
‘‘(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. 
‘‘(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.— 
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265 
‘‘(A) IN GENERAL.—The term ‘investment 
partnership’ means any partnership if, at the 
end of any calendar quarter ending after De-
cember 31, 2014— 
‘‘(i) substantially all of the assets of 
the partnership are specified assets (deter-
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)— 
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266 
‘‘(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 
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 
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267 
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 
(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.— 
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268 
‘‘(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 
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269 
‘‘(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-
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270 
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 
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271 
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 
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272 
‘‘(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— 
‘‘(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. 
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273 
‘‘(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-
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274 
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 January 1, 2017, 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-
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275 
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— 
‘‘(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) 
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276 
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, 
‘‘(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 
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277 
‘‘(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 
‘‘(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— 
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278 
‘‘(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.’’. 
(b) APPLICATION OF SECTION 751 TO INDIRECT DIS-
POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS.— 
(1) IN GENERAL.—Section 751(a) of such Code 
is amended 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.—Section 751(b)(1)(A) of 
such Code is amended by striking ‘‘or’’ at the end 
of clause (i), by inserting ‘‘or’’ at the end of clause 
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279 
(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.—Section 751(f) of 
such Code is amended 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,’’. 
(4) INVESTMENT SERVICES PARTNERSHIP IN-
TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 
751 of such Code is amended by adding at the end 
the following new subsection: 
‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER-
ESTS.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership interest’ has the meaning given 
such term by section 710(c). 
‘‘(2) ADJUSTMENTS
FOR
QUALIFIED
CAPITAL 
INTERESTS.—The amount to which subsection (a) 
applies by reason of paragraph (3) thereof shall not 
include so much of such amount as is attributable 
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280 
to any portion of the investment services partnership 
interest which is a qualified capital interest (deter-
mined under rules similar to the rules of section 
710(d)). 
‘‘(3) RECOGNITION OF GAINS.—Any gain with 
respect to which subsection (a) applies by reason of 
paragraph (3) thereof shall be recognized notwith-
standing any other provision of this title. 
‘‘(4) 
COORDINATION
WITH
INVENTORY 
ITEMS.—An investment services partnership interest 
held by the partnership shall not be treated as an 
inventory item of the partnership. 
‘‘(5) PREVENTION
OF
DOUBLE
COUNTING.— 
Under regulations or other guidance prescribed by 
the Secretary, subsection (a)(3) shall not apply with 
respect to any amount to which section 710 ap-
plies.’’. 
(c) TREATMENT
FOR
PURPOSES
OF
SECTION 
7704.—Section 7704(d) of such Code is amended by add-
ing at the end the following new paragraph: 
‘‘(6) INCOME FROM CERTAIN CARRIED INTER-
ESTS NOT QUALIFIED.— 
‘‘(A) IN GENERAL.—Specified carried in-
terest income shall not be treated as qualifying 
income. 
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281 
‘‘(B) SPECIFIED
CARRIED
INTEREST
IN-
COME.—For purposes of this paragraph— 
‘‘(i) IN GENERAL.—The term ‘speci-
fied carried interest income’ means— 
‘‘(I) any item of income or gain 
allocated to an investment services 
partnership interest (as defined in 
section 710(c)) held by the partner-
ship, 
‘‘(II) any gain on the disposition 
of an investment services partnership 
interest (as so defined) or a partner-
ship interest to which (in the hands of 
the partnership) section 751 applies, 
and 
‘‘(III) any income or gain taken 
into account by the partnership under 
subsection (b)(4) or (e) of section 
710. 
‘‘(ii) EXCEPTION FOR QUALIFIED CAP-
ITAL
INTERESTS.—A rule similar to the 
rule of section 710(d) shall apply for pur-
poses of clause (i). 
‘‘(C) COORDINATION WITH OTHER PROVI-
SIONS.—Subparagraph (A) shall not apply to 
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282 
any item described in paragraph (1)(E) (or so 
much of paragraph (1)(F) as relates to para-
graph (1)(E)). 
‘‘(D) SPECIAL RULES FOR CERTAIN PART-
NERSHIPS.— 
‘‘(i) CERTAIN PARTNERSHIPS OWNED 
BY REAL ESTATE INVESTMENT TRUSTS.— 
Subparagraph (A) shall not apply in the 
case of a partnership which meets each of 
the following requirements: 
‘‘(I) Such partnership is treated 
as publicly traded under this section 
solely by reason of interests in such 
partnership being convertible into in-
terests in a real estate investment 
trust which is publicly traded. 
