I 
108TH CONGRESS 
2D SESSION 
H. R. 4139 
To amend the Internal Revenue Code of 1986 to simplify the taxation of 
partnerships. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 2, 2004 
Mr. HOUGHTON 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 simplify 
the taxation of partnerships. 
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 ‘‘State Business Law Con-
formity Act of 2004’’. 
SEC. 2. REFERENCES TO GENERAL PARTNERS. 
(a) EXCLUSION OF CERTAIN ACTIVE BUSINESSES 
FROM
AT
RISK
RULES.—Subclause (I) of section 
465(c)(7)(D)(ii) of the Internal Revenue Code of 1986
(defining qualified corporate partner) is amended to read 
as follows: 
‘‘(I) such corporation is not pro-
hibited or limited under State law 
from participation in the management 
or business of the partnership.’’. 
(b) PAYMENTS TO RETIRING PARTNERS.—Subpara-
graph (B) of section 736(b)(3) of such Code (relating to 
limitation on application of paragraph (2)) is amended to 
read as follows: 
‘‘(B) any portion of the retiring or de-
ceased partner’s distributive share of partner-
ship income was subject to tax under section 
1401.’’. 
(c) FOREIGN CURRENCY TRANSACTIONS.—Subclause 
(I) of section 988(c)(1)(E)(v) of such Code is amended 
to read as follows: 
‘‘(I) CERTAIN
GENERAL
PART-
NERS.—The interest of a partner in 
the partnership shall not be treated as 
failing to meet the 20-percent owner-
ship requirements of clause (iii)(I) for 
any taxable year of the partnership if 
for the taxable year of the partner in
which such partnership taxable year 
ends— 
‘‘(aa) the partner is not lim-
ited as to participation in the 
management or activity of the 
qualified fund, and 
‘‘(bb) such partner (and 
each corporation filing a consoli-
dated return with such partner) 
had no ordinary income or loss 
from a section 988 transaction 
which is foreign currency gain or 
loss (as the case may be).’’. 
(d) SPECIAL VALUATION RULES FOR GENERATION- 
SKIPPING TAX.—Clause (ii) of section 2701(b)(2)(B) of 
such Code (relating to partnerships) is amended to read 
as follows: 
‘‘(ii) in the case of a limited partner-
ship, the holding of any interest as a part-
ner who is not limited as to participation 
in management or activity of the partner-
ship.’’. 
(e) TAX MATTERS PARTNER.—Paragraph (7) of sec-
tion 6231(a) of such Code (defining tax matters partner) 
is amended to read as follows:
‘‘(7) TAX MATTERS PARTNER.— 
‘‘(A) IN GENERAL.—The tax matters part-
ner of any partnership is— 
‘‘(i) the partner designated as the tax 
matters partner as provided in regulations, 
or 
‘‘(ii) if there is no partner who has 
been so designated, the partner having the 
largest profits interest in the partnership 
at the close of the taxable year involved 
(or, where there is more than 1 such part-
ner, the 1 of such partners whose name 
would appear first in an alphabetical list-
ing). 
‘‘(B) SELECTION BY SECRETARY.—If there 
is no partner designated under subparagraph 
(A)(i) and the Secretary determines that it is 
impracticable to apply subparagraph (A)(ii), the 
partner selected by the Secretary shall be treat-
ed as the tax matters partner. The Secretary 
shall, within 30 days of selecting a tax matters 
partner under the preceding sentence, notify all 
partners required to receive notice under sec-
tion 6223(a) of the name and address of the 
person selected.
‘‘(C) RESTRICTION
ON
DESIGNATION
OF 
PARTNER.—A partner may not be designated as 
a tax matters partner under subparagraph 
(A)(i) unless such partner is not limited as to 
participation in management or activity of the 
partnership.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 3. REFERENCES TO LIMITED PARTNERS. 
(a) LIMITED ENTREPRENEUR.— 
(1) IN GENERAL.—Subparagraph (A) of section 
464(e)(2) of the Internal Revenue Code of 1986 (de-
fining limited entrepreneur) is amended by striking 
‘‘other than as a limited partner’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 464(c) of such Code is amend-
ed— 
(i) by striking ‘‘limited partners or’’ 
in paragraph (1)(B), 
(ii) by striking ‘‘a limited partner or’’ 
in paragraph (2). 
(B) Section 1256 of such Code is amend-
ed—