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<dc:title>115 S1020 IS: Carried Interest Fairness Act of 2017</dc:title> |
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<dc:publisher>U.S. Senate</dc:publisher> |
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<dc:date>2017-05-03</dc:date> |
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<dc:language>EN</dc:language> |
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<distribution-code display="yes">II</distribution-code><congress>115th CONGRESS</congress><session>1st Session</session><legis-num>S. 1020</legis-num><current-chamber>IN THE SENATE OF THE UNITED STATES</current-chamber><action><action-date date="20170503">May 3, 2017</action-date><action-desc><sponsor name-id="S354">Ms. Baldwin</sponsor> (for herself, <cosponsor name-id="S259">Mr. Reed</cosponsor>, <cosponsor name-id="S362">Mr. Kaine</cosponsor>, <cosponsor name-id="S316">Mr. Whitehouse</cosponsor>, <cosponsor name-id="S341">Mr. Blumenthal</cosponsor>, <cosponsor name-id="S221">Mrs. Feinstein</cosponsor>, <cosponsor name-id="S338">Mr. Manchin</cosponsor>, <cosponsor name-id="S331">Mrs. Gillibrand</cosponsor>, <cosponsor name-id="S366">Ms. Warren</cosponsor>, <cosponsor name-id="S332">Mr. Franken</cosponsor>, <cosponsor name-id="S322">Mr. Merkley</cosponsor>, and <cosponsor name-id="S361">Ms. Hirono</cosponsor>) introduced the following bill; which was read twice and referred to the <committee-name committee-id="SSFI00">Committee on Finance</committee-name></action-desc></action><legis-type>A BILL</legis-type><official-title>To amend the Internal Revenue Code of 1986 to provide for the proper tax treatment of personal |
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service income earned in pass-thru entities.</official-title></form> |
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<legis-body display-enacting-clause="yes-display-enacting-clause"> |
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<section display-inline="no-display-inline" id="H0280B285B1374D61AF90044673E752C5" section-type="section-one"><enum>1.</enum><header>Short title; etc</header> |
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<subsection commented="no" id="H8DD755B40D5D4D53BF7455AA6CDD7907"><enum>(a)</enum><header>Short title</header><text display-inline="yes-display-inline">This Act may be cited as the <quote><short-title>Carried Interest Fairness Act of 2017</short-title></quote>.</text> </subsection><subsection id="H999675BF12D949C5BEB9A5343EC3287E"><enum>(b)</enum><header>Amendment of 1986 Code</header><text>Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.</text> |
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</subsection><subsection commented="no" id="HAFC22337F7874CED92F6FC3A8B2ADDAF"><enum>(c)</enum><header>Table of contents</header><text>The table of contents for this Act is as follows:</text><toc container-level="legis-body-container" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration"><toc-entry idref="H0280B285B1374D61AF90044673E752C5" level="section">Sec. 1. Short title; etc.</toc-entry><toc-entry idref="HD0B6E780572B4A26A4F6C413900436AD" level="section">Sec. 2. Partnership interests transferred in connection with performance of services.</toc-entry><toc-entry idref="H83EAA317459E4C0AA3FFD1A8E98216AC" level="section">Sec. 3. Special rules for partners providing investment management services to partnerships.</toc-entry></toc> </subsection></section><section commented="no" display-inline="no-display-inline" id="HD0B6E780572B4A26A4F6C413900436AD" section-type="subsequent-section"><enum>2.</enum><header>Partnership interests transferred in connection with performance of services</header> <subsection commented="no" id="H2FA75E29398D4178952CB01774290F7E"><enum>(a)</enum><header>Modification to election To include partnership interest in gross income in year of transfer</header><text display-inline="yes-display-inline">Subsection (c) of <external-xref legal-doc="usc" parsable-cite="usc/26/83">section 83</external-xref> is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:</text> |
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<quoted-block display-inline="no-display-inline" id="HED70000B435441B881BF20C2C2B71573" style="OLC"> |
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<paragraph id="H12953EAE6B1E4EEE91F44C2E040AC2CF"><enum>(4)</enum><header>Partnership interests</header><text display-inline="yes-display-inline">Except as provided by the Secretary—</text> <subparagraph id="H97137147C9D949B595E1DB3B105949C9"><enum>(A)</enum><header>In general</header><text>In the case of any transfer of an interest in a partnership in connection with the provision of services to (or for the benefit of) such partnership—</text> |
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<clause id="H749BEFA4AF8C454F82FDF79D1FF807DC"><enum>(i)</enum><text display-inline="yes-display-inline">the fair market value of such interest shall be treated for purposes of this section as being equal to the amount of the distribution which the partner would receive 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 partnership) to its partners in liquidation of the partnership, and</text> |
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</clause><clause id="HA7C032FB41594FB1BD447937BF36E9E9"><enum>(ii)</enum><text>the person receiving such interest shall be treated as having made the election under subsection (b)(1) unless such person makes an election under this paragraph to have such subsection not apply.</text> |
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</clause></subparagraph><subparagraph id="HC99B76313D9047D48CA8CD1D361AC8B5"><enum>(B)</enum><header>Election</header><text>The election under subparagraph (A)(ii) shall be made under rules similar to the rules of subsection (b)(2).</text></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subsection><subsection id="H793A64FAC4DF4581ADD514292626BC57"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to interests in partnerships transferred after the date of the enactment of this Act.</text> |
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</subsection></section><section display-inline="no-display-inline" id="H83EAA317459E4C0AA3FFD1A8E98216AC" section-type="subsequent-section"><enum>3.</enum><header>Special rules for partners providing investment management services to partnerships</header> |
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<subsection id="HA3F719290646422FBE4FE17B2790BB09"><enum>(a)</enum><header>In general</header><text>Part I of subchapter K of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by adding at the end the following new section:</text> <quoted-block display-inline="no-display-inline" id="HE69369B18D9F44BF8D8A27B9800FEBF9" style="OLC"> <section id="H81BC722924BB47EF9B20746EEAFA90D2"><enum>710.</enum><header>Special rules for partners providing investment management services to partnerships</header> <subsection id="HBAC8B885CC624C1A9E31EFF924B2420D"><enum>(a)</enum><header>Treatment of distributive share of partnership items</header><text display-inline="yes-display-inline">For purposes of this title, in the case of an investment services partnership interest—</text> |
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<paragraph id="HD1EA9570BE29475CB2EFAF4E423AAD37"><enum>(1)</enum><header>In general</header><text>Notwithstanding section 702(b)—</text> <subparagraph id="H7B1110FD51A24DB4A07D630612B042C6"><enum>(A)</enum><text>an amount equal to the net capital gain with respect to such interest for any partnership taxable year shall be treated as ordinary income, and</text> |
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</subparagraph><subparagraph id="H9F9205BEE1B54164853CE0116827836E"><enum>(B)</enum><text>subject to the limitation of paragraph (2), an amount equal to the net capital loss with respect to such interest for any partnership taxable year shall be treated as an ordinary loss.</text> |
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</subparagraph></paragraph><paragraph id="HBC6787EB3B514A5AB7B09BAA491A7054"><enum>(2)</enum><header>Recharacterization of losses limited to recharacterized gains</header><text>The amount treated as ordinary loss under paragraph (1)(B) for any taxable year shall not exceed the excess (if any) of—</text> |
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<subparagraph id="H6FCC97EBD94548B3A51025C2E284A009"><enum>(A)</enum><text>the aggregate amount treated as ordinary income under paragraph (1)(A) with respect to the investment services partnership interest for all preceding partnership taxable years to which this section applies, over</text> |
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</subparagraph><subparagraph id="H4AA9B7CAE9B84B5EABCF38A900EA0B25"><enum>(B)</enum><text>the aggregate amount treated as ordinary loss under paragraph (1)(B) with respect to such interest for all preceding partnership taxable years to which this section applies.</text> |
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</subparagraph></paragraph><paragraph id="H0A648416C31C4823A283F9E8D55B6E67"><enum>(3)</enum><header>Allocation to items of gain and loss</header> |
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<subparagraph id="H8463E0962D1F49F780B9FE9AE0F4C6B9"><enum>(A)</enum><header>Net capital gain</header><text>The amount treated as ordinary income under paragraph (1)(A) shall be allocated ratably among the items of long-term capital gain taken into account in determining such net capital gain.</text> |
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</subparagraph><subparagraph id="H48911279513F4D4B8E9128D12FDF118E"><enum>(B)</enum><header>Net capital loss</header><text>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 loss taken into account in determining such net capital loss.</text> |
