,,ii  #aaf? ,,congress  #a/ ,session    
,s4 #afci  ,,9 ,,! ,,s5ate ,,( ,,!      
,,unit$ ,,/ates  ,may #bc 7legislative  
day1 ,may #bb71 #bjai ,mr4 ,wyd5 7=     
himself & ,mr4 ,:iteh\se7 introduc$ !   
foll[+ bill2 :i* 0 read twice & ref]r$  
to ! ,committee on ,f9ance  ,a ,,bill   
,to am5d ! ,int]nal ,rev5ue ,code (     
#aihf to revise ! treatm5t ( p>tn]%ip   
int]e/s receiv$ 9 connection ) !        
p]=mance ( s]vices1 & = o!r purposes4   
#a4 ,%ort title  ,?is ,act may be cit$ z
 ! ,end+ ! ,c>ri$ ,int]e/ ,loophole     
,act4  #b4 ,p>tn]%ip int]e/s transf]r$ 9
 connection ) p]=mance ( s]vices  7a7   
,modification ( election ,to include    
p>tn]%ip int]e/ 9 gross income 9 ye> (  
transf] ,subsection 7c7 ( section #hc is
 am5d$ by r$esignat+ p>agraph 7#d7 z    
p>agraph 7#e7 & by ins]t+ aft] p>agraph 
7#c7 ! foll[+ new p>agraph3  7#d7       
,p>tn]%ip int]e/s ,except z provid$ by !
 ,secret>y-- 7,a7 ,9 g5]al ,9 ! case (  
any transf] ( an int]e/ 9 a p>tn]%ip 9  
connection ) ! p]=mance ( s]vices = 7or 

= ! b5efit (7 su* p>tn]%ip--  7i7 ! fair
 m>ket value ( su* int]e/ %all be treat$
 = purposes ( ?is section z be+ equal to
 ! am\nt ( ! di/ribution :i* ! p>tn]    
w\ld receive if ! p>tn]%ip sold 7at ! "t
 ( ! transf]7 all ( its assets at fair  
m>ket value & di/ribut$ ! proce$s ( su* 
sale 7r$uc$ by ! liabilities ( !        
p>tn]%ip7 to its p>tn]s 9 liquidation ( 
! p>tn]%ip1 &  7ii7 ! p]son receiv+ su* 
int]e/ %all be treat$ z hav+ made !     
election "u subsection 7b77#a7 unless   
su* p]son makes an election "u ?is      
p>agraph to h su* subsection n apply4   
7,b7 ,coord9ation ) o!r p>tn]%ip rules  
,except z o!rwise provid$ by !          
,secret>y1 if1 by reason ( subp>agraph  
7,a71 subsection 7b77#a7 applies to a   
p>tn]%ip int]e/ transf]r$ to a p]son1 !n
 ! am\nt includ$ 9 ! gross income ( su* 
p]son by reason ( su* subsection %all   
7at ! "t ( ! transf]7--  7i7 be treat$ z
 an addition to ! capital acc\nt ( su*  
p]son ) respect to su* p>tn]%ip =       
purposes ( sub*apt] ,k1 &  7ii7 if su*  

int]e/ is an applicable p>tn]%ip int]e/ 
"u section #abii at any "t1 be treat$ z 
inve/$ capital ( su* p]son ) respect to 
su* int]e/ = purposes ( su* section4    
7,c7 ,election ,! election "u           
subp>agraph 7,a77ii7 %all be made "u    
rules simil> to ! rules ( subsection    
7b77#b74  7,d7 ,p>tn]%ip int]e/  7i7 ,9 
g5]al ,= purposes ( ?is p>agraph1 any   
applicable f9ancial in/rum5t or contract
 7z def9$ 9 section #abii7;b77#b77;,b77 
or int]e/ 9 an entity o!r ?an a p>tn]%ip
 :i* is treat$ z an applicable p>tn]%ip 
int]e/ "u section #abii7;b77#b7 %all be 
treat$ z an int]e/ 9 a p>tn]%ip4  7ii7  
,regulations ,! ,secret>y %all by       
regulations provide rules = !           
application ( ?is p>agraph to applicable
 f9ancial in/rum5ts or contracts 7z s   
def9$7 or int]e/s 9 entities o!r ?an    
p>tn]%ips :i* are treat$ z p>tn]%ip     
int]e/s "u clause 7i74  4  7b7          
,effective date ,! am5dm5ts made by ?is 
section %all apply to int]e/s 9         
p>tn]%ips transf]r$ aft] ! date ( !     

