[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2936 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 2936

To amend title XXI of the Social Security Act to reauthorize the State 
   Children's Health Insurance Program, to limit income eligibility 
    expansions under that program until the lowest income eligible 
           individuals are enrolled, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 29, 2008

   Mrs. Dole introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend title XXI of the Social Security Act to reauthorize the State 
   Children's Health Insurance Program, to limit income eligibility 
    expansions under that program until the lowest income eligible 
           individuals are enrolled, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Responsible 
Expansion of the State Children's Health Insurance Program Act of 
2008''.
    (b) References to SCHIP; Secretary.--In this Act:
            (1) SCHIP.--The term ``SCHIP'' means the State Children's 
        Health Insurance Program established under title XXI of the 
        Social Security Act (42 U.S.C. 1397aa et seq.).
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendments to Social Security Act; references; 
                            table of contents.
                     TITLE I--SCHIP REAUTHORIZATION

Sec. 101. Reauthorization through fiscal year 2013.
Sec. 102. Requiring outreach and coverage before expansion of 
                            eligibility.
Sec. 103. Application of DRA Medicaid citizenship documentation 
                            requirements to SCHIP.
Sec. 104. Phase-out of coverage for nonpregnant adults under SCHIP.
Sec. 105. Preventing substitution of SCHIP coverage for private 
                            coverage.
                      TITLE II--REVENUE PROVISIONS

Sec. 201. Nonqualified deferred compensation from certain tax 
                            indifferent parties.
Sec. 202. Income of partners for performing investment management 
                            services treated as ordinary income 
                            received for performance of services.

                     TITLE I--SCHIP REAUTHORIZATION

SEC. 101. REAUTHORIZATION THROUGH FISCAL YEAR 2013.

    (a) In General.--Section 2104 of the Social Security Act (42 U.S.C. 
1397dd(a)), as amended by section 201(a)(1) of the Medicare, Medicaid, 
and SCHIP Extension Act of 2007 (Public Law 110-173) is amended--
            (1) in subsection (a)--
                    (A) by striking ``and'' at the end of paragraph 
                (10);
                    (B) in paragraph (11)--
                            (i) by striking ``each of fiscal years 2008 
                        and 2009'' and inserting ``fiscal year 2008''; 
                        and
                            (ii) by striking the period at the end and 
                        inserting a semicolon; and
                    (C) by adding at the end the following new 
                paragraphs:
            ``(12) for fiscal year 2009, $7,000,000,000;
            ``(13) for fiscal year 2010, $8,000,000,000; and
            ``(14) for each of fiscal years 2011 through 2013, 
        $9,000,000,000.''; and
            (2) in subsection (c)(4)(B), by striking ``2009'' and 
        inserting ``2013''.
    (b) Repeal of Limitation on Availability of Funding for Fiscal 
Years 2008 and 2009.--Section 201 of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 (Public Law 110-173) is amended--
            (1) in subsection (a), by striking paragraph (2) and 
        redesignating paragraphs (3) and (4), as paragraphs (2) and (3) 
        respectively; and
            (2) in subsection (b), by striking paragraph (2) and 
        redesignating paragraph (3) as paragraph (2).

SEC. 102. REQUIRING OUTREACH AND COVERAGE BEFORE EXPANSION OF 
              ELIGIBILITY.