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</subparagraph></paragraph><paragraph id="H5B480CC4479E456682BC6F21E0325266"><enum>(4)</enum><header>Terms relating to capital gains and losses</header><text>For purposes of this section—</text> <subparagraph id="HDCE2FD1B65BB4E7B8F67E762D1B173C6"><enum>(A)</enum><header>In general</header><text>Net capital gain, long-term capital gain, and long-term capital loss, with respect to any investment services partnership interest for any taxable year, shall be determined under section 1222, except that such section shall be applied—</text> |
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<clause id="HC8D7CC64DF534A3680EFA8E9C80BB0CC"><enum>(i)</enum><text>without regard to the recharacterization of any item as ordinary income or ordinary loss under this section,</text> |
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</clause><clause id="H43F165B4F138483C82090C0C6F0114FD"><enum>(ii)</enum><text>by only taking into account items of gain and loss taken into account by the holder of such interest under section 702 (other than subsection (a)(9) thereof) with respect to such interest for such taxable year, and</text> |
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</clause><clause id="HC3CF229E0DE746879C74A7A7412CFDCD"><enum>(iii)</enum><text>by treating property which is taken into account in determining gains and losses to which section 1231 applies as capital assets held for more than 1 year.</text> |
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</clause></subparagraph><subparagraph id="HA9C6AA8D6FD5446A901123A2FD220419"><enum>(B)</enum><header>Net capital loss</header><text>The term <term>net capital loss</term> means the excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges. Rules similar to the rules of clauses (i) through (iii) of subparagraph (A) shall apply for purposes of the preceding sentence.</text> |
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</subparagraph></paragraph><paragraph id="HAB364C4E0581437DA038B4B019D773D5"><enum>(5)</enum><header>Special rule for dividends</header><text display-inline="yes-display-inline">Any dividend allocated with respect to any investment services partnership interest shall not be treated as qualified dividend income for purposes of section 1(h).</text> |
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</paragraph><paragraph id="HA2718C6340E848B9A120B5C665895BF9"><enum>(6)</enum><header>Special rule for qualified small business stock</header><text display-inline="yes-display-inline">Section 1202 shall not apply to any gain from the sale or exchange of qualified small business stock (as defined in section 1202(c)) allocated with respect to any investment services partnership interest.</text> |
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</paragraph></subsection><subsection id="H61C49576DDFE473C9299F761D2FE1C72"><enum>(b)</enum><header>Dispositions of partnership interests</header> |
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<paragraph id="H7A975F6A0D594CE58ABC650167B6A0BE"><enum>(1)</enum><header>Gain</header> |
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<subparagraph id="H8A4676E413C442578CA73362001AA9CA"><enum>(A)</enum><header>In general</header><text>Any gain on the disposition of an investment services partnership interest shall be—</text> <clause id="HA7872AF9E0254F0DBF43820991CD13C7"><enum>(i)</enum><text>treated as ordinary income, and</text> |
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</clause><clause id="H556875C9518948C684A955EE62D5B812"><enum>(ii)</enum><text>recognized notwithstanding any other provision of this subtitle.</text> </clause></subparagraph><subparagraph id="HD032F8AC10A34BCE8B1C89C6B24443EE"><enum>(B)</enum><header>Gift and transfers at death</header><text>In the case of a disposition of an investment services partnership interest by gift or by reason of death of the taxpayer—</text> |
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<clause id="HB94AC2817A0F4628AB47266A26DE53C1"><enum>(i)</enum><text>subparagraph (A) shall not apply,</text> </clause><clause id="HE6C307653BB341EC9D1393D41921C85D"><enum>(ii)</enum><text>such interest shall be treated as an investment services partnership interest in the hands of the person acquiring such interest, and</text> |
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</clause><clause id="H7A66F7E546E445A59BCC76B4B16E4FCC"><enum>(iii)</enum><text>any amount that would have been treated as ordinary income under this subsection had the decedent sold such interest immediately before death shall be treated as an item of income in respect of a decedent under section 691.</text> |
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</clause></subparagraph></paragraph><paragraph id="H4FAE6F3BFCBA41138B56915A78594350"><enum>(2)</enum><header>Loss</header><text>Any loss on the disposition of an investment services partnership interest shall be treated as an ordinary loss to the extent of the excess (if any) of—</text> |
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<subparagraph id="H703FB3BEB90349AF80A33A534510E475"><enum>(A)</enum><text>the aggregate amount treated as ordinary income under subsection (a) with respect to such interest for all partnership taxable years to which this section applies, over</text> |
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</subparagraph><subparagraph id="HB2F9D6A75F894CB781D5A78901F1A238"><enum>(B)</enum><text>the aggregate amount treated as ordinary loss under subsection (a) with respect to such interest for all partnership taxable years to which this section applies.</text> |
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</subparagraph></paragraph><paragraph id="H4467B1B6ACF346E692C5AF870F49179D"><enum>(3)</enum><header>Election with respect to certain exchanges</header><text>Paragraph (1)(A)(ii) shall not apply to the contribution of an investment services partnership interest to a partnership in exchange for an interest in such partnership if—</text> |
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<subparagraph id="HD1B2BEBD2BA043E1B85CDF224706F75F"><enum>(A)</enum><text>the taxpayer makes an irrevocable election to treat the partnership interest received in the exchange as an investment services partnership interest, and</text> |
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</subparagraph><subparagraph id="HAE9DE36D8F084A7E994A99CEC4899A60"><enum>(B)</enum><text>the taxpayer agrees to comply with such reporting and recordkeeping requirements as the Secretary may prescribe.</text> |
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</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H32ABC2CFCF27497CB5C00189A5EB3E77"><enum>(4)</enum><header>Distributions of partnership property</header> |
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<subparagraph id="H00D1022E3DFD4F1D9562246FA2FCC73F"><enum>(A)</enum><header>In general</header><text>In the case of any distribution of property by a partnership with respect to any investment services partnership interest held by a partner, the partner receiving such property shall recognize gain equal to the excess (if any) of—</text> |
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<clause commented="no" id="H779AFBED643D49E0A9BF4DDDFFAF21D1"><enum>(i)</enum><text>the fair market value of such property at the time of such distribution, over</text> </clause><clause commented="no" id="HF76DF80615A54C9D9137A1DCBBA49EC9"><enum>(ii)</enum><text>the adjusted basis of such property in the hands of such partner (determined without regard to subparagraph (C)).</text> |
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</clause></subparagraph><subparagraph id="H63FC2D7DFB3547ECB203436FFDF759E8"><enum>(B)</enum><header>Treatment of gain as ordinary income</header><text>Any gain recognized by such partner under subparagraph (A) shall be treated as ordinary 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 subparagraph shall be treated as an amount treated as ordinary income under subsection (a)(1)(A).</text> |
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</subparagraph><subparagraph id="HFAC90A92DB1048478735DFAC12DDE815"><enum>(C)</enum><header>Adjustment of basis</header><text>In the case a distribution to which subparagraph (A) applies, the basis of the distributed property in the hands of the distributee partner shall be the fair market value of such property.</text> |
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</subparagraph><subparagraph id="H9C3DA2D6967E49E9B39009348F6138BC"><enum>(D)</enum><header>Special rules with respect to mergers, divisions, and technical terminations</header><text>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 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).</text> |
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</subparagraph></paragraph></subsection><subsection id="HE33C0EEEEC70457AA4DF8121E230651A"><enum>(c)</enum><header>Investment services partnership interest</header><text display-inline="yes-display-inline">For purposes of this section—</text> <paragraph commented="no" id="H9CA19D8B028C4A31927877AEC6A5E14A"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">The term <term>investment services partnership interest</term> means any interest in an investment partnership acquired or held by any person 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—</text> |
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<subparagraph id="HECBC90D424B94DF1AF7537767119D27F"><enum>(A)</enum><text>shall not be treated as an investment services partnership interest for any period before the first date on which it is so held in connection with such a trade or business,</text> |
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</subparagraph><subparagraph id="H9D53DF5783E64D12B0AE6CA588500E4E"><enum>(B)</enum><text>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</text> |
