I 
117TH CONGRESS 
1ST SESSION H. R. 5648 
To subject certain private funds to joint and several liability with respect 
to the liabilities of firms acquired and controlled by those funds, and 
for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
OCTOBER 20, 2021 
Mr. POCAN (for himself, Ms. JAYAPAL, Ms. NORTON, and Mr. GARCI´A of Illi-
nois) introduced the following bill; which was referred to the Committee 
on Ways and Means, and in addition to the Committees on Financial 
Services, the Judiciary, and Education and Labor, for a period to be sub-
sequently determined by the Speaker, in each case for consideration of 
such provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To subject certain private funds to joint and several liability 
with respect to the liabilities of firms acquired and con-
trolled by those funds, 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; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Stop Wall Street Looting Act’’. 
(b) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
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Sec. 1. Short title; table of contents. 
Sec. 2. Findings. 
Sec. 3. Definitions. 
TITLE I—CORPORATE RESPONSIBILITY 
Sec. 101. Joint and several liability for controlling private funds and holders of 
active interests in controlling private funds. 
Sec. 102. Indemnification void as against public policy. 
TITLE II—ANTI-LOOTING 
Sec. 201. Limitations on post-acquisition dividends, distributions, redemptions, 
buybacks, and outsourcing. 
Sec. 202. Prevention of fraudulent transfers. 
Sec. 203. Surtax on certain amounts received by investment firms from con-
trolled target firms. 
Sec. 204. Limitation on deduction for business interest of certain businesses 
owned by private funds. 
TITLE III—PROTECTING WORKERS WHEN COMPANIES GO 
BANKRUPT 
Sec. 301. Increased priority for wages. 
Sec. 302. Priority for severance pay and contributions to employee welfare ben-
efit plans. 
Sec. 303. Priority for violations of Federal and State laws. 
Sec. 304. Limitation on executive compensation enhancements. 
Sec. 305. Prohibition against special compensation payments. 
Sec. 306. Executive compensation upon exit from bankruptcy. 
Sec. 307. Collateral surcharge for employee obligations. 
Sec. 308. Voidability of preferential compensation transfers. 
Sec. 309. Protection for employees in a sale of assets. 
Sec. 310. Protection of gift card purchasers. 
Sec. 311. Commercial real estate. 
TITLE IV—CLOSING THE CARRIED INTEREST LOOPHOLE 
Sec. 401. Amendment of 1986 Code. 
Sec. 402. Partnership interests transferred in connection with performance of 
services. 
Sec. 403. Special rules for partners providing investment management services 
to partnerships. 
TITLE V—INVESTOR PROTECTION AND MARKET TRANSPARENCY 
Sec. 501. Disclosure of fees and returns. 
Sec. 502. Fiduciary obligations. 
Sec. 503. Disclosures relating to the marketing of private equity funds. 
TITLE VI—RESTRICTIONS ON SECURITIZING RISKY CORPORATE 
DEBT 
Sec. 601. Risk retention requirements for securitization of corporate debt. 
TITLE VII—MISCELLANEOUS 
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Sec. 701. Anti-evasion. 
Sec. 702. Severability. 
SEC. 2. FINDINGS. 
Congress finds the following: 
(1) During the 20-year period preceding the 
date of enactment of this Act, activity by private eq-
uity funds has exploded. 
(2) Millions of people in communities across the 
United States rely on companies that are owned by 
private equity funds, including nearly 12,000,000 in-
dividuals who work for companies owned by those 
funds. For millions of additional individuals, a pri-
vate investment fund acts as a landlord, a lender, or 
an owner of a local grocery store, newspaper, or hos-
pital. Many pension funds are also investors in pri-
vate investment funds. 
(3) Private investment funds have taken con-
trolling stakes in companies in a wide variety of in-
dustries, including the financial services, real estate, 
media, and healthcare industries, but some of the 
largest impacts from private investment funds have 
been in the retail sector. In the 5 years preceding 
the date of enactment of this Act, cases have been 
commenced under title 11, United States Code, with 
respect to dozens of retailers in the United States, 
including Sears, Toys ‘‘R’’ Us, Shopko, Payless 
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ShoeSource, Charlotte Russe, Bon-Ton, Nine West, 
David’s Bridal, Claire’s, J. Crew, Neiman Marcus, 
Guitar Center, Art Van Furniture, and Southeastern 
Grocers, which was the parent company for BI–LO 
and Winn-Dixie. 
(4) Private investment funds have also targeted 
entities that serve low-income or vulnerable popu-
lations, including affordable housing developments, 
for-profit colleges, payday lenders, medical providers, 
and nursing homes. 
(5) While private investment funds often pur-
port to take over struggling companies and make 
those companies viable, the opposite is often true. 