enactm5t ( ?is ,act4  #c4 ,treatm5t (   
c]ta9 p>tn]%ip int]e/s receiv$ 9        
connection ) p]=mance ( s]vices  7a7 ,9 
g5]al ,sub*apt] ,p ( *apt] #a ( !       
,int]nal ,rev5ue ,code ( #aihf is am5d$ 
by add+ at ! end ! foll[+ new "p3  ,,vii
 ,treatm5t ( c]ta9 p>tn]%ip int]e/s     
receiv$ 9 connection ) p]=mance (       
s]vices  ,sec4 #abii4 ,treatm5t ( c]ta9 
p>tn]%ip int]e/s receiv$ 9 connection ) 
p]=mance ( s]vices4  #abii4 ,treatm5t ( 
c]ta9 p>tn]%ip int]e/s receiv$ 9        
connection ) p]=mance ( s]vices  7a7 ,9 
g5]al ,9 ! case ( a taxpay] :o holds #a 
or m applicable p>tn]%ip int]e/s 9 any  
p>tn]%ip at any "t dur+ any taxable ye> 
( ! p>tn]%ip end+ ) or )9 ! taxable ye> 
( ! taxpay]--  7#a7 !re %all be includ$ 
9 ! gross income ( ! taxpay] z ord9>y   
income an am\nt equal to ! aggregate ( !
 deem$ comp5sation am\nts det]m9$ "u    
subsection 7c7 ) respect to su* int]e/s 
9 all p>tn]%ips1 &  7#b7 ! taxpay] %all 
be treat$ z hav+ = su* taxable ye> ( !  
taxpay] a long-t]m capital loss equal to

 ! aggregate ( su* deem$ comp5sation    
am\nts4  7b7 ,applicable p>tn]%ip int]e/
 ,= purposes ( ?is section-- 7#a7 ,9    
g5]al ,except z provid$ 9 ?is           
subsection1 ! t]m applicable p>tn]%ip   
int]e/ means any int]e/ 9 a p>tn]%ip    
:i*--  7,a7 is directly or indirectly   
transf]r$ to 7or held by7 ! taxpay] 9   
connection ) ! p]=mance ( s]vices by !  
taxpay]1 or any o!r p]son1 9 any        
applicable trade or bus9ess1 or  7,b7 is
 held by a taxpay] :o receiv$ an        
applicable loan4  ,su* t]m %all n       
include any int]e/ :i* is acquir$       
pursuant to a sale or disposition to :i*
 subsection 7c77#e7 applies4  7#b7      
,det]m9ation ( int]e/ 9 a p>tn]%ip  7,a7
 ,9 g5]al ,= purposes ( p>agraph 7#a71 !
 t]m int]e/ 9 a p>tn]%ip includes--  7i7
 any applicable f9ancial in/rum5t or    
contract1 or  7ii7 to ! ext5t provid$ by
 ! ,secret>y1 any int]e/ 9 an entity o!r
 ?an a p>tn]%ip if su* int]e/ w\ld be   
treat$ z an applicable p>tn]%ip int]e/  
if su* entity 7 a p>tn]%ip4  7,b7       

,applicable f9ancial in/rum5t or        
contract ,= purposes ( ?is p>agraph--   
7i7 ,9 g5]al ,! t]m applicable f9ancial 
in/rum5t or contract means any f9ancial 
in/rum5t or contract ! value ( :i* is   
det]m9$ 9 :ole or 9 "p by ref]5ce to !  
p>tn]%ip 7includ+ ! am\nt ( p>tn]%ip    
di/ributions1 ! value ( p>tn]%ip assets1
 or ! results ( p>tn]%ip op]ations74    
7ii7 ,exception = non-conv]tible debt   
,su* t]m %all n include a f9ancial      
in/rum5t or contract if su* in/rum5t or 
contract--  7,i7 is treat$ z debt =     
,f$]al tax purposes1 &  7,,ii7 is n     
conv]tible into or ex*angeable = an     
int]e/ 9 ! capital or pr(its ( !        
p>tn]%ip & does n provide = a paym5t (  
equival5t value4  7#c7 ,applicable trade
 or bus9ess  7,a7 ,9 g5]al ,= purposes (
 p>agraph 7#a77;,a71 ! t]m applicable   
trade or bus9ess means any activity     
conduct$ on a regul>1 cont9u\s1 &       
sub/antial basis :i*1 reg>dless ( :e!r !
 activity is conduct$ 9 "o or m         
entities1 consi/s1 9 :ole or 9 "p1 (--  

