,,ii  #aaith ,,congress  #ast ,session  
,s4 #bjie  ,,in ,,the ,,senate ,,of     
,,the ,,united ,,states  ,june #ag1     
#bjbe,mr4 ,wyden 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 improve the  
rules related to partners and           
partnerships1 and for other purposes4   
#a4 ,reference1 etc  7a7 ,short title   
,this ,act may be cited as the          
,preventing ,abusive ,routine ,tax      
,nonsense ,enabled by ,rip-offs         
,shelters and ,havens and ,instead      
,promoting ,simplicity ,act or the      
,,partnerships ,act4  7b7 ,reference    
,except as otherwise expressly provided1
 whenever in this ,act1 an amendment or 
repeal is expressed in terms of an      
amendment to1 or repeal of1 a section or
 other provision1 the reference shall be
 considered to be made to a section or  
other provision of the ,internal        
,revenue ,code of #aihf4  7c7 ,table of 

contents ,the table of contents of this 
,act is as follows3 ,sec4 #a4           
,reference1 etc4,sec4 #b4 ,determination
 of partner's distributive share4,sec4  
#c4 ,allocation of built-in-gains with  
respect to contributed property4,sec4   
#d4 ,treatment of revalued              
property4,sec4 #e4 ,repeal of time      
limitation on taxing precontribution    
gain4,sec4 #f4 ,repeal of rules relating
 to certain liquidating                 
distributions4,sec4 #g4 ,clarification  
of rules relating to payments to        
partners for property or services4,sec4 
#h4 ,elimination of preformation        
expenditure exception to partnership    
transaction rules4,sec4 #i4 ,partnership
 terminations4,sec4 #aj4 ,repeal of     
requirement that inventory be           
substantially appreciated in certain    
partnership distributions treated as    
sale or exchange4,sec4 #aa4 ,treatment  
of partnership debt4,sec4 #ab4          
,adjustments to basis of partnership    
property4,sec4 #ac4 ,application of net 

investment income tax to trade or       
business income of certain high income  
individuals4,sec4 #ad4 ,recognition of  
gain on transfers to swap funds4,sec4   
#ae4 ,modifications to treatment of     
certain losses4,sec4 #af4 ,codification 
of anti-abuse rule4  #b4 ,determination 
of partner's distributive share  7a7 ,in
 general ,section #gjd7;b7 is amended to
 read as follows3  7b7 ,determination of
 distributive share  7#a7 ,in general   
,except as provided in paragraph 7#b71 a
 partner's distributive share of income1
 gain1 loss1 deduction1 or credit 7or   
item thereof7 shall be determined in    
accordance with the partner's interest  
in the partnership 7determined by taking
 into account all facts and             
circumstances71 if-- 7,a7 the           
partnership agreement does not provide  
as to the partner's distributive share  
of income1 gain1 loss1 deduction1 or    
credit 7or item thereof71 or  7,b7 the  
allocation to a partner under the       
agreement of income1 gain1 loss1        

deduction1 or credit 7or item thereof7  
does not have substantial economic      
effect4  7#b7 ,required use of          
consistent percentage method for certain
 partners  7,a7 ,in general ,except as  
otherwise provided in this subchapter or
 by the ,secretary1 in the case of any  
covered partner which is a partner in a 
partnership which is a covered          
partnership for the taxable year of such
 partnership1 such covered partner's    
distributive share of the covered       
partnership's applicable items for such 
taxable year shall be determined using  
the consistent percentage method4  7,b7 
,covered partner2 covered partnership   
,for purposes of this paragraph-- 7i7   
,covered partnership ,the term covered  
partnership means any partnership if1   
during any day during the taxable year  
of the partnership-- 7,i7 two or more   
members of a controlled group 7within   
the meaning of section #bfg7;f77 own    
7within the meaning of section          
#bfg7;e77#c77 #ej percent or more of the

 capital or profits interests in such   
partnership1 or  7,,ii7 it is a         
partnership which is specified by the   
,secretary in regulations or other      
guidance as being of a type to which    
this subparagraph applies in order to   
prevent the avoidance of the purposes of
 this paragraph4  7ii7 ,covered partner 
,the term covered partner means-- 7,i7  
in the case of a covered partnership    
described in clause 7i77,i71 any partner
 which is a member of a controlled group
 described in such clause or any other  
partner any ownership interest 7other   
than a de minimis interest7 in which is 
held directly or indirectly by a member 
of such a controlled group1 and  7,,ii7 
in the case of a covered partnership    
described in clause 7i77,,ii71 any      
partner which meets such specifications 
as prescribed by the ,secretary under   
the regulations or guidance referred to 
in such clause4  7iii7 ,reporting rule  
,each covered partnership shall submit  
to the ,secretary1 at such time and in  

such manner as prescribed by the        
,secretary-- 7,i7 a statement that such 
partnership is a covered partnership1   
and  7,,ii7 such other information as   
the ,secretary shall require4  7,c7     
,consistent percentage method ,for      
purposes of this paragraph1 the term    
consistent percentage method means a    
method under which-- 7i7 a covered      
partner's distributive share of any     
applicable item of a covered partnership
 bears the same ratio to the aggregate  
distributive shares of such item for all
 covered partners in such partnership   
7determined without regard to this      
paragraph7 as-- 7,i7 the covered        
partner's net equity in the covered     
partnership1 bears to  7,,ii7 the net   
equity of all covered partners in the   
covered partnership1 and  7ii7 the      
covered partner is allocated the same   
share of each applicable item of the    
covered partnership4  ,clause 7i7 shall 
only apply to an applicable item if it  
is included in the distributive share of