Leveraged buyouts impose enormous debt loads on 
otherwise viable companies and then strip those 
companies of assets, hobbling the operations of those 
companies and preventing them from making nec-
essary investments for future growth. If an invest-
ment goes well, the fund reaps most of the rewards, 
but if the investment does not go well, workers and 
customers of the company, and the community rely-
ing on the company, suffer. 
(6) Regardless of the performance of a private 
investment fund, the managers of the fund often 
make profits through fees, dividends, and other fi-
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nancial engineering. Private funds should have a 
stake in the outcome of their investments, enjoying 
returns if those investments are successful but ab-
sorbing losses if those investments fail. 
(7) When a case is commenced under title 11, 
United States Code, with respect to a portfolio com-
pany, workers not only lose jobs, but also lose wages 
and benefits that are owed, severance pay that has 
been promised, and pensions that have been earned. 
Workers should not be sent to the back of the line 
behind other creditors if, through no fault of those 
workers, an investment fails. 
(8) The performance of private investment 
funds is often cloaked in secrecy. Those funds have 
full control over the information that the funds dis-
close to investors, which allows the funds to manu-
facture their own performance metrics and makes it 
difficult for an investor to compare the returns to 
other investment options. Funds also increasingly re-
quire investors to waive the fiduciary obligations ap-
plicable to the funds. Investors should have the in-
formation and bargaining power to take control over 
their own investments. 
(9) An increasing amount of risky debt is being 
introduced into the market and the quality of that 
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debt is deteriorating, raising concerns with regu-
lators and lawmakers about systemic risk. The insti-
tutions that make and securitize risky loans collect 
large fees and then pass on risk to unwitting inves-
tors. The financial system should not bear all of the 
risk while lenders and securitizers reap the rewards. 
(10) The Federal Government should— 
(A) protect workers, companies, con-
sumers, and investors in the United States; and 
(B) put an end to the practice of looting 
economically viable companies for the enrich-
ment of private investment fund managers. 
SEC. 3. DEFINITIONS. 
Except as otherwise expressly provided, in this Act: 
(1) AFFILIATE.—The term ‘‘affiliate’’ means— 
(A) a person that directly or indirectly 
owns, controls, or holds with power to vote, 20 
percent or more of the outstanding voting secu-
rities of another entity, other than a person 
that holds such securities— 
(i) in a fiduciary or agency capacity 
without sole discretionary power to vote 
such securities; or 
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(ii) solely to secure a debt, if such en-
tity has not in fact exercised such power to 
vote; 
(B) a corporation 20 percent or more of 
whose outstanding voting securities are directly 
or indirectly owned, controlled, or held with 
power to vote, by another entity (referred to in 
this subparagraph as a ‘‘covered entity’’), or by 
an entity that directly or indirectly owns, con-
trols, or holds with power to vote, 20 percent or 
more of the outstanding voting securities of the 
covered entity, other than an entity that holds 
such securities— 
(i) in a fiduciary or agency capacity 
without sole discretionary power to vote 
such securities; or 
(ii) solely to secure a debt, if such en-
tity has not in fact exercised such power to 
vote; 
(C) a person whose business is operated 
under a lease or operating agreement by an-
other entity, or person substantially all of whose 
property is operated under an operating agree-
ment with that other entity; or 
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(D) an entity that operates the business or 
substantially all of the property of another enti-
ty under a lease or operating agreement. 
(2) CAPITAL DISTRIBUTION.—The term ‘‘cap-
ital distribution’’ means— 
(A) a cash or share dividend; 
(B) a share repurchase; 
(C) a share redemption; 
(D) a share buyback; 
(E) a payment of interest or fee on a share 
of stock; and 
(F) any other transaction similar to a 
transaction described in any of subparagraphs 
(A) through (E). 
(3) CHANGE IN CONTROL.—The term ‘‘change 
in control’’ means a change in a legal right with re-
spect to— 
(A) the power to vote more than 50 per 
centum of any class of voting securities of a 
corporation that engages in interstate com-
merce; or 
(B) any lesser per centum of any class of 
voting securities of a corporation that engages 
in interstate commerce that is sufficient to 
make the acquirer of such an interest a person 
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that has the ability to direct the actions of that 
corporation. 
(4) CHANGE IN CONTROL TRANSACTION.—The 
term ‘‘change in control transaction’’ means a trans-
action, or a set of related transactions, that effec-
tuates a change in control. 
(5) COMMISSION.—The term ‘‘Commission’’ 
means the Securities and Exchange Commission. 