    (a) State Plan Required To Specify How It Will Achieve Coverage for 
85 Percent of Targeted Low-Income Children.--
            (1) In general.--Section 2102(a) of the Social Security Act 
        (42 U.S.C. 1397bb(a)) is amended--
                    (A) in paragraph (6), by striking ``and'' at the 
                end;
                    (B) in paragraph (7), by striking the period at the 
                end and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(8) how the eligibility and benefits provided for under 
        the plan for each fiscal year (beginning with fiscal year 2009) 
        will allow for the State's annual funding allotment to cover at 
        least 85 percent of the eligible targeted low-income children 
        in the State.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to State child health plans for fiscal years 
        beginning with fiscal year 2009.
    (b) Limitation on Program Expansions Until Lowest Income Eligible 
Individuals Enrolled.--Section 2105(c) of such Act (42 U.S.C. 
1397dd(c)) is amended by adding at the end the following new paragraph:
            ``(8) Limitation on increased coverage of higher income 
        children.--For child health assistance furnished in any fiscal 
        year beginning with fiscal year 2009:
                    ``(A) No payment for children with family income 
                above 300 percent of poverty line.--Payment shall not 
                be made under this section for child health assistance 
                for a targeted low-income child in a family the income 
                of which exceeds 300 percent of the poverty line 
                applicable to a family of the size involved.
                    ``(B) Special rules for payment for children with 
                family income above 200 percent of poverty line.--In 
                the case of child health assistance for a targeted low-
                income child in a family the income of which exceeds 
                200 percent (but does not exceed 300 percent) of the 
                poverty line applicable to a family of the size 
                involved no payment shall be made under this section 
                for such assistance unless the State demonstrates to 
                the satisfaction of the Secretary that--
                            ``(i) the State has met the 85 percent 
                        retrospective coverage test specified in 
                        subparagraph (C)(i) for the previous fiscal 
                        year; and
                            ``(ii) the State will meet the 85 percent 
                        prospective coverage test specified in 
                        subparagraph (C)(ii) for the fiscal year.
                    ``(C) 85 percent coverage tests.--
                            ``(i) Retrospective test.--The 85 percent 
                        retrospective coverage test specified in this 
                        clause is, for a State for a fiscal year, that 
                        on average during the fiscal year, the State 
                        has enrolled under this title or title XIX at 
                        least 85 percent of the individuals residing in 
                        the State who--
                                    ``(I) are children under 19 years 
                                of age (or are pregnant women) and are 
                                eligible for medical assistance under 
                                title XIX; or
                                    ``(II) are targeted low-income 
                                children whose family income does not 
                                exceed 200 percent of the poverty line 
                                and who are eligible for child health 
                                assistance under this title.
                            ``(ii) Prospective test.--The 85 percent 
                        prospective test specified in this clause is, 
                        for a State for a fiscal year, that on average 
                        during the fiscal year, the State will enroll 
                        under this title or title XIX at least 85 
                        percent of the individuals residing in the 
                        State who--
                                    ``(I) are children under 19 years 
                                of age (or are pregnant women) and are 
                                eligible for medical assistance under 
                                title XIX; or
                                    ``(II) are targeted low-income 
                                children whose family income does not 
                                exceed such percent of the poverty line 
                                (in excess of 200 percent) as the State 
                                elects consistent with this paragraph 
                                and who are eligible for child health 
                                assistance under this title.
                    ``(D) Phase-in requirement for expanded coverage if 
                85 percent tests met for low-income coverage.--With 
                respect to a fiscal year, if a State meets both of the 
                coverage tests specified in clauses (i) and (ii) of 
                subparagraph (C) for such year--
                            ``(i) payment may be made to the State 
                        under this section for child health assistance 
                        for a targeted low-income child in a family the 
                        income of which exceeds 200 percent, but does 
                        not exceed 250 percent poverty line applicable 
                        to a family of the size involved; and
                            ``(ii) payment may be made to the State 
                        under this section child health assistance for 
                        a targeted low-income child in a family the 
                        income of which 250 percent, but does not 
                        exceed 300 percent of the poverty line 
                        applicable to a family of the size involved 
                        only if the State can also meet the 
                        retrospective test applied under clause (i) of 
                        subparagraph (C) for the previous fiscal year 
                        by substituting `250' for `200' in subclause 
                        (II) of such clause.
                    ``(E) Treatment of pregnant women.--In this 
                paragraph and sections 2102(a)(8) and 2104(a)(2), the 
                term `targeted low-income child' includes an individual 
                under age 19, including the period from conception to 
                birth, who is eligible for child health assistance 
                under this title by virtue of the definition of the 
                term `child' under section 457.10 of title 42, Code of 
                Federal Regulations.''.
    (c) Standardization of Income Determinations.--
            (1) In general.--Section 2110(d) of such Act (42 U.S.C. 
        1397jj) is amended by adding at the end the following new 
        subsection:
    ``(d) Standardization of Income Determinations.--In determining 
family income under this title (including in the case of a State child 
health plan that provides health benefits coverage in the manner 
described in section 2101(a)(2)), a State shall base such determination 
on gross income (including amounts that would be included in gross 
income if they were not exempt from income taxation) and may only take 
into consideration such income disregards as the Secretary shall 
develop and specify on a uniform national basis.''.
            (2) Effective date.--(A) Subject to subparagraph (B), the 
        amendment made by paragraph (1) shall apply to determinations 
        (and redeterminations) of income made on or after October 1, 
        2008.
            (B) In the case of a State child health plan under title 
        XXI of the Social Security Act which the Secretary of Health 
        and Human Services determines requires State legislation (other 
        than legislation appropriating funds) in order for the plan to 
        meet the additional requirement imposed by the amendment made 
        by paragraph (1), the State child health plan shall not be 
        regarded as failing to comply with the requirements of such 
        title solely on the basis of its failure to meet this 
        additional requirement before the first day of the first 
        calendar quarter beginning after the close of the first regular 
        session of the State legislature that begins after the date of 
        the enactment of this Act. For purposes of the previous 
        sentence, in the case of a State that has a 2-year legislative 
        session, each year of such session shall be deemed to be a 
        separate regular session of the State legislature.