 at least #a covered partner 7determined
 without regard to this paragraph74     
7,d7 ,net equity ,for purposes of this  
paragraph-- 7i7 ,in general ,the term   
net equity means1 with respect to any   
covered partner in a covered            
partnership1 the contributed equity of  
such covered partner1 properly adjusted 
to take into account any revaluation    
event described in subparagraphs 7,a71  
7,b71 7,c71 7,d71 or 7,f7 of subsection 
7f77#c74  7ii7 ,contributed equity ,the 
term contributed equity means1 with     
respect to any covered partner in a     
covered partnership1 the excess of--    
7,i7 the sum of the value of all        
property and money contributed by the   
covered partner 7or any predecessor of  
such partner7 to the covered partnership
 plus the amount of liabilities 7within 
the meaning of section #geb7 of the     
covered partnership that are assumed by 
the covered partner 7or any predecessor 
of such partner71 over  7,,ii7 the sum  
of the value of all property and money  

distributed to the covered partner 7or  
any predecessor of such partner7 by the 
covered partnership plus the amount of  
liabilities 7within the meaning of      
section #geb7 of the covered partner 7or
 any predecessor of such partner7 that  
are assumed by the covered partnership4 
,for purposes of this clause1 a         
predecessor of a partner includes any   
person treated as transferring an       
interest to such partner in a           
transaction described in section        
#gjg7;d77#a77;,a74  7,e7 ,applicable    
items ,for purposes of this paragraph1  
the term applicable item means1 with    
respect to any partnership1 any item of 
income1 gain1 deduction1 loss1 or       
credit4  7,f7 ,cross-reference ,for the 
treatment of covered partners in the    
event of certain rights or distributions
 not in accordance with the consistent  
percentage method1 see section #gjg7;d74
  4  7b7 ,treatment of certain rights   
and distributions not in accordance with
 consistent percentage method ,section  

#gjg is amended by adding at the end the
 following new subsection3  7d7 ,deemed 
transfers in certain cases where certain
 rights do not reflect partnership      
distributive share  7#a7 ,in general ,if
 a covered partner has an excess share  
with respect to any covered partnership 
on any applicable date-- 7,a7 such      
partner shall be treated as having      
received an interest in the partnership 
in a transaction between #b or more     
partners acting other than in their     
capacity as members of the partnership1 
and  7,b7 notwithstanding any other     
provision of this chapter-- 7i7 the     
value of such interest shall be included
 in the gross income of the covered     
partner receiving such interest in such 
transaction1 and  7ii7 no deduction or  
loss shall be allowed with respect to   
such transfer to any covered partner    
treated as transferring all or a portion
 of such interest in such transaction4  
7#b7 ,excess share ,for purposes of this
 subsection-- 7,a7 ,in general ,the term

 excess share means1 with respect to any
 covered partner1 the amount by which-- 
7i7 the covered partner's interest in   
partnership assets distributable to such
 covered partner upon liquidation of the
 covered partnership as of any          
applicable date1 exceeds  7ii7 the      
covered partner's interest in           
partnership assets1 determined as if the
 amount distributable upon liquidation  
to all covered partners as of such      
applicable date were distributable to   
each covered partner based on the ratio 
of-- 7,i7 such covered partner's net    
equity 7as defined in section           
#gjd7;b77#b77;,d77 in the covered       
partnership on such applicable date1 to 
7,,ii7 the net equity 7as so defined7 of
 all covered partners in the covered    
partnership on such applicable date4    
7,b7 ,applicable date ,for purposes of  
this paragraph1 the term applicable date
 means any of the following3 7i7 ,the   
last day of any taxable year of the     
covered partnership4  7ii7 ,the date of 

any revaluation event 7as defined in    
section #gjd7;f774  7#c7 ,covered       
partner2 covered partnership ,for       
purposes of this subsection1 the terms  
covered partnership and covered partner 
have the meanings give such terms under 
section #gjd7;b77#b74  7#d7 ,regulations
 and guidance ,the ,secretary shall     
prescribe such regulations and other    
guidance as necessary to carry out the  
purposes of this subsection1 including  
regulations or other guidance providing 
exceptions to the application of        
paragraph 7#a7 to the extent such       
exceptions are consistent with the      
purposes of this subsection4  4  7c7    
,regulations and guidance ,section #gjd 
is amended by redesignating subsection  
7f7 as subsection 7g7 and by inserting  
after subsection 7e7 the following new  
subsection3  7f7 ,regulations and       
guidance ,the ,secretary shall prescribe
 such regulations and other guidance as 
necessary to carry out the purposes of  
this section1 including regulations or  

other guidance for the application of   
this section to one or more tiers of    
entities4  4  7d7 ,reporting penalties  
,section #fgbd7;d77#a77;,b7 is amended  
by striking or at the end of clause     
7xxvii71 by striking and at the end of  
clause 7xxviii7 and inserting or1 and by
 adding at the end the following new    
clause3  7xxix7 section                 
#gjd7;b77#b77;,b77iii7 7relating to     
reporting rule for required use of      
consistent percentage method71 and  4   
7e7 ,conforming amendments  7#a7        
,section #afh7;h77#f77;,b77ii7 is       
amended by striking section #gjd7;b77#b7
 and inserting section                  
#gjd7;b77#a77;,b74  7#b7 ,section       
#ead7;c77#i77;,e77i77,,ii7 is amended by
 striking section #gjd7;b77#b7 and      
inserting section #gjd7;b77#a77;,b74    
7f7 ,effective date ,the amendments made
 by this section shall apply to taxable 
years of partnerships beginning after   
the date of the enactment of this ,act4 
#c4 ,allocation of built-in-gains with  