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</subparagraph><subparagraph id="H8E86AEEB528845AF8D50A80E6D4135A5"><enum>(C)</enum><text>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.</text> |
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</subparagraph></paragraph><paragraph id="H75565B26D01841D29BD69AC7638F5C80"><enum>(2)</enum><header>Businesses to which this section applies</header><text display-inline="yes-display-inline">A trade or business is described in this paragraph if such trade or business primarily involves the performance of any of the following services with respect to assets held (directly or indirectly) by one or more investment partnerships referred to in paragraph (1):</text> |
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<subparagraph id="HDA14CF609611478B8674608775D6A51D"><enum>(A)</enum><text>Advising as to the advisability of investing in, purchasing, or selling any specified asset.</text> </subparagraph><subparagraph id="HCA8BA32250144E64A173AEF4E66B1D44"><enum>(B)</enum><text>Managing, acquiring, or disposing of any specified asset.</text> |
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</subparagraph><subparagraph id="HDE3D2FA7A1C4457E823DCF8B2BBA05BC"><enum>(C)</enum><text>Arranging financing with respect to acquiring specified assets.</text> </subparagraph><subparagraph id="H4413F3B41561440595B891D7349BFA58"><enum>(D)</enum><text>Any activity in support of any service described in subparagraphs (A) through (C).</text> |
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</subparagraph></paragraph><paragraph id="H7A2981D96F5446A9A4C7B43C1B33D35D"><enum>(3)</enum><header>Investment partnership</header> |
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<subparagraph id="H6830CE472EB24D829C41CA1AABE0C2EC"><enum>(A)</enum><header>In general</header><text>The term <term>investment partnership</term> means any partnership if, at the end of any two consecutive calendar quarters ending after the date of enactment of this section—</text> |
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<clause id="H4D9DC81CF08B47E9A72BD3E59C3F665B"><enum>(i)</enum><text>substantially all of the assets of the partnership are specified assets (determined without regard to any section 197 intangible within the meaning of section 197(d)), and</text> |
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</clause><clause id="H6057AE11B21F40ECB940F7698C257117"><enum>(ii)</enum><text>less than 75 percent of the capital 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.</text> |
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</clause></subparagraph><subparagraph id="H1465093487C94B4991A5AAD3ABC888CF"><enum>(B)</enum><header>Look-through of certain wholly owned entities for purposes of determining assets of the partnership</header> |
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<clause id="H4F09BD3C32AC49F484713D68C48C8C96"><enum>(i)</enum><header>In general</header><text display-inline="yes-display-inline">For purposes of determining the assets of a partnership under subparagraph (A)(i)—</text> <subclause id="H073331F921DA4226875CB6001133F202"><enum>(I)</enum><text>any interest in a specified entity shall not be treated as an asset of such partnership, and</text> |
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</subclause><subclause id="H08666683A8B94B54887E1605CFA015C7"><enum>(II)</enum><text>such partnership shall be treated as holding its proportionate share of each of the assets of such specified entity.</text> |
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</subclause></clause><clause id="H064A36C1D61E4938B5B29CCBD46D2DB4"><enum>(ii)</enum><header>Specified entity</header><text>For purposes of clause (i), the term <term>specified entity</term> 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—</text> |
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<subclause id="H51268796A09B4B9686DE276A936A3BEB"><enum>(I)</enum><text>a partnership all of the capital and profits interests of which are held directly or indirectly by the upper-tier partnership, or</text> |
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</subclause><subclause id="H6F0F374F465C4B809115368D4C7AE207"><enum>(II)</enum><text>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 indirectly by the upper-tier partnership.</text> |
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</subclause></clause></subparagraph><subparagraph id="H0C2572085495439581872A06CB205433"><enum>(C)</enum><header>Special rules for determining if property held in connection with trade or business</header> |
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<clause id="HAE480CB5F18748EFA4A406F3C052DADC"><enum>(i)</enum><header>In general</header><text>Except as otherwise provided by the Secretary, solely for purposes of determining whether any interest in a partnership constitutes property held in connection with a trade or business under subparagraph (A)(ii)—</text> |
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<subclause id="H61D05BF34F7B4C828ED7893324790EC7"><enum>(I)</enum><text>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,</text> |
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</subclause><subclause id="H96E0D738427044EE88EB7543606C1BF3"><enum>(II)</enum><text>such interest shall be treated 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 taxable years preceding such taxable year, and</text> |
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</subclause><subclause id="HAF6E247A739D462D8D180A922A86E64A"><enum>(III)</enum><text>paragraph (5)(B) shall not apply.</text> </subclause></clause><clause id="H72F52710E3AF4EB3B532B817EADD7898"><enum>(ii)</enum><header>Closely related persons</header><text>For purposes of clause (i)(I), a person shall be treated as closely related to another person if, taking into account the rules of section 267(c), the relationship between such persons is described in—</text> |
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<subclause id="H71DEAD5B8B74483DAE7C66515B642B65"><enum>(I)</enum><text>paragraph (1) or (9) of section 267(b), or</text> </subclause><subclause id="H816A468592E6497D9FD4B6C3BAE12472"><enum>(II)</enum><text>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 paragraph (1) or (9) of section 267(b).</text> |
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</subclause></clause></subparagraph><subparagraph id="HA5D6333273874098AB8E7897ACF3FC46"><enum>(D)</enum><header>Antiabuse rules</header><text>The Secretary may issue regulations or other guidance which prevent the avoidance of the purposes of subparagraph (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.</text> |
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</subparagraph><subparagraph id="H5A60F1B45A154CEF8A7B59C2BC40A1FF"><enum>(E)</enum><header>Controlled groups of entities</header> |
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<clause id="H7A1B9985610948C1B186FF915C154082"><enum>(i)</enum><header>In general</header><text>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 partnership by any member of such controlled group would (in the hands of such member) 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 subparagraph (A) as constituting (in the hands of such member) property held in connection with a trade or business.</text> |
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</clause><clause display-inline="no-display-inline" id="H4BAA2437ABFA42C6AB65D617398626D8"><enum>(ii)</enum><header>Controlled group of entities</header><text display-inline="yes-display-inline">For purposes of clause (i), the term <term>controlled group of entities</term> means a controlled 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 entities 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).</text> |
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</clause></subparagraph><subparagraph id="HDE11A8E860DE431E921B29AD80365305"><enum>(F)</enum><header>Special rule for corporations</header><text>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.</text> |
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</subparagraph></paragraph><paragraph id="HEB49A27390FD44C5914C8C6BABA9EAE3"><enum>(4)</enum><header>Specified asset</header><text>The term <term>specified asset</term> 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 partnerships, commodities (as defined in section 475(e)(2)), cash or cash equivalents, or options or derivative contracts with respect to any of the foregoing.</text> |
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</paragraph><paragraph display-inline="no-display-inline" id="H894994D6E6444B058EC1537A27FE0541"><enum>(5)</enum><header>Related persons</header> |
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<subparagraph id="H3D78C67CBC3E45DCB5748164E2D2CDEE"><enum>(A)</enum><header>In general</header><text>A person shall be treated as related to another person if the relationship between such persons is described in section 267(b) or 707(b).</text> |
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</subparagraph><subparagraph id="HD9B4768355BC4AF1AA5086ABD3408DE4"><enum>(B)</enum><header>Attribution of partner services</header><text>Any service described in paragraph (2) which is provided by a partner of a partnership shall be treated as also provided by such partnership.</text> |
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</subparagraph></paragraph></subsection><subsection id="HDE320CF53BBA4FB0B6644285C86080D5"><enum>(d)</enum><header>Exception for certain capital interests</header> |
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<paragraph id="H4AC891A78EEF408D8EC66D3067DB9113"><enum>(1)</enum><header>In general</header><text>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 account under subsection (a) if—</text> |
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<subparagraph id="H21F1D5DF38E647BBBF6DA54CCD8A09E0"><enum>(A)</enum><text>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)(2) and who are not related to the partner holding the qualified capital interest, and</text> |