(6) CONTROL PERSON.—The term ‘‘control per-
son’’— 
(A) means— 
(i) a person— 
(I) that directly or indirectly 
owns, controls, or holds with power to 
vote, including through coordination 
with other persons, 20 percent or 
more of the outstanding voting inter-
ests of a corporation; or 
(II) that operates the business or 
substantially all of the property of a 
corporation under a lease or an oper-
ating or management agreement; 
(ii) a corporation, other than a target 
firm, that has 20 percent or more of its 
outstanding voting interests directly or in-
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directly owned, controlled, or held with 
power to vote by a person that directly or 
indirectly owns, controls, or holds with 
power to vote, including through coordina-
tion with other persons, 20 percent or 
more of the outstanding voting interests of 
another corporation; or 
(iii) a person that otherwise has the 
ability to direct the actions of a corpora-
tion; and 
(B) does not include a person that— 
(i)(I) is a limited partner with respect 
to a controlling private fund that is a part-
nership; 
(II) does not participate in the direc-
tion of the management or policy of a cor-
poration; and 
(III) is not an insider with respect to 
the controlling private fund described in 
subclause (I); 
(ii) is a pension fund or employee wel-
fare benefit plan, if neither the fund nor 
plan (as applicable), nor any beneficiary or 
affiliate of the benefit or plan, is an insider 
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with respect to a controlling private fund; 
or 
(iii) holds the voting interests of a 
corporation solely— 
(I) in a fiduciary or agency ca-
pacity 
without 
sole 
discretionary 
power to vote the securities; or 
(II) to secure a debt, if the per-
son has not— 
(aa) exercised the power to 
vote; or 
(bb) exercised any other gov-
ernance rights with respect to the 
corporation. 
(7) CONTROLLING PRIVATE FUND.—The term 
‘‘controlling private fund’’ means a private fund 
that, directly or through an affiliate, becomes a con-
trol person with respect to a target firm through the 
change in control transaction with respect to the tar-
get firm. 
(8) CORPORATION.—The term ‘‘corporation’’ 
means— 
(A) a joint-stock company; 
(B) a company or partnership association 
organized under a law that makes only the cap-
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ital subscribed or callable up to a specified 
amount responsible for the debts of the associa-
tion, including a limited partnership and a lim-
ited liability company; 
(C) a trust; and 
(D) an association having a power or privi-
lege that a private corporation, but not an indi-
vidual or a partnership, possesses. 
(9) EMPLOYEE WELFARE BENEFIT PLAN.—The 
term ‘‘employee welfare benefit plan’’ has the mean-
ing given the term in section 3 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 
1002). 
(10) HOLDER OF AN ACTIVE INTEREST.—The 
term ‘‘holder of an active interest’’— 
(A) 
subject 
to 
subparagraph 
(B)(ii), 
means— 
(i) a person that directly or indirectly 
has the right to participate in the govern-
ance of a controlling private fund, without 
regard to the form or source of that right; 
and 
(ii) any insider with respect to a con-
trolling private fund; and 
(B) does not include— 
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(i) a person that— 
(I) holds an economic interest 
solely to secure a debt, if that person 
does not exercise any voting or other 
governance right with respect to the 
interest; 
(II)(aa) is a limited partner with 
respect to a controlling private fund 
that is a partnership; 
(bb) does not participate in the 
direction of the management or policy 
of a corporation; and 
(cc) is not an insider with respect 
to the controlling private fund de-
scribed in item (aa); or 
(III) is a pension fund or em-
ployee welfare benefit plan, if neither 
the pension fund nor employee welfare 
benefit plan (as applicable), nor any 
affiliate or beneficiary of the pension 
fund or employee welfare benefit plan, 
is an insider with respect to, or affil-
iate of, a controlling private fund; or 
(ii) if the source of the right described 
in subparagraph (A)(i) is a security— 
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(I) a person that is engaged in 
business as an underwriter of securi-
ties and that acquires that security 
through the good faith participation 
of the person in a firm commitment 
underwriting registered under the Se-
curities Act of 1933 (15 U.S.C. 77a 
et seq.), until the date that is 40 days 
after the date on which that acquisi-
tion occurs; or 
(II) a member of a national secu-
rities exchange solely because that 
member is the record holder of that 
security and, under the rules of that 
exchange— 
(aa) may direct the vote of 
that security, without instruction, 
on— 
(AA) other than con-
tested matters; or 
(BB) matters that may 
substantially 
affect 
the 
rights or privileges of the 
holders of the security to be 
voted; and 
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(bb) is otherwise precluded 
from voting without instruction. 
