II 110th CONGRESS 1st Session S. 1624 IN THE SENATE OF THE UNITED STATES June 14, 2007 Mr. Baucus (for himself and Mr. Grassley) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to provide that the exception from the treatment of publicly traded partnerships as corporations for partnerships with passive-type income shall not apply to partnerships directly or indirectly deriving income from providing investment adviser and related asset management services.

1.

Exception from treatment of publicly traded partnerships as corporations not to apply to partnerships directly or indirectly deriving income from providing investment adviser and related asset management services

(a)

In general

Section 7704(c) of the Internal Revenue Code of 1986 (relating to exception for partnerships with passive-type income) is amended by adding at the end the following new paragraph: (4)

Exception not to apply to partnerships providing certain investment adviser and related asset management services

This subsection shall not apply to any partnership which directly or indirectly has any item of income or gain (including capital gains or dividends), the rights to which are derived from— (A)services provided by any person as an investment adviser (as defined in section 202(a)(11) of the Investment Advisers Act of 1940, 15 U.S.C. 80b–2(a)(11)) or as a person associated with an investment adviser (as defined in section 202(a)(17) of the Investment Advisers Act of 1940, 15 U.S.C. 80b–2(a)(17)), or (B)asset management services provided by any person described in subparagraph (A) (or any related person) in connection with the management of assets with respect to which services described in subparagraph (A) were provided. For purposes of subparagraph (A), the determination as to whether services provided by any person were provided as an investment adviser shall be made without regard to whether the person is required to register as an investment adviser under the Investment Advisers Act of 1940.. (b)

Effective date

(1)

In general

Except as provided in paragraph (2), the amendment made by this section shall apply to taxable years of a partnership beginning on or after June 14, 2007. (2)

Transition rule for certain partnerships

In the case of a partnership— (A)the interests in which on June 14, 2007, were— (i)traded on an established securities market, or (ii)readily tradeable on a secondary market (or the substantial equivalent thereof), or (B)which, on or before June 14, 2007, filed a registration statement with the Securities and Exchange Commission under section 6 of the Securities Act of 1933 (15 U.S.C. 77f) which was required solely by reason of an initial public offering of interests in the partnership, the amendment made by this section shall apply to taxable years of the partnership beginning on or after June 14, 2012. Subparagraph (B) shall not apply to a registration statement which is filed with respect to securities which are to be issued on a delayed or continuous basis (as determined under the rules of the Securities and Exchange Commission promulgated under such Act).