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</subparagraph><subparagraph id="HA64BADC0A4784B6383085FF47A4A0B8F"><enum>(B)</enum><text>the allocations made to such other interests are significant compared to the allocations made to such qualified capital interest.</text> |
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</subparagraph></paragraph><paragraph id="H1E76A644A1604527AC81D255F3B0CEB1"><enum>(2)</enum><header>Authority to provide exceptions to allocation requirements</header><text display-inline="yes-display-inline">To the extent provided by the Secretary in regulations or other guidance—</text> <subparagraph id="HA53BC777447F4312AED9F4DB2CB014C0"><enum>(A)</enum><header>Allocations to portion of qualified capital interest</header><text>Paragraph (1) may be applied separately with respect to a portion of a qualified capital interest.</text> |
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</subparagraph><subparagraph id="H1049F1A6192B41A6B14F9A73C9BCEDA5"><enum>(B)</enum><header>No or insignificant allocations to nonservice providers</header><text display-inline="yes-display-inline">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 properly allocable under such regulations or other guidance to qualified capital interests.</text> |
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</subparagraph><subparagraph id="H38F27AACB9AD4A09984D4154FA64A68F"><enum>(C)</enum><header>Allocations to service providers’ qualified capital interests which are less than other allocations</header><text>Allocations shall not be treated as failing to meet the requirement of paragraph (1)(A) merely because the allocations to the qualified capital interest represent a lower return than the allocations made to the other qualified capital interests referred to in such paragraph.</text> |
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</subparagraph></paragraph><paragraph commented="no" id="HDD7DFBDE04274B37ABAAC0B5A5FB88B5"><enum>(3)</enum><header>Special rule for changes in services and capital contributions</header><text display-inline="yes-display-inline">In the case of an interest in a partnership which was not an investment services partnership interest and which, by reason of a change in the services with respect to assets 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 subsection, be less than the fair market value of such interest (determined immediately before such change).</text> |
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</paragraph><paragraph id="H9FB0FBF6ABC34A1F99A20BC4AC634A8A"><enum>(4)</enum><header>Special rule for tiered partnerships</header><text>Except as otherwise provided by the Secretary, in the case of tiered partnerships, all items which are allocated in a manner which meets the requirements of paragraph (1) to qualified capital interests in a lower-tier partnership shall retain such character to the extent allocated on the basis of qualified capital interests in any upper-tier partnership.</text> |
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</paragraph><paragraph id="HDA3D389BEA634D2FBCBCFB5D2DA763E2"><enum>(5)</enum><header>Exception for no-self-charged carry and management fee provisions</header><text>Except as otherwise provided by the Secretary, an interest shall not fail to be treated as satisfying the requirement of paragraph (1)(A) merely because the allocations made by the partnership to such interest do not reflect the cost of services described in subsection (c)(2) which are provided (directly or indirectly) to the partnership by the holder of such interest (or a related person).</text> |
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</paragraph><paragraph display-inline="no-display-inline" id="HD31F71A4599945AABD8D20ED6EFEE573"><enum>(6)</enum><header>Special rule for dispositions</header><text display-inline="yes-display-inline">In the case of any investment services partnership interest any portion of which is a qualified capital interest, subsection (b) shall not apply to so much of any gain or loss as bears the same proportion to the entire amount of such gain or loss as—</text> |
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<subparagraph id="H6CAD4022EEA74866B090D06F6AFF3BFA"><enum>(A)</enum><text display-inline="yes-display-inline">the distributive share of gain or loss that would have been allocated to the qualified capital interest (consistent with the requirements of paragraph (1)) if the partnership had sold all of its assets at fair market value immediately before the disposition, bears to</text> |
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</subparagraph><subparagraph id="HC4C9FA687A05410EBC432FE70C07471F"><enum>(B)</enum><text>the distributive share of gain or loss that would have been so allocated to the investment services partnership interest of which such qualified capital interest is a part.</text> |
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</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H93AAC96E77BB4AE58E478DFFD1215EA2"><enum>(7)</enum><header>Qualified capital interest</header><text>For purposes of this section—</text> <subparagraph id="HBFEBB9FBBFE44C5E84B0041F4A733DE7"><enum>(A)</enum><header>In general</header><text>The term <term>qualified capital interest</term> means so much of a partner’s interest in the capital of the partnership as is attributable to—</text> |
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<clause commented="no" id="H52FE656976A348B0BF4D548C3498FD1B"><enum>(i)</enum><text>the fair market value of any money or other property contributed to the partnership in exchange for such interest (determined without regard to section 752(a)),</text> |
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</clause><clause commented="no" id="H61DF986C9BF74F8798E73787AF90D649"><enum>(ii)</enum><text>any amounts which have been included in gross income under section 83 with respect to the transfer of such interest, and</text> |
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</clause><clause commented="no" id="HDAD9AA51622942E682C99D731C799EC0"><enum>(iii)</enum><text>the excess (if any) of—</text> <subclause id="H3426692A3EF04F90B0DD56D1DB10EAF1"><enum>(I)</enum><text>any items of income and gain taken into account under section 702 with respect to such interest, over</text> |
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</subclause><subclause id="H211B2AA5F06045BA9CB602F4532851D7"><enum>(II)</enum><text>any items of deduction and loss so taken into account.</text> </subclause></clause></subparagraph><subparagraph id="HD7493E05927C4E24AE7C786787DA7ECD"><enum>(B)</enum><header>Adjustment to qualified capital interest</header> <clause id="HA53DE28B809B49B8BB21A5550D8345CD"><enum>(i)</enum><header>Distributions and losses</header><text>The qualified capital interest shall be reduced by distributions from the partnership with respect to such interest and by the excess (if any) of the amount described in subparagraph (A)(iii)(II) over the amount described in subparagraph (A)(iii)(I).</text> |
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</clause><clause id="H0DBBECAA35424C03B345397186146597"><enum>(ii)</enum><header>Special rule for contributions of property</header><text>In the case of any contribution of property described in subparagraph (A)(i) with respect to which the fair market value of such property is not equal to the adjusted basis of such property immediately before such contribution, proper adjustments shall be made to the qualified capital interest to take into account such difference consistent with such regulations or other guidance as the Secretary may provide.</text> |
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</clause></subparagraph><subparagraph id="HE9BFEF9B3A2D46D1A559E29126E40503"><enum>(C)</enum><header>Technical terminations, etc., disregarded</header><text>No increase or decrease in the qualified capital interest of any partner shall result from a termination, merger, consolidation, or division described in section 708, or any similar transaction.</text> |
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</subparagraph></paragraph><paragraph id="H81B2BFEB36AA43B794C43C07EB21120A"><enum>(8)</enum><header>Treatment of certain loans</header> |
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<subparagraph id="H9FDBBD41F58845E6AAEB56F90E2157CE"><enum>(A)</enum><header>Proceeds of partnership loans not treated as qualified capital interest of service providing |
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partners</header><text display-inline="yes-display-inline">For purposes of this subsection, an investment services partnership interest shall not be treated as a qualified capital interest to the extent that such interest is acquired in connection with the proceeds of any loan or other advance made or guaranteed, directly or indirectly, by any other partner or the partnership (or any person related to any such other partner or the partnership). The preceding sentence shall not apply to the extent the loan or other advance is repaid before the date of the enactment of this section unless such repayment is made with the proceeds of a loan or other advance described in the preceding sentence.</text> |
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</subparagraph><subparagraph id="HBFB14890E53E402B8D9942B33E81080A"><enum>(B)</enum><header>Reduction in allocations to qualified capital interests for loans from nonservice-providing |
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partners to the partnership</header><text>For purposes of this subsection, any loan or other advance to the partnership made or guaranteed, directly or indirectly, by a partner not providing services described in subsection (c)(2) to the partnership (or any person related to such partner) shall be taken into account in determining the qualified capital interests of the partners in the partnership.</text> |
