,,ii  #aai? ,,congress  #a/ ,session    
,s4 #bjie  ,,9 ,,! ,,s5ate ,,( ,,!      
,,unit$ ,,/ates  ,june #ag1 #bjbe,mr4   
,wyd5 introduc$ ! foll[+ bill2 :i* 0    
read twice & ref]r$ to ! ,committee on  
,f9ance  ,a ,,bill  ,to am5d ! ,int]nal 
,rev5ue ,code ( #aihf to improve ! rules
 relat$ to p>tn]s & p>tn]%ips1 & = o!r  
purposes4  #a4 ,ref]5ce1 etc  7a7 ,%ort 
title ,?is ,act may be cit$ z ! ,prev5t+
 ,abusive ,r\t9e ,tax ,nons5se ,enabl$  
by ,rip-(fs ,%elt]s & ,hav5s & ,in/ead  
,promot+ ,simplicity ,act or !          
,,p>tn]%ips ,act4  7b7 ,ref]5ce ,except 
z o!rwise expressly provid$1 :5ev] 9 ?is
 ,act1 an am5dm5t or repeal is express$ 
9 t]ms ( an am5dm5t to1 or repeal (1 a  
section or o!r provision1 ! ref]5ce %all
 be consid]$ to be made to a section or 
o!r provision ( ! ,int]nal ,rev5ue ,code
 ( #aihf4  7c7 ,table ( cont5ts ,! table
 ( cont5ts ( ?is ,act is z foll[s3 ,sec4
 #a4 ,ref]5ce1 etc4,sec4 #b4            
,det]m9ation ( p>tn]'s di/ributive      
%>e4,sec4 #c4 ,allocation ( built-9-ga9s

 ) respect to contribut$ prop]ty4,sec4  
#d4 ,treatm5t ( revalu$ prop]ty4,sec4   
#e4 ,repeal ( "t limitation on tax+     
precontribution ga94,sec4 #f4 ,repeal ( 
rules relat+ to c]ta9 liquidat+         
di/ributions4,sec4 #g4 ,cl>ification (  
rules relat+ to paym5ts to p>tn]s =     
prop]ty or s]vices4,sec4 #h4 ,elim9ation
 ( pre=mation exp5diture exception to   
p>tn]%ip transaction rules4,sec4 #i4    
,p>tn]%ip t]m9ations4,sec4 #aj4 ,repeal 
( requirem5t t inv5tory be sub/antially 
appreciat$ 9 c]ta9 p>tn]%ip di/ributions
 treat$ z sale or ex*ange4,sec4 #aa4    
,treatm5t ( p>tn]%ip debt4,sec4 #ab4    
,adju/m5ts to basis ( p>tn]%ip          
prop]ty4,sec4 #ac4 ,application ( net   
inve/m5t income tax to trade or bus9ess 
income ( c]ta9 high income              
individuals4,sec4 #ad4 ,recognition (   
ga9 on transf]s to swap funds4,sec4 #ae4
 ,modifications to treatm5t ( c]ta9     
losses4,sec4 #af4 ,codification (       
anti-abuse rule4  #b4 ,det]m9ation (    
p>tn]'s di/ributive %>e  7a7 ,9 g5]al   

,section #gjd7;b7 is am5d$ to read z    
foll[s3  7b7 ,det]m9ation ( di/ributive 
%>e  7#a7 ,9 g5]al ,except z provid$ 9  
p>agraph 7#b71 a p>tn]'s di/ributive %>e
 ( income1 ga91 loss1 d$uction1 or cr$it
 7or item !re(7 %all be det]m9$ 9       
accordance ) ! p>tn]'s int]e/ 9 !       
p>tn]%ip 7det]m9$ by tak+ into acc\nt   
all facts & circum/ances71 if-- 7,a7 !  
p>tn]%ip agreem5t does n provide z to ! 
p>tn]'s di/ributive %>e ( income1 ga91  
loss1 d$uction1 or cr$it 7or item !re(71
 or  7,b7 ! allocation to a p>tn] "u !  
agreem5t ( income1 ga91 loss1 d$uction1 
or cr$it 7or item !re(7 does n h        
sub/antial economic effect4  7#b7       
,requir$ use ( consi/5t p]c5tage me?od =
 c]ta9 p>tn]s  7,a7 ,9 g5]al ,except z  
o!rwise provid$ 9 ?is sub*apt] or by !  
,secret>y1 9 ! case ( any cov]$ p>tn]   
:i* is a p>tn] 9 a p>tn]%ip :i* is a    
cov]$ p>tn]%ip = ! taxable ye> ( su*    
p>tn]%ip1 su* cov]$ p>tn]'s di/ributive 
%>e ( ! cov]$ p>tn]%ip's applicable     
items = su* taxable ye> %all be det]m9$ 

us+ ! consi/5t p]c5tage me?od4  7,b7    
,cov]$ p>tn]2 cov]$ p>tn]%ip ,= purposes
 ( ?is p>agraph-- 7i7 ,cov]$ p>tn]%ip ,!
 t]m cov]$ p>tn]%ip means any p>tn]%ip  
if1 dur+ any day dur+ ! taxable ye> ( ! 
p>tn]%ip-- 7,i7 two or m memb]s ( a     
controll$ gr\p 7)9 ! mean+ ( section    
#bfg7;f77 own 7)9 ! mean+ ( section     
#bfg7;e77#c77 #ej p]c5t or m ( ! capital
 or pr(its int]e/s 9 su* p>tn]%ip1 or   
7,,ii7 x is a p>tn]%ip :i* is specifi$  
by ! ,secret>y 9 regulations or o!r     
guidance z be+ ( a type to :i* ?is      
subp>agraph applies 9 ord] to prev5t !  
avoidance ( ! purposes ( ?is p>agraph4  
7ii7 ,cov]$ p>tn] ,! t]m cov]$ p>tn]    
means-- 7,i7 9 ! case ( a cov]$ p>tn]%ip
 describ$ 9 clause 7i77,i71 any p>tn]   
:i* is a memb] ( a controll$ gr\p       
describ$ 9 su* clause or any o!r p>tn]  
any own]%ip int]e/ 7o!r ?an a de m9imis 
int]e/7 9 :i* is held directly or       
indirectly by a memb] ( su* a controll$ 
gr\p1 &  7,,ii7 9 ! case ( a cov]$      
p>tn]%ip describ$ 9 clause 7i77,,ii71   

any p>tn] :i* meets su* specifications z
 prescrib$ by ! ,secret>y "u !          
regulations or guidance ref]r$ to 9 su* 
clause4  7iii7 ,report+ rule ,ea* cov]$ 
p>tn]%ip %all submit to ! ,secret>y1 at 
su* "t & 9 su* mann] z prescrib$ by !   
,secret>y-- 7,i7 a /atem5t t su*        
p>tn]%ip is a cov]$ p>tn]%ip1 &  7,,ii7 
su* o!r in=mation z ! ,secret>y %all    
require4  7,c7 ,consi/5t p]c5tage me?od 
,= purposes ( ?is p>agraph1 ! t]m       
consi/5t p]c5tage me?od means a me?od "u
 :i*-- 7i7 a cov]$ p>tn]'s di/ributive  
%>e ( any applicable item ( a cov]$     
p>tn]%ip be>s ! same ratio to !         
aggregate di/ributive %>es ( su* item = 
all cov]$ p>tn]s 9 su* p>tn]%ip 7det]m9$
 )\t reg>d to ?is p>agraph7 z-- 7,i7 !  
cov]$ p>tn]'s net equity 9 ! cov]$      
p>tn]%ip1 be>s to  7,,ii7 ! net equity (
 all cov]$ p>tn]s 9 ! cov]$ p>tn]%ip1 & 
7ii7 ! cov]$ p>tn] is allocat$ ! same   
%>e ( ea* applicable item ( ! cov]$     
p>tn]%ip4  ,clause 7i7 %all only apply  
to an applicable item if x is includ$ 9 