respect to contributed property  7a7 ,in
 general ,subparagraph 7,a7 of section  
#gjd7;c77#a7 is amended to read as      
follows3  7,a7 income1 gain1 loss1 and  
deduction 7including notional items     
thereof7 with respect to property       
contributed to the partnership by a     
partner shall be shared among the       
partners under the remedial method      
prescribed by the ,secretary so as to   
take into account all of the variation  
between the basis of the property to the
 partnership and its fair market value  
at the time of contribution1  4  7b7    
,effective date ,the amendment made by  
this section shall apply to property    
contributed to a partnership after the  
date of the enactment of this ,act4  #d4
 ,treatment of revalued property  7a7   
,in general ,section #gjd1 as amended by
 section #b1 is amended by redesignating
 subsections 7f7 and 7g7 as subsections 
7g7 and 7h71 respectively1 and by       
inserting after subsection 7e7 the      
following new subsection3  7f7 ,revalued

 property  7#a7 ,in general ,under      
regulations prescribed by the           
,secretary1 rules similar to the rules  
of paragraphs 7#a77;,a7 and 7#a77;,c7 of
 subsection 7c7 shall apply to any      
property held by a partnership at the   
time of a revaluation event4  7#b7      
,exception ,paragraph 7#a7 shall not    
apply to any revaluation event which    
occurs during a taxable year in which   
the partnership meets the gross receipts
 test of section #ddh7;c7 unless the    
partnership elects1 at such time and in 
such manner as prescribed by the        
,secretary1 to not have this paragraph  
apply4  7#c7 ,revaluation event ,for    
purposes of this subsection1 the term   
revaluation event means-- 7,a7 any      
disproportionate contribution of money  
or other property 7other than a de      
minimis amount7 to the partnership1     
7,b7 any disproportionate distribution  
of money or other property 7other than a
 de minimis amount7 by the partnership1 
7,c7 any grant of an interest in the    

partnership 7other than a de minimis    
interest7 as consideration for the      
provision of services1  7,d7 any        
issuance by the partnership of a        
non-compensatory option 7other than an  
option for a de minimis partnership     
interest71  7,e7 except as provided by  
the ,secretary1 any agreement to change 
7other than a de minimis change7 the    
manner in which the partners share any  
item or class of items of income1 gain1 
loss1 deduction1 or credit of the       
partnership1 or  7,f7 any other event   
prescribed by the ,secretary4  7#d7     
,application to tiered entities ,if--   
7,a7 a partnership 7hereinafter in this 
paragraph referred to as the upper-tier 
partnership7 is a partner in another    
partnership 7hereinafter in this        
paragraph referred to as the lower-tier 
partnership71 and  7,b7 the upper-tier  
partnership holds more than #ej percent 
of the capital or profits interests in  
the lower-tier partnership1  then a     
revaluation event with respect to the   

upper-tier partnership shall be treated 
as a revaluation event with respect to  
the lower-tier partnership4  4  7b7     
,conforming amendments  7#a7 ,section   
#afh7;h77#f7 is amended by striking     
section #gjd7;c7 each place it appears  
in subparagraphs 7,b7 and 7,c7 and      
inserting subsections 7c7 and 7f7 of    
section #gjd4  7#b7 ,section            
#ead7;c77#i77;,e77i7 is amended by      
striking section #gjd7;c7 and inserting 
subsections 7c7 and 7f7 of section #gjd4
  7#c7 ,section #fac;,a7c77#g77;,d7 is  
amended by inserting after the fourth   
sentence the following new sentence3 ,in
 the case of any revaluation event 7as  
defined in section #gjd7;f771 section   
#gjd7;f7 shall apply in determining such
 share44  7#d7 ,section #gdc7;b7 is     
amended by inserting after the third    
sentence the following new sentence3 ,in
 the case of any revaluation event 7as  
defined in section #gjd7;f77 which      
occurs before such transfer1 section    
#gjd7;f7 shall apply in determining such

 share44  7#e7 ,section #hig7k77#d77;,c7
 is amended by striking section #gjd7;c7
 each place it appears and inserting    
subsections 7c7 and 7f7 of section #gjd4
  7c7 ,effective date ,the amendment    
made by this section shall apply to     
revaluation events 7as defined in       
section #gjd7;f77#b7 of the ,internal   
,revenue ,code of #aihf1 as added by    
this section7 occurring after the date  
of the enactment of this ,act4  #e4     
,repeal of time limitation on taxing    
precontribution gain  7a7 ,in general   
,subparagraph 7,b7 of section           
#gjd7;c77#a7 is amended by striking     
within #g years of being contributed4   
7b7 ,conforming amendment ,paragraph    
7#a7 of section #gcg7;b7 is amended by  
striking within #g years of the         
distribution4  7c7 ,effective date ,the 
amendments made by this section shall   
apply to property contributed to a      
partnership after the date of the       
enactment of this ,act4  #f4 ,repeal of 
rules relating to certain liquidating   

distributions  7a7 ,in general ,subpart 
,b of part ,,ii of subchapter ,k of     
chapter #a is amended by striking       
section #gcf 7and by striking the item  
relating to such section in the table of
 sections for such subpart74  7b7       
,retired partners and successors in     
interest of deceased partners treated as
 partners until liquidation ,section    
#gfa7;d7 is amended by adding at the end
 the following3 ,for purposes of this   
subchapter1 any retired partner or any  
deceased partner's successor in interest
 shall be treated as a partner until the
 complete liquidation of such retired   
partner's or successor's interest in the
 partnership44  7c7 ,conforming         
amendments  7#a7 ,section               
#ceg7;c77#c77;,a7 is amended by striking
 payment of which either-- and all that 
follows through then1 for purposes of   
and inserting payment of which would    
give rise to a deduction1 then1 for     
purposes of4  7#b7 ,section #gca7;d7 is 
amended-- 7,a7 by striking section #gcf 