SEC. 103. APPLICATION OF DRA MEDICAID CITIZENSHIP DOCUMENTATION 
              REQUIREMENTS TO SCHIP.

    (a) In General.--Section 2105(c) of the Social Security Act (42 
U.S.C. 1397dd(c)), as amended by section 102(b), is amended by adding 
at the end the following new paragraph:
            ``(9) Application of citizenship documentation 
        requirements.--
                    ``(A) In general.--Subject to subparagraph (B), no 
                payment may be made under this section to a State with 
                respect to amounts expended for child health assistance 
                for an individual who declares under section 
                1137(d)(1)(A) to be a citizen or national of the United 
                States for purposes of establishing eligibility for 
                benefits under this title, unless the requirement of 
                section 1903(x) is met.
                    ``(B) Treatment of pregnant women.--For purposes of 
                applying subparagraph (A) in the case of a pregnant 
                woman who qualifies for child health assistance by 
                virtue of the application of section 457.10 of title 
                42, Code of Federal Regulations, the requirement of 
                section 1903(x) shall be deemed to be satisfied by the 
                presentation of documentation of personal identity 
                described in section 274A(b)(1)(D) of the Immigration 
                and Nationality Act or any other documentation of 
                personal identity of such other type as the Secretary 
                finds, by regulation, provides a reliable means of 
                identification.''.
    (b) Effective Date.--The amendment made by paragraph (1) shall 
apply to eligibility determinations and redeterminations made after the 
date of enactment of this Act.

SEC. 104. PHASE-OUT OF COVERAGE FOR NONPREGNANT ADULTS UNDER SCHIP.

    (a) In General.--Title XXI of the Social Security Act (42 U.S.C. 
1397aa et seq.) is amended by adding at the end the following new 
section:

``SEC. 2111. PHASE-OUT OF COVERAGE FOR NONPREGNANT ADULTS.

    ``(a) Termination of Coverage for Nonpregnant Adults.--
            ``(1) No new schip waivers; automatic extensions at state 
        option through december 2008.--Notwithstanding section 1115 or 
        any other provision of this title, except as provided in this 
        subsection--
                    ``(A) the Secretary shall not on or after the date 
                of the enactment of the Responsible Expansion of the 
                State Children's Health Insurance Program Act of 2008, 
                approve or renew a waiver, experimental, pilot, or 
                demonstration project that would allow funds made 
                available under this title to be used to provide child 
                health assistance or other health benefits coverage to 
                a nonpregnant adult; and
                    ``(B) notwithstanding the terms and conditions of 
                an applicable existing waiver, the provisions of 
                paragraph (2) shall apply for purposes of any period 
                beginning on or after January 1, 2009, in determining 
                the period to which the waiver applies, the individuals 
                eligible to be covered by the waiver, and the amount of 
                the Federal payment under this title.
            ``(2) Termination of schip coverage under applicable 
        existing waivers at the end of 2008.--
                    ``(A) In general.--No funds shall be available 
                under this title for child health assistance or other 
                health benefits coverage that is provided to a 
                nonpregnant adult under an applicable existing waiver 
                after December 31, 2008.
                    ``(B) Extension upon state request.--If an 
                applicable existing waiver described in subparagraph 
                (A) would otherwise expire before January 1, 2009, and 
                the State requests an extension of such waiver, the 
                Secretary shall grant such an extension, but only 
                through December 31, 2008.
                    ``(C) Application of enhanced fmap.--The enhanced 
                FMAP determined under section 2105(b) shall apply to 
                expenditures under an applicable existing waiver for 
                the provision of child health assistance or other 
                health benefits coverage to a nonpregnant childless 
                adult during the period beginning on the date of the 
                enactment of this subsection and ending on December 31, 
                2008.
    ``(b) Applicable Existing Waiver.--For purposes of this section--
            ``(1) In general.--The term `applicable existing waiver' 
        means a waiver, experimental, pilot, or demonstration project 
        under section 1115, grandfathered under section 6102(c)(3) of 
        the Deficit Reduction Act of 2005, or otherwise conducted under 
        authority that--
                    ``(A) would allow funds made available under this 
                title to be used to provide child health assistance or 
                other health benefits coverage to--
                            ``(i) a parent of a targeted low-income 
                        child;
                            ``(ii) a nonpregnant childless adult; or
                            ``(iii) individuals described in both 
                        clauses (i) and (ii); and
                    ``(B) was in effect on October 1, 2007.
            ``(2) Definitions.--The term `nonpregnant adult' means any 
        individual who is not a targeted low-income pregnant woman (as 
        defined in section 2112(d)(2)) or a targeted low-income 
        child.''.
    (b) Conforming Amendments.--
            (1) Section 2107(f) of such Act (42 U.S.C. 1397gg(f)) is 
        amended--
                    (A) by striking ``, the Secretary'' and inserting 
                ``:
            ``(1) The Secretary'';
                    (B) in the first sentence, by striking 
                ``childless'';
                    (C) by striking the second sentence; and
                    (D) by adding at the end the following new 
                paragraph:
            ``(2) The Secretary may not approve, extend, renew, or 
        amend a waiver, experimental, pilot, or demonstration project 
        with respect to a State after the date of enactment of the 
        Responsible Expansion of the State Children's Health Insurance 
        Program Act of 2008 that would waive or modify the requirements 
        of section 2111.''.
            (2) Section 6102(c) of the Deficit Reduction Act of 2005 
        (Public Law 109-171; 120 Stat. 131) is amended by striking 
        ``Nothing'' and inserting ``Subject to section 2111 of the 
        Social Security Act, as added by section 104 of the Responsible 
        Expansion of the State Children's Health Insurance Program Act 
        of 2008, nothing''.