! di/ributive %>e ( at lea/ #a cov]$    
p>tn] 7det]m9$ )\t reg>d to ?is         
p>agraph74  7,d7 ,net equity ,= purposes
 ( ?is p>agraph-- 7i7 ,9 g5]al ,! t]m   
net equity means1 ) respect to any cov]$
 p>tn] 9 a cov]$ p>tn]%ip1 ! contribut$ 
equity ( su* cov]$ p>tn]1 prop]ly adju/$
 to take into acc\nt any revaluation    
ev5t describ$ 9 subp>agraphs 7,a71 7,b71
 7,c71 7,d71 or 7,f7 ( subsection       
7f77#c74  7ii7 ,contribut$ equity ,! t]m
 contribut$ equity means1 ) respect to  
any cov]$ p>tn] 9 a cov]$ p>tn]%ip1 !   
excess (-- 7,i7 ! sum ( ! value ( all   
prop]ty & money contribut$ by ! cov]$   
p>tn] 7or any pr$ecessor ( su* p>tn]7 to
 ! cov]$ p>tn]%ip plus ! am\nt (        
liabilities 7)9 ! mean+ ( section #geb7 
( ! cov]$ p>tn]%ip t are assum$ by !    
cov]$ p>tn] 7or any pr$ecessor ( su*    
p>tn]71 ov]  7,,ii7 ! sum ( ! value (   
all prop]ty & money di/ribut$ to ! cov]$
 p>tn] 7or any pr$ecessor ( su* p>tn]7  
by ! cov]$ p>tn]%ip plus ! am\nt (      
liabilities 7)9 ! mean+ ( section #geb7 

( ! cov]$ p>tn] 7or any pr$ecessor ( su*
 p>tn]7 t are assum$ by ! cov]$         
p>tn]%ip4  ,= purposes ( ?is clause1 a  
pr$ecessor ( a p>tn] includes any p]son 
treat$ z transf]r+ an int]e/ to su*     
p>tn] 9 a transaction describ$ 9 section
 #gjg7;d77#a77;,a74  7,e7 ,applicable   
items ,= purposes ( ?is p>agraph1 ! t]m 
applicable item means1 ) respect to any 
p>tn]%ip1 any item ( income1 ga91       
d$uction1 loss1 or cr$it4  7,f7         
,cross-ref]5ce ,= ! treatm5t ( cov]$    
p>tn]s 9 ! ev5t ( c]ta9 rights or       
di/ributions n 9 accordance ) ! consi/5t
 p]c5tage me?od1 see section #gjg7;d74  
4  7b7 ,treatm5t ( c]ta9 rights &       
di/ributions n 9 accordance ) consi/5t  
p]c5tage me?od ,section #gjg is am5d$ by
 add+ at ! end ! foll[+ new subsection3 
7d7 ,deem$ transf]s 9 c]ta9 cases :]e   
c]ta9 rights d n reflect p>tn]%ip       
di/ributive %>e  7#a7 ,9 g5]al ,if a    
cov]$ p>tn] has an excess %>e ) respect 
to any cov]$ p>tn]%ip on any applicable 
date-- 7,a7 su* p>tn] %all be treat$ z  

hav+ receiv$ an int]e/ 9 ! p>tn]%ip 9 a 
transaction betwe5 #b or m p>tn]s act+  
o!r ?an 9 _! capacity z memb]s ( !      
p>tn]%ip1 &  7,b7 not)/&+ any o!r       
provision ( ?is *apt]-- 7i7 ! value (   
su* int]e/ %all be includ$ 9 ! gross    
income ( ! cov]$ p>tn] receiv+ su*      
int]e/ 9 su* transaction1 &  7ii7 no    
d$uction or loss %all be all[$ ) respect
 to su* transf] to any cov]$ p>tn]      
treat$ z transf]r+ all or a portion (   
su* int]e/ 9 su* transaction4  7#b7     
,excess %>e ,= purposes ( ?is           
subsection-- 7,a7 ,9 g5]al ,! t]m excess
 %>e means1 ) respect to any cov]$      
p>tn]1 ! am\nt by :i*-- 7i7 ! cov]$     
p>tn]'s int]e/ 9 p>tn]%ip assets        
di/ributable to su* cov]$ p>tn] ^u      
liquidation ( ! cov]$ p>tn]%ip z ( any  
applicable date1 exce$s  7ii7 ! cov]$   
p>tn]'s int]e/ 9 p>tn]%ip assets1       
det]m9$ z if ! am\nt di/ributable ^u    
liquidation to all cov]$ p>tn]s z ( su* 
applicable date 7 di/ributable to ea*   
cov]$ p>tn] bas$ on ! ratio (-- 7,i7 su*

 cov]$ p>tn]'s net equity 7z def9$ 9    
section #gjd7;b77#b77;,d77 9 ! cov]$    
p>tn]%ip on su* applicable date1 to     
7,,ii7 ! net equity 7z s def9$7 ( all   
cov]$ p>tn]s 9 ! cov]$ p>tn]%ip on su*  
applicable date4  7,b7 ,applicable date 
,= purposes ( ?is p>agraph1 ! t]m       
applicable date means any ( ! foll[+3   
7i7 ,! la/ day ( any taxable ye> ( !    
cov]$ p>tn]%ip4  7ii7 ,! date ( any     
revaluation ev5t 7z def9$ 9 section     
#gjd7;f774  7#c7 ,cov]$ p>tn]2 cov]$    
p>tn]%ip ,= purposes ( ?is subsection1 !
 t]ms cov]$ p>tn]%ip & cov]$ p>tn] h !  
mean+s give su* t]ms "u section         
#gjd7;b77#b74  7#d7 ,regulations &      
guidance ,! ,secret>y %all prescribe su*
 regulations & o!r guidance z necess>y  
to c>ry out ! purposes ( ?is subsection1
 includ+ regulations or o!r guidance    
provid+ exceptions to ! application (   
p>agraph 7#a7 to ! ext5t su* exceptions 
are consi/5t ) ! purposes ( ?is         
subsection4  4  7c7 ,regulations &      
guidance ,section #gjd is am5d$ by      

r$esignat+ subsection 7f7 z subsection  
7g7 & by ins]t+ aft] subsection 7e7 !   
foll[+ new subsection3  7f7 ,regulations
 & guidance ,! ,secret>y %all prescribe 
su* regulations & o!r guidance z        
necess>y to c>ry out ! purposes ( ?is   
section1 includ+ regulations or o!r     
guidance = ! application ( ?is section  
to "o or m ti]s ( entities4  4  7d7     
,report+ p5alties ,section              
#fgbd7;d77#a77;,b7 is am5d$ by /rik+ or 
at ! end ( clause 7xxvii71 by /rik+ & at
 ! end ( clause 7xxviii7 & ins]t+ or1 & 
by add+ at ! end ! foll[+ new clause3   
7xxix7 section #gjd7;b77#b77;,b77iii7   
7relat+ to report+ rule = requir$ use ( 
consi/5t p]c5tage me?od71 &  4  7e7     
,con=m+ am5dm5ts  7#a7 ,section         
#afh7;h77#f77;,b77ii7 is am5d$ by /rik+ 
section #gjd7;b77#b7 & ins]t+ section   
#gjd7;b77#a77;,b74  7#b7 ,section       
#ead7;c77#i77;,e77i77,,ii7 is am5d$ by  
/rik+ section #gjd7;b77#b7 & ins]t+     
section #gjd7;b77#a77;,b74  7f7         
,effective date ,! am5dm5ts made by ?is 

