,,ii  #aafth ,,congress  #ast ,session  
,s4 #afci  ,,in ,,the ,,senate ,,of     
,,the ,,united ,,states  ,may #bc       
7legislative day1 ,may #bb71 #bjai ,mr4 
,wyden 7for himself and ,mr4            
,whitehouse7 introduced the following   
bill2 which was read twice and referred 
to the ,committee on ,finance  ,a ,,bill
  ,to amend the ,internal ,revenue ,code
 of #aihf to revise the treatment of    
partnership interests received in       
connection with the performance of      
services1 and for other purposes4  #a4  
,short title  ,this ,act may be cited as
 the ,ending the ,carried ,interest     
,loophole ,act4  #b4 ,partnership       
interests transferred in connection with
 performance of services  7a7           
,modification of election ,to include   
partnership interest in gross income in 
year of transfer ,subsection 7c7 of     
section #hc is amended by redesignating 
paragraph 7#d7 as paragraph 7#e7 and by 
inserting after paragraph 7#c7 the      
following new paragraph3  7#d7          

,partnership interests ,except as       
provided by the ,secretary-- 7,a7 ,in   
general ,in the case of any transfer of 
an interest in a partnership in         
connection with the performance of      
services for 7or for the benefit of7    
such partnership--  7i7 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 7at the time of the    
transfer7 all of its assets at fair     
market value and distributed the        
proceeds of such sale 7reduced by the   
liabilities of the partnership7 to its  
partners in liquidation of the          
partnership1 and  7ii7 the person       
receiving such interest shall be treated
 as having made the election under      
subsection 7b77#a7 unless such person   
makes an election under this paragraph  
to have such subsection not apply4  7,b7
 ,coordination with other partnership   
rules ,except as otherwise provided by  

the ,secretary1 if1 by reason of        
subparagraph 7,a71 subsection 7b77#a7   
applies to a partnership interest       
transferred to a person1 then the amount
 included in the gross income of such   
person by reason of such subsection     
shall 7at the time of the transfer7--   
7i7 be treated as an addition to the    
capital account of such person with     
respect to such partnership for purposes
 of subchapter ,k1 and  7ii7 if such    
interest is an applicable partnership   
interest under section #abii at any     
time1 be treated as invested capital of 
such person with respect to such        
interest for purposes of such section4  
7,c7 ,election ,the election under      
subparagraph 7,a77ii7 shall be made     
under rules similar to the rules of     
subsection 7b77#b74  7,d7 ,partnership  
interest  7i7 ,in general ,for purposes 
of this paragraph1 any applicable       
financial instrument or contract 7as    
defined in section #abii7;b77#b77;,b77  
or interest in an entity other than a   

partnership which is treated as an      
applicable partnership interest under   
section #abii7;b77#b7 shall be treated  
as an interest in a partnership4  7ii7  
,regulations ,the ,secretary shall by   
regulations provide rules for the       
application of this paragraph to        
applicable financial instruments or     
contracts 7as so defined7 or interests  
in entities other than partnerships     
which are treated as partnership        
interests under clause 7i74  4  7b7     
,effective date ,the amendments made by 
this section shall apply to interests in
 partnerships transferred after the date
 of the enactment of this ,act4  #c4    
,treatment of certain partnership       
interests received in connection with   
performance of services  7a7 ,in general
 ,subchapter ,p of chapter #a of the    
,internal ,revenue ,code of #aihf is    
amended by adding at the end the        
following new part3  ,,vii ,treatment of
 certain partnership interests received 
in connection with performance of       