‘‘(II) 50 percent or more of the 
capital and profits interests of such 
partnership are owned, directly or in-
directly, at all times during the tax-
able year by such real estate invest-
ment trust (determined with the ap-
plication of section 267(c)). 
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283 
‘‘(III) Such partnership meets 
the requirements of paragraphs (2), 
(3), and (4) of section 856(c). 
‘‘(ii) CERTAIN
PARTNERSHIPS
OWN-
ING OTHER PUBLICLY TRADED PARTNER-
SHIPS.—Subparagraph (A) shall not apply 
in the case of a partnership which meets 
each of the following requirements: 
‘‘(I) Substantially all of the as-
sets of such partnership consist of in-
terests in one or more publicly traded 
partnerships (determined without re-
gard to subsection (b)(2)). 
‘‘(II) Substantially all of the in-
come of such partnership is ordinary 
income or section 1231 gain (as de-
fined in section 1231(a)(3)). 
‘‘(E) 
TRANSITIONAL
RULE.—Subpara-
graph (A) shall not apply to any taxable year 
of the partnership beginning before the date 
which is 10 years after January 1, 2016.’’. 
(d) IMPOSITION
OF
PENALTY
ON
UNDERPAY-
MENTS.— 
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284 
(1) IN
GENERAL.—Section 6662(b) of such 
Code is amended by inserting after paragraph (7) 
the following new paragraph: 
‘‘(8) The application of section 710(e) or the 
regulations or other guidance prescribed under sec-
tion 710(h) to prevent the avoidance of the purposes 
of section 710.’’. 
(2) AMOUNT OF PENALTY.— 
(A) IN GENERAL.—Section 6662 of such 
Code is amended by adding at the end the fol-
lowing new subsection: 
‘‘(k) INCREASE IN PENALTY IN CASE OF PROPERTY 
TRANSFERRED FOR INVESTMENT MANAGEMENT SERV-
ICES.—In the case of any portion of an underpayment to 
which this section applies by reason of subsection (b)(8), 
subsection (a) shall be applied with respect to such portion 
by substituting ‘40 percent’ for ‘20 percent’.’’. 
(B) CONFORMING
AMENDMENT.—Section 
6662A(e)(2)(B) is amended by striking ‘‘or (i)’’ 
and inserting ‘‘, (i), or (k)’’. 
(3) SPECIAL RULES FOR APPLICATION OF REA-
SONABLE
CAUSE
EXCEPTION.—Section 6664(c) is 
amended— 
(A) by redesignating paragraphs (3) and 
(4) as paragraphs (4) and (5), respectively; 
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285 
(B) by striking ‘‘paragraph (3)’’ in para-
graph (5)(A), as so redesignated, and inserting 
‘‘paragraph (4)’’; and 
(C) by inserting after paragraph (2) the 
following new paragraph: 
‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT-
TRIBUTABLE TO INVESTMENT MANAGEMENT SERV-
ICES.— 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply to any portion of an underpayment to 
which section 6662 applies by reason of sub-
section (b)(8) unless— 
‘‘(i) the relevant facts affecting the 
tax treatment of the item are adequately 
disclosed, 
‘‘(ii) there is or was substantial au-
thority for such treatment, and 
‘‘(iii) the taxpayer reasonably believed 
that such treatment was more likely than 
not the proper treatment. 
‘‘(B) RULES
RELATING
TO
REASONABLE 
BELIEF.—Rules similar to the rules of sub-
section (d)(3) shall apply for purposes of sub-
paragraph (A)(iii).’’. 
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286 
(e) INCOME AND LOSS FROM INVESTMENT SERVICES 
PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE-
TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 
(1) INTERNAL REVENUE CODE.— 
(A) IN
GENERAL.—Section 1402(a) of 
such Code is amended by striking ‘‘and’’ at the 
end of paragraph (16), by striking the period at 
the end of paragraph (17) and inserting ‘‘; 
and’’, and by inserting after paragraph (17) the 
following new paragraph: 
‘‘(18) notwithstanding the preceding provisions 
of this subsection, in the case of any individual en-
gaged in the trade or business of providing services 
described in section 710(c)(2) with respect to any 
entity, investment services partnership income or 
loss (as defined in subsection (m)) of such individual 
with respect to such entity shall be taken into ac-
count in determining the net earnings from self-em-
ployment of such individual.’’. 