section %all apply to taxable ye>s (    
p>tn]%ips beg9n+ aft] ! date ( !        
enactm5t ( ?is ,act4  #c4 ,allocation ( 
built-9-ga9s ) respect to contribut$    
prop]ty  7a7 ,9 g5]al ,subp>agraph 7,a7 
( section #gjd7;c77#a7 is am5d$ to read 
z foll[s3  7,a7 income1 ga91 loss1 &    
d$uction 7includ+ notional items !re(7 )
 respect to prop]ty contribut$ to !     
p>tn]%ip by a p>tn] %all be %>$ among ! 
p>tn]s "u ! rem$ial me?od prescrib$ by !
 ,secret>y s z to take into acc\nt all (
 ! v>iation betwe5 ! basis ( ! prop]ty  
to ! p>tn]%ip & its fair m>ket value at 
! "t ( contribution1  4  7b7 ,effective 
date ,! am5dm5t made by ?is section %all
 apply to prop]ty contribut$ to a       
p>tn]%ip aft] ! date ( ! enactm5t ( ?is 
,act4  #d4 ,treatm5t ( revalu$ prop]ty  
7a7 ,9 g5]al ,section #gjd1 z am5d$ by  
section #b1 is am5d$ by r$esignat+      
subsections 7f7 & 7g7 z subsections 7g7 
& 7h71 respectively1 & by ins]t+ aft]   
subsection 7e7 ! foll[+ new subsection3 
7f7 ,revalu$ prop]ty  7#a7 ,9 g5]al ,"u 

regulations prescrib$ by ! ,secret>y1   
rules simil> to ! rules ( p>agraphs     
7#a77;,a7 & 7#a77;,c7 ( subsection 7c7  
%all apply to any prop]ty held by a     
p>tn]%ip at ! "t ( a revaluation ev5t4  
7#b7 ,exception ,p>agraph 7#a7 %all n   
apply to any revaluation ev5t :i* occurs
 dur+ a taxable ye> 9 :i* ! p>tn]%ip    
meets ! gross receipts te/ ( section    
#ddh7;c7 unless ! p>tn]%ip elects1 at   
su* "t & 9 su* mann] z prescrib$ by !   
,secret>y1 to n h ?is p>agraph apply4   
7#c7 ,revaluation ev5t ,= purposes ( ?is
 subsection1 ! t]m revaluation ev5t     
means-- 7,a7 any disproportionate       
contribution ( money or o!r prop]ty 7o!r
 ?an a de m9imis am\nt7 to ! p>tn]%ip1  
7,b7 any disproportionate di/ribution ( 
money or o!r prop]ty 7o!r ?an a de      
m9imis am\nt7 by ! p>tn]%ip1  7,c7 any  
grant ( an int]e/ 9 ! p>tn]%ip 7o!r ?an 
a de m9imis int]e/7 z consid]ation = !  
provision ( s]vices1  7,d7 any issuance 
by ! p>tn]%ip ( a non-comp5satory option
 7o!r ?an an option = a de m9imis       

p>tn]%ip int]e/71  7,e7 except z provid$
 by ! ,secret>y1 any agreem5t to *ange  
7o!r ?an a de m9imis *ange7 ! mann] 9   
:i* ! p>tn]s %>e any item or class (    
items ( income1 ga91 loss1 d$uction1 or 
cr$it ( ! p>tn]%ip1 or  7,f7 any o!r    
ev5t prescrib$ by ! ,secret>y4  7#d7    
,application to ti]$ entities ,if-- 7,a7
 a p>tn]%ip 7h]e9aft] 9 ?is p>agraph    
ref]r$ to z ! upp]-ti] p>tn]%ip7 is a   
p>tn] 9 ano!r p>tn]%ip 7h]e9aft] 9 ?is  
p>agraph ref]r$ to z ! l[]-ti]          
p>tn]%ip71 &  7,b7 ! upp]-ti] p>tn]%ip  
holds m ?an #ej p]c5t ( ! capital or    
pr(its int]e/s 9 ! l[]-ti] p>tn]%ip1  !n
 a revaluation ev5t ) respect to !      
upp]-ti] p>tn]%ip %all be treat$ z a    
revaluation ev5t ) respect to ! l[]-ti] 
p>tn]%ip4  4  7b7 ,con=m+ am5dm5ts  7#a7
 ,section #afh7;h77#f7 is am5d$ by /rik+
 section #gjd7;c7 ea* place x appe>s 9  
subp>agraphs 7,b7 & 7,c7 & ins]t+       
subsections 7c7 & 7f7 ( section #gjd4   
7#b7 ,section #ead7;c77#i77;,e77i7 is   
am5d$ by /rik+ section #gjd7;c7 & ins]t+

 subsections 7c7 & 7f7 ( section #gjd4  
7#c7 ,section #fac;,a7c77#g77;,d7 is    
am5d$ by ins]t+ aft] ! f\r? s5t5ce !    
foll[+ new s5t5ce3 ,9 ! case ( any      
revaluation ev5t 7z def9$ 9 section     
#gjd7;f771 section #gjd7;f7 %all apply 9
 det]m9+ su* %>e44  7#d7 ,section       
#gdc7;b7 is am5d$ by ins]t+ aft] ! ?ird 
s5t5ce ! foll[+ new s5t5ce3 ,9 ! case ( 
any revaluation ev5t 7z def9$ 9 section 
#gjd7;f77 :i* occurs be=e su* transf]1  
section #gjd7;f7 %all apply 9 det]m9+   
su* %>e44  7#e7 ,section                
#hig7k77#d77;,c7 is am5d$ by /rik+      
section #gjd7;c7 ea* place x appe>s &   
ins]t+ subsections 7c7 & 7f7 ( section  
#gjd4  7c7 ,effective date ,! am5dm5t   
made by ?is section %all apply to       
revaluation ev5ts 7z def9$ 9 section    
#gjd7;f77#b7 ( ! ,int]nal ,rev5ue ,code 
( #aihf1 z add$ by ?is section7 occurr+ 
aft] ! date ( ! enactm5t ( ?is ,act4    
#e4 ,repeal ( "t limitation on tax+     
precontribution ga9  7a7 ,9 g5]al       
,subp>agraph 7,b7 ( section #gjd7;c77#a7

 is am5d$ by /rik+ )9 #g ye>s ( be+     
contribut$4  7b7 ,con=m+ am5dm5t        
,p>agraph 7#a7 ( section #gcg7;b7 is    
am5d$ by /rik+ )9 #g ye>s ( !           
di/ribution4  7c7 ,effective date ,!    
am5dm5ts made by ?is section %all apply 
to prop]ty contribut$ to a p>tn]%ip aft]
 ! date ( ! enactm5t ( ?is ,act4  #f4   
,repeal ( rules relat+ to c]ta9         
liquidat+ di/ributions  7a7 ,9 g5]al    
,subp>t ,b ( "p ,,ii ( sub*apt] ,k (    
*apt] #a is am5d$ by /rik+ section #gcf 
7& by /rik+ ! item relat+ to su* section
 9 ! table ( sections = su* subp>t74    
7b7 ,retir$ p>tn]s & successors 9 int]e/
 ( deceas$ p>tn]s treat$ z p>tn]s until 
liquidation ,section #gfa7;d7 is am5d$  
by add+ at ! end ! foll[+3 ,= purposes (
 ?is sub*apt]1 any retir$ p>tn] or any  
deceas$ p>tn]'s successor 9 int]e/ %all 
be treat$ z a p>tn] until ! complete    
liquidation ( su* retir$ p>tn]'s or     
successor's int]e/ 9 ! p>tn]%ip44  7c7  
,con=m+ am5dm5ts  7#a7 ,section         
#ceg7;c77#c77;,a7 is am5d$ by /rik+     