(11) INSIDER.—The term ‘‘insider’’ means 
any— 
(A) director of a corporation; 
(B) officer of a corporation; 
(C) managing agent of a corporation; 
(D) control person with respect to a cor-
poration; 
(E) affiliate of a corporation; 
(F) general partner of a corporation that 
is a partnership; 
(G) consultant or contractor retained by a 
corporation; 
(H) affiliate, relative, or agent of a person 
described in any of subparagraphs (A) through 
(F); or 
(I) affiliate, relative, or agent of a person 
described in subparagraph (H). 
(12) INVESTMENT
ADVISER.—The term ‘‘in-
vestment adviser’’ has the meaning given the term 
in section 202(a) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b–2(a)). 
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(13) ISSUER.—The term ‘‘issuer’’ has the 
meaning given the term in section 3(a) of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78c(a)). 
(14) NATIONAL SECURITIES EXCHANGE.—The 
term ‘‘national securities exchange’’ means an ex-
change that is registered as a national securities ex-
change under section 6 of the Securities Exchange 
Act of 1934 (15 U.S.C. 78f). 
(15) PENSION
FUND.—The term ‘‘pension 
fund’’ has the meaning given the term ‘‘pension 
plan’’ in section 3 of the Employee Retirement Secu-
rity Act of 1974 (29 U.S.C. 1002). 
(16) PRIVATE FUND.—The term ‘‘private fund’’ 
means a corporation that— 
(A) would be considered an investment 
company under section 3 of the Investment 
Company Act of 1940 (15 U.S.C. 80a–3) but 
for the application of paragraph (1) or (7) of 
subsection (c) of such section 3; 
(B) is not a venture capital fund, as de-
fined in section 275.203(l)–1 of title 17, Code 
of Federal Regulations, as in effect on the date 
of enactment of this Act; and 
(C) is not an institution selected under sec-
tion 107 of the Community Development Bank-
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ing and Financial Institutions Act of 1994 (12 
U.S.C. 4706). 
(17) RELATIVE.—The term ‘‘relative’’ means 
an individual related by affinity or consanguinity 
within the third degree as determined by the com-
mon law, or individual in a step or adoptive relation-
ship within such third degree. 
(18) SECURITY.—The term ‘‘security’’ has the 
meaning given the term in section 2(a) of the Secu-
rities Act of 1933 (15 U.S.C. 77b(a)). 
(19) TARGET FIRM.—The term ‘‘target firm’’ 
means a corporation that is acquired in a change in 
control transaction. 
TITLE I—CORPORATE 
RESPONSIBILITY 
SEC. 101. JOINT AND SEVERAL LIABILITY FOR CONTROL-
LING PRIVATE FUNDS AND HOLDERS OF AC-
TIVE INTERESTS IN CONTROLLING PRIVATE 
FUNDS. 
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, or the terms of any contract or agreement, 
a controlling private fund, and any holder of an active in-
terest with respect to a controlling private fund, shall be 
jointly and severally liable for all liabilities of each target 
firm for which the controlling private fund is a control 
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person, and for all liabilities of any affiliate of each such 
target firm, including— 
(1) any debt incurred by the target firm or an 
affiliate of the target firm, including as part of the 
acquisition of the target firm by the controlling pri-
vate fund; 
(2) any Federal or State civil monetary penalty, 
or obligation under a settlement or consent order 
with a Federal or State governmental agency or in-
strumentality, including a consumer restitution obli-
gation, for which the target firm, or an affiliate of 
the target firm, is liable; 
(3) any liability resulting from a violation of 
section 3 of the Worker Adjustment and Retraining 
Notification Act (29 U.S.C. 2102) by the target firm 
or an affiliate of the target firm; 
(4) any withdrawal liability determined under 
part 1 of subtitle E of title IV of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 
1381 et seq.) that is incurred by the target firm or 
an affiliate of the target firm; and 
(5) any claim for unfunded benefit liabilities 
owed to the Pension Benefit Guaranty Corporation 
under subtitle D of title IV of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1361 
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et seq.) with respect to the termination of a pension 
plan sponsored by the target firm or an affiliate of 
the target firm. 
(b) RULE OF CONSTRUCTION.—Nothing in this sec-
tion may be construed to diminish existing, as of the date 
of enactment of this Act, controlled group liability under 
the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1001 et seq.). 
SEC. 102. INDEMNIFICATION VOID AS AGAINST PUBLIC 
POLICY. 
It shall be void as against public policy for a target 
firm, or an affiliate of a target firm, to indemnify a con-
trolling private fund with respect to— 
(1) the target firm; 
(2) any affiliate of the target firm; or 
(3) any person that is the holder of an active 
interest in the controlling private fund with respect 
to the liabilities of that person under section 101. 
TITLE II—ANTI-LOOTING 
SEC. 201. LIMITATIONS ON POST-ACQUISITION DIVIDENDS, 
DISTRIBUTIONS, REDEMPTIONS, BUYBACKS, 
AND OUTSOURCING. 