(B) INVESTMENT SERVICES PARTNERSHIP 
INCOME OR LOSS.—Section 1402 of such Code 
is amended by adding at the end the following 
new subsection: 
‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME 
OR LOSS.—For purposes of subsection (a)— 
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287 
‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership income or loss’ means, with respect 
to any investment services partnership interest (as 
defined in section 710(c)), the net of— 
‘‘(A) the amounts treated as ordinary in-
come or ordinary loss under subsections (b) and 
(e) of section 710 with respect to such interest, 
‘‘(B) all items of income, gain, loss, and 
deduction allocated to such interest, and 
‘‘(C) the amounts treated as realized from 
the sale or exchange of property other than a 
capital asset under section 751 with respect to 
such interest. 
‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN-
TERESTS.—A rule similar to the rule of section 
710(d) shall apply for purposes of applying para-
graph (1)(B)(ii).’’. 
(2) SOCIAL SECURITY ACT.—Section 211(a) of 
the Social Security Act is amended by striking 
‘‘and’’ at the end of paragraph (15), by striking the 
period at the end of paragraph (16) and inserting ‘‘; 
and’’, and by inserting after paragraph (16) the fol-
lowing new paragraph: 
‘‘(17) Notwithstanding the preceding provisions 
of this subsection, in the case of any individual en-
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288 
gaged in the trade or business of providing services 
described in section 710(c)(2) of the Internal Rev-
enue Code of 1986 with respect to any entity, invest-
ment services partnership income or loss (as defined 
in section 1402(m) of such Code) shall be taken into 
account in determining the net earnings from self- 
employment of such individual.’’. 
(f) CONFORMING AMENDMENTS.— 
(1) Subsection (d) of section 731 of the Inter-
nal Revenue Code of 1986 is amended by inserting 
‘‘section 710(b)(4) (relating to distributions of part-
nership property),’’ after ‘‘to the extent otherwise 
provided by’’. 
(2) Section 741 of such Code is amended by in-
serting ‘‘or section 710 (relating to special rules for 
partners providing investment management services 
to partnerships)’’ before the period at the end. 
(3) The table of sections for part I of sub-
chapter K of chapter 1 of such Code is amended by 
adding at the end the following new item: 
‘‘Sec. 710. Special rules for partners providing investment management services 
to partnerships.’’. 
(g) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
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289 
this section shall apply to taxable years ending after 
December 31, 2015. 
(2) PARTNERSHIP TAXABLE YEARS WHICH IN-
CLUDE
EFFECTIVE
DATE.—In applying section 
710(a) of such Code (as added by this section) in 
the case of any partnership taxable year which in-
cludes January 1, 2016, the amount of the net in-
come referred to in such section shall be treated as 
being the lesser of the net income for the entire 
partnership taxable year or the net income deter-
mined by only taking into account items attributable 
to the portion of the partnership taxable year which 
is after such date. 
(3) DISPOSITIONS
OF
PARTNERSHIP
INTER-
ESTS.— 
(A) IN GENERAL.—Section 710(b) of such 
Code (as added by this section) shall apply to 
dispositions and distributions after December 
31, 2015. 
(B) INDIRECT DISPOSITIONS.—The amend-
ments made by subsection (b) shall apply to 
transactions after December 31, 2015. 
(4) OTHER INCOME AND GAIN IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.—Sec-
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290 
tion 710(e) of such Code (as added by this section) 
shall take effect on January 1, 2016. 
Subtitle C—Close Loophole for 
Corporate Jet Depreciation 
SEC. 421. GENERAL AVIATION AIRCRAFT TREATED AS 7- 
YEAR PROPERTY. 
(a) IN GENERAL.—Section 168(e)(3)(C) of the Inter-
nal Revenue Code of 1986 is amended by striking ‘‘and’’ 
at the end of clause (iv), by redesignating clause (v) as 
clause (vi), and by inserting after clause (iv) the following 
new clause: 
‘‘(v) any general aviation aircraft, and’’. 
(b) CLASS LIFE.—Section 168(g)(3) of such Code is 
amended by inserting after subparagraph (E) the fol-
lowing new subparagraph: 
‘‘(F) General aviation aircraft. In the case 
of any general aviation aircraft, the recovery 
period used for purposes of paragraph (2) shall 
be 12 years.’’. 