7i7 rais+ or return+ capital1 &  7ii7   
ei!r--  7,i7 inve/+ 9 7includ+ acquir+  
or dispos+ (7 specifi$ assets 7or       
id5tify+ specifi$ assets = su* inve/+1  
acquisition1 or disposition71 or  7,,ii7
 develop+ specifi$ assets4  7,b7        
,specifi$ assets  7i7 ,9 g5]al ,! t]m   
specifi$ assets means securities1       
commodities1 real e/ate held = r5tal or 
inve/m5t1 ca% or ca% equival5ts1 options
 or d]ivative contracts ) respect to any
 ( ! =ego+1 & an int]e/ 9 a p>tn]%ip if 
su* p>tn]%ip has a direct or indirect   
int]e/ 9 any ( ! =ego+4  7ii7           
,securities ,= purposes ( clause 7i71 ! 
t]m securities has ! mean+ giv5 su* t]m 
"u section #dge7;c77#b71 det]m9$-- 7,i7 
by apply+ subp>agraph 7,b7 !re( )\t     
reg>d to :e!r ! int]e/ is widely held or
 publicly trad$1 &  7,,ii7 )\t reg>d to 
! la/ s5t5ce !re(4  7iii7 ,commodities  
,= purposes ( clause 7i71 ! t]m         
commodities has ! mean+ giv5 su* t]m "u 
section #dge7;e77#b71 except t su* t]m  
%all n include commodities held 9       

connection ) ! active conduct ( a       
commodities bus9ess z a produc]1        
processor1 m]*ant1 or h&l] (            
commodities4  7#d7 ,applicable loan     
7,a7 ,9 g5]al ,! t]m applicable loan    
means1 ) respect to any p>tn]%ip int]e/1
 any loan issu$ directly or indirectly f
 ! p>tn]%ip1 any o!r p>tn] ( ! p>tn]%ip1
 or any p]son relat$ to su* o!r p>tn] or
 su* p>tn]%ip4  7,b7 ,safe h>bor ,! t]m 
applicable loan does n include any loan 
:i*-- 7i7 is fully rec\rse to ! borr[]  
or fully secur$ by ! borr[]'s assets1 & 
7ii7 requires paym5ts ( int]e/ ) a /at$ 
rate n less ?an ! specifi$ rate det]m9$ 
"u subsection 7c77#b74  7c7 ,deem$      
comp5sation am\nt ,= purposes ( ?is     
section-- 7#a7 ,deem$ comp5sation am\nt 
7,a7 ,9 g5]al ,! t]m deem$ comp5sation  
am\nt means1 ) respect to any applicable
 p>tn]%ip int]e/ = any p>tn]%ip taxable 
ye>1 an am\nt equal to ! product (--    
7i7 ! specifi$ rate det]m9$ "u p>agraph 
7#b7 = ! cal5d> ye> 9 :i* su* taxable   
ye> beg9s1 multipli$ by  7ii7 ! excess  

7if any7 (-- 7,i7 an am\nt equal to !   
applicable p]c5tage ( ! weight$ av]age (
 ! aggregate ( inve/$ capital ( all     
p>tn]s ( ! p>tn]%ip on ea* measurem5t   
date occurr+ )9 su* taxable ye>1 ov]    
7,,ii7 ! weight$ av]age ( inve/$ capital
 ) respect to ! applicable p>tn]%ip     
int]e/ on ea* measurem5t date occurr+ )9
 su* taxable ye>4  7,b7 ,measurem5t date
 ,= purposes ( subp>agraph 7,a71 ! t]m  
measurem5t date means-- 7i7 ! la/ day ( 
! p>tn]%ip taxable ye>1  7ii7 any date  
specifi$ 9 ! regulations "u sub*apt] ,k 
z a date on :i* to revalue prop]ty ( !  
p>tn]%ip = purposes ( adju/+ capital    
acc\nts ( ! p>tn] 7)\t reg>d to :e!r !  
p>tn]%ip capital acc\nts are adju/$ on t
 date71 &  7iii7 any o!r date specifi$  
by ! ,secret>y4  7#b7 ,specifi$ rate ,! 
t]m specifi$ rate means1 ) respect to   
any cal5d> ye>1 a p]c5tage equal to !   
sum (--  7,a7 ! fir/ segm5t rate 7z     
def9$ 9 section #dcj7;h77#b77;,c77i77 = 
! fir/ mon? ( su* cal5d> ye>1 plus  7,b7
 #i p]c5tage po9ts4  7#c7 ,applicable   