services  ,sec4 #abii4 ,treatment of    
certain partnership interests received  
in connection with performance of       
services4  #abii4 ,treatment of certain 
partnership interests received in       
connection with performance of services 
7a7 ,in general ,in the case of a       
taxpayer who holds #a or more applicable
 partnership interests in any           
partnership at any time during any      
taxable year of the partnership ending  
with or within the taxable year of the  
taxpayer--  7#a7 there shall be included
 in the gross income of the taxpayer as 
ordinary income an amount equal to the  
aggregate of the deemed compensation    
amounts determined under subsection 7c7 
with respect to such interests in all   
partnerships1 and  7#b7 the taxpayer    
shall be treated as having for such     
taxable year of the taxpayer a long-term
 capital loss equal to the aggregate of 
such deemed compensation amounts4  7b7  
,applicable partnership interest ,for   
purposes of this section-- 7#a7 ,in     

general ,except as provided in this     
subsection1 the term applicable         
partnership interest means any interest 
in a partnership which--  7,a7 is       
directly or indirectly transferred to   
7or held by7 the taxpayer in connection 
with the performance of services by the 
taxpayer1 or any other person1 in any   
applicable trade or business1 or  7,b7  
is held by a taxpayer who received an   
applicable loan4  ,such term shall not  
include any interest which is acquired  
pursuant to a sale or disposition to    
which subsection 7c77#e7 applies4  7#b7 
,determination of interest in a         
partnership  7,a7 ,in general ,for      
purposes of paragraph 7#a71 the term    
interest in a partnership includes--    
7i7 any applicable financial instrument 
or contract1 or  7ii7 to the extent     
provided by the ,secretary1 any interest
 in an entity other than a partnership  
if such interest would be treated as an 
applicable partnership interest if such 
entity were a partnership4  7,b7        

,applicable financial instrument or     
contract ,for purposes of this          
paragraph-- 7i7 ,in general ,the term   
applicable financial instrument or      
contract means any financial instrument 
or contract the value of which is       
determined in whole or in part by       
reference to the partnership 7including 
the amount of partnership distributions1
 the value of partnership assets1 or the
 results of partnership operations74    
7ii7 ,exception for non-convertible debt
 ,such term shall not include a         
financial instrument or contract if such
 instrument or contract--  7,i7 is      
treated as debt for ,federal tax        
purposes1 and  7,,ii7 is not convertible
 into or exchangeable for an interest in
 the capital or profits of the          
partnership and does not provide for a  
payment of equivalent value4  7#c7      
,applicable trade or business  7,a7 ,in 
general ,for purposes of paragraph      
7#a77;,a71 the term applicable trade or 
business means any activity conducted on

 a regular1 continuous1 and substantial 
basis which1 regardless of whether the  
activity is conducted in one or more    
entities1 consists1 in whole or in part1
 of--  7i7 raising or returning capital1
 and  7ii7 either--  7,i7 investing in  
7including acquiring or disposing of7   
specified assets 7or identifying        
specified assets for such investing1    
acquisition1 or disposition71 or  7,,ii7
 developing specified assets4  7,b7     
,specified assets  7i7 ,in general ,the 
term specified assets means securities1 
commodities1 real estate held for rental
 or investment1 cash or cash            
equivalents1 options or derivative      
contracts with respect to any of the    
foregoing1 and an interest in a         
partnership if such partnership has a   
direct or indirect interest in any of   
the foregoing4  7ii7 ,securities ,for   
purposes of clause 7i71 the term        
securities has the meaning given such   
term under section #dge7;c77#b71        
determined-- 7,i7 by applying           

subparagraph 7,b7 thereof without regard
 to whether the interest is widely held 
or publicly traded1 and  7,,ii7 without 
regard to the last sentence thereof4    
7iii7 ,commodities ,for purposes of     
clause 7i71 the term commodities has the
 meaning given such term under section  
#dge7;e77#b71 except that such term     
shall not include commodities held in   
connection with the active conduct of a 
commodities business as a producer1     
processor1 merchant1 or handler of      
commodities4  7#d7 ,applicable loan     
7,a7 ,in general ,the term applicable   
loan means1 with respect to any         
partnership interest1 any loan issued   
directly or indirectly from the         
partnership1 any other partner of the   
partnership1 or any person related to   
such other partner or such partnership4 
7,b7 ,safe harbor ,the term applicable  
loan does not include any loan which--  
7i7 is fully recourse to the borrower or
 fully secured by the borrower's assets1
 and  7ii7 requires payments of interest