paym5t ( :i* ei!r-- & all t foll[s ?r\gh
 !n1 = purposes ( & ins]t+ paym5t ( :i* 
w\ld give rise to a d$uction1 !n1 =     
purposes (4  7#b7 ,section #gca7;d7 is  
am5d$-- 7,a7 by /rik+ section #gcf      
7relat+ to paym5ts to a retir+ p>tn] or 
a deceas$ p>tn]'s successor 9 int]e/711 
&  7,b7 by /rik+ items71 & & ins]t+     
items7 &4  7#c7 ,section #gea7;b77#b7 is
 am5d$ to read z foll[s3  7#b7          
,exception ,p>agraph 7#a7 %all n apply  
to a di/ribution ( prop]ty :i* !        
di/ributee contribut$ to ! p>tn]%ip4  4 
7#d7 7,a7 ,section #gec is am5d$ by     
/rik+ ,! am\nt includible & all t foll[s
 & ins]t+ ,= treatm5t ( income 9 respect
 ( a dec$5t1 see section #fia4  7,b7    
,section #fia is am5d$ by /rik+         
subsection 7e74  7d7 ,effective date ,! 
am5dm5ts made by ?is section %all apply 
to p>tn]s retir+ or dy+ aft] ! date ( ! 
enactm5t ( ?is ,act4  #g4 ,cl>ification 
( rules relat+ to paym5ts to p>tn]s =   
prop]ty or s]vices  7a7 ,9 g5]al        
,section #gjg7;a77#b7 is am5d$ by /rik+ 

,"u regulations prescrib$ by !          
,secret>y-- & ins]t+ ,except z provid$  
by ! ,secret>y--4  7b7 ,effective date  
,! am5dm5t made by ?is section %all     
apply to s]vices p]=m$ or prop]ty       
transf]r$ aft] ! date ( ! enactm5t ( ?is
 ,act4  7c7 ,no inf]5ce ,no?+ 9 ?is     
section or ! am5dm5ts made by ?is       
section %all be con/ru$ to create any   
inf]5ce ) respect to ! prop] treatm5t "u
 section #gjg7;a7 ( ! ,int]nal ,rev5ue  
,code ( #aihf ) respect to paym5ts f a  
p>tn]%ip to a p>tn] = prop]ty transf]r$ 
or s]vices p]=m$ on or be=e ! date ( !  
enactm5t ( ?is ,act4  #h4 ,elim9ation ( 
pre=mation exp5diture exception to      
p>tn]%ip transaction rules  7a7 ,9 g5]al
 ,section #gjg7;a77#b77;,b7 is am5d$ by 
add+ at ! end ! foll[+ new s5t5ce3 ,=   
purposes ( ! prec$+ s5t5ce1 a transf] ( 
money or o!r prop]ty by a p>tn]%ip to a 
p>tn] or by a p>tn] to a p>tn]%ip w n   
fail to be *>act]iz$ z "p ( a sale or   
ex*ange ( prop]ty because su* transf] is
 made to reimburse ! p>tn] or p>tn]%ip =

 an exp5diture *>geable to capital      
acc\nt 7det]m9$ )\t reg>d to any        
election "u ?is *apt]744  7b7 ,effective
 date  7#a7 ,9 g5]al ,! am5dm5t made by 
?is section %all apply to prop]ty       
transf]r$ aft] ! date ( ! enactm5t ( ?is
 ,act4  7#b7 ,b9d+ contract exception ,!
 am5dm5t made by subsection 7a7 %all n  
apply to a transf] ( prop]ty describ$ 9 
section #gjg7;a77#b77;,b77i7 ( !        
,int]nal ,rev5ue ,code ( #aihf if su*   
transf] is pursuant to a writt5 b9d+    
contract 9 effect on ! date ( ! enactm5t
 ( ?is ,act1 & at all times !reaft] be=e
 ! transf]4  #i4 ,p>tn]%ip t]m9ations   
7a7 ,9 g5]al ,section #gjh7;b77#a7 is   
am5d$-- 7#a7 by /rik+ by any ( its      
p>tn]s & ins]t+ by any ( its hi/oric    
p>tn]s 7or any relat$ p]son to any ( its
 p>tn]s71 &  7#b7 by add+ at ! end !    
foll[+ s5t5ce3 ,= purposes ( ! prec$+   
s5t5ce1 a p]son is a relat$ p]son to    
ano!r p]son if ! relation%ip betwe5 su* 
p]sons w\ld result 9 a disall[ance (    
losses "u section #bfg or #gjg7;b744    

7b7 ,effective date ,! am5dm5ts made by 
?is section %all apply to taxable ye>s  
beg9n+ aft] ! date ( ! enactm5t ( ?is   
,act4  7c7 ,no inf]5ce ,no?+ 9 ?is      
section or ! am5dm5ts made by ?is       
section %all be con/ru$ to create any   
inf]5ce ) respect to ! prop] treatm5t "u
 section #gjh7;b7 ( ! ,int]nal ,rev5ue  
,code ( #aihf ) respect to ! activities 
( p]sons relat$ 7z det]m9$ "u ! la/     
s5t5ce ( section #gjh7;b77#a7 ( su*     
,code1 z add$ by subsection 7a77 to     
p>tn]s = taxable ye>s beg9n+ on or be=e 
! date ( ! enactm5t ( ?is ,act4  #aj4   
,repeal ( requirem5t t inv5tory be      
sub/antially appreciat$ 9 c]ta9 p>tn]%ip
 di/ributions treat$ z sale or ex*ange  
7a7 ,9 g5]al ,clause 7ii7 ( section     
#gea7;b77#a77;,a7 is am5d$ by /rik+ :i* 
h appreciat$ sub/antially 9 value4  7b7 
,con=m+ am5dm5t ,section #gea7;b7 is    
am5d$ by /rik+ p>agraph 7#c74  7c7      
,effective date ,! am5dm5ts made by ?is 
section %all apply to di/ributions aft] 
! date ( ! enactm5t ( ?is ,act4  #aa4   

,treatm5t ( p>tn]%ip debt  7a7 ,9 g5]al 
,section #geb is am5d$ by add+ at ! end 
! foll[+ new subsection3  7e7 ,treatm5t 
& allocation ( p>tn]%ip liabilities     
7#a7 ,9 g5]al ,except z provid$ 9       
p>agraph 7#b7 or by ! ,secret>y1 all    
liabilities ( a p>tn]%ip %all be        
allocat$ among p>tn]s 9 accordance ) ea*
 p>tn]'s %>e ( p>tn]%ip pr(its4  7#b7   
,exception  7,a7 ,9 g5]al ,p>agraph 7#a7
 %all n apply to bona fide indebt$ness (
 ! p>tn]%ip to a p>tn] or to any relat$ 
p]son to a p>tn]4 ,= purposes ( ! prec$+
 s5t5ce1 a p]son is a relat$ p]son to   
ano!r p]son if ! relation%ip betwe5 su* 
p]sons w\ld result 9 a disall[ance (    
losses "u section #bfg or #gjg7;b74     
7,b7 ,nonapplication to gu>antees       
,subp>agraph 7,a7 %all n apply to any   
gu>antee or simil> arrangem5t4  7#c7    
,regulations & o!r guidance ,! ,secret>y
 %all prescribe su* regulations & o!r   
guidance z necess>y to c>ry out !       
purposes ( ?is subsection1 includ+      
regulations or o!r guidance ) respect to