(a) IN GENERAL.—No target firm may, directly or 
indirectly, during the 2-year period beginning on the clos-
ing date of a change in control transaction that results 
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in a private fund becoming a controlling private fund with 
respect to the target firm— 
(1) make a capital distribution or similarly re-
duce the equity capital of the target firm; 
(2) incur an obligation that commits the target 
firm to making a capital distribution or a similar re-
duction of the equity capital of the target firm after 
the end of that 2-year period; or 
(3) order a plant closing or mass layoff (as de-
fined in section 2(a) of the Worker Adjustment and 
Retraining Notification Act (29 U.S.C. 2101(a)) and 
relocate the trade or business conducted by the em-
ployees in the United States to one or more facilities 
outside the United States, in accordance with regu-
lations issued by the Secretary of Labor. 
(b) VOID.—Any transfer made or obligation incurred 
by a target firm or an affiliate with respect to a target 
firm in violation of subsection (a) shall be void. 
(c) JOINT AND SEVERAL LIABILITY FOR AIDERS AND 
ABETTORS.—Any controlling private fund, any holder of 
an active interest in a controlling private fund, or any af-
filiate of a target firm that aids, abets, facilitates, sup-
ports, or instructs a target firm’s violation of subsection 
(a) shall be jointly and severally liable under this sub-
section for any transfer made or obligation incurred, in-
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cluding for reasonable attorney’s fees and costs awarded 
to a plaintiff under subsection (d)(2). 
(d) CAUSE OF ACTION.— 
(1) IN GENERAL.—Any employee or creditor, or 
representative of an employee or creditor, of a target 
firm that is a debtor under title 11, United States 
Code, or of an affiliate of a target firm that is such 
a debtor, may bring an action in an appropriate dis-
trict court of the United States against the direct or 
indirect transferee or obligee or beneficiary of the 
transfer or obligation to void the transfer or obliga-
tion and recover any transferred property for the 
target firm. 
(2) AWARD.—In a successful action to recover 
a transfer, the court shall also award the plaintiff 
reasonable attorney’s fees and costs. 
SEC. 202. PREVENTION OF FRAUDULENT TRANSFERS. 
(a) LIMITATION ON SAFE HARBORS.—Section 546(e) 
of title 11, United States Code, is amended by inserting 
after ‘‘548(b) of this title,’’ the following: ‘‘and except in 
the case of a transfer made in connection with a change 
in control transaction, as defined in section 3 of the Stop 
Wall Street Looting Act, or during the protected period, 
as defined in section 548(f) of this title,’’. 
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(b) PRESUMPTION OF INSOLVENCY IN TRANSFERS 
UNDERTAKEN IN CONNECTION WITH CHANGE IN CON-
TROL TRANSACTIONS.—Section 548 of title 11, United 
States Code, is amended by adding at the end the fol-
lowing: 
‘‘(f)(1) In this subsection— 
‘‘(A) the terms ‘change in control trans-
action’, ‘control person’, and ‘target firm’ have 
the meanings given those terms in section 3 of 
the Stop Wall Street Looting Act; and 
‘‘(B) the term ‘protected period’ means the 
shorter of— 
‘‘(i) the 8-year period beginning on 
the date on which a change in control 
transaction closed; or 
‘‘(ii) the period beginning on the date 
on which a change in control transaction 
closed and ending on the earliest subse-
quent date on which a public offering of a 
controlling share of the common equity se-
curities of the target firm occurs. 
‘‘(2) For purposes of this section, if the debtor 
is a target firm, the debtor is presumed to have 
made a transfer or incurred an obligation described 
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in subparagraphs (A) and (B) of subsection (a)(1) 
if— 
‘‘(A) the transfer was made to or obliga-
tion was incurred by the debtor or an affiliate 
in connection with a change in control trans-
action; or 
‘‘(B) during a protected period— 
‘‘(i) the transfer was made by the 
debtor or an affiliate to a control person, 
an affiliate, or an insider; or 
‘‘(ii) the obligation was incurred by 
the debtor or an affiliate from a control 
person, an affiliate, or an insider. 
‘‘(3) For the purposes of this section, a court 
shall, in analyzing related transactions, link together 
as a single transaction any interrelated yet formally 
distinct steps in an integrated transaction (com-
monly known as the ‘step transaction doctrine’).’’. 