 with a stated rate not less than the   
specified rate determined under         
subsection 7c77#b74  7c7 ,deemed        
compensation amount ,for purposes of    
this section-- 7#a7 ,deemed compensation
 amount  7,a7 ,in general ,the term     
deemed compensation amount means1 with  
respect to any applicable partnership   
interest for any partnership taxable    
year1 an amount equal to the product    
of--  7i7 the specified rate determined 
under paragraph 7#b7 for the calendar   
year in which such taxable year begins1 
multiplied by  7ii7 the excess 7if any7 
of-- 7,i7 an amount equal to the        
applicable percentage of the weighted   
average of the aggregate of invested    
capital of all partners of the          
partnership on each measurement date    
occurring within such taxable year1 over
  7,,ii7 the weighted average of        
invested capital with respect to the    
applicable partnership interest on each 
measurement date occurring within such  
taxable year4  7,b7 ,measurement date   

,for purposes of subparagraph 7,a71 the 
term measurement date means-- 7i7 the   
last day of the partnership taxable     
year1  7ii7 any date specified in the   
regulations under subchapter ,k as a    
date on which to revalue property of the
 partnership for purposes of adjusting  
capital accounts of the partner 7without
 regard to whether the partnership      
capital accounts are adjusted on that   
date71 and  7iii7 any other date        
specified by the ,secretary4  7#b7      
,specified rate ,the term specified rate
 means1 with respect to any calendar    
year1 a percentage equal to the sum of--
  7,a7 the first segment rate 7as       
defined in section #dcj7;h77#b77;,c77i77
 for the first month of such calendar   
year1 plus  7,b7 #i percentage points4  
7#c7 ,applicable percentage  7,a7 ,in   
general ,the term applicable percentage 
means1 with respect to any applicable   
partnership interest1 the highest       
percentage of profits of the partnership
 which could be allocated to such       

interest 7consistent with the           
partnership agreement and determined as 
if all performance targets with respect 
to such interest had been met74  7,b7   
,secretarial authority ,the ,secretary  
shall prescribe rules for the           
determination of the applicable         
percentage in cases in which the        
percentage of profits of a partnership  
which may be allocated to the applicable
 partnership interest under the         
partnership agreement may temporarily   
exceed the highest percentage determined
 under subparagraph 7,a74  7#d7         
,invested capital  7,a7 ,in general ,the
 term invested capital means1 with      
respect to any partner as of any day1   
the excess of-- 7i7 the sum of--  7,i7  
the total cumulative value1 determined  
at the time of contribution1 of all     
money or other property contributed by  
the partner to the partnership on or    
before such day 7net of any liabilities 
the partnership is considered to assume 
or take subject to71 plus  7,,ii7 the   

aggregate amounts of the partner's      
distributive share of income and gain   
7other than unrealized gains resulting  
from revaluations of partnership        
property7 as of such day1 over  7ii7 the
 sum of-- 7,i7 the aggregate value1     
determined at the time of distribution1 
of all money or other property          
distributed to the partner from the     
partnership on or before such day 7net  
of any liabilities the partner is       
considered to assume or take subject    
to71 plus  7,,ii7 the aggregate amount  
of the partner's distributive share of  
loss and deductions of the partnership  
as of such day 7determined without      
regard to unrealized losses resulting   
from revaluations of partnership        
property74  7,b7 ,treatment of related  
party borrowings  ,for purposes of      
paragraph 7#a77;,a71 the amount of      
invested capital with respect to any    
applicable partnership interest shall be
 reduced by the amount of any applicable
 loan to a partner who is described in  