p]c5tage  7,a7 ,9 g5]al ,! t]m          
applicable p]c5tage means1 ) respect to 
any applicable p>tn]%ip int]e/1 ! highe/
 p]c5tage ( pr(its ( ! p>tn]%ip :i* c\ld
 be allocat$ to su* int]e/ 7consi/5t ) !
 p>tn]%ip agreem5t & det]m9$ z if all   
p]=mance t>gets ) respect to su* int]e/ 
_h be5 met74  7,b7 ,secret>ial au?ority 
,! ,secret>y %all prescribe rules = !   
det]m9ation ( ! applicable p]c5tage 9   
cases 9 :i* ! p]c5tage ( pr(its ( a     
p>tn]%ip :i* may be allocat$ to !       
applicable p>tn]%ip int]e/ "u ! p>tn]%ip
 agreem5t may tempor>ily exce$ ! highe/ 
p]c5tage det]m9$ "u subp>agraph 7,a74   
7#d7 ,inve/$ capital  7,a7 ,9 g5]al ,!  
t]m inve/$ capital means1 ) respect to  
any p>tn] z ( any day1 ! excess (-- 7i7 
! sum (--  7,i7 ! total cumulative      
value1 det]m9$ at ! "t ( contribution1 (
 all money or o!r prop]ty contribut$ by 
! p>tn] to ! p>tn]%ip on or be=e su* day
 7net ( any liabilities ! p>tn]%ip is   
consid]$ to assume or take subject to71 
plus  7,,ii7 ! aggregate am\nts ( !     

p>tn]'s di/ributive %>e ( income & ga9  
7o!r ?an unrealiz$ ga9s result+ f       
revaluations ( p>tn]%ip prop]ty7 z ( su*
 day1 ov]  7ii7 ! sum (-- 7,i7 !        
aggregate value1 det]m9$ at ! "t (      
di/ribution1 ( all money or o!r prop]ty 
di/ribut$ to ! p>tn] f ! p>tn]%ip on or 
be=e su* day 7net ( any liabilities !   
p>tn] is consid]$ to assume or take     
subject to71 plus  7,,ii7 ! aggregate   
am\nt ( ! p>tn]'s di/ributive %>e ( loss
 & d$uctions ( ! p>tn]%ip z ( su* day   
7det]m9$ )\t reg>d to unrealiz$ losses  
result+ f revaluations ( p>tn]%ip       
prop]ty74  7,b7 ,treatm5t ( relat$ p>ty 
borr[+s  ,= purposes ( p>agraph         
7#a77;,a71 ! am\nt ( inve/$ capital )   
respect to any applicable p>tn]%ip      
int]e/ %all be r$uc$ by ! am\nt ( any   
applicable loan to a p>tn] :o is        
describ$ 9 subsection 7b77#a77;,b74     
7#e7 ,accel]at$ inclusion 9 case (      
disposition ( applicable p>tn]%ip int]e/
  7,a7 ,9 g5]al ,if a taxpay] :o holds  
an applicable p>tn]%ip int]e/ sells or  

disposes ( any portion ( su* int]e/ dur+
 a taxable ye> 9 ! applicable p]iod1 !  
am\nt det]m9$ "u ?is subsection = su*   
taxable ye> %all be ! sum (--  7i7 !    
am\nt det]m9$ "u p>agraph 7#a7 = !      
taxable ye> 7det]m9$ z if no su* sale or
 disposition _h occurr$71 plus  7ii7 an 
am\nt equal to ! product (-- 7,i7 !     
excess ( ! am\nt det]m9$ "u clause 7i7  
ov] ! am\nt det]m9$ "u p>agraph 7#a7 = !
 taxable ye>1 &  7,,ii7 ! numb] (       
taxable ye>s beg9n+ aft] ! date ( ! sale
 or disposition & be=e ! la/ day ( !    
applicable p]iod4  7,b7 ,applicable     
p]iod ,= purposes ( ?is p>agraph1 !     
applicable p]iod is ! #aj-ye> p]iod     
beg9n+ on ! lat] (--  7i7 ! date !      
taxpay] acquir$ ! applicable p>tn]%ip   
int]e/1 or  7ii7 ! la/ date describ$ 9  
p>agraph 7#a77;,b77ii7 on :i* !re 0 an  
increase 9 ! am\nt ( ! taxpay]s         
applicable p]c5tage ( ! aggregate inve/$
 capital ( all p>tn]s ( ! p>tn]%ip4     
7#f7 ,multiple int]e/s ,if at any "t    
dur+ a taxable ye> a taxpay] holds      