 arrangem5ts t are simil> to gu>antees =
 purposes ( p>agraph 7#b77;,b74  4  7b7 
,effective date ,! am5dm5t made by      
subsection 7a7 %all apply to taxable    
ye>s beg9n+ aft] ,decemb] #ca1 #bjbe4   
7c7 ,treatm5t ( ga9  7#a7 ,9 g5]al ,9 ! 
case ( a taxpay] :i* recognizes ga9 by  
reason ( ! application ( ! am5dm5ts made
 by subsection 7a7 ) respect to its fir/
 taxable ye> beg9n+ aft] ,decemb] #ca1  
#bjbe1 su* taxpay] may elect to pay !   
net tax liability "u ?is subsection 9 #f
 equal annual in/allm5ts ov] !          
#f-taxable ye> p]iod beg9n+ ) ! fir/    
taxable ye> beg9n+ aft] ,decemb] #ca1   
#bjbe4  7#b7 ,date = paym5t ( in/allm5ts
 ,if an election is made "u p>agraph    
7#a71 ! fir/ in/allm5t %all be paid on !
 due date 7det]m9$ )\t reg>d to any     
ext5sion ( "t = fil+ ! return = ! return
 ( tax = ! taxable ye> describ$ 9       
p>agraph 7#a77 & ea* succe$+ in/allm5t  
%all be paid on ! due date 7z s det]m9$7
 = ! return ( tax = ! taxable ye> foll[+
 ! taxable ye> ) respect to :i* ! prec$+

 in/allm5t 0 made4  7#c7 ,accel]ation ( 
paym5t ,if !re is an addition to tax =  
failure to timely pay any in/allm5t     
requir$ "u ?is subsection1 a liquidation
 or sale ( sub/antially all ! assets ( !
 taxpay] 7includ+ 9 a title #aa or      
simil> case71 a cessation ( bus9ess by !
 taxpay]1 or any simil> circum/ance1 !n 
! unpaid portion ( all rema9+ in/allm5ts
 %all be due on ! date ( su* ev5t 7or 9 
! case ( a title #aa or simil> case1 !  
day be=e ! petition is fil$74 ,! prec$+ 
s5t5ce %all n apply to ! sale (         
sub/antially all ! assets ( a taxpay] to
 a buy] if su* buy] ent]s into an       
agreem5t ) ! ,secret>y "u :i* su* buy]  
is liable = ! rema9+ in/allm5ts due "u  
?is subsection 9 ! same mann] z if su*  
buy] 7 ! taxpay]4  7#d7 ,proration (    
defici5cy to in/allm5ts ,if an election 
is made "u p>agraph 7#a7 to pay ! net   
tax liability "u ?is subsection 9       
in/allm5ts & a defici5cy has be5 assess$
 ) respect to su* net tax liability1 !  
defici5cy %all be prorat$ to !          

in/allm5ts payable "u p>agraph 7#a74 ,! 
"p ( ! defici5cy s prorat$ to any       
in/allm5t ! date = paym5t ( :i* has n   
arriv$ %all be collect$ at ! same "t z1 
& z a "p (1 su* in/allm5t4 ,! "p ( !    
defici5cy s prorat$ to any in/allm5t !  
date = paym5t ( :i* has arriv$ %all be  
paid ^u notice & dem& f ! ,secret>y4    
,?is subsection %all n apply if !       
defici5cy is due to neglig5ce1 to       
int5tional disreg>d ( rules &           
regulations1 or to fraud ) int5t to     
evade tax4  7#e7 ,election ,any election
 "u p>agraph 7#a7 %all be made n lat]   
?an ! due date = ! return ( tax = ! fir/
 taxable ye> beg9n+ aft] ,decemb] #ca1  
#bjbe & %all be made 9 su* mann] z !    
,secret>y %all provide4  7#f7 ,net tax  
liability "u ?is subsection ,= purposes 
( ?is subsection-- 7,a7 ,9 g5]al ,! net 
tax liability "u ?is subsection )       
respect to any taxpay] is ! excess 7if  
any7 (-- 7i7 su* taxpay]'s net income   
tax = ! taxable ye> beg9n+ aft] ,decemb]
 #ca1 #bjbe1 ov]  7ii7 su* taxpay]'s net

 income tax = su* taxable ye> det]m9$   
)\t reg>d to any am\nt includ$ 9 gross  
income by reason ( ! am5dm5ts made by   
subsection 7a74  7,b7 ,net income tax ,!
 t]m net income tax means ! regul> tax  
liability 7z def9$ 9 section #bf ( !    
,int]nal ,rev5ue ,code ( #aihf7 r$uc$ by
 ! cr$its all[$ "u subp>ts ,a1 ,b1 & ,d 
( "p ,,iv ( sub*apt] ,a ( *apt] #a ( su*
 ,code4  7#g7 ,in/allm5ts n to prev5t   
cr$it or refund ( ov]paym5ts or increase
 e/imat$ taxes ,if an election is made  
"u p>agraph 7#a7 to pay ! net tax       
liability "u ?is subsection 9           
in/allm5ts-- 7,a7 no in/allm5t ( su* net
 tax liability %all-- 7i7 9 ! case ( a  
reque/ = cr$it or refund1 be tak5 into  
acc\nt z a liability = purposes (       
det]m9+ :e!r an ov]paym5t exi/s =       
purposes ( section #fdjb ( ! ,int]nal   
,rev5ue ,code ( #aihf be=e ! date on :i*
 su* in/allm5t is due1 or  7ii7 =       
purposes ( sections #fdbe1 #ffed1 &     
#ffee ( su* ,code1 be treat$ z a tax    
impos$ by section #a ( su* ,code1       

section #aa ( su* ,code1 or sub*apt] ,l 
( *apt] #a ( su* ,code1 &  7,b7 ! fir/  
s5t5ce ( section #fdjc ( su* ,code %all 
n apply ) respect to any su* in/allm5t4 
#ab4 ,adju/m5ts to basis ( p>tn]%ip     
prop]ty  7a7 ,section #ged elections    
limit$ to qualifi$ small bus9ess        
p>tn]%ips ,section #ged is am5d$-- 7#a7 
by /rik+ ,if a p>tn]%ip files an        
election & ins]t+ ! foll[+3  7a7 ,9     
g5]al ,if a p>tn]%ip :i* is a qualifi$  
small bus9ess p>tn]%ip files an election
  1  7#b7 by ins]t+ ) respect to :i* su*
 p>tn]%ip is a qualifi$ small bus9ess   
p>tn]%ip aft] all subsequ5t taxable     
ye>s1 &  7#c7 by add+ at ! end ! foll[+ 
new subsection3  7b7 ,qualifi$ small    
bus9ess p>tn]%ip ,= purposes ( ?is      
section-- 7#a7 ,9 g5]al ,! t]m qualifi$ 
small bus9ess p>tn]%ip means1 ) respect 
to any taxable ye>1 any p>tn]%ip :i*    
meets ! gross receipts te/ "u section   
#ddh7;c7 7det]m9$ ) ! modification      
describ$ 9 p>agraph 7#c77 = su* taxable 
ye>4  7#b7 ,exception n to apply to     

p>tn]%ips previ\sly fail+ te/ or tax    
%elt]s  7,a7 ,p>tn]%ips fail+ te/       
disqualifi$ prospectively ,if a p>tn]%ip
 fails to meet ! gross receipts te/     
describ$ 9 p>agraph 7#a7 = any taxable  
ye> :i* beg9s aft] ! date ( ! enactm5t (
 ?is subsection1 p>agraph 7#a7 %all n   
apply to su* p>tn]%ip 7or any successor7
 = su* taxable ye> or any succe$+       
taxable ye>4  7,b7 ,tax %elt]s ,p>agraph
 7#a7 %all n apply to a tax %elt]       
prohibit$ f us+ ! ca% receipts &        
disbursem5ts me?od ( acc\nt+ "u section 
#ddh7;a77#c71 except t1 = purposes (    
apply+ ?is subp>agraph1 a syndicate 7z  
def9$ 9 section #abef7;e77#c77;,b77 %all
 n be treat$ z a tax %elt]4  7#c7       
,modification ,9 apply+ section #eb7;b7 
to section #ddh7;c77#b7 = purposes ( ?is
 subsection1 ! t]m trade or bus9ess %all
 include any activity treat$ z a trade  
or bus9ess "u p>agraph 7#e7 or 7#f7 (   
section #dfi7;c7 7det]m9$ )\t reg>d to !
 phrase ,to ! ext5t provid$ 9           
regulations 9 su* p>agraph 7#f774  4    

