Teacher:In this task, you are given text for US Congressional and California state bills, your task is to generate a summary for this bill.
Teacher: Now, understand the problem? Solve this instance: SECTION 1. SHORT TITLE.

This Act may be cited as ''State Business Law Conformity 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
prohibited or limited under State law
from participation in the management or
business of the partnership.''.
(b) Payments to Retiring Partners.--Subparagraph (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 deceased
partner's distributive share of partnership 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 partners.--
The interest of a partner in the
partnership shall not be treated as
failing to meet the 20-percent
ownership 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
limited as to participation in
the management or activity of
the qualified fund, and
''(bb) such partner (and
each corporation filing a
consolidated 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
partnership, the holding of any interest as a
partner who is not limited as to participation
in management or activity of the
partnership.''.
(e) Tax Matters Partner.--Paragraph (7) of section 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 partner 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 partner, the 1 of
such partners whose name would appear first in
an alphabetical listing).
''(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 treated 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 section
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 (defining limited
entrepreneur) is amended by striking ''other than as a limited
partner''.
(2) Conforming amendments.--
(A) Section 464(c) of such Code is amended--
(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 amended--
(i) by striking ''limited partners or''
each place it appears in subsections (e)(3)(B)
and (f)(4),
(ii) by striking ''a limited partner or''
in subsection (e)(3)(C), and
(iii) by striking ''limited partner or''
both places it appears in the heading and text
of subsection (e)(4)(A)(i).
(C) Section 1258(d)(5)(C) of such Code is amended--
(i) by striking ''limited partner or'' in
the matter preceding subclause (i),
(ii) by striking ''limited partner's (or
limited entrepreneur's) in subclause (i) and
inserting ''limited entrepreneur's'', and
(iii) by striking ''partners and limited''
in the heading.
(b) Passive Loss Rules.--
(1) Subsection (h) of section 469 of such Code is amended
by striking paragraph (2) and by redesignating paragraphs (3),
(4), and (5) as paragraphs (2), (3), and (4), respectively.
(2) Subparagraph (A) of section 469(c)(7) of such Code is
amended by striking the last sentence.
(3) Paragraph (6) of section 469(i) of such Code is amended
by striking subparagraph (C) and by redesignating subparagraph
(D) as subparagraph (C).
(4) Subsection (f) of section 772 of such Code (relating to
special rules for applying passive loss limitations) is amended
to read as follows:
''(f) Special Rules for Applying Passive Loss Limitations.--
''(1) In general.--If any person holds an interest in an
electing large partnership other than as a partner described in
paragraph (3)--
''(A) paragraph (2) of subsection (c) shall not
apply to such partner, and
''(B) such partner's distributive share of the
partnership items allocable to passive loss limitation
activities shall be taken into account separately to
the extent necessary to comply with the provisions of
section 469.
''(2) Exception.--Paragraph (1) shall not apply to any
items allocable to an interest held as a partner described in
paragraph (3).
''(3) Partner described.--For purposes of this subsection,
a partner is described in this paragraph if the partner is a
person whose participation in the management or business
activity of the partnership is limited under applicable State
law.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.

SEC. 4. PARTNERSHIP INCOME ATTRIBUTABLE TO CAPITAL EXCLUDED FROM NET
EARNINGS FROM SELF-EMPLOYMENT.

(a) In General.--Paragraph (13) of section 1402(a) of the Internal
Revenue Code of 1986 is amended to read as follows:
''(13) there shall be excluded the distributive share of
net income of a partner attributable to capital;''.
(b) Partnership Income Attributable to Capital.--Section 1402 of
such Code is amended by adding at the end the following new subsection:
''(l) Partnership Income Attributable to Capital.--
''(1) In general.--For purposes of subsection (a)(13), the
following amounts shall be treated as income attributable to
capital--
''(A) the amount, if any, in excess of what would
constitute reasonable compensation for services
rendered by such partner to the partnership, and
''(B) an amount equal to a reasonable rate of
return on unreturned capital of the partner determined
as of the beginning of the taxable year.
''(2) Definitions.--For purposes of paragraph (1)--
''(A) Unreturned capital.--The term 'unreturned
capital' means the excess of the aggregate amount of
money and the fair market value as of the date of
contribution of other consideration (net of
liabilities) contributed by the partner over the
aggregate amount of money and the fair market value as
of the date of distribution of other consideration (net
of liabilities) distributed by the partnership to the
partner, increased or decreased for the partner's
distributive share of all reportable items as
determined in section 702. If the partner acquires a
partnership interest and the partnership makes an
election under section 754, the partner's unreturned
capital shall take into account appropriate adjustments
under section 743.
''(B) Reasonable rate of return.--A reasonable rate
of return on unreturned capital shall equal 150 percent
(or such higher rate as is established in regulations)
of the highest applicable Federal rate, as determined
under section 1274(d)(1), at the beginning of the
partnership's taxable year.
''(3) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection.''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to services performed in taxable years beginning
after December 31, 2004.

SEC. 5. REPEAL OF ABILITY TO ELECT LARGE PARTNERSHIP REPORTING RULES.

(a) In General.--Paragraph (2) of section 775(a) of the Internal
Revenue Code of 1986 (relating to election) is amended by adding at the
end the following: ''No election under this subsection shall be made
after December 31, 2004.''.
(b) Effective Date.--The amendment made by this section shall apply
to partnership taxable years beginning after December 31, 2004.
Student:
State Business Law Conformity Act of 2004 - Amends the Internal Revenue Code to: (1) revise certain partnership tax definitions and rules relating to general and limited partners; (2) exclude from net earnings from self-employment partnership income attributable to capital; and (3) repeal, after 2004, the election to apply large partnership (100 partners or more) tax rules.