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</subparagraph></paragraph><paragraph id="H074780C345374581974609C6B26C335C"><enum>(9)</enum><header>Special rule for qualified family partnerships</header> |
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<subparagraph id="H052074C692284080BCA2BB6794E58FB3"><enum>(A)</enum><header>In general</header><text>In the case of any specified family partnership interest, paragraph (1)(A) shall be applied without regard to the phrase <quote>and who are not related to the partner holding the qualified capital interest</quote>.</text> |
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</subparagraph><subparagraph id="H7D884FB46F074101B3E688759F4496A7"><enum>(B)</enum><header>Specified family partnership interest</header><text>For purposes of this paragraph, the term <term>specified family partnership interest</term> means any investment services partnership interest if—</text> <clause id="HB76D533657FC49D095799647CC7ADA85"><enum>(i)</enum><text>such interest is an interest in a qualified family partnership,</text> |
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</clause><clause id="HFE3B9C0248FC44C59567599A7A59F0C4"><enum>(ii)</enum><text>such interest is held by a natural person or by a trust with respect to which each beneficiary is a grantor or a person whose relationship to the grantor is described in section 267(b)(1), and</text> |
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</clause><clause id="HC0C93D2169FD49EF9F58B23433E28EB9"><enum>(iii)</enum><text>all other interests in such qualified family partnership with respect to which significant allocations are made (within the meaning of paragraph (1)(B) and in comparison to the allocations made to the interest described in clause (ii)) are held by persons who—</text> |
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<subclause id="HC284A9A872CE42C193A30FA41B045AD5"><enum>(I)</enum><text>are related to the natural person or trust referred to in clause (ii), or</text> </subclause><subclause id="H6E9A8A7EBA774AEA8C22E1255036C8F9"><enum>(II)</enum><text display-inline="yes-display-inline">provide services described in subsection (c)(2).</text> |
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</subclause></clause></subparagraph><subparagraph id="HCAD32F26513E4FE7919FFBCC3EF77E30"><enum>(C)</enum><header>Qualified family partnership</header><text>For purposes of this paragraph, the term <term>qualified family partnership</term> means any partnership if—</text> <clause id="HCF03241D60E74972B4233A765A06FB85"><enum>(i)</enum><text>all of the capital and profits interests of such partnership are held by—</text> |
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<subclause id="H8BC3B38F7C944A58B95717683DCF74D8"><enum>(I)</enum><text>specified family members,</text> </subclause><subclause id="H83D53756C41C44FA91E9FC57711E3CB1"><enum>(II)</enum><text>any person closely related (within the meaning of subsection (c)(3)(C)(ii)) to a specified family member, or</text> |
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</subclause><subclause id="H1FA14AA90F5C4C75AED2F14FDF919523"><enum>(III)</enum><text display-inline="yes-display-inline">any other person (not described in subclause (I) or (II)) if such interest is an investment services partnership interest with respect to such person, and</text> |
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</subclause></clause><clause id="H7B494BDEA29A46829A4AD64950B219C7"><enum>(ii)</enum><text>such partnership does not hold itself out to the public as an investment advisor.</text> </clause></subparagraph><subparagraph id="HD1D92AB863DD4A1CB76E337704679BD1"><enum>(D)</enum><header>Specified family members</header><text>For purposes of subparagraph (C), individuals shall be treated as specified family members if such individuals would be treated as one person under the rules of section 1361(c)(1) if the applicable date (within the meaning of subparagraph (B)(iii) thereof) were the latest of—</text> |
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<clause id="HAB5CC2D1A2304F3C9B76DCB0D2A754E5"><enum>(i)</enum><text>the date of the establishment of the partnership,</text> </clause><clause id="HD21D5D2705F042FEA16C20C89D6AF32E"><enum>(ii)</enum><text>the earliest date that the common ancestor holds a capital or profits interest in the partnership, or</text> |
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</clause><clause id="H5307F1ADA6674C05A7A486983547EF74"><enum>(iii)</enum><text>the date of the enactment of this section.</text> </clause></subparagraph></paragraph></subsection><subsection id="H6BA8A9A09770459A98356B8DDED2B73C"><enum>(e)</enum><header>Other income and gain in connection with investment management services</header> <paragraph id="H9DB2BD62165A436EA1A9484B76A29604"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">If—</text> |
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<subparagraph id="H9822B197638347D28655409AB9F89028"><enum>(A)</enum><text>a person performs (directly or indirectly) investment management services for any investment entity,</text> |
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</subparagraph><subparagraph id="H94A132F1F2E94720835749B984675F23"><enum>(B)</enum><text>such person holds (directly or indirectly) a disqualified interest with respect to such entity, and</text> </subparagraph><subparagraph id="H329EE31A36EF491FBBF5D96DF407371D"><enum>(C)</enum><text display-inline="yes-display-inline">the value of such interest (or payments thereunder) is substantially related to the amount of income or gain (whether or not realized) from the assets with respect to which the investment management services are performed,</text> |
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</subparagraph><continuation-text continuation-text-level="paragraph">any income or gain with respect to such interest shall be treated as ordinary income. Rules similar |
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to the rules of subsections (a)(5) and (d) shall apply for purposes of |
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this subsection.</continuation-text></paragraph><paragraph id="H3C631E4DB4134A6281EAF567EAB24351"><enum>(2)</enum><header>Definitions</header><text>For purposes of this subsection—</text> <subparagraph id="H417DF123D19C438AA7D25749772F7642"><enum>(A)</enum><header>Disqualified interest</header> <clause id="H42952FDBE5FB4839BE7692530CB6769F"><enum>(i)</enum><header>In general</header><text>The term <term>disqualified interest</term> means, with respect to any investment entity—</text> |
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<subclause id="H78E6205E795A4141A16EF086A6605464"><enum>(I)</enum><text>any interest in such entity other than indebtedness,</text> </subclause><subclause id="H21779DC7793D49D09C44EDB543D1FC15"><enum>(II)</enum><text>convertible or contingent debt of such entity,</text> |
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</subclause><subclause id="H6644841577174870A8642FEC95B7200D"><enum>(III)</enum><text>any option or other right to acquire property described in subclause (I) or (II), and</text> </subclause><subclause id="H584949EE0F5B489199797F4BFC84CB45"><enum>(IV)</enum><text>any derivative instrument entered into (directly or indirectly) with such entity or any investor in such entity.</text> |
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</subclause></clause><clause id="HF8547D64B0014D97976E12C1D84E1C22"><enum>(ii)</enum><header>Exceptions</header><text>Such term shall not include—</text> <subclause id="H0C215534DD444B18A438B22554D676AD"><enum>(I)</enum><text>a partnership interest,</text> |
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</subclause><subclause id="HFD3D96414A3846F8AEFA0EAACFB508C6"><enum>(II)</enum><text>except as provided by the Secretary, any interest in a taxable corporation, and</text> </subclause><subclause id="H5356DCD80C4C4A5AA7066603853500C3"><enum>(III)</enum><text>except as provided by the Secretary, stock in an S corporation.</text> |
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</subclause></clause></subparagraph><subparagraph id="H7C165BCCC7234F54895258F197CF5436"><enum>(B)</enum><header>Taxable corporation</header><text>The term <term>taxable corporation</term> means—</text> <clause id="HEFFF06A3F2A9422B836FA6310BF22DF1"><enum>(i)</enum><text>a domestic C corporation, or</text> |
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</clause><clause id="H0BF8B523749A445F9D2ABD4BF8BDA952"><enum>(ii)</enum><text>a foreign corporation substantially all of the income of which is—</text> <subclause id="HF56FB9CD5A984C57A0BDDA4BEAF64A12"><enum>(I)</enum><text>effectively connected with the conduct of a trade or business in the United States, or</text> |
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</subclause><subclause id="H1F6ADB8780724852858487BCCD8588A4"><enum>(II)</enum><text>subject to a comprehensive foreign income tax (as defined in section 457A(d)(2)).</text> </subclause></clause></subparagraph><subparagraph id="HDA4E4FDA36304E0E92EAF8DFAED1C82F"><enum>(C)</enum><header>Investment management services</header><text>The term <term>investment management services</term> means a substantial quantity of any of the services described in subsection (c)(2).</text> |
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</subparagraph><subparagraph id="H5631BCD24D784D32892680BE304062D3"><enum>(D)</enum><header>Investment entity</header><text>The term <term>investment entity</term> means any entity which, if it were a partnership, would be an investment partnership.</text> </subparagraph></paragraph></subsection><subsection id="HEE6696B512884D1686F3CD9FEF9543BE"><enum>(f)</enum><header>Exception for domestic C corporations</header><text>Except as otherwise provided by the Secretary, in the case of a domestic C corporation—</text> |