(c) STATUTE OF LIMITATIONS.— 
(1) TITLE 11.—Section 548 of title 11, United 
States Code, is amended— 
(A) in subsection (a)(1), by striking para-
graph ‘‘that was made or incurred on or within 
2 years before the date of the filing of the peti-
tion’’ and inserting ‘‘that was made or incurred 
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during the period described in subsection (g)’’; 
and 
(B) adding at the end the following: 
‘‘(g) The trustee may avoid under subsection (a) a 
transfer of an interest of the debtor in property or any 
obligation incurred by the debtor on or within— 
‘‘(1) 8 years before the date of the filing of the 
petition if the transfer was made or obligation in-
curred in connection with a change in control trans-
action, as defined in section 3 of the Stop Wall 
Street Looting Act; or 
‘‘(2) 2 years before the date of the filing of the 
petition for all other transfers and obligations.’’. 
(2) TITLE
28.—Section 3306(b) of title 28, 
United States Code, is amended— 
(A) in paragraph (2), by striking ‘‘or’’ at 
the end; 
(B) in paragraph (3), by striking the pe-
riod at the end and inserting ‘‘; or’’; and 
(C) by adding at the end the following: 
‘‘(4) within 8 years after the transfer was made 
or the obligation was incurred, if the transfer was 
made or the obligation was incurred— 
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‘‘(A) in connection with a change in con-
trol transaction, as defined in section 3 of the 
Stop Wall Street Looting Act; or 
‘‘(B) during a protected period, as defined 
in section 548(f) of title 11.’’. 
(d) POWERS AND DUTIES OF COMMITTEES.—Section 
1103(c) of title 11, United States Code, is amended— 
(1) by redesignating paragraphs (3) through 
(5) as paragraphs (4) through (6), respectively; and 
(2) by inserting after paragraph (2) the fol-
lowing: 
‘‘(3) upon motion, undertake an examination of 
a director, officer, general partner, or person in con-
trol of the debtor regarding potential conflicts of in-
terest;’’. 
(e) ELIMINATION OF SHAM INDEPENDENT DIREC-
TORS.—Section 1107 of title 11, United States Code, is 
amended— 
(1) in subsection (a), by striking ‘‘Subject to’’ 
and inserting, ‘‘Except as provided in subsection (c), 
subject to’’; and 
(2) by adding at the end the following: 
‘‘(c) Notwithstanding subsection (a), if a debtor in 
possession is serving in a case under this title, a committee 
of creditors appointed under section 1102 of this title shall 
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have the exclusive right of a trustee serving in a case 
under this chapter to bring or settle on behalf of the es-
tate— 
‘‘(1) an action under section 544, 547, 548, or 
553 to avoid a transfer made or obligation incurred 
by the debtor in connection with a change of control 
transaction, as defined in section 3 of the Stop Wall 
Street Looting Act; or 
‘‘(2) an action against an insider, a former in-
sider, or an agent or aider and abettor of an insider 
or former insider.’’. 
SEC. 203. SURTAX ON CERTAIN AMOUNTS RECEIVED BY IN-
VESTMENT FIRMS FROM CONTROLLED TAR-
GET FIRMS. 
(a) IMPOSITION OF TAX.—Subchapter A of chapter 
1 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new part: 
‘‘PART VIII—SURTAX ON CERTAIN AMOUNTS 
RECEIVED BY INVESTMENT FIRMS 
‘‘Sec. 59B. Surtax on certain amounts received by investment firms from con-
trolled target firms. 
‘‘SEC. 59B. SURTAX ON CERTAIN AMOUNTS RECEIVED BY 
INVESTMENT 
FIRMS 
FROM 
CONTROLLED 
TARGET FIRMS. 
‘‘(a) IMPOSITION OF TAX.— 
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‘‘(1) IN GENERAL.—If one or more applicable 
payments are included in the gross income of a tax-
payer for any taxable year, then there is hereby im-
posed on the taxpayer for the taxable year a tax 
equal to the applicable percentage of the aggregate 
amount of such payments. Such tax shall be in addi-
tion to any other tax imposed by this subtitle. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of this subsection, the term ‘applicable percentage’ 
means 100 percent, minus the highest rate of tax 
under section 1 or 11 (whichever is applicable) for 
the taxable year. 
‘‘(b) APPLICABLE PAYMENT.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘applicable pay-
ment’ means any amount paid or incurred by an ap-
plicable entity (or any person related within the 
meaning of section 267(b) or 707(b) to such entity) 
to any other person which, at the time such amount 
is paid or incurred, is an applicable controlling enti-
ty. An amount shall be treated as an applicable pay-
ment without regard to whether it is paid or in-
curred to the taxpayer including it in gross income 
and to which subsection (a) applies. 
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‘‘(2) EXCEPTIONS.—Such term shall not in-
clude any of the following: 
‘‘(A) INTEREST.—Any amount paid or in-
curred which is treated as interest for purposes 
of this chapter. 
