I 
119TH CONGRESS 
1ST SESSION H. R. 3275 
To amend the Internal Revenue Code of 1986 to lower the corporate tax 
rate for small businesses and close the carried interest loophole, and 
for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 8, 2025 
Ms. CRAIG introduced the following bill; which was referred to the Committee 
on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to lower the 
corporate tax rate for small businesses and close the 
carried interest loophole, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Business Tax 
Relief Act’’. 
SEC. 2. GRADUATED CORPORATE TAX RATE TO SUPPORT 
SMALL BUSINESSES. 
(a) IN GENERAL.—Section 11(b) of the Internal Rev-
enue Code of 1986 is amended to read as follows: 
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‘‘(b) AMOUNT OF TAX.— 
‘‘(1) IN
GENERAL.—Except as provided by 
paragraph (2), the amount of the tax imposed by 
subsection (a) shall be 21 percent of taxable income. 
‘‘(2) SMALL BUSINESSES.—In the case of a cor-
poration with taxable income that does not exceed 
$5,000,000 in the taxable year, the amount of the 
tax imposed by subsection (a) shall be the sum of— 
‘‘(A) 18 percent of so much of the taxable 
income as does not exceed $400,000, and 
‘‘(B) 21 percent of so much of the taxable 
income as equals or exceeds $400,000.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years ending after the 
date of the enactment of this section. 
SEC. 3. 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 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— 
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‘‘(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 
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-
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ferred in taxable years ending after the date of the enact-
ment of this Act. 
SEC. 4. 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. 
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‘‘(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-
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 
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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— 
‘‘(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 
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‘‘(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 
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. 
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‘‘(D) SPECIAL RULES WITH RESPECT TO 
MERGERS
AND
DIVISIONS.—In the case of a 
taxpayer which satisfies 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 con-
tribution) of any property of the partnership to 
which section 721 applies pursuant to a trans-
action described in paragraph (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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‘‘(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 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.— 
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‘‘(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 
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 
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‘‘(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 
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 
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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, 
‘‘(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 
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‘‘(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 
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 
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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 
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 
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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. 
‘‘(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— 
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‘‘(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 
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 
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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 
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). 
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