SEC. 105. PREVENTING SUBSTITUTION OF SCHIP COVERAGE FOR PRIVATE 
              COVERAGE.

    (a) Findings.--
            (1) Congress agrees with the President that low-income 
        children should be the first priority of all States in 
        providing child health assistance under SCHIP.
            (2) Congress agrees with the President and the 
        Congressional Budget Office that the substitution of SCHIP 
        coverage for private coverage occurs more frequently for 
        children in families at higher income levels.
            (3) Congress agrees with the President that it is 
        appropriate that States that expand SCHIP eligibility to 
        children at higher income levels should have achieved a high 
        level of health benefits coverage for low-income children and 
        should implement strategies to address such substitution.
            (4) Congress concludes that the policies specified in this 
        section (and the amendments made by this section) are the 
        appropriate policies to address these issues.
    (b) Analyses of Best Practices and Methodology in Addressing Crowd-
Out.--
            (1) GAO report.--Not later than 18 months after the date of 
        the enactment of this Act, the Comptroller General of the 
        United States shall submit to the Committee on Finance of the 
        Senate and the Committee on Energy and Commerce of the House of 
        Representatives and the Secretary a report describing the best 
        practices by States in addressing the issue of SCHIP crowd-out. 
        Such report shall include--
                    (A) analyses of--
                            (i) the impact of different geographic 
                        areas, including urban and rural areas, on 
                        SCHIP crowd-out;
                            (ii) the impact of different State labor 
                        markets on SCHIP crowd-out;
                            (iii) the impact of different strategies 
                        for addressing SCHIP crowd-out;
                            (iv) the incidence of crowd-out for 
                        children with different levels of family 
                        income; and
                            (v) the relationship (if any) between 
                        changes in the availability and affordability 
                        of dependent coverage under employer-sponsored 
                        health insurance and SCHIP crowd-out; and
                    (B) recommendations for such legislative changes as 
                the Comptroller General determines are likely to most 
                effective for addressing the issue of SCHIP crowd-out, 
                together with proposed legislative language.
            (2) IOM report on methodology.--The Secretary shall enter 
        into an arrangement with the Institute of Medicine under which 
        the Institute submits to the Committee on Finance of the Senate 
        and the Committee on Energy and Commerce of the House of 
        Representatives and the Secretary, not later than 18 months 
        after the date of the enactment of this Act, a report on--
                    (A) the most accurate, reliable, and timely way to 
                measure--
                            (i) on a State-by-State basis, the rate of 
                        public and private health benefits coverage 
                        among low-income children with family income 
                        that does not exceed 200 percent of the poverty 
                        line; and
                            (ii) SCHIP crowd-out, including in the case 
                        of children with family income that exceeds 200 
                        percent of the poverty line; and
                    (B) the least burdensome way to gather the 
                necessary data to conduct the measurements described in 
                subparagraph (A).
        Out of any money in the Treasury not otherwise appropriated, 
        there are hereby appropriated $2,000,000 to carry out this 
        paragraph for the period ending September 30, 2009.
            (3) Incorporation of definitions.--In this section, the 
        terms ``SCHIP crowd-out'', ``children'', ``poverty line'', and 
        ``State'' have the meanings given such terms for purposes of 
        SCHIP.
            (4) Definition of schip crowd-out.--Section 2110(c) of the 
        Social Security Act (42 U.S.C. 1397jj(c)) is amended by adding 
        at the end the following:
            ``(9) SCHIP crowd-out.--The term `SCHIP crowd-out' means 
        the substitution of--
                    ``(A) health benefits coverage for a child under 
                this title, for
                    ``(B) health benefits coverage for the child other 
                than under this title or title XIX.''.
    (c) Development of Best Practice Recommendations.--Section 2107 of 
such Act (42 U.S.C. 1397gg) is amended by adding at the end the 
following:
    ``(g) Development of Best Practice Recommendations.--Within 6 
months after the date of receipt of the reports under subsections (a) 
and (b) of section 105 of the Responsible Expansion of the State 
Children's Health Insurance Program Act of 2008, the Secretary, in 
consultation with States, including Medicaid and SCHIP directors in 
States, shall publish in the Federal Register, and post on the public 