7b7 ,adju/m5ts 9 ! case ( transf] (     
p>tn]%ip int]e/s  7#a7 ,9 g5]al ,section
 #gdc is am5d$-- 7,a7 by /rik+          
subsection 7a7 & ins]t+ ! foll[+3  7a7  
,g5]al rule  7#a7 ,adju/m5ts requir$    
,except z provid$ 9 p>agraph 7#b71 9 !  
case ( a transf] ( an int]e/ 9 a        
p>tn]%ip by sale or ex*ange or ^u ! dea?
 ( a p>tn]1 ! basis ( p>tn]%ip prop]ty  
%all be adju/$ z provid$ 9 subsection   
7b74  7#b7 ,exception = qualifi$ small  
bus9ess p>tn]%ips ,p>agraph 7#a7 %all n 
apply to a qualifi$ small bus9ess       
p>tn]%ip 7z def9$ 9 section #ged7;b77   
if-- 7,a7 ! election provid$ by section 
#ged 7relat+ to optional adju/m5t to    
basis ( p>tn]%ip prop]ty7 is n 9 effect 
) respect to su* p>tn]%ip1 &  7,b7 9 !  
case ( a transf]1 ! p>tn]%ip does n h a 
sub/antial built-9 loss imm$iately aft] 
su* transf]4  1 &  7,b7 9 subsection    
7b71 by /rik+ ) respect to :i* !        
election provid$ 9 section #ged is 9    
effect or :i* has a sub/antial built-9  
loss imm$iately aft] su* transf] &      

ins]t+ a p>tn]%ip :i* is requir$ to     
adju/ ! basis ( p>tn]%ip prop]ty "u     
subsection 7a74  7#b7 ,report+  7,a7 ,9 
g5]al ,section #fjej,k is am5d$-- 7i7 9 
subsection 7a71 by /rik+ describ$ 9     
section #gea7;a71  7ii7 9 subsection    
7c77#a71 by /rik+ ! p]iod at ! end &    
ins]t+ 1 ! am\nt receiv$1 & su* o!r     
in=mation z ! ,secret>y may require4    
,su* notification %all be furni%$ at su*
 "t & 9 su* mann] z ! ,secret>y may     
require41 &  7iii7 9 ! head+1 by /rik+  
c]ta94  7,b7 ,con=m+ am5dm5t ,! item    
relat+ to section #fjej,k 9 ! table (   
sections = subp>t ,b ( "p ,,iii (       
sub*apt] ,a ( *apt] #fa is am5d$ by     
/rik+ c]ta94  7#c7 ,con=m+ am5dm5ts     
7,a7 ,section #gcb7;d7 is am5d$ by /rik+
 8 int]e/ & ins]t+ an int]e/ 9 a        
qualifi$ small bus9ess p>tn]%ip 7z def9$
 9 section #gdc7;f774  7,b7 7i7 ,! head+
 = section #gdc is am5d$ to read z      
foll[s3 ,adju/m5t to basis ( p>tn]%ip   
prop]ty4  7ii7 ,section #gfa7;e77#b7 is 
am5d$ by /rik+ optional4  7iii7 ,! item 

relat+ to section #gdc 9 ! table (      
sections = subp>t ,c ( "p ,,ii (        
sub*apt] ,k ( *apt] #a is am5d$ to read 
z foll[s3  ,sec4 #gdc4 ,adju/m5t to     
basis ( p>tn]%ip prop]ty4  4  7c7       
,adju/m5ts to basis ( undi/ribut$       
p>tn]%ip prop]ty  7#a7 ,9 g5]al ,section
 #gcd is am5d$-- 7,a7 by r$esignat+     
subsections 7b7 ?r\gh 7e7 z subsections 
7c7 ?r\gh 7f71 respectively1 &  7,b7 by 
/rik+ subsection 7a7 & ins]t+ ! foll[+3 
7a7 ,g5]al rule  7#a7 ,m&atory adju/m5t 
,except z provid$ 9 p>agraph 7#b71 9 !  
case ( a di/ribution to a p>tn]1 !      
p>tn]%ip %all adju/ ! basis ( p>tn]%ip  
prop]ty 9 accordance ) subsection 7b74  
7#b7 ,special rule = qualifi$ small     
bus9ess p>tn]%ips ,9 ! case ( a         
di/ribution to a p>tn] by a qualifi$    
small bus9ess p>tn]%ip 7z def9$ 9       
section #ged7;b77-- 7,a7 if !re is an   
election provid$ 9 section #ged 9 effect
 ) respect to su* p>tn]%ip or if !re is 
a sub/antial basis r$uction ) respect to
 su* di/ribution1 ! p>tn]%ip %all adju/ 

! basis ( p>tn]%ip prop]ty 9 accordance 
) subsection 7c71 &  7,b7 if subp>agraph
 7,a7 does n apply1 no adju/m5t %all be 
made to ! basis ( p>tn]%ip prop]ty z !  
result ( su* di/ribution4  7b7 ,g5]al   
me?od ( adju/m5t  7#a7 ,9 g5]al ,9 !    
case ( any di/ribution to a p>tn] to :i*
 subsection 7a77#a7 applies1 ! p>tn]%ip 
%all adju/ ! basis ( p>tn]%ip prop]ty   
su* t ea* rema9+ p>tn]'s net liquidation
 am\nt imm$iately aft] su* di/ribution  
is equal to su* p>tn]'s net liquidation 
am\nt imm$iately be=e su* di/ribution4  
,= purposes ( ! prec$+ s5t5ce1 a p>tn]'s
 net liquidation am\nt imm$iately be=e a
 di/ribution %all be calculat$ aft] tak+
 into acc\nt any adju/m5t to ! basis (  
prop]ty requir$ by section              
#gjd7;c77#a77;,b7 or #gcg ) respect to  
su* di/ribution4  7#b7 ,di/ributions o!r
 ?an 9 liquidation ( a p>tn]'s int]e/   
7,a7 ,9 g5]al ,9 ! case ( any           
di/ribution to a p>tn] o!r ?an 9        
liquidation ( su* p>tn]'s int]e/1 prop] 
adju/m5t %all be made "u p>agraph 7#a7 )

 respect to su* p>tn] to take into      
acc\nt-- 7i7 ! am\nt ( any ga9 recogniz$
 by su* p>tn] ) respect to su*          
di/ribution "u section #gca7;a71 &  7ii7
 ! am\nt ( any ga9 or loss :i* w\ld be  
recogniz$ by su* p>tn] if su* p>tn] sold
 ! prop]ty di/ribut$ at fair m>ket value
 imm$iately aft] su* di/ribution4  7,b7 
,report+ ,! ,secret>y may require su*   
report+ z necess>y to c>ry out ?is      
subsection4  7#c7 ,net liquidation am\nt
 ,= purposes ( ?is subsection1 ! t]m net
 liquidation am\nt means1 ) respect to  
any p>tn]1 ! net am\nt ( ga9 or loss 7if
 any7 :i* w\ld be tak5 into acc\nt      
7includ+ ga9 or loss t w\ld be tak5 into
 acc\nt by reason ( subsections         
7c77#a77;,a71 7c77#a77;,c71 or 7f77#a7 (
 section #gjd7 by ! p>tn] if ! p>tn]%ip 
sold all ( its assets at fair m>ket     
value 7& no o!r am\nts 7 tak5 into      
acc\nt "u su* section74  4  7#b7 ,con=m+
 am5dm5ts  7,a7 ,section #gcd7;c71 z    
r$esignat$ by p>agraph 7#a71 is am5d$ by
 /rik+ by a p>tn]%ip ) respect to :i* ! 