7relating to payments to a retiring     
partner or a deceased partner's         
successor in interest711 and  7,b7 by   
striking items71 and and inserting      
items7 and4  7#c7 ,section #gea7;b77#b7 
is amended to read as follows3  7#b7    
,exception ,paragraph 7#a7 shall not    
apply to a distribution of property     
which the distributee contributed to the
 partnership4  4  7#d7 7,a7 ,section    
#gec is amended by striking ,the amount 
includible and all that follows and     
inserting ,for treatment of income in   
respect of a decedent1 see section #fia4
  7,b7 ,section #fia is amended by      
striking subsection 7e74  7d7 ,effective
 date ,the amendments made by this      
section shall apply to partners retiring
 or dying after the date of the         
enactment of this ,act4  #g4            
,clarification of rules relating to     
payments to partners for property or    
services  7a7 ,in general ,section      
#gjg7;a77#b7 is amended by striking     
,under regulations prescribed by the    

,secretary-- and inserting ,except as   
provided by the ,secretary--4  7b7      
,effective date ,the amendment made by  
this section shall apply to services    
performed or property transferred after 
the date of the enactment of this ,act4 
7c7 ,no inference ,nothing in this      
section or the amendments made by this  
section shall be construed to create any
 inference with respect to the proper   
treatment under section #gjg7;a7 of the 
,internal ,revenue ,code of #aihf with  
respect to payments from a partnership  
to a partner for property transferred or
 services performed on or before the    
date of the enactment of this ,act4  #h4
 ,elimination of preformation           
expenditure exception to partnership    
transaction rules  7a7 ,in general      
,section #gjg7;a77#b77;,b7 is amended by
 adding at the end the following new    
sentence3 ,for purposes of the preceding
 sentence1 a transfer of money or other 
property by a partnership to a partner  
or by a partner to a partnership will   

not fail to be characterized as part of 
a sale or exchange of property because  
such transfer is made to reimburse the  
partner or partnership for an           
expenditure chargeable to capital       
account 7determined without regard to   
any election under this chapter744  7b7 
,effective date  7#a7 ,in general ,the  
amendment made by this section shall    
apply to property transferred after the 
date of the enactment of this ,act4     
7#b7 ,binding contract exception ,the   
amendment made by subsection 7a7 shall  
not apply to a transfer of property     
described in section                    
#gjg7;a77#b77;,b77i7 of the ,internal   
,revenue ,code of #aihf if such transfer
 is pursuant to a written binding       
contract in effect on the date of the   
enactment of this ,act1 and at all times
 thereafter before the transfer4  #i4   
,partnership terminations  7a7 ,in      
general ,section #gjh7;b77#a7 is        
amended-- 7#a7 by striking by any of its
 partners and inserting by any of its   

historic partners 7or any related person
 to any of its partners71 and  7#b7 by  
adding at the end the following         
sentence3 ,for purposes of the preceding
 sentence1 a person is a related person 
to another person if the relationship   
between such persons would result in a  
disallowance of losses under section    
#bfg or #gjg7;b744  7b7 ,effective date 
,the amendments made by this section    
shall apply to taxable years beginning  
after the date of the enactment of this 
,act4  7c7 ,no inference ,nothing in    
this section or the amendments made by  
this section shall be construed to      
create any inference with respect to the
 proper treatment under section #gjh7;b7
 of the ,internal ,revenue ,code of     
#aihf with respect to the activities of 
persons related 7as determined under the
 last sentence of section #gjh7;b77#a7  
of such ,code1 as added by subsection   
7a77 to partners for taxable years      
beginning on or before the date of the  
enactment of this ,act4  #aj4 ,repeal of

 requirement that inventory be          
substantially appreciated in certain    
partnership distributions treated as    
sale or exchange  7a7 ,in general       
,clause 7ii7 of section                 
#gea7;b77#a77;,a7 is amended by striking
 which have appreciated substantially in
 value4  7b7 ,conforming amendment      
,section #gea7;b7 is amended by striking
 paragraph 7#c74  7c7 ,effective date   
,the amendments made by this section    
shall apply to distributions after the  
date of the enactment of this ,act4     
#aa4 ,treatment of partnership debt  7a7
 ,in general ,section #geb is amended by
 adding at the end the following new    
subsection3  7e7 ,treatment and         
allocation of partnership liabilities   
7#a7 ,in general ,except as provided in 
paragraph 7#b7 or by the ,secretary1 all
 liabilities of a partnership shall be  
allocated among partners in accordance  
with each partner's share of partnership
 profits4  7#b7 ,exception  7,a7 ,in    
general ,paragraph 7#a7 shall not apply 

to bona fide indebtedness of the        
partnership to a partner or to any      
related person to a partner4 ,for       
purposes of the preceding sentence1 a   
person is a related person to another   
person if the relationship between such 
persons would result in a disallowance  
of losses under section #bfg or         
#gjg7;b74  7,b7 ,nonapplication to      
guarantees ,subparagraph 7,a7 shall not 
apply to any guarantee or similar       
arrangement4  7#c7 ,regulations and     
other guidance ,the ,secretary shall    
prescribe such regulations and other    
guidance as necessary to carry out the  
purposes of this subsection1 including  
regulations or other guidance with      
respect to arrangements that are similar
 to guarantees for purposes of paragraph
 7#b77;,b74  4  7b7 ,effective date ,the
 amendment made by subsection 7a7 shall 
apply to taxable years beginning after  
,december #ca1 #bjbe4  7c7 ,treatment of
 gain  7#a7 ,in general ,in the case of 
a taxpayer which recognizes gain by     