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<paragraph id="H36D6E5F0CC9142DDA4D26F3E2EFD4958"><enum>(1)</enum><text display-inline="yes-display-inline">subsections (a) and (b) shall not apply to any item allocated to such corporation with respect to any investment services partnership interest (or to any gain or loss with respect to the disposition of such an interest), and</text> |
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</paragraph><paragraph id="HD087347F05874BCCB71E75B0D16B09A9"><enum>(2)</enum><text>subsection (e) shall not apply.</text> </paragraph></subsection><subsection commented="no" id="HAAEDA2F638974821AEE4A07A232DDD36"><enum>(g)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section, including regulations or other guidance to—</text> |
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<paragraph id="HA703C0528585497EAEC7002A2AEF54DB"><enum>(1)</enum><text display-inline="yes-display-inline">require such reporting and recordkeeping by any person in such manner and at such time as the Secretary may prescribe for purposes of enabling the partnership to meet the requirements of section 6031 with respect to any item described in section 702(a)(9),</text> |
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</paragraph><paragraph commented="no" id="H74BC65C06AB74ADA8E6EAD8667A235CA"><enum>(2)</enum><text>provide modifications to the application of this section (including treating related persons as not related to one another) to the extent such modification is consistent with the purposes of this section,</text> |
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</paragraph><paragraph id="HBE4A3565C28540A2ABF9E13F77C21D2B"><enum>(3)</enum><text display-inline="yes-display-inline">prevent the avoidance of the purposes of this section (including through the use of qualified family partnerships), and</text> |
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</paragraph><paragraph commented="no" id="H1F372A7EB0434E60AE4839D024517A4A"><enum>(4)</enum><text>coordinate this section with the other provisions of this title.</text> </paragraph></subsection><subsection commented="no" id="H3BA91AD0AE7B43A7A0B22F807E4DE448"><enum>(h)</enum><header>Cross reference</header><text>For 40 percent penalty on certain underpayments due to the avoidance of this section, see section 6662.</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subsection><subsection id="HA91EC89F55BA4178BF990926E11B0191"><enum>(b)</enum><header>Application of section 751 to indirect dispositions of investment services partnership interests</header> |
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<paragraph id="HC7E02C8ADB474B10B408AC1884903591"><enum>(1)</enum><header>In general</header><text>Subsection (a) of <external-xref legal-doc="usc" parsable-cite="usc/26/751">section 751</external-xref> is amended by striking <quote>or</quote> at the end of paragraph (1), by inserting <quote>or</quote> at the end of paragraph (2), and by inserting after paragraph (2) the following new paragraph:</text> <quoted-block display-inline="no-display-inline" id="H53731DAEFC3A435889FB5EA04D74937E" style="OLC"> <paragraph id="H3B8EDB2C10B04A05BEF71F02A873AF4F"><enum>(3)</enum><text display-inline="yes-display-inline">investment services partnership interests held by the partnership,</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</paragraph><paragraph id="H2CAE1CC57B03439FB80A4D5C60F9CE37"><enum>(2)</enum><header>Certain distributions treated as sales or exchanges</header><text>Subparagraph (A) of <external-xref legal-doc="usc" parsable-cite="usc/26/751">section 751(b)(1)</external-xref> is amended by striking <quote>or</quote> at the end of clause (i), by inserting <quote>or</quote> at the end of clause (ii), and by inserting after clause (ii) the following new clause:</text> <quoted-block display-inline="no-display-inline" id="H1F5BAF24FFBB4436AF08151E79206DFC" style="OLC"> <clause id="H96BAA37B13FE4891B26A765B8B493538"><enum>(iii)</enum><text display-inline="yes-display-inline">investment services partnership interests held by the partnership,</text></clause><after-quoted-block>.</after-quoted-block></quoted-block> |
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</paragraph><paragraph id="H0A69280008CE4F30A962140C5C5424F4"><enum>(3)</enum><header>Application of special rules in the case of tiered partnerships</header><text>Subsection (f) of <external-xref legal-doc="usc" parsable-cite="usc/26/751">section 751</external-xref> is amended—</text> <subparagraph id="HE2DF2D2CA4334B9AA656E699AAA6A227"><enum>(A)</enum><text>by striking <quote>or</quote> at the end of paragraph (1), by inserting <quote>or</quote> at the end of paragraph (2), and by inserting after paragraph (2) the following new paragraph:</text> |
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<quoted-block display-inline="no-display-inline" id="H40C6AF175DF040E991DD692341475E07" style="OLC"> |
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<paragraph id="HE20FD719E472458098B537FEF14B8788"><enum>(3)</enum><text display-inline="yes-display-inline">an investment services partnership interest held by the partnership,</text></paragraph><after-quoted-block>, and</after-quoted-block></quoted-block> </subparagraph><subparagraph id="HC13ADF5976F949F18656B7FB3A8AC782"><enum>(B)</enum><text>by striking <quote>partner.</quote> and inserting <quote>partner (other than a partnership in which it holds an investment services partnership interest).</quote>.</text> |
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</subparagraph></paragraph><paragraph id="HCF57A35D40F0476AA62502B971ACD6E8"><enum>(4)</enum><header>Investment services partnership interests; qualified capital interests</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/751">Section 751</external-xref> is amended by adding at the end the following new subsection:</text> <quoted-block display-inline="no-display-inline" id="H45E81406C623400983421918F1BC5A5E" style="OLC"> <subsection id="HBD700C9504564823A9B5F9D63E6F9D07"><enum>(g)</enum><header>Investment services partnership interests</header><text display-inline="yes-display-inline">For purposes of this section—</text> |
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<paragraph id="H2382A3B7908444BEA57E6FEEC3CA1BE4"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">The term <term>investment services partnership interest</term> has the meaning given such term by section 710(c).</text> </paragraph><paragraph id="HC4EB6CB7ADC74898AD5708CC02C52B72"><enum>(2)</enum><header>Adjustments for qualified capital interests</header><text>The amount to which subsection (a) applies by reason of paragraph (3) thereof shall not include so much of such amount as is attributable to any portion of the investment services partnership interest which is a qualified capital interest (determined under rules similar to the rules of section 710(d)).</text> |
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</paragraph><paragraph id="H4CF74EAF7B0C41A4A2600A77963DB9B4"><enum>(3)</enum><header>Exception for publicly traded partnerships</header><text>Except as otherwise provided by the Secretary, in the case of an exchange of an interest in a publicly traded partnership (as defined in section 7704) to which subsection (a) applies—</text> |
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<subparagraph id="H48F69BB45510423FA04647AC55C600C6"><enum>(A)</enum><text>this section shall be applied without regard to subsections (a)(3), (b)(1)(A)(iii), and (f)(3), and</text> </subparagraph><subparagraph id="HCE625DADDFA347B895C27B71CEDAF125"><enum>(B)</enum><text display-inline="yes-display-inline">such partnership shall be treated as owning its proportionate share of the property of any other partnership in which it is a partner.</text> |
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</subparagraph></paragraph><paragraph id="H2BBF2886CD784FD680B623A056A9EB98"><enum>(4)</enum><header>Recognition of gains</header><text>Any gain with respect to which subsection (a) applies by reason of paragraph (3) thereof shall be recognized notwithstanding any other provision of this title.</text> |
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</paragraph><paragraph id="HCA30D955988D4F3F913AE3D13C2DD642"><enum>(5)</enum><header>Coordination with inventory items</header><text>An investment services partnership interest held by the partnership shall not be treated as an inventory item of the partnership.</text> |
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</paragraph><paragraph id="H4C77ACE936F74897A209739955D6CFE0"><enum>(6)</enum><header>Prevention of double counting</header><text display-inline="yes-display-inline">Under regulations or other guidance prescribed by the Secretary, subsection (a)(3) shall not apply with respect to any amount to which section 710 applies.</text> |
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</paragraph><paragraph id="HAF5BA04D23754F539B2881F34143EDDA"><enum>(7)</enum><header>Valuation methods</header><text display-inline="yes-display-inline">The Secretary shall prescribe regulations or other guidance which provide the acceptable methods for valuing investment services partnership interests for purposes of this section.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> |
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</paragraph></subsection><subsection id="H061E8A3B2FDE4856906DD4B903A6B286"><enum>(c)</enum><header>Treatment for purposes of section 7704</header><text>Subsection (d) of <external-xref legal-doc="usc" parsable-cite="usc/26/7704">section 7704</external-xref> is amended by adding at the end the following new paragraph:</text> <quoted-block display-inline="no-display-inline" id="HFF4FF97B3B8A4C27828C737E6663BF18" style="OLC"> <paragraph id="H21A454E4FAF2436E9F804EA9FDF4F6E7"><enum>(6)</enum><header>Income from certain carried interests not qualified</header> <subparagraph id="HC37EFDE95441485F9993FF9FDDAE2CE1"><enum>(A)</enum><header>In general</header><text>Specified carried interest income shall not be treated as qualifying income.</text> |