directly or indirectly m ?an #a         
applicable p>tn]%ip int]e/ 9 a s+le     
p>tn]%ip1 su* int]e/s %all be treat$ z  
#a applicable p>tn]%ip int]e/ = purposes
 ( apply+ ?is subsection4  7d7 ,relat$  
p]son ,= purposes ( ?is section1 a p]son
 %all be treat$ z relat$ to ano!r p]son 
if ! relation%ip betwe5 su* p]sons w\ld 
be describ$ 9 section #bfg7;b7 or       
#gjg7;b74  7e7 ,report+ ,a p>tn]%ip %all
 report to ! ,secret>y1 & include ) !   
in=mation requir$ to be furni%$ "u      
section #fjca7;b7 to ea* p>tn]1 ! am\nt 
( ! p>tn]'s deem$ comp5sation am\nt = ! 
taxable ye>1 if any4 ,a simil> rule     
applies to any entity t receives a      
report ( a deem$ comp5sation am\nt = !  
taxable ye>4  7f7 ,regulations ,!       
,secret>y %all issue su* regulations or 
o!r guidance z necess>y to c>ry out ?is 
section1 includ+ regulations--  7#a7 to 
prev5t ! abuse ( ! purposes ( ?is       
section1 includ+ ?r\gh-- 7,a7 !         
allocation ( income to tax indiff]5t    
p>ties1 or  7,b7 a r$uction or increase 

9 ! inve/$ capital ( any p>tn] 7includ+ 
attempts to und]value or ov]value       
prop]ty71  7#b7 :i* provide = !         
application ( ! rules ( subsection 7c7  
to applicable f9ancial in/rum5ts &      
contracts & to entities o!r ?an         
p>tn]%ips1  7#c7 :i* provide t p>tn]%ip 
int]e/s %all n fail to be treat$ z      
transf]r$ or held 9 connection ) !      
p]=mance ( s]vices m]ely because !      
taxpay] also made contributions to !    
p>tn]%ip1  7#d7 :i* provide 9           
appropriate circum/ances = purposes (   
?is section ! aggregation ( assets held 
by relat$ p>tn]%ips or = !              
disaggregation ( assets )9 #a p>tn]%ip1 
7#e7 :i* provide = ! application ( ?is  
section 9 cases ( ti]$ /ructures or     
entities1  7#f7 :i* provide guidance )  
respect to =giv5ess ( any loan describ$ 
9 subsection 7b77#d77;,b71 &  7#g7 :i*  
provide rules = transf]s or liquidations
 ( applicable p>tn]%ip int]e/s by gift1 
inh]itance1 sub/itut$ basis             
transactions1 & o!r transactions 9 :i*  

income is n recogniz$ at ! "t ( !       
transaction4  4  7b7 ,con=m+ am5dm5ts   
7#a7 7,a7 ,"p ,,iv ( sub*apt] ,o ( *apt]
 #a ( ! ,int]nal ,rev5ue ,code ( #aihf  
is am5d$ by /rik+ section #ajfa4  7,b7  
,! table ( sections = "p ,,iv ( sub*apt]
 ,o ( *apt] #a ( su* ,code is am5d$ by  
/rik+ ! item relat+ to section #ajfa4   
7#b7 ,! table ( p>ts = sub*apt] ,p ( su*
 ,code is am5d$ by add+ at ! end !      
foll[+ new item3  ,"p ,,vii--,treatm5t (
 c]ta9 p>tn]%ip int]e/s receiv$ 9       
connection ) p]=mance ( s]vices  4  7c7 
,effective date ,! am5dm5ts made by ?is 
section %all apply to taxable ye>s ( a  
taxpay] beg9n+ aft] date ( enactm5t (   
?is ,act1 ) or )9 :i* ends ! taxable ye>
 ( a p>tn]%ip :i* beg9s aft] su* date4