‘‘(B) DISTRIBUTIONS OF PROPERTY WITH 
RESPECT TO STOCK.—Any distribution of prop-
erty (as defined in section 317(a)) to which sec-
tion 301(a) applies. 
‘‘(c) DEFINITIONS RELATING
TO ENTITIES.—For 
purposes of this section— 
‘‘(1) APPLICABLE ENTITY.—The term ‘applica-
ble entity’ means any person— 
‘‘(A) which is engaged in the active con-
duct of a trade or business, and 
‘‘(B) with respect to which any other per-
son conducts activities in connection with an 
applicable trade or business. 
‘‘(2) APPLICABLE CONTROLLING ENTITY.—The 
term ‘applicable controlling entity’ means, with re-
spect to any applicable entity, any person— 
‘‘(A) which is engaged in an applicable 
trade or business some or all of the activities of 
which are conducted in connection with the ap-
plicable entity, and 
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‘‘(B) which controls (or is related within 
the meaning of section 267(b) or 707(b) to a 
person which controls) the applicable entity. 
‘‘(3) APPLICABLE TRADE OR BUSINESS.—The 
term ‘applicable trade or business’ means any activ-
ity conducted on a regular, continuous, and substan-
tial basis which, regardless of whether the activity is 
conducted in one or more entities, consists, in whole 
or in part, of— 
‘‘(A) raising or returning capital, and 
‘‘(B) either— 
‘‘(i) investing in or disposing of speci-
fied assets (or identifying specified assets 
for such investing or disposition), or 
‘‘(ii) developing specified assets. 
‘‘(4) SPECIFIED
ASSET.—The term ‘specified 
asset’ means— 
‘‘(A) securities (as defined in section 
475(c)(2) but without regard to the phrase 
‘widely held or publicly traded’ in subparagraph 
(B) thereof and without regard to the last sen-
tence thereof), and 
‘‘(B) real estate held for rental or invest-
ment. 
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‘‘(d) RULES AND DEFINITIONS RELATING TO OWN-
ERSHIP ATTRIBUTION AND CONTROL.—For purposes of 
this section— 
‘‘(1) CONSTRUCTIVE OWNERSHIP RULES USED 
IN DETERMINING RELATED PARTY.—In determining 
whether persons are related within the meaning of 
section 267(b) or 707(b), the constructive ownership 
rules of section 318 shall apply in lieu of the con-
structive ownership rules which would otherwise 
apply, except that in applying such rules the term 
‘stock’ shall include capital, profits, or other bene-
ficial interests in persons other than corporations. 
‘‘(2) CONTROL.— 
‘‘(A) CORPORATIONS.—In the case of a 
corporation, the term ‘control’ has the meaning 
given such term by section 304(c) (without re-
gard to paragraph (3)(B) thereof). 
‘‘(B) OTHER ENTITIES.—In the case of a 
person other than a corporation, such term 
means the ownership, directly or indirectly, of 
at least 50 percent of the capital, profits, or 
other beneficial interests in the person. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be necessary 
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or appropriate to carry out the provisions of this section, 
including regulations— 
‘‘(1) providing for such adjustments to the ap-
plication of this section as are necessary to prevent 
the avoidance of the purposes of this section, includ-
ing through the use of unrelated persons, or conduit 
transactions, and 
‘‘(2) modifying the constructive ownership rules 
under section 318 to the extent necessary to apply 
such rules to capital, profits, or other beneficial in-
terests as well as stock.’’. 
(b) DISALLOWANCE OF CREDITS AGAINST TAX.— 
Subparagraph (B) of section 26(b)(2) of the Internal Rev-
enue Code of 1986 is amended by inserting ‘‘or section 
59B (relating to surtax on certain amounts received by 
investment firms from controlled target firms)’’ after 
‘‘anti-abuse tax)’’. 
(c) CONFORMING AMENDMENTS.— 
(1) The table of parts for subchapter A of chap-
ter 1 of the Internal Revenue Code of 1986 is 
amended by adding after the item relating to part 
VII the following new item: 
‘‘PART VIII. SURTAX ON CERTAIN AMOUNTS RECEIVED BY INVESTMENT 
FIRMS’’. 
(2) Section 871(b)(1) of such Code is amended 
by inserting ‘‘, and as provided in section 59B on 
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applicable payments included in gross income which 
are effectively connected with the conduct of a trade 
or business within the United States’’ before the pe-
riod. 
(3) Section 882(a)(1) of such Code is amend-
ed— 
(A) by striking ‘‘59A,’’ and inserting 
‘‘59A’’; and 
(B) by inserting ‘‘, and as provided in sec-
tion 59B on applicable payments included in 
gross income which are effectively connected 
with the conduct of a trade or business within 
the United States’’ before the period. 