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</subparagraph><subparagraph id="HAD2E00382E5C4096BA376C7EE919BF04"><enum>(B)</enum><header>Specified carried interest income</header><text>For purposes of this paragraph—</text> <clause id="H32CB6DA6A7DC4E9EAAB325FD2C23003C"><enum>(i)</enum><header>In general</header><text>The term <term>specified carried interest income</term> means—</text> |
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<subclause id="HBE36C78793BD45BE8B52D0C42E308515"><enum>(I)</enum><text>any item of income or gain allocated to an investment services partnership interest (as defined in section 710(c)) held by the partnership,</text> |
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</subclause><subclause id="H2BCB5D4526FE46BBBDA8E338330D4D4B"><enum>(II)</enum><text>any gain on the disposition of an investment services partnership interest (as so defined) or a partnership interest to which (in the hands of the partnership) section 751 applies, and</text> |
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</subclause><subclause id="H49D1EEB1A7194411AF5CCE49A2CA90C2"><enum>(III)</enum><text>any income or gain taken into account by the partnership under subsection (b)(4) or (e) of section 710.</text> |
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</subclause></clause><clause id="HB387233CA7794C518FC413CC036C7050"><enum>(ii)</enum><header>Exception for qualified capital interests</header><text>A rule similar to the rule of section 710(d) shall apply for purposes of clause (i).</text> </clause></subparagraph><subparagraph id="HBD14D004161249298E2F5CB63224EC50"><enum>(C)</enum><header>Coordination with other provisions</header><text>Subparagraph (A) shall not apply to any item described in paragraph (1)(E) (or so much of paragraph (1)(F) as relates to paragraph (1)(E)).</text> |
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</subparagraph><subparagraph id="H18F10012687D43D1B75A2314AE085B9E"><enum>(D)</enum><header>Special rules for certain partnerships</header> |
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<clause id="H3D281D46046E4D46B70C6456925E0610"><enum>(i)</enum><header>Certain partnerships owned by real estate investment trusts</header><text>Subparagraph (A) shall not apply in the case of a partnership which meets each of the following requirements:</text> |
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<subclause id="H466BF603289242FA931BE3FEE6511ABA"><enum>(I)</enum><text>Such partnership is treated as publicly traded under this section solely by reason of interests in such partnership being convertible into interests in a real estate investment trust which is publicly traded.</text> |
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</subclause><subclause id="H957FFD4F65B440879C49F4455C96BFD3"><enum>(II)</enum><text display-inline="yes-display-inline">Fifty percent or more of the capital and profits interests of such partnership are owned, directly or indirectly, at all times during the taxable year by such real estate investment trust (determined with the application of section 267(c)).</text> |
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</subclause><subclause id="H2246E97522024482A9A3C8BC1F8F2815"><enum>(III)</enum><text>Such partnership meets the requirements of paragraphs (2), (3), and (4) of section 856(c).</text> </subclause></clause><clause id="H1D876441FBEC4598BD55B08023B9806E"><enum>(ii)</enum><header>Certain partnerships owning other publicly traded partnerships</header><text>Subparagraph (A) shall not apply in the case of a partnership which meets each of the following requirements:</text> |
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<subclause id="H4E76589916BA4DFAABA05575E40B967D"><enum>(I)</enum><text>Substantially all of the assets of such partnership consist of interests in one or more publicly traded partnerships (determined without regard to subsection (b)(2)).</text> |
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</subclause><subclause commented="no" id="H6BEA29D803D043E0B88CEFCFEF4CD0FC"><enum>(II)</enum><text>Substantially all of the income of such partnership is ordinary income or section 1231 gain (as defined in section 1231(a)(3)).</text> |
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</subclause></clause></subparagraph><subparagraph id="H14E786D933D343C18E6D92EB0DB1415B"><enum>(E)</enum><header>Transitional rule</header><text>Subparagraph (A) shall not apply to any taxable year of the partnership beginning before the date which is 10 years after the date of the enactment of this paragraph.</text></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subsection><subsection id="H8D94BF53A13E432EAE9DDD1674DAB17C"><enum>(d)</enum><header>Imposition of penalty on underpayments</header> |
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<paragraph id="HB40F0168C420477E876D9CEF56C149D0"><enum>(1)</enum><header>In general</header><text>Subsection (b) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662">section 6662</external-xref> is amended by inserting after paragraph (7) the following new paragraph:</text> |
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<quoted-block display-inline="no-display-inline" id="H435804FDA43C47F9AE0741735F1BAC73" style="OLC"> |
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<paragraph id="H549A1F98A87A4787944C52729E333BE7"><enum>(8)</enum><text>The application of section 710(e) or the regulations or other guidance prescribed under section 710(g) to prevent the avoidance of the purposes of section 710.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</paragraph><paragraph id="H1A4EFB44C4A746C3BC21E25773901C5B"><enum>(2)</enum><header>Amount of penalty</header> |
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<subparagraph id="H5F557BAB30C343BEBD134ACDA4BBFAC4"><enum>(A)</enum><header>In general</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/6662">Section 6662</external-xref> is amended by adding at the end the following new subsection:</text> <quoted-block display-inline="no-display-inline" id="HBEA4238702014C9480931CF23F6D9DA6" style="OLC"> <subsection id="HD6B09A3083694944863AB166E256CC7C"><enum>(l)</enum><header>Increase in penalty in case of property transferred for investment management services</header><text>In the case of any portion of an underpayment to which this section applies by reason of subsection (b)(8), subsection (a) shall be applied with respect to such portion by substituting <quote>40 percent</quote> for <quote>20 percent</quote>.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subparagraph><subparagraph display-inline="no-display-inline" id="HFCDDF1EA4D1B44B4BDCE16B329F4C25D"><enum>(B)</enum><header>Conforming amendment</header><text>Subparagraph (B) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662A">section 6662A(e)(2)</external-xref> is amended by striking <quote>or (i)</quote> and inserting <quote>, (i), or (k)</quote>.</text> </subparagraph></paragraph><paragraph display-inline="no-display-inline" id="H61E87CBE658C46CDABBE41DF35D88AC7"><enum>(3)</enum><header>Special rules for application of reasonable cause exception</header><text>Subsection (c) of <external-xref legal-doc="usc" parsable-cite="usc/26/6664">section 6664</external-xref> is amended—</text> |
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<subparagraph id="HDB2AC2D3038E4CB3B24FC6F56DF6F472"><enum>(A)</enum><text>by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively;</text> </subparagraph><subparagraph id="H796D1BA54A3342C28848565366F4C4A3"><enum>(B)</enum><text>by striking <quote>paragraph (3)</quote> in paragraph (5)(A), as so redesignated, and inserting <quote>paragraph (4)</quote>; and</text> |
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</subparagraph><subparagraph id="H035777D36CAB4AFE9BD47450ADB0E93E"><enum>(C)</enum><text>by inserting after paragraph (2) the following new paragraph:</text> <quoted-block display-inline="no-display-inline" id="H1064F9C8F2454436BE89D3286C7C6620" style="OLC"> <paragraph id="H380F2B1D087144E8B43C14557FB31D3C"><enum>(3)</enum><header>Special rule for underpayments attributable to investment management services</header> <subparagraph id="HE1CD39B5BE374A4FB48C0099BB519843"><enum>(A)</enum><header>In general</header><text>Paragraph (1) shall not apply to any portion of an underpayment to which section 6662 applies by reason of subsection (b)(8) unless—</text> |
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<clause id="H9C1CBEBDF85942178F64AAF996910E8F"><enum>(i)</enum><text display-inline="yes-display-inline">the relevant facts affecting the tax treatment of the item are adequately disclosed,</text> </clause><clause id="H6A1B353D202040D1B6C3B1B5996DCFF9"><enum>(ii)</enum><text>there is or was substantial authority for such treatment, and</text> |
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</clause><clause id="HBBA0E42BBBCA4B45B2E6C87EB2A3A066"><enum>(iii)</enum><text>the taxpayer reasonably believed that such treatment was more likely than not the proper treatment.</text> </clause></subparagraph><subparagraph id="H78F426836EDB44D9B1B3BD71577EDDC2"><enum>(B)</enum><header>Rules relating to reasonable belief</header><text>Rules similar to the rules of subsection (d)(3) shall apply for purposes of subparagraph (A)(iii).</text></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subparagraph></paragraph></subsection><subsection id="H93B6F9EEB14648B48A654C6DC02BAF75"><enum>(e)</enum><header>Income and loss from investment services partnership interests taken into account in determining |