subsection 7b77#a77;,b74  7#e7          
,accelerated inclusion in case of       
disposition of applicable partnership   
interest  7,a7 ,in general ,if a        
taxpayer who holds an applicable        
partnership interest sells or disposes  
of any portion of such interest during a
 taxable year in the applicable period1 
the amount determined under this        
subsection for such taxable year shall  
be the sum of--  7i7 the amount         
determined under paragraph 7#a7 for the 
taxable year 7determined as if no such  
sale or disposition had occurred71 plus 
7ii7 an amount equal to the product of--
 7,i7 the excess of the amount          
determined under clause 7i7 over the    
amount determined under paragraph 7#a7  
for the taxable year1 and  7,,ii7 the   
number of taxable years beginning after 
the date of the sale or disposition and 
before the last day of the applicable   
period4  7,b7 ,applicable period ,for   
purposes of this paragraph1 the         
applicable period is the #aj-year period

 beginning on the later of--  7i7 the   
date the taxpayer acquired the          
applicable partnership interest1 or     
7ii7 the last date described in         
paragraph 7#a77;,b77ii7 on which there  
was an increase in the amount of the    
taxpayers applicable percentage of the  
aggregate invested capital of all       
partners of the partnership4  7#f7      
,multiple interests ,if at any time     
during a taxable year a taxpayer holds  
directly or indirectly more than #a     
applicable partnership interest in a    
single partnership1 such interests shall
 be treated as #a applicable partnership
 interest for purposes of applying this 
subsection4  7d7 ,related person ,for   
purposes of this section1 a person shall
 be treated as related to another person
 if the relationship between such       
persons would be described in section   
#bfg7;b7 or #gjg7;b74  7e7 ,reporting ,a
 partnership shall report to the        
,secretary1 and include with the        
information required to be furnished    

under section #fjca7;b7 to each partner1
 the amount of the partner's deemed     
compensation amount for the taxable     
year1 if any4 ,a similar rule applies to
 any entity that receives a report of a 
deemed compensation amount for the      
taxable year4  7f7 ,regulations ,the    
,secretary shall issue such regulations 
or other guidance as necessary to carry 
out this section1 including             
regulations--  7#a7 to prevent the abuse
 of the purposes of this section1       
including through-- 7,a7 the allocation 
of income to tax indifferent parties1 or
  7,b7 a reduction or increase in the   
invested capital of any partner         
7including attempts to undervalue or    
overvalue property71  7#b7 which provide
 for the application of the rules of    
subsection 7c7 to applicable financial  
instruments and contracts and to        
entities other than partnerships1  7#c7 
which provide that partnership interests
 shall not fail to be treated as        
transferred or held in connection with  

the performance of services merely      
because the taxpayer also made          
contributions to the partnership1  7#d7 
which provide in appropriate            
circumstances for purposes of this      
section the aggregation of assets held  
by related partnerships or for the      
disaggregation of assets within #a      
partnership1  7#e7 which provide for the
 application of this section in cases of
 tiered structures or entities1  7#f7   
which provide guidance with respect to  
forgiveness of any loan described in    
subsection 7b77#d77;,b71 and  7#g7 which
 provide rules for transfers or         
liquidations of applicable partnership  
interests by gift1 inheritance1         
substituted basis transactions1 and     
other transactions in which income is   
not recognized at the time of the       
transaction4  4  7b7 ,conforming        
amendments  7#a7 7,a7 ,part ,,iv of     
subchapter ,o of chapter #a of the      
,internal ,revenue ,code of #aihf is    
amended by striking section #ajfa4  7,b7

 ,the table of sections for part ,,iv of
 subchapter ,o of chapter #a of such    
,code is amended by striking the item   
relating to section #ajfa4  7#b7 ,the   
table of parts for subchapter ,p of such
 ,code is amended by adding at the end  
the following new item3  ,part          
,,vii--,treatment of certain partnership
 interests received in connection with  
performance of services  4  7c7         
,effective date ,the amendments made by 
this section shall apply to taxable     
years of a taxpayer beginning after date
 of enactment of this ,act1 with or     
within which ends the taxable year of a 
partnership which begins after such     
date4