website for the Department of Health and Human Services--
            ``(1) recommendations regarding best practices for States 
        to use to address SCHIP crowd-out; and
            ``(2) uniform standards for data collection by States to 
        measure and report--
                    ``(A) health benefits coverage for children with 
                family income below 200 percent of the poverty line; 
                and
                    ``(B) on SCHIP crowd-out, including for children 
                with family income that exceeds 200 percent of the 
                poverty line.
The Secretary, in consultation with States, including Medicaid and 
SCHIP directors in States, may from time to time update the best 
practice recommendations and uniform standards set published under 
paragraphs (1) and (2) and shall provide for publication and posting of 
such updated recommendations and standards.''.
    (d) Requirement To Address SCHIP Crowd-Out; Secretarial Review.--
Section 2106 of such Act (42 U.S.C. 1397ff) is amended by adding at the 
end the following:
    ``(f) Requirement To Address SCHIP Crowd-Out; Secretarial Review.--
            ``(1) In general.--Not later than 6 months after the best 
        practice application date described in paragraph (2), each 
        State that has a State child health plan shall submit to the 
        Secretary a State plan amendment describing how the State--
                    ``(A) will address SCHIP crowd-out; and
                    ``(B) will incorporate recommended best practices 
                referred to in such paragraph.
            ``(2) Best practice application date.--The best practice 
        application date described in this paragraph is the date that 
        is 6 months after the date of publication of recommendations 
        regarding best practices under section 2107(g)(1).
            ``(3) Secretarial review.--The Secretary shall--
                    ``(A) review each State plan amendment submitted 
                under paragraph (1);
                    ``(B) determine whether the amendment incorporates 
                recommended best practices referred to in paragraph 
                (2);
                    ``(C) in the case of a higher income eligibility 
                State (as defined in section 2105(c)(10)(B)), determine 
                whether the State meets the enrollment targets required 
                under reference section 2105(c)(10)(C); and
                    ``(D) notify the State of such determinations.''.
    (e) Limitation on Payments for States Covering Higher Income 
Children.--
            (1) In general.--Section 2105(c) of such Act (42 U.S.C. 
        1397ee(c)), as amended by sections 102(b) and 103(a), is 
        amended by adding at the end the following new paragraph:
            ``(10) Limitation on payments for states covering higher 
        income children.--
                    ``(A) Determinations.--
                            ``(i) In general.--The Secretary shall 
                        determine within 6 months of the date of the 
                        submission of a State plan amendment to provide 
                        child health assistance to higher income 
                        children (or, in the case of any State that is 
                        a higher income eligibility State on the date 
                        of enactment of this paragraph, within 6 months 
                        of such date of enactment), whether the State 
                        meets the target rate of coverage of low-income 
                        children required under subparagraphs (C) and 
                        (D) of paragraph (8) and shall notify the State 
                        of such determination.
                            ``(ii) Determination of failure.--If the 
                        Secretary determines that a State does not meet 
                        such target rate of coverage, no payment shall 
                        be made under this section for child health 
                        assistance provided for higher-income children 
                        (as defined in subparagraph (C)) under the 
                        State child health plan (beginning, in the case 
                        of any State that is determined to be a higher 
                        income eligibility State within of the date of 
                        enactment of this paragraph, on January 1, 
                        2009) unless and until the State establishes it 
                        is in compliance with such requirement.
                    ``(B) Higher income eligibility state.--A higher 
                income eligibility State described in this clause is a 
                State that--
                            ``(i) applies under its State child health 
                        plan an eligibility income standard for 
                        targeted low-income children that exceeds 200 
                        percent of the poverty line; or
                            ``(ii) because of the application of a 
                        general exclusion of a block of income that is 
                        not determined by type of expense or type of 
                        income, applies an effective income standard 
                        under the State child health plan for such 
                        children that exceeds 200 percent of the 