(4) Subparagraph (A) of section 6425(c)(1) of 
such Code is amended by striking ‘‘plus’’ at the end 
of clause (i), by striking ‘‘over’’ at the end of clause 
(ii) and inserting ‘‘and’’, and by adding at the end 
the following new clause: 
‘‘(iii) the tax imposed by section 59B, 
over’’. 
(5) Paragraph (1) of section 6654(f) of such 
Code is amended by striking ‘‘tax’’ each place it ap-
pears and inserting ‘‘taxes’’. 
(6) Subparagraph (A) of section 6655(g)(1) of 
such Code is amended by striking ‘‘plus’’ at the end 
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of clause (ii), by redesignating clause (iii) as clause 
(iv), and by inserting after clause (ii) the following 
new clause: 
‘‘(iii) the tax imposed by section 59B, 
and’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to applicable payments (as defined 
in section 59B(b) of the Internal Revenue Code of 1986, 
as added by this section) paid or accrued on or after the 
date of the enactment of this Act. 
SEC. 204. LIMITATION ON DEDUCTION FOR BUSINESS IN-
TEREST OF CERTAIN BUSINESSES OWNED BY 
PRIVATE FUNDS. 
(a) IN GENERAL.—Section 163(j) of the Internal 
Revenue Code of 1986 is amended by redesignating para-
graph (11) as paragraph (12) and by inserting after para-
graph (10) the following new paragraph: 
‘‘(11) MODIFICATION OF LIMITATION FOR CER-
TAIN BUSINESSES OWNED BY PRIVATE FIRMS.— 
‘‘(A) IN GENERAL.—In the case of a tax-
payer which is an applicable entity controlled by 
an applicable controlling entity (or any person 
related within the meaning of section 267(b) or 
707(b) to such entity) at any time during the 
taxable year— 
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‘‘(i) if the ratio of debt to equity of 
the taxpayer as of the close of the taxable 
year (or on any other day during the tax-
able year as the Secretary may prescribe in 
regulations) exceeds 1, then paragraph (1) 
shall be applied by substituting a percent-
age that the Secretary determines appro-
priate (and which shall be not less than 30 
percent) for ‘30 percent’, and 
‘‘(ii) in the case of the election under 
paragraph (7)(B) to treat any trade or 
business of the taxpayer as an electing real 
property trade or business— 
‘‘(I) the taxpayer may not make 
any such election during such taxable 
year, and 
‘‘(II) any such election of the 
taxpayer in effect as of the close of 
the taxable year preceding such tax-
able year with respect to a trade or 
business shall be revoked, effective for 
such taxable year and all succeeding 
taxable years. 
‘‘(B) RATIO
OF
DEBT
TO
EQUITY.—For 
purposes of this paragraph, the term ‘ratio of 
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debt to equity’ means, with respect to any tax-
payer, the ratio which the total indebtedness of 
the taxpayer bears to the sum of the taxpayer’s 
money and all other assets reduced (but not 
below zero) by such total indebtedness. For 
purposes of the preceding sentence— 
‘‘(i) the amount taken into account 
with respect to any asset shall be the ad-
justed basis thereof for purposes of deter-
mining gain, 
‘‘(ii) the amount taken into account 
with respect to any indebtedness with 
original issue discount shall be its issue 
price plus the portion of the original issue 
discount previously accrued as determined 
under the rules of section 1272 (deter-
mined without regard to subsection (a)(7) 
or (b)(4) thereof), and 
‘‘(iii) there shall be such other adjust-
ments as the Secretary may by regulations 
prescribe. 
‘‘(C) COORDINATION WITH DEPRECIATION 
RULES.—If the alternative depreciation system 
under section 168(g) applies to property by rea-
son of an election under paragraph (7)(B) 
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which 
is 
revoked 
under 
subparagraph 
(A)(ii)(II), then the depreciation deduction 
under section 167(a) with respect to such prop-
erty for the taxable year of revocation and all 
succeeding taxable years shall be determined 
under section 168 in the same manner as if 
such revocation were a change in use of the 
property under section 168(i)(5) and the regu-
lations thereunder. 
‘‘(D) DEFINITIONS AND RULES.—For pur-
poses of this paragraph— 
‘‘(i) any term used in this paragraph 
which is also used in section 59B shall 
have the same meaning as when used in 
such section, and 
‘‘(ii) the constructive ownership rules 
of section 318 shall apply in the same 
manner as such rules apply for purposes of 
section 59B.’’. 
(b) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning on 
or after the date of enactment of this Act. 
(2) REVOCATION
OF
ELECTIONS.—Subpara-
graphs (A)(ii)(II) and (C) of section 163(j)(11) of 
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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 
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). 
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