reason of the application of the        
amendments made by subsection 7a7 with  
respect to its first taxable year       
beginning after ,december #ca1 #bjbe1   
such taxpayer may elect to pay the net  
tax liability under this subsection in  
#f equal annual installments over the   
#f-taxable year period beginning with   
the first taxable year beginning after  
,december #ca1 #bjbe4  7#b7 ,date for   
payment of installments ,if an election 
is made under paragraph 7#a71 the first 
installment shall be paid on the due    
date 7determined without regard to any  
extension of time for filing the return 
for the return of tax for the taxable   
year described in paragraph 7#a77 and   
each succeeding installment shall be    
paid on the due date 7as so determined7 
for the return of tax for the taxable   
year following the taxable year with    
respect to which the preceding          
installment was made4  7#c7             
,acceleration of payment ,if there is an
 addition to tax for failure to timely  

pay any installment required under this 
subsection1 a liquidation or sale of    
substantially all the assets of the     
taxpayer 7including in a title #aa or   
similar case71 a cessation of business  
by the taxpayer1 or any similar         
circumstance1 then the unpaid portion of
 all remaining installments shall be due
 on the date of such event 7or in the   
case of a title #aa or similar case1 the
 day before the petition is filed74 ,the
 preceding sentence shall not apply to  
the sale of substantially all the assets
 of a taxpayer to a buyer if such buyer 
enters into an agreement with the       
,secretary under which such buyer is    
liable for the remaining installments   
due under this subsection in the same   
manner as if such buyer were the        
taxpayer4  7#d7 ,proration of deficiency
 to installments ,if an election is made
 under paragraph 7#a7 to pay the net tax
 liability under this subsection in     
installments and a deficiency has been  
assessed with respect to such net tax   

liability1 the deficiency shall be      
prorated to the installments payable    
under paragraph 7#a74 ,the part of the  
deficiency so prorated to any           
installment the date for payment of     
which has not arrived shall be collected
 at the same time as1 and as a part of1 
such installment4 ,the part of the      
deficiency so prorated to any           
installment the date for payment of     
which has arrived shall be paid upon    
notice and demand from the ,secretary4  
,this subsection shall not apply if the 
deficiency is due to negligence1 to     
intentional disregard of rules and      
regulations1 or to fraud with intent to 
evade tax4  7#e7 ,election ,any election
 under paragraph 7#a7 shall be made not 
later than the due date for the return  
of tax for the first taxable year       
beginning after ,december #ca1 #bjbe and
 shall be made in such manner as the    
,secretary shall provide4  7#f7 ,net tax
 liability under this subsection ,for   
purposes of this subsection-- 7,a7 ,in  

general ,the net tax liability under    
this subsection with respect to any     
taxpayer is the excess 7if any7 of-- 7i7
 such taxpayer's net income tax for the 
taxable year beginning after ,december  
#ca1 #bjbe1 over  7ii7 such taxpayer's  
net income tax for such taxable year    
determined without regard to any amount 
included in gross income by reason of   
the amendments made by subsection 7a74  
7,b7 ,net income tax ,the term net      
income tax means the regular tax        
liability 7as defined in section #bf of 
the ,internal ,revenue ,code of #aihf7  
reduced by the credits allowed under    
subparts ,a1 ,b1 and ,d of part ,,iv of 
subchapter ,a of chapter #a of such     
,code4  7#g7 ,installments not to       
prevent credit or refund of overpayments
 or increase estimated taxes ,if an     
election is made under paragraph 7#a7 to
 pay the net tax liability under this   
subsection in installments-- 7,a7 no    
installment of such net tax liability   
shall-- 7i7 in the case of a request for

 credit or refund1 be taken into account
 as a liability for purposes of         
determining whether an overpayment      
exists for purposes of section #fdjb of 
the ,internal ,revenue ,code of #aihf   
before the date on which such           
installment is due1 or  7ii7 for        
purposes of sections #fdbe1 #ffed1 and  
#ffee of such ,code1 be treated as a tax
 imposed by section #a of such ,code1   
section #aa of such ,code1 or subchapter
 ,l of chapter #a of such ,code1 and    
7,b7 the first sentence of section #fdjc
 of such ,code shall not apply with     
respect to any such installment4  #ab4  
,adjustments to basis of partnership    
property  7a7 ,section #ged elections   
limited to qualified small business     
partnerships ,section #ged is amended-- 
7#a7 by striking ,if a partnership files
 an election and inserting the          
following3  7a7 ,in general ,if a       
partnership which is a qualified small  
business partnership files an election  
1  7#b7 by inserting with respect to    

which such partnership is a qualified   
small business partnership after all    
subsequent taxable years1 and  7#c7 by  
adding at the end the following new     
subsection3  7b7 ,qualified small       
business partnership ,for purposes of   
this section-- 7#a7 ,in general ,the    
term qualified small business           
partnership means1 with respect to any  
taxable year1 any partnership which     
meets the gross receipts test under     
section #ddh7;c7 7determined with the   
modification described in paragraph     
7#c77 for such taxable year4  7#b7      
,exception not to apply to partnerships 
previously failing test or tax shelters 
7,a7 ,partnerships failing test         
disqualified prospectively ,if a        
partnership fails to meet the gross     
receipts test described in paragraph    
7#a7 for any taxable year which begins  
after the date of the enactment of this 
subsection1 paragraph 7#a7 shall not    
apply to such partnership 7or any       
successor7 for such taxable year or any 