(c) GENERAL AVIATION AIRCRAFT.—Section 168(i) 
of such Code is amended by inserting after paragraph (19) 
the following new paragraph: 
‘‘(20) GENERAL
AVIATION
AIRCRAFT.—The 
term ‘general aviation aircraft’ means any airplane 
or helicopter (including airframes and engines) not 
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291 
used in commercial or contract carrying of pas-
sengers or freight, but which primarily engages in 
the carrying of passengers.’’. 
(d) EFFECTIVE DATE.—This section shall be effec-
tive for property placed in service after December 31, 
2015. 
Subtitle D—Repeal Oil Subsidies 
SEC. 431. REPEAL OF DEDUCTION FOR INTANGIBLE DRILL-
ING AND DEVELOPMENT COSTS IN THE CASE 
OF OIL AND GAS WELLS. 
(a) IN GENERAL.—Section 263(c) of the Internal 
Revenue Code of 1986 is amended by adding at the end 
the following new sentence: ‘‘This subsection shall not 
apply in the case of oil and gas wells with respect to 
amounts paid or incurred after December 31, 2015.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to amounts paid or incurred after 
December 31, 2015. 
SEC. 
432. 
REPEAL 
OF 
DEDUCTION 
FOR 
TERTIARY 
INJECTANTS. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by striking section 193 (relating to tertiary injectants). 
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292 
(b) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 of such Code 
is amended by striking the item relating to section 193. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred after 
December 31, 2015. 
SEC. 433. REPEAL OF PERCENTAGE DEPLETION FOR OIL 
AND GAS WELLS. 
(a) IN GENERAL.—Section 613A of the Internal Rev-
enue Code of 1986 is amended to read as follows: 
‘‘SEC. 613A. PERCENTAGE DEPLETION NOT ALLOWED IN 
CASE OF OIL AND GAS WELLS. 
‘‘The allowance for depletion under section 611 with 
respect to any oil and gas well shall be computed without 
regard to section 613.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2015. 
SEC. 434. SECTION 199 DEDUCTION NOT ALLOWED WITH 
RESPECT TO OIL, NATURAL GAS, OR PRIMARY 
PRODUCTS THEREOF. 
(a) IN GENERAL.—Section 199(c)(4)(B) of the Inter-
nal Revenue Code of 1986 (relating to income attributable 
to domestic production activities) is amended— 
(1) by striking ‘‘or’’ at the end of clause (ii), 
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293 
(2) by striking the period at the end of clause 
(iii) and inserting in lieu thereof ‘‘, or’’, and 
(3) by adding at the end thereof the following 
new clause: 
‘‘(iv) the production, refining, proc-
essing, transportation, or distribution of 
oil, natural gas, or any primary product 
(within the meaning of subsection (d)(9)) 
thereof.’’. 
(b) CONFORMING AMENDMENT.—Paragraph (9) of 
section 199(d) is amended to read as follows: 
‘‘(9) PRIMARY PRODUCT.—For purposes of sub-
section (c)(4)(B)(iv), the term ‘primary product’ has 
the same meaning as when used in section 
927(a)(2)(C), as in effect before its repeal.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2015. 
SEC. 435. REPEAL OIL AND GAS WORKING INTEREST EX-
CEPTION TO PASSIVE ACTIVITY RULES. 
(a) IN GENERAL.—Section 469(c)(3) of the Internal 
Revenue Code of 1986 is amended by adding at the end 
thereof the following new subparagraph— 
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294 
‘‘(C) TERMINATION.—Subparagraph (A) 
shall not apply for any taxable year beginning 
after December 31 2015.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2015. 
SEC. 436. REPEAL ENHANCED OIL RECOVERY CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by striking section 43. 
(b) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by striking the item relating to 
section 43. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2015. 
SEC. 437. UNIFORM SEVEN-YEAR AMORTIZATION FOR GEO-
LOGICAL AND GEOPHYSICAL EXPENDITURES. 
(a) IN GENERAL.—Section 167(h)(1) of the Internal 
Revenue Code of 1986 is amended by striking ‘‘24-month’’ 
and inserting in lieu thereof ‘‘7-year’’. 