                        poverty line. 
                    ``(C) Higher-income child.--For purposes of this 
                paragraph, the term `higher income child' means, with 
                respect to a State child health plan, a targeted low-
                income child whose family income--
                            ``(i) exceeds 200 percent of the poverty 
                        line; or
                            ``(ii) would exceed 200 percent of the 
                        poverty line if there were not taken into 
                        account any general exclusion described in 
                        subparagraph (B)(ii).
                    ``(D) Notice and opportunity to comply with target 
                rate.--If the Secretary makes a determination that a 
                State does not meet the target rate of coverage of low-
                income children required under subparagraphs (C) and 
                (D) of paragraph (8), the Secretary--
                            ``(i) shall provide the State with the 
                        opportunity to submit and implement a 
                        corrective action plan for the State to come 
                        into compliance with the requirement of 
                        subparagraphs (C) and (D) of paragraph (8) 
                        before October 1 of any year; and
                            ``(ii) shall not effect a denial of payment 
                        under subparagraph (A) on the basis of a 
                        determination that a State has not come into 
                        compliance with such requirement before 
                        December 31 of such year.''.
            (2) Construction.--Nothing in the amendment made by 
        paragraph (1) or this section this shall be construed as 
        authorizing the Secretary of Health and Human Services to limit 
        payments under title XXI of the Social Security Act in the case 
        of a State that is not a higher income eligibility State (as 
        defined in section 2105(c)(10)(B) of such Act, as added by 
        paragraph (1)).
    (f) Treatment of Medical Support Orders.--Section 2102(b) of such 
Act (42 U.S.C. 1397bb(c)) is amended by adding at the end the 
following:
            ``(5) Treatment of medical support orders.--
                    ``(A) In general.--Nothing in this title shall be 
                construed to allow the Secretary to require that a 
                State deny eligibility for child health assistance to a 
                child who is otherwise eligible on the basis of the 
                existence of a valid medical support order being in 
                effect.
                    ``(B) State election.--A State may elect to limit 
                eligibility for child health assistance to a targeted 
                low-income child on the basis of the existence of a 
                valid medical support order on the child's behalf, but 
                only if the State does not deny such eligibility for a 
                child on such basis if the child asserts that the order 
                is not being complied with for any of the reasons 
                described in subparagraph (C) unless the State 
                demonstrates that none of such reasons applies in the 
                case involved.
                    ``(C) Reasons for noncompliance.--The reasons 
                described in this subparagraph for noncompliance with a 
                medical support order with respect to a child are that 
                the child is not being provided health benefits 
                coverage pursuant to such order because--
                            ``(i) of failure of the noncustodial parent 
                        to comply with the order;
                            ``(ii) of the failure of an employer, group 
                        health plan or health insurance issuer to 
                        comply with such order; or
                            ``(iii) the child resides in a geographic 
                        area in which benefits under the health 
                        benefits coverage are generally unavailable.''.
    (g) Effective Date of Amendments; Consistency of Policies.--The 
amendments made by this section shall take effect as if enacted on 
August 16, 2007. The Secretary may not impose (or continue in effect) 
any requirement, prevent the implementation of any provision, or 
condition the approval of any provision under any State child health 
plan, State plan amendment, or waiver request on the basis of any 
policy or interpretation relating to SCHIP crowd-out, coordination with 
other sources of coverage, target rate of coverage, or medical support 
order other than under the amendments made by this section. In the case 
of a State plan amendment which was denied on or after August 16, 2007, 
on the basis of any such policy or interpretation in effect before the 
date of the enactment of this Act, if the State submits a modification 
of such State plan amendment that complies with title XXI of the Social 
Security Act as amended by this Act, such submitted State plan 
amendment, as so modified, shall be considered as if it had been 
submitted (as so modified) as of the date of its original submission, 
but such State plan amendment shall not be effective before the date of 
the enactment of this Act.