succeeding taxable year4  7,b7 ,tax     
shelters ,paragraph 7#a7 shall not apply
 to a tax shelter prohibited from using 
the cash receipts and disbursements     
method of accounting under section      
#ddh7;a77#c71 except that1 for purposes 
of applying this subparagraph1 a        
syndicate 7as defined in section        
#abef7;e77#c77;,b77 shall not be treated
 as a tax shelter4  7#c7 ,modification  
,in applying section #eb7;b7 to section 
#ddh7;c77#b7 for purposes of this       
subsection1 the term trade or business  
shall include any activity treated as a 
trade or business under paragraph 7#e7  
or 7#f7 of section #dfi7;c7 7determined 
without regard to the phrase ,to the    
extent provided in regulations in such  
paragraph 7#f774  4  7b7 ,adjustments in
 the case of transfer of partnership    
interests  7#a7 ,in general ,section    
#gdc is amended-- 7,a7 by striking      
subsection 7a7 and inserting the        
following3  7a7 ,general rule  7#a7     
,adjustments required ,except as        

provided in paragraph 7#b71 in the case 
of a transfer of an interest in a       
partnership by sale or exchange or upon 
the death of a partner1 the basis of    
partnership property shall be adjusted  
as provided in subsection 7b74  7#b7    
,exception for qualified small business 
partnerships ,paragraph 7#a7 shall not  
apply to a qualified small business     
partnership 7as defined in section      
#ged7;b77 if-- 7,a7 the election        
provided by section #ged 7relating to   
optional adjustment to basis of         
partnership property7 is not in effect  
with respect to such partnership1 and   
7,b7 in the case of a transfer1 the     
partnership does not have a substantial 
built-in loss immediately after such    
transfer4  1 and  7,b7 in subsection    
7b71 by striking with respect to which  
the election provided in section #ged is
 in effect or which has a substantial   
built-in loss immediately after such    
transfer and inserting a partnership    
which is required to adjust the basis of

 partnership property under subsection  
7a74  7#b7 ,reporting  7,a7 ,in general 
,section #fjej,k is amended-- 7i7 in    
subsection 7a71 by striking described in
 section #gea7;a71  7ii7 in subsection  
7c77#a71 by striking the period at the  
end and inserting 1 the amount received1
 and such other information as the      
,secretary may require4 ,such           
notification shall be furnished at such 
time and in such manner as the          
,secretary may require41 and  7iii7 in  
the heading1 by striking certain4  7,b7 
,conforming amendment ,the item relating
 to section #fjej,k in the table of     
sections for subpart ,b of part ,,iii of
 subchapter ,a of chapter #fa is amended
 by striking certain4  7#c7 ,conforming 
amendments  7,a7 ,section #gcb7;d7 is   
amended by striking his interest and    
inserting an interest in a qualified    
small business partnership 7as defined  
in section #gdc7;f774  7,b7 7i7 ,the    
heading for section #gdc is amended to  
read as follows3 ,adjustment to basis of

 partnership property4  7ii7 ,section   
#gfa7;e77#b7 is amended by striking     
optional4  7iii7 ,the item relating to  
section #gdc in the table of sections   
for subpart ,c of part ,,ii of          
subchapter ,k of chapter #a is amended  
to read as follows3  ,sec4 #gdc4        
,adjustment to basis of partnership     
property4  4  7c7 ,adjustments to basis 
of undistributed partnership property   
7#a7 ,in general ,section #gcd is       
amended-- 7,a7 by redesignating         
subsections 7b7 through 7e7 as          
subsections 7c7 through 7f71            
respectively1 and  7,b7 by striking     
subsection 7a7 and inserting the        
following3  7a7 ,general rule  7#a7     
,mandatory adjustment ,except as        
provided in paragraph 7#b71 in the case 
of a distribution to a partner1 the     
partnership shall adjust the basis of   
partnership property in accordance with 
subsection 7b74  7#b7 ,special rule for 
qualified small business partnerships   
,in the case of a distribution to a     

partner by a qualified small business   
partnership 7as defined in section      
#ged7;b77-- 7,a7 if there is an election
 provided in section #ged in effect with
 respect to such partnership or if there
 is a substantial basis reduction with  
respect to such distribution1 the       
partnership shall adjust the basis of   
partnership property in accordance with 
subsection 7c71 and  7,b7 if            
subparagraph 7,a7 does not apply1 no    
adjustment shall be made to the basis of
 partnership property as the result of  
such distribution4  7b7 ,general method 
of adjustment  7#a7 ,in general ,in the 
case of any distribution to a partner to
 which subsection 7a77#a7 applies1 the  
partnership shall adjust the basis of   
partnership property such that each     
remaining partner's net liquidation     
amount immediately after such           
distribution is equal to such partner's 
net liquidation amount immediately      
before such distribution4 ,for purposes 
of the preceding sentence1 a partner's  

net liquidation amount immediately      
before a distribution shall be          
calculated after taking into account any
 adjustment to the basis of property    
required by section #gjd7;c77#a77;,b7 or
 #gcg with respect to such distribution4
  7#b7 ,distributions other than in     
liquidation of a partner's interest     
7,a7 ,in general ,in the case of any    
distribution to a partner other than in 
liquidation of such partner's interest1 
proper adjustment shall be made under   
paragraph 7#a7 with respect to such     
partner to take into account-- 7i7 the  
amount of any gain recognized by such   
partner with respect to such            
distribution under section #gca7;a71 and
  7ii7 the amount of any gain or loss   
which would be recognized by such       
partner if such partner sold the        
property distributed at fair market     
value immediately after such            
distribution4  7,b7 ,reporting ,the     
,secretary may require such reporting as
 necessary to carry out this subsection4