election provid$ 9 section #ged is 9    
effect or ) respect to :i* !re is a     
sub/antial basis r$uction & ins]t+ by a 
p>tn]%ip to :i* subsection 7a77#b77;,a7 
applies4  7,b7 ,section #gcd7;d71 z     
r$esignat$ by p>agraph 7#a71 is am5d$ by
 /rik+ subsection 7b7 & ins]t+          
subsection 7b7 or 7c74  7,c7 ,section   
#gee is am5d$-- 7i7 9 subsection 7a71 by
 /rik+ section #gcd7;b7 7relat+ to      
optional adju/m5t to ! basis (          
undi/ribut$ p>tn]%ip prop]ty7 & ins]t+  
subsection 7b7 or 7c7 ( section #gcd    
7relat+ to adju/m5t to basis (          
undi/ribut$ p>tn]%ip prop]ty71 &  7ii7 9
 subsection 7c71 by /rik+ section       
#gcd7;b7 & ins]t+ subsection 7b7 or 7c7 
( section #gcd4  7,d7 7i7 ,! head+ =    
section #gcd is am5d$ by /rik+ :]e      
section #ged election or sub/antial     
basis r$uction4  7ii7 ,! item relat+ to 
section #gcd 9 ! table ( sections =     
subp>t ,b ( "p ,,ii ( sub*apt] ,k (     
*apt] #a is am5d$ by /rik+ :]e section  
#ged election or sub/antial basis       

r$uction4  7d7 ,effective date ,!       
am5dm5ts made by ?is section %all apply 
to di/ributions aft] ! date ( ! enactm5t
 ( ?is ,act4  #ac4 ,application ( net   
inve/m5t income tax to trade or bus9ess 
income ( c]ta9 high income individuals  
7a7 ,9 g5]al ,section #adaa is am5d$ by 
add+ at ! end ! foll[+ new subsection3  
7f7 ,application to c]ta9 high income   
individuals  7#a7 ,9 g5]al ,9 ! case (  
any individual ^: modifi$ adju/$ gross  
income = ! taxable ye> exce$s ! high    
income ?re%old am\nt1 subsection 7a77#a7
 %all be appli$ by sub/itut+ ! great] ( 
specifi$ net income or net inve/m5t     
income = net inve/m5t income 9          
subp>agraph 7,a7 !re(4  7#b7 ,phase-9 ( 
increase ,! increase 9 ! tax impos$ "u  
subsection 7a77#a7 by reason ( !        
application ( p>agraph 7#a7 ( ?is       
subsection %all n exce$ ! am\nt :i* be>s
 ! same ratio to ! am\nt ( su* increase 
7det]m9$ )\t reg>d to ?is p>agraph7 z-- 
7,a7 ! excess describ$ 9 p>agraph 7#a71 
be>s to  7,b7 #ajj1jjj 7#a_/b su* am\nt 

9 ! case ( a m>ri$ taxpay] 7z def9$ 9   
section #ggjc7 fil+ a sep>ate return74  
7#c7 ,high income ?re%old am\nt ,=      
purposes ( ?is subsection1 ! t]m high   
income ?re%old am\nt means-- 7,a7 except
 z provid$ 9 subp>agraph 7,b7 or 7,c71  
#djj1jjj1  7,b7 9 ! case ( a taxpay]    
mak+ a jo9t return "u section #fjac or a
 surviv+ sp\se 7z def9$ 9 section       
#b7;a771 #ejj1jjj1 &  7,c7 9 ! case ( a 
m>ri$ taxpay] 7z def9$ 9 section #ggjc7 
fil+ a sep>ate return1 #a_/b ( ! doll>  
am\nt det]m9$ "u subp>agraph 7,b74  7#d7
 ,specifi$ net income ,= purposes ( ?is 
section1 ! t]m specifi$ net income means
 net inve/m5t income det]m9$-- 7,a7 )\t 
reg>d to ! phrase o!r ?an su* income :i*
 is d]iv$ 9 ! ord9>y c\rse ( a trade or 
bus9ess n describ$ 9 p>agraph 7#b71 9   
subsection 7c77#a77;,a77i71  7,b7 )\t   
reg>d to ! phrase describ$ 9 p>agraph   
7#b7 9 subsection 7c77#a77;,a77ii71     
7,c7 )\t reg>d to ! phrase o!r ?an      
prop]ty held 9 a trade or bus9ess n     
describ$ 9 p>agraph 7#b7 9 subsection   

7c77#a77;,a77iii71  7,d7 )\t reg>d to   
p>agraphs 7#b71 7#c71 & 7#d7 (          
subsection 7c71 &  7,e7 by treat+       
p>agraphs 7#e7 & 7#f7 ( section #dfi7;c7
 7det]m9$ )\t reg>d to ! phrase ,to !   
ext5t provid$ 9 regulations1 9 su*      
p>agraph 7#f77 z apply+ = purposes (    
subsection 7c7 ( ?is section4  4  7b7   
,application to tru/s & e/ates ,section 
#adaa7;a77#b77;,a7 is am5d$ by /rik+    
undi/ribut$ net inve/m5t income & ins]t+
 ! great] ( undi/ribut$ specifi$ net    
income or undi/ribut$ net inve/m5t      
income4  7c7 ,cl>ifications ) respect to
 det]m9ation ( net inve/m5t income  7#a7
 ,c]ta9 exceptions ,section             
#adaa7;c77#f7 is am5d$ to read z foll[s3
  7#f7 ,special rules ,net inve/m5t     
income %all n include-- 7,a7 any item   
tak5 into acc\nt 9 det]m9+              
self-employm5t income = su* taxable ye> 
on :i* a tax is impos$ by section       
#adja7;b71  7,b7 wages receiv$ ) respect
 to employm5t on :i* a tax is impos$ "u 
section #caja7;b7 7det]m9$ )\t reg>d to 

section #caja7;c77 or #cbja7;a7 7includ+
 am\nts tak5 into acc\nt "u section     
#caba7v77#b771 &  7,c7 wages receiv$ f !
 p]=mance ( s]vices e>n$ outside !      
,unit$ ,/ates = a =eign employ]4  4     
7#b7 ,net op]at+ losses n tak5 into     
acc\nt ,section #adaa7;c77#a77;,b7 is   
am5d$ by ins]t+ 7o!r ?an section #agb7  
aft] ?is subtitle4  7#c7 ,inclusion (   
c]ta9 =eign income  7,a7 ,9 g5]al       
,section #adaa7;c77#a77;,a7 is am5d$ by 
/rik+ & at ! end ( clause 7ii71 by /rik+
 ov] at ! end ( clause 7iii7 & ins]t+ &1
 & by add+ at ! end ! foll[+ new clause3
  7iv7 any am\nt includible 9 gross     
income "u section #iea1 #iea;,a1 #abic1 
or #abif1 ov]  4  7,b7 ,prop] treatm5t (
 c]ta9 previ\sly tax$ income ,section   
#adaa7;c7 is am5d$ by add+ at ! end !   
foll[+ new p>agraph3  7#g7 ,c]ta9       
previ\sly tax$ income ,! ,secret>y %all 
issue regulations or o!r guidance       
provid+ = ! treatm5t (-- 7,a7           
di/ributions ( am\nts previ\sly includ$ 
9 gross income = purposes ( *apt] #a b n