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net earnings from self-Employment</header> |
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<paragraph id="HC6D993AA81FD4667AC8A4F0ED8DB59C3"><enum>(1)</enum><header>Internal Revenue Code</header> |
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<subparagraph id="H282CE50367EA4D4EB1A53F7ED7289EFE"><enum>(A)</enum><header>In general</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/1402">Section 1402(a)</external-xref> is amended by striking <quote>and</quote> at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting <quote>; and</quote>, and by inserting after paragraph (17) the following new paragraph:</text> <quoted-block display-inline="no-display-inline" id="HA4635D01DD4A4FEC95DECCBCA4127A2D" style="OLC"> <paragraph id="H46F4015DC9ED4E55BD4B1FAE0218C646"><enum>(18)</enum><text display-inline="yes-display-inline">notwithstanding the preceding provisions of this subsection, in the case of any individual engaged in the trade or business of providing services described in section 710(c)(2) with respect to any entity, investment services partnership income or loss (as defined in subsection (m)) of such individual with respect to such entity shall be taken into account in determining the net earnings from self-employment of such individual.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subparagraph><subparagraph id="HC05E15FF2AF743E2BF780857BEF458B8"><enum>(B)</enum><header>Investment services partnership income or loss</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/1402">Section 1402</external-xref> is amended by adding at the end the following new subsection:</text> <quoted-block display-inline="no-display-inline" id="H1C466CF2AA7A45268DAA5751C522AB2D" style="OLC"> <subsection id="HD20749A9EF814BD2A9C9D2BFD5D68301"><enum>(m)</enum><header>Investment services partnership income or loss</header><text display-inline="yes-display-inline">For purposes of subsection (a)—</text> |
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<paragraph commented="no" id="HEFC34B3E22674ABE80E4024D55F0DF9F"><enum>(1)</enum><header>In general</header><text>The term <term>investment services partnership income or loss</term> means, with respect to any investment services partnership interest (as defined in section 710(c)) or disqualified interest (as defined in section 710(e)), the net of—</text> |
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<subparagraph commented="no" id="H856F9055746948BC98431FC6C61FE082"><enum>(A)</enum><text>the amounts treated as ordinary income or ordinary loss under subsections (b) and (e) of section 710 with respect to such interest,</text> |
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</subparagraph><subparagraph commented="no" id="H78DEFB74A08F4D26AFA269CFE48F0965"><enum>(B)</enum><text>all items of income, gain, loss, and deduction allocated to such interest, and</text> </subparagraph><subparagraph commented="no" id="H398D04D6332747E99BCBA8DE8CD928E1"><enum>(C)</enum><text>the amounts treated as realized from the sale or exchange of property other than a capital asset under section 751 with respect to such interest.</text> |
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</subparagraph></paragraph><paragraph id="HD189700A0B91431A8815F46DA37EFB7B"><enum>(2)</enum><header>Exception for qualified capital interests</header><text>A rule similar to the rule of section 710(d) shall apply for purposes of applying paragraph (1)(B).</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </subparagraph></paragraph><paragraph display-inline="no-display-inline" id="H8CF007B529C2426BBDA0235BDBE761DC"><enum>(2)</enum><header>Social Security Act</header><text>Section 211(a) of the Social Security Act is amended by striking <quote>and</quote> at the end of paragraph (15), by striking the period at the end of paragraph (16) and inserting <quote>; and</quote>, and by inserting after paragraph (16) the following new paragraph:</text> |
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<quoted-block display-inline="no-display-inline" id="HFB331A9B242343A58818385488191555" style="OLC"> |
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<paragraph id="H4B90E7D68CAB489D86471392D84F95EC"><enum>(17)</enum><text display-inline="yes-display-inline">Notwithstanding the preceding provisions of this subsection, in the case of any individual engaged in the trade or business of providing services described in <external-xref legal-doc="usc" parsable-cite="usc/26/710">section 710(c)(2)</external-xref> of the Internal Revenue Code of 1986 with respect to any entity, investment services partnership income or loss (as defined in section 1402(m) of such Code) shall be taken into account in determining the net earnings from self-employment of such individual.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</paragraph></subsection><subsection id="HA9262F0DC3DB45A6B2CEAA0F6A86405D"><enum>(f)</enum><header>Separate accounting by partner</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/702">Section 702(a)</external-xref> is amended by striking <quote>and</quote> at the end of paragraph (7), by striking the period at the end of paragraph (8) and inserting <quote>, and</quote>, and by inserting after paragraph (8) the following:</text> <quoted-block display-inline="no-display-inline" id="H9046D1DC6ED14EF2B9D2E7454EE695D1" style="OLC"> <paragraph id="HF3E570AC4413433195170BAFC28B81A0"><enum>(9)</enum><text display-inline="yes-display-inline">any amount treated as ordinary income or loss under subsection (a), (b), or (e) of section 710.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> |
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</subsection><subsection id="H06161378C21B4380A733B3CB87CFA27D"><enum>(g)</enum><header>Conforming amendments</header> |
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<paragraph id="H3FB6C6B031F44D218F13CE12BCD04540"><enum>(1)</enum><text>Subsection (d) of <external-xref legal-doc="usc" parsable-cite="usc/26/731">section 731</external-xref> is amended by inserting <quote>section 710(b)(4) (relating to distributions of partnership property),</quote> after <quote>to the extent otherwise provided by</quote>.</text> </paragraph><paragraph id="H7B8FFDA346514749BAEFBA937D6C3699"><enum>(2)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/741">Section 741</external-xref> is amended by inserting <quote>or section 710 (relating to special rules for partners providing investment management services to partnerships)</quote> before the period at the end.</text> |
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</paragraph><paragraph id="H28B06DA799A04B508639E9A0C1FC4EAD"><enum>(3)</enum><text display-inline="yes-display-inline">The table of sections for part I of subchapter K of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by adding at the end the following new item:</text> |
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<quoted-block display-inline="no-display-inline" id="H5E72B01339384B868A34BC33614DB8B8" style="OLC"><toc container-level="quoted-block-container" idref="HE69369B18D9F44BF8D8A27B9800FEBF9" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration"><toc-entry idref="H81BC722924BB47EF9B20746EEAFA90D2" level="section">Sec. 710. Special rules for partners providing investment management services to partnerships.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block> |
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</paragraph></subsection><subsection id="H6EF60D663F674EDA81C52BC334D77C95"><enum>(h)</enum><header>Effective date</header> |
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<paragraph id="H3FA43606CF434515A188D159B874D78F"><enum>(1)</enum><header>In general</header><text>Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.</text> |
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</paragraph><paragraph id="H64604BF37AA447C084896092912ED325"><enum>(2)</enum><header>Partnership taxable years which include effective date</header><text display-inline="yes-display-inline">In applying <external-xref legal-doc="usc" parsable-cite="usc/26/710">section 710(a)</external-xref> of the Internal Revenue Code of 1986 (as added by this section) in the case of any partnership taxable year which includes the date of the enactment of this Act, the amount of the net capital gain referred to in such section shall be treated as being the lesser of the net capital gain for the entire partnership taxable year or the net capital gain determined by only taking into account items attributable to the portion of the partnership taxable year which is after such date.</text> |
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</paragraph><paragraph id="H3DB9F4F6975A42B4B4D8446CAE22E590"><enum>(3)</enum><header>Dispositions of partnership interests</header> |
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<subparagraph id="HA4D95CF7A0184DC88ADA2A318647D783"><enum>(A)</enum><header>In general</header><text>Section 710(b) of such Code (as added by this section) shall apply to dispositions and distributions after the date of the enactment of this Act.</text> |
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</subparagraph><subparagraph id="H40308CB9CD864A6AAF83AC9215CACBAE"><enum>(B)</enum><header>Indirect dispositions</header><text>The amendments made by subsection (b) shall apply to transactions after the date of the enactment of this Act.</text> |
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</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H859AA300B82D4D1F9B4A825C91154395"><enum>(4)</enum><header>Other income and gain in connection with investment management services</header><text display-inline="yes-display-inline">Section 710(e) of such Code (as added by this section) shall take effect on the date of the enactment of this Act.</text></paragraph></subsection></section></legis-body></bill> |
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