  7#c7 ,net liquidation amount ,for     
purposes of this subsection1 the term   
net liquidation amount means1 with      
respect to any partner1 the net amount  
of gain or loss 7if any7 which would be 
taken into account 7including gain or   
loss that would be taken into account by
 reason of subsections 7c77#a77;,a71    
7c77#a77;,c71 or 7f77#a7 of section     
#gjd7 by the partner if the partnership 
sold all of its assets at fair market   
value 7and no other amounts were taken  
into account under such section74  4    
7#b7 ,conforming amendments  7,a7       
,section #gcd7;c71 as redesignated by   
paragraph 7#a71 is amended by striking  
by a partnership with respect to which  
the election provided in section #ged is
 in effect or with respect to which     
there is a substantial basis reduction  
and inserting by a partnership to which 
subsection 7a77#b77;,a7 applies4  7,b7  
,section #gcd7;d71 as redesignated by   
paragraph 7#a71 is amended by striking  
subsection 7b7 and inserting subsection 

7b7 or 7c74  7,c7 ,section #gee is      
amended-- 7i7 in subsection 7a71 by     
striking section #gcd7;b7 7relating to  
optional adjustment to the basis of     
undistributed partnership property7 and 
inserting subsection 7b7 or 7c7 of      
section #gcd 7relating to adjustment to 
basis of undistributed partnership      
property71 and  7ii7 in subsection 7c71 
by striking section #gcd7;b7 and        
inserting subsection 7b7 or 7c7 of      
section #gcd4  7,d7 7i7 ,the heading for
 section #gcd is amended by striking    
where section #ged election or          
substantial basis reduction4  7ii7 ,the 
item relating to section #gcd in the    
table of sections for subpart ,b of part
 ,,ii of subchapter ,k of chapter #a is 
amended by striking where section #ged  
election or substantial basis reduction4
  7d7 ,effective date ,the amendments   
made by this section shall apply to     
distributions after the date of the     
enactment of this ,act4  #ac4           
,application of net investment income   

tax to trade or business income of      
certain high income individuals  7a7 ,in
 general ,section #adaa is amended by   
adding at the end the following new     
subsection3  7f7 ,application to certain
 high income individuals  7#a7 ,in      
general ,in the case of any individual  
whose modified adjusted gross income for
 the taxable year exceeds the high      
income threshold amount1 subsection     
7a77#a7 shall be applied by substituting
 the greater of specified net income or 
net investment income for net investment
 income in subparagraph 7,a7 thereof4   
7#b7 ,phase-in of increase ,the increase
 in the tax imposed under subsection    
7a77#a7 by reason of the application of 
paragraph 7#a7 of this subsection shall 
not exceed the amount which bears the   
same ratio to the amount of such        
increase 7determined without regard to  
this paragraph7 as-- 7,a7 the excess    
described in paragraph 7#a71 bears to   
7,b7 #ajj1jjj 7#a_/b such amount in the 
case of a married taxpayer 7as defined  

in section #ggjc7 filing a separate     
return74  7#c7 ,high income threshold   
amount ,for purposes of this subsection1
 the term high income threshold amount  
means-- 7,a7 except as provided in      
subparagraph 7,b7 or 7,c71 #djj1jjj1    
7,b7 in the case of a taxpayer making a 
joint return under section #fjac or a   
surviving spouse 7as defined in section 
#b7;a771 #ejj1jjj1 and  7,c7 in the case
 of a married taxpayer 7as defined in   
section #ggjc7 filing a separate return1
 #a_/b of the dollar amount determined  
under subparagraph 7,b74  7#d7          
,specified net income ,for purposes of  
this section1 the term specified net    
income means net investment income      
determined-- 7,a7 without regard to the 
phrase other than such income which is  
derived in the ordinary course of a     
trade or business not described in      
paragraph 7#b71 in subsection           
7c77#a77;,a77i71  7,b7 without regard to
 the phrase described in paragraph 7#b7 
in subsection 7c77#a77;,a77ii71  7,c7   

without regard to the phrase other than 
property held in a trade or business not
 described in paragraph 7#b7 in         
subsection 7c77#a77;,a77iii71  7,d7     
without regard to paragraphs 7#b71 7#c71
 and 7#d7 of subsection 7c71 and  7,e7  
by treating paragraphs 7#e7 and 7#f7 of 
section #dfi7;c7 7determined without    
regard to the phrase ,to the extent     
provided in regulations1 in such        
paragraph 7#f77 as applying for purposes
 of subsection 7c7 of this section4  4  
7b7 ,application to trusts and estates  
,section #adaa7;a77#b77;,a7 is amended  
by striking undistributed net investment
 income and inserting the greater of    
undistributed specified net income or   
undistributed net investment income4    
7c7 ,clarifications with respect to     
determination of net investment income  
7#a7 ,certain exceptions ,section       
#adaa7;c77#f7 is amended to read as     
follows3  7#f7 ,special rules ,net      
investment income shall not include--   
7,a7 any item taken into account in     

determining self-employment income for  
such taxable year on which a tax is     
imposed by section #adja7;b71  7,b7     
wages received with respect to          
employment on which a tax is imposed    
under section #caja7;b7 7determined     
without regard to section #caja7;c77 or 
#cbja7;a7 7including amounts taken into 
account under section #caba7v77#b771 and
  7,c7 wages received from the          
performance of services earned outside  
the ,united ,states for a foreign       
employer4  4  7#b7 ,net operating losses
 not taken into account ,section        
#adaa7;c77#a77;,b7 is amended by        
inserting 7other than section #agb7     
after this subtitle4  7#c7 ,inclusion of
 certain foreign income  7,a7 ,in       
general ,section #adaa7;c77#a77;,a7 is  
amended by striking and at the end of   
clause 7ii71 by striking over at the end
 of clause 7iii7 and inserting and1 and 
by adding at the end the following new  
clause3  7iv7 any amount includible in  
gross income under section #iea1        

