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net loss for purposes of paragraph (1) shall not be 
treated as qualified dividend income for purposes of 
section 1(h). 
‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 
‘‘(1) GAIN.—Any gain on the disposition of an 
investment services partnership interest shall be— 
‘‘(A) treated as ordinary income, and 
‘‘(B) recognized notwithstanding any other 
provision of this subtitle. 
‘‘(2) LOSS.—Any loss on the disposition of an 
investment services partnership interest shall be treat-
ed as an ordinary loss to the extent of the excess (if 
any) of— 
‘‘(A) the aggregate net income with respect 
to such interest for all partnership taxable years 
to which this section applies, over 
‘‘(B) the aggregate net loss with respect to 
such interest allowed under subsection (a)(2) for 
all partnership taxable years to which this sec-
tion applies. 
‘‘(3) EXCEPTION FOR THE DISPOSITION OF AN 
INTEREST IN A PUBLICLY TRADED PARTNERSHIP BY 
AN INDIVIDUAL.—Paragraphs (1) and (2) shall not 
apply in the case of the disposition by an individual 
of an investment services partnership interest which
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•HR 4213 EAH1S 
is an interest in a publicly traded partnership (as de-
fined in section 7704) if neither such individual nor 
any member of such individual’s family (within the 
meaning of section 318(a)(1)) has (at any time) pro-
vided any of the services described in subsection (c)(1) 
with respect to assets held (directly or indirectly) by 
such publicly traded partnership. 
‘‘(4) ELECTION WITH RESPECT TO CERTAIN EX-
CHANGES.—Paragraph (1)(B) shall not apply to the 
contribution of an investment services partnership in-
terest to a partnership in exchange for an interest in 
such partnership if— 
‘‘(A) the taxpayer makes an irrevocable elec-
tion to treat the partnership interest received in 
the exchange as an investment services partner-
ship interest, and 
‘‘(B) the taxpayer agrees to comply with 
such reporting and recordkeeping requirements 
as the Secretary may prescribe. 
‘‘(5) DISPOSITION OF PORTION OF INTEREST.— 
In the case of any disposition of an investment serv-
ices partnership interest, the amount of net loss which 
otherwise would have (but for subsection (a)(2)(C)) 
applied to reduce the basis of such interest shall be
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disregarded for purposes of this section for all suc-
ceeding partnership taxable years. 
‘‘(6) DISTRIBUTIONS
OF
PARTNERSHIP
PROP-
ERTY.—In the case of any distribution of property by 
a partnership with respect to any investment services 
partnership interest held by a partner— 
‘‘(A) the excess (if any) of— 
‘‘(i) the fair market value of such prop-
erty at the time of such distribution, over 
‘‘(ii) the adjusted basis of such prop-
erty in the hands of the partnership, 
shall be taken into account as an increase in 
such partner’s distributive share of the taxable 
income of the partnership (except to the extent 
such excess is otherwise taken into account in de-
termining the taxable income of the partnership), 
‘‘(B) such property shall be treated for pur-
poses of subpart B of part II as money distrib-
uted to such partner in an amount equal to such 
fair market value, and 
‘‘(C) the basis of such property in the hands 
of such partner shall be such fair market value. 
Subsection (b) of section 734 shall be applied without 
regard to the preceding sentence. In the case of a tax-
payer which satisfies requirements similar to the re-
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quirements of subparagraphs (A) and (B) of para-
graph (4), this paragraph and paragraph (1)(B) shall 
not apply to the distribution of a partnership interest 
if such distribution is in connection with a contribu-
tion (or deemed contribution) of any property of the 
partnership to which section 721 applies pursuant to 
a transaction described in paragraph (1)(B) or (2) of 
section 708(b). 
‘‘(7) APPLICATION OF SECTION 751.—In applying 
section 751, an investment services partnership inter-
est shall be treated as an inventory item. 
‘‘(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 a 
partnership which is held (directly or indirectly) by 
any person if it was reasonably expected (at the time 
that such person acquired such interest) that such 
person (or any person related to such person) would 
provide (directly or indirectly) a substantial quantity 
of any of the following services with respect to assets 
held (directly or indirectly) by the partnership: 
‘‘(A) Advising as to the advisability of in-
vesting in, purchasing, or selling any specified 
asset.
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‘‘(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). 
‘‘(2) SPECIFIED
ASSET.—The term ‘specified 
asset’ means securities (as defined in section 475(c)(2) 
without regard to the last sentence thereof), real estate 
held for rental or investment, interests in partner-
ships, commodities (as defined in section 475(e)(2)), 
or options or derivative contracts with respect to any 
of the foregoing. 
‘‘(3) EXCEPTION FOR FAMILY FARMS.—The term 
‘specified asset’ shall not include any farm used for 
farming purposes if such farm is held by a partner-
ship all of the interests in which are held (directly or 
indirectly) by members of the same family. Terms 
used in the preceding sentence which are also used in 
section 2032A shall have the same meaning as when 
used in such section. 
‘‘(4) RELATED
PERSONS.—A person shall be 
treated as related to another person if the relationship 
between such persons is described in section 267 or 
707(b).
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‘‘(d) EXCEPTION FOR CERTAIN CAPITAL INTERESTS.— 
‘‘(1) IN GENERAL.—In the case of any portion of 
an investment services partnership interest which is 
a qualified capital interest, all items of income, gain, 
loss, and deduction which are allocated to such quali-
fied capital interest shall not be taken into account 
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 partners 
who do not provide any services described in 
subsection (c)(1) and who are not related to the 
partner holding the qualified capital interest, 
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 provided 
by the Secretary in regulations or other guidance— 
‘‘(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.