                      TITLE II--REVENUE PROVISIONS

SEC. 201. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX 
              INDIFFERENT PARTIES.

    (a) In General.--Subpart B of part II of subchapter E of chapter 1 
of the Internal Revenue Code of 1986 (relating to taxable year for 
which items of gross income included) is amended by inserting after 
section 457 the following new section:

``SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX 
              INDIFFERENT PARTIES.

    ``(a) In General.--Any compensation which is deferred under a 
nonqualified deferred compensation plan of a nonqualified entity shall 
be taken into account for purposes of this chapter when there is no 
substantial risk of forfeiture of the rights to such compensation.
    ``(b) Nonqualified Entity.--For purposes of this section, the term 
`nonqualified entity' means--
            ``(1) any foreign corporation unless substantially all of 
        such income is--
                    ``(A) effectively connected with the conduct of a 
                trade or business in the United States, or
                    ``(B) subject to a comprehensive foreign income 
                tax, and
            ``(2) any partnership unless substantially all of such 
        income is allocated to persons other than--
                    ``(A) foreign persons with respect to whom such 
                income is not subject to a comprehensive foreign income 
                tax, and
                    ``(B) organizations which are exempt from tax under 
                this title.
    ``(c) Ascertainability of Amounts of Compensation.--
            ``(1) In general.--If the amount of any compensation is not 
        ascertainable at the time that such compensation is otherwise 
        to be taken into account under subsection (a)--
                    ``(A) such amount shall be so taken into account 
                when ascertainable, and
                    ``(B) the tax imposed under this chapter for the 
                taxable year in which such compensation is taken into 
                account under subparagraph (A) shall be increased by 
                the sum of--
                            ``(i) the amount of interest determined 
                        under paragraph (2), and
                            ``(ii) an amount equal to 20 percent of the 
                        amount of such compensation.
            ``(2) Interest.--For purposes of paragraph (1)(B)(i), the 
        interest determined under this paragraph for any taxable year 
        is the amount of interest at the underpayment rate under 
        section 6621 plus 1 percentage point on the underpayments that 
        would have occurred had the deferred compensation been 
        includible in gross income for the taxable year in which first 
        deferred or, if later, the first taxable year in which such 
        deferred compensation is not subject to a substantial risk of 
        forfeiture.
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Substantial risk of forfeiture.--
                    ``(A) In general.--The rights of a person to 
                compensation shall be treated as subject to a 
                substantial risk of forfeiture only if such person's 
                rights to such compensation are conditioned upon the 
                future performance of substantial services by any 
                individual.
                    ``(B) Exception for compensation based on gain 
                recognized on an investment asset.--
                            ``(i) In general.--To the extent provided 
                        in regulations prescribed by the Secretary, if 
                        compensation is determined solely by reference 
                        to the amount of gain recognized on the 
                        disposition of an investment asset, such 
                        compensation shall be treated as subject to a 
                        substantial risk of forfeiture until the date 
                        of such disposition.
                            ``(ii) Investment asset.--For purposes of 
                        clause (i), the term `investment asset' means 
                        any single asset (other than an investment fund 
                        or similar entity)--
                                    ``(I) acquired directly by an 
                                investment fund or similar entity,
                                    ``(II) with respect to which such 
                                entity does not (nor does any person 
                                related to such entity) participate in 
                                the active management of such asset (or 
                                if such asset is an interest in an 
                                entity, in the active management of the 
                                activities of such entity), and
                                    ``(III) substantially all of any 
                                gain on the disposition of which (other 
                                than such deferred compensation) is 
                                allocated to investors in such entity.
                            ``(iii) Coordination with special rule for 
                        short-term deferrals of compensation.--
                        Paragraph (3)(B) shall not apply to any 
                        compensation to which clause (i) applies.
            ``(2) Comprehensive foreign income tax.--The term 
        `comprehensive foreign income tax' means, with respect to any 
        foreign person, the income tax of a foreign country if--
                    ``(A) such person is eligible for the benefits of a 
                comprehensive income tax treaty between such foreign 
                country and the United States, or
                    ``(B) such person demonstrates to the satisfaction 
                of the Secretary that such foreign country has a 
                comprehensive income tax.
        Such term shall not include any tax unless such tax includes 
        rules for the deductibility of deferred compensation which are 
        similar to the rules of this title.
            ``(3) Nonqualified deferred compensation plan.--
                    ``(A) In general.--The term `nonqualified deferred 
                compensation plan' has the meaning given such term 
                under section 409A(d), except that such term shall 
                include any plan that provides a right to compensation 
                based on the appreciation in value of a specified 
                number of equity units of the service recipient.
                    ``(B) Exception for short-term deferrals.--
                Compensation shall not be treated as deferred for 
                purposes of this section if the service provider 
                receives payment of such compensation not later than 12 
                months after the end of the taxable year of the service 
                recipient during which the right to the payment of such 
                compensation is no longer subject to a substantial risk 
                of forfeiture.
            ``(4) Exception for certain compensation with respect to 
        effectively connected income.--In the case a foreign 
        corporation with income which is taxable under section 882, 
        this section shall not apply to compensation which, had such 
        compensation had been paid in cash on the date that such 
        compensation ceased to be subject to a substantial risk of 
        forfeiture, would have been deductible by such foreign 
        corporation against such income.
            ``(5) Application of rules.--Rules similar to the rules of 
        paragraphs (5) and (6) of section 409A(d) shall apply.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations disregarding a substantial risk of 
forfeiture in cases where necessary to carry out the purposes of this 
section.''.
    (b) Conforming Amendment.--Section 26(b)(2) of such Code is amended 
by striking ``and'' at the end of subparagraph (U), by striking the 
period at the end of subparagraph (V) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
                    ``(W) section 457A(c)(1)(B) (relating to 
                ascertainability of amounts of compensation).''.
    (c) Clerical Amendment.--The table of sections of subpart B of part 
II of subchapter E of chapter 1 of such Code is amended by inserting 
after the item relating to section 457 the following new item:

``Sec. 457A. Nonqualified deferred compensation from certain tax 
                            indifferent parties.''.
    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        amounts deferred which are attributable to services performed 
        after the date of enactment of this Act.
            (2) Application to existing deferrals.--In the case of any 
        amount deferred to which the amendments made by this section do 
        not apply solely by reason of the fact that the amount is 
        attributable to services performed before the date of enactment 
        of this Act, to the extent such amount is not includible in 
        gross income in a taxable year beginning before 2017, such 
        amounts shall be includible in gross income in the later of--
                    (A) the last taxable year beginning before 2017, or
                    (B) the taxable year in which there is no 
                substantial risk of forfeiture of the rights to such 
                compensation (determined in the same manner as 
                determined for purposes of section 457A of the Internal 
                Revenue Code of 1986, as added by this section).
            (3) Accelerated payments.--No later than 60 days after the 
        date of the enactment of this Act, the Secretary shall issue 
        guidance providing a limited period of time during which a 
        nonqualified deferred compensation arrangement attributable to 
        services performed on or before the date of enactment of this 
        Act, may, without violating the requirements of section 409A(a) 
        of the Internal Revenue Code of 1986, be amended to conform the 
        date of distribution to the date the amounts are required to be 
        included in income.
            (4) Certain back-to-back arrangements.--If the taxpayer is 
        also a service recipient and maintains one or more nonqualified 
        deferred compensation arrangements for its service providers 
        under which any amount is attributable to services performed on 
        or before the date of the enactment of this Act, the guidance 
        issued under paragraph (3) shall permit such arrangements to be 
        amended to conform the dates of distribution under such 
        arrangement to the date amounts are required to be included in 
        the income of such taxpayer under this subsection.
            (5) Accelerated payment not treated as material 
        modification.--Any amendment to a nonqualified deferred 
        compensation arrangement made pursuant to paragraph (3) or (4) 
        shall not be treated as a material modification of the 
        arrangement for purposes of section 409A of the Internal 
        Revenue Code of 1986.

SEC. 202. INCOME OF PARTNERS FOR PERFORMING INVESTMENT MANAGEMENT 
              SERVICES TREATED AS ORDINARY INCOME RECEIVED FOR 
              PERFORMANCE OF SERVICES.

    (a) In General.--Part I of subchapter K of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIP.

    ``(a) Treatment of Distributive Share of Partnership Items.--For 
purposes of this title, in the case of an investment services 
partnership interest--
            ``(1) In general.--Notwithstanding section 702(b)--
                    ``(A) any net income with respect to such interest 
                for any partnership taxable year shall be treated as 
                ordinary income for the performance of services, and
                    ``(B) any net loss with respect to such interest 
                for such year, to the extent not disallowed under 
                paragraph (2) for such year, shall be treated as an 
                ordinary loss.
            ``(2) Treatment of losses.--
                    ``(A) Limitation.--Any net loss with respect to 
                such interest shall be allowed for any partnership 
                taxable year only to the extent that such loss does not 
                exceed the excess (if any) of--
                            ``(i) the aggregate net income with respect 
                        to such interest for all prior partnership 
                        taxable years, over
                            ``(ii) the aggregate net loss with respect 
                        to such interest not disallowed under this 
                        subparagraph for all prior partnership taxable 
                        years.
                    ``(B) Carryforward.--Any net loss for any 
                partnership taxable year which is not allowed by reason 
                of subparagraph (A) shall be treated as an item of loss 
                with respect to such partnership interest for the 
                succeeding partnership taxable year.
                    ``(C) Basis adjustment.--No adjustment to the basis 
                of a partnership interest shall be made on account of 
                any net loss which is not allowed by reason of 
                subparagraph (A).
                    ``(D) Exception for basis attributable to purchase 
                of a partnership interest.--In the case of an 