#iea;,a1 #abic1 or #abif1 over  4  7,b7 
,proper treatment of certain previously 
taxed income ,section #adaa7;c7 is      
amended by adding at the end the        
following new paragraph3  7#g7 ,certain 
previously taxed income ,the ,secretary 
shall issue regulations or other        
guidance providing for the treatment    
of-- 7,a7 distributions of amounts      
previously included in gross income for 
purposes of chapter #a but not          
previously subject to tax under this    
section1 and  7,b7 distributions        
described in section #ifb7;d74  4  7d7  
,effective date ,the amendments made by 
this section shall apply to taxable     
years beginning after the date of the   
enactment of this ,act4  7e7 ,transition
 rule ,the regulations or other guidance
 issued by the ,secretary under section 
#adaa7;c77#g7 of the ,internal ,revenue 
,code of #aihf 7as added by this        
section7 shall include provisions which 
provide for the proper coordination and 
application of clauses 7i7 and 7iv7 of  

section #adaa7;c77#a77;,a7 with respect 
to-- 7#a7 taxable years beginning on or 
before the date of the enactment of this
 ,act1 and  7#b7 taxable years beginning
 after such date4  #ad4 ,recognition of 
gain on transfers to swap funds  7a7    
,interests similar to preferred stock   
treated as stock ,clause 7vi7 of section
 #cea7;e77#a77;,b7 is amended to read as
 follows3  7vi7 except as otherwise     
provided in regulations prescribed by   
the ,secretary-- 7,i7 any interest in an
 entity if the return on such interest  
is limited and preferred1 and  7,,ii7   
interests 7not described in subclause   
7,i77 in any entity if substantially all
 of the assets of such entity consist   
7directly or indirectly7 of any assets  
described in subclause 7,i71 any        
preceding clause1 or clause 7viii74  4  
7b7 ,certain transfers deemed ,to be to 
investment companies ,subsection 7e7 of 
section #cea is amended by adding at the
 end the following new paragraph3  7#c7 
,transfers of marketable securities to  

certain corporations ,a transfer of     
property to a corporation if-- 7,a7 such
 property is marketable securities 7as  
defined in section #gca7;c77#b771 and   
7,b7 such corporation-- 7i7 is          
registered under the ,investment        
,company ,act of #aidj as an investment 
company1 or is exempt from registration 
as a investment company under section   
#c7;c77#g7 of such ,act because         
interests in such corporation are       
offered to qualified purchasers within  
the meaning of section #b7;a77#ea7 of   
such ,act1 or  7ii7 allows persons who  
have blocks of marketable securities    
with significant unrealized appreciation
 to diversify those holdings4  4  7c7   
,transfers to partnerships ,subsection  
7b7 of section #gba is amended to read  
as follows3  7b7 ,special rule          
,subsection 7a7 shall not apply to gain 
realized on a transfer of property to a 
partnership if1 were the partnership    
incorporated-- 7#a7 such partnership    
would be treated as an investment       

company 7within the meaning of section  
#cea71 or  7#b7 section #cea would not  
apply to such transfer by reason of     
section #cea7;e77#c74  4  7d7 ,effective
 date ,the amendments made by this      
section shall apply to transfers after  
the date of the enactment of this ,act4 
#ae4 ,modifications to treatment of     
certain losses  7a7 ,losses from certain
 capital assets which become worthless  
7#a7 ,when treated as loss ,section     
#afe7;g77#a7 is amended by striking on  
the last day of the taxable year and    
inserting at the time of the            
identifiable event establishing         
worthlessness4  7#b7 ,treatment of      
partnership indebtedness ,section       
#afe7;g77#b77;,c7 is amended by         
inserting 1 by a partnership1 after by a
 corporation4  7#c7 ,treatment of       
abandonment ,section #afe7;g7 is amended
 by adding at the end the following new 
paragraph3  7#d7 ,treatment of          
abandonment ,for purposes of this       
subsection and subsection 7m71          

abandonment shall be treated as an      
identifiable event establishing         
worthlessness4  4  7#d7 ,treatment of   
partnership interest ,section #afe is   
amended by redesignating subsection 7m7 
as subsection 7n7 and by inserting after
 subsection 7l7 the following new       
subsection3  7m7 ,worthless partnership 
interest ,if any interest in a          
partnership becomes worthless during the
 taxable year1 the loss resulting       
therefrom shall1 for purposes of this   
subtitle1 be treated as a loss from the 
sale or exchange of the interest in the 
partnership at the time of the          
identifiable event establishing         
worthlessness4  4  7b7 ,effective date  
,the amendments made by this section    
shall apply to losses arising in taxable
 years beginning after the date of the  
enactment of this ,act4  #af4           
,codification of anti-abuse rule  7a7   
,in general ,section #gja is amended--  
7#a7 by striking ,a partnership and     
inserting the following3  7a7 ,in       

general ,a partnership  1 and  7#b7 by  
adding at the end the following new     
subsection3  7b7 ,regulations ,under    
regulations established by the          
,secretary1 in the case of a transaction
 involving a partnership1 the ,secretary
 may recast1 disregard1 or otherwise    
modify such transaction for purposes of 
the ,internal ,revenue ,code of #aihf   
unless-- 7#a7 the tax consequences to   
each partner and the partnership reflect
 the partners' economic agreement and   
clearly reflect the partners' income1   
7#b7 the form of such transaction is    
consistent with it substance1 and  7#c7 
there is a substantial purpose 7apart   
from ,federal income tax effects7 for   
entering into such transaction4  4  7b7 
,no inference ,nothing in this section  
or the amendments made by this section  
shall be construed to create any        
inference with respect to the authority 
of the ,secretary of the ,treasury 7or  
the ,secretary's delegate7 to regulate  
transactions described in section       

#gja7;b7 of the ,internal ,revenue ,code
 7as added by subsection 7a77 without   
regard to the provisions of such        
section4