(b) CONFORMING AMENDMENTS.—Section 167(h) of 
such Code is amended— 
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295 
(1) by striking ‘‘24-month’’ in paragraph (4) 
and inserting ‘‘7-year’’, and 
(2) by striking paragraph (5). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred after 
December 31, 2015. 
SEC. 438. REPEAL MARGINAL WELL PRODUCTION CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by striking section 45I. 
(b) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by striking the item relating to 
section 45I. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2015. 
Subtitle E—Dual Capacity 
Taxpayers 
SEC. 441. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
APPLICABLE TO DUAL CAPACITY TAXPAYERS. 
(a) IN GENERAL.—Section 901 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(n) as subsection (o) and by inserting after subsection (m) 
the following new subsection: 
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296 
‘‘(n) SPECIAL RULES RELATING TO DUAL CAPACITY 
TAXPAYERS.— 
‘‘(1) GENERAL
RULE.—Notwithstanding any 
other provision of this chapter, any amount paid or 
accrued by a dual capacity taxpayer or any member 
of the worldwide affiliated group of which such dual 
capacity taxpayer is also a member to any foreign 
country or to any possession of the United States 
for any period shall not be considered a tax to the 
extent such amount exceeds the amount (determined 
in accordance with regulations) which would have 
been required to be paid if the taxpayer were not a 
dual capacity taxpayer. 
‘‘(2) DUAL
CAPACITY
TAXPAYER.—For pur-
poses of this subsection, the term ‘dual capacity tax-
payer’ means, with respect to any foreign country or 
possession of the United States, a person who— 
‘‘(A) is subject to a levy of such country or 
possession, and 
‘‘(B) receives (or will receive) directly or 
indirectly a specific economic benefit (as deter-
mined in accordance with regulations) from 
such country or possession. 
‘‘(3) REGULATIONS.—The Secretary may issue 
such regulations or other guidance as is necessary or 
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297 
appropriate to carry out the purposes of this sub-
section.’’. 
(b) CONTRARY TREATY OBLIGATIONS UPHELD.— 
The amendments made by this section shall not apply to 
the extent contrary to any treaty obligation of the United 
States. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts that, if such amounts 
were an amount of tax paid or accrued, would be consid-
ered paid or accrued in taxable years beginning after De-
cember 31, 2015. 
SEC. 442. SEPARATE BASKET TREATMENT TAXES PAID ON 
FOREIGN OIL AND GAS INCOME. 
(a) SEPARATE BASKET FOR FOREIGN TAX CRED-
IT.—Section 904(d)(1) of the Internal Revenue Code of 
1986 is amended by striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at the end of subpara-
graph (B) and inserting ‘‘, and’’, and by adding at the 
end the following: 
‘‘(C) combined foreign oil and gas income 
(as defined in section 907(b)(1)).’’. 
(b) COORDINATION.—Section 904(d)(2) of such Code 
is amended by inserting after subparagraph (I) the fol-
lowing new subparagraph: 
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‘‘(J) COORDINATION WITH COMBINED FOR-
EIGN OIL AND GAS INCOME.—For purposes of 
this section, passive category income and gen-
eral category income shall not include combined 
foreign oil and gas income (as defined in section 
907(b)(1)).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 907(a) is hereby repealed. 
(2) Section 907(c)(4) is hereby repealed. 
(3) Section 907(f) is hereby repealed. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2015. 
(2) TRANSITIONAL RULES.— 
(A) CARRYOVERS.—Any unused foreign oil 
and gas taxes which under section 907(f) of 
such Code (as in effect before the amendment 
made by subsection (c)(3)) would have been al-
lowable as a carryover to the taxpayer’s first 
taxable year beginning after December 31, 
2013 (without regard to the limitation of para-
graph (2) of such section 907(f) for first tax-
able year), shall be allowed as carryovers under 
section 904(c) of such Code in the same man-
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299 
ner as if such taxes were unused taxes under 
such section 904(c) with respect to foreign oil 
and gas extraction income. 
(B) LOSSES.—The amendment made by 
subsection (c)(2) shall not apply to foreign oil 
and gas extraction losses arising in taxable 
years beginning on or before the date of the en-
actment of this Act. 
Subtitle F—Repeal of 
Sequestration 
SEC. 451. REPEAL OF SEQUESTRATION. 
Section 251A of the Balanced Budget and Emer-
gency Deficit Control Act of 1985 is repealed. 
Æ 
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