 previ\sly subject to tax "u ?is        
section1 &  7,b7 di/ributions describ$ 9
 section #ifb7;d74  4  7d7 ,effective   
date ,! am5dm5ts made by ?is section    
%all apply to taxable ye>s beg9n+ aft] !
 date ( ! enactm5t ( ?is ,act4  7e7     
,transition rule ,! regulations or o!r  
guidance issu$ by ! ,secret>y "u section
 #adaa7;c77#g7 ( ! ,int]nal ,rev5ue     
,code ( #aihf 7z add$ by ?is section7   
%all include provisions :i* provide = ! 
prop] coord9ation & application (       
clauses 7i7 & 7iv7 ( section            
#adaa7;c77#a77;,a7 ) respect to-- 7#a7  
taxable ye>s beg9n+ on or be=e ! date ( 
! enactm5t ( ?is ,act1 &  7#b7 taxable  
ye>s beg9n+ aft] su* date4  #ad4        
,recognition ( ga9 on transf]s to swap  
funds  7a7 ,int]e/s simil> to pref]r$   
/ock treat$ z /ock ,clause 7vi7 (       
section #cea7;e77#a77;,b7 is am5d$ to   
read z foll[s3  7vi7 except z o!rwise   
provid$ 9 regulations prescrib$ by !    
,secret>y-- 7,i7 any int]e/ 9 an entity 
if ! return on su* int]e/ is limit$ &   

pref]r$1 &  7,,ii7 int]e/s 7n describ$ 9
 subclause 7,i77 9 any entity if        
sub/antially all ( ! assets ( su* entity
 consi/ 7directly or indirectly7 ( any  
assets describ$ 9 subclause 7,i71 any   
prec$+ clause1 or clause 7viii74  4  7b7
 ,c]ta9 transf]s deem$ ,to be to        
inve/m5t companies ,subsection 7e7 (    
section #cea is am5d$ by add+ at ! end !
 foll[+ new p>agraph3  7#c7 ,transf]s ( 
m>ketable securities to c]ta9           
corporations ,a transf] ( prop]ty to a  
corporation if-- 7,a7 su* prop]ty is    
m>ketable securities 7z def9$ 9 section 
#gca7;c77#b771 &  7,b7 su* corporation--
 7i7 is regi/]$ "u ! ,inve/m5t ,company 
,act ( #aidj z an inve/m5t company1 or  
is exempt f regi/ration z a inve/m5t    
company "u section #c7;c77#g7 ( su* ,act
 because int]e/s 9 su* corporation are  
(f]$ to qualifi$ pur*as]s )9 ! mean+ (  
section #b7;a77#ea7 ( su* ,act1 or  7ii7
 all[s p]sons :o h blocks ( m>ketable   
securities ) significant unrealiz$      
appreciation to div]sify ^? hold+s4  4  

7c7 ,transf]s to p>tn]%ips ,subsection  
7b7 ( section #gba is am5d$ to read z   
foll[s3  7b7 ,special rule ,subsection  
7a7 %all n apply to ga9 realiz$ on a    
transf] ( prop]ty to a p>tn]%ip if1 7 ! 
p>tn]%ip incorporat$-- 7#a7 su* p>tn]%ip
 w\ld be treat$ z an inve/m5t company   
7)9 ! mean+ ( section #cea71 or  7#b7   
section #cea w\ld n apply to su* transf]
 by reason ( section #cea7;e77#c74  4   
7d7 ,effective date ,! am5dm5ts made by 
?is section %all apply to transf]s aft] 
! date ( ! enactm5t ( ?is ,act4  #ae4   
,modifications to treatm5t ( c]ta9      
losses  7a7 ,losses f c]ta9 capital     
assets :i* become wor?less  7#a7 ,:5    
treat$ z loss ,section #afe7;g77#a7 is  
am5d$ by /rik+ on ! la/ day ( ! taxable 
ye> & ins]t+ at ! "t ( ! id5tifiable    
ev5t e/abli%+ wor?lessness4  7#b7       
,treatm5t ( p>tn]%ip indebt$ness        
,section #afe7;g77#b77;,c7 is am5d$ by  
ins]t+ 1 by a p>tn]%ip1 aft] by a       
corporation4  7#c7 ,treatm5t ( ab&onm5t 
,section #afe7;g7 is am5d$ by add+ at ! 

end ! foll[+ new p>agraph3  7#d7        
,treatm5t ( ab&onm5t ,= purposes ( ?is  
subsection & subsection 7m71 ab&onm5t   
%all be treat$ z an id5tifiable ev5t    
e/abli%+ wor?lessness4  4  7#d7         
,treatm5t ( p>tn]%ip int]e/ ,section    
#afe is am5d$ by r$esignat+ subsection  
7m7 z subsection 7n7 & by ins]t+ aft]   
subsection 7l7 ! foll[+ new subsection3 
7m7 ,wor?less p>tn]%ip int]e/ ,if any   
int]e/ 9 a p>tn]%ip becomes wor?less    
dur+ ! taxable ye>1 ! loss result+      
!refrom %all1 = purposes ( ?is subtitle1
 be treat$ z a loss f ! sale or ex*ange 
( ! int]e/ 9 ! p>tn]%ip at ! "t ( !     
id5tifiable ev5t e/abli%+ wor?lessness4 
4  7b7 ,effective date ,! am5dm5ts made 
by ?is section %all apply to losses     
aris+ 9 taxable ye>s beg9n+ aft] ! date 
( ! enactm5t ( ?is ,act4  #af4          
,codification ( anti-abuse rule  7a7 ,9 
g5]al ,section #gja is am5d$-- 7#a7 by  
/rik+ ,a p>tn]%ip & ins]t+ ! foll[+3    
7a7 ,9 g5]al ,a p>tn]%ip  1 &  7#b7 by  
add+ at ! end ! foll[+ new subsection3  

7b7 ,regulations ,"u regulations        
e/abli%$ by ! ,secret>y1 9 ! case ( a   
transaction involv+ a p>tn]%ip1 !       
,secret>y may reca/1 disreg>d1 or       
o!rwise modify su* transaction =        
purposes ( ! ,int]nal ,rev5ue ,code (   
#aihf unless-- 7#a7 ! tax consequ5ces to
 ea* p>tn] & ! p>tn]%ip reflect !       
p>tn]s' economic agreem5t & cle>ly      
reflect ! p>tn]s' income1  7#b7 ! =m (  
su* transaction is consi/5t ) x         
sub/ance1 &  7#c7 !re is a sub/antial   
purpose 7ap>t f ,f$]al income tax       
effects7 = ent]+ into su* transaction4  
4  7b7 ,no inf]5ce ,no?+ 9 ?is section  
or ! am5dm5ts made by ?is section %all  
be con/ru$ to create any inf]5ce )      
respect to ! au?ority ( ! ,secret>y ( ! 
,treasury 7or ! ,secret>y's delegate7 to
 regulate transactions describ$ 9       
section #gja7;b7 ( ! ,int]nal ,rev5ue   
,code 7z add$ by subsection 7a77 )\t    
reg>d to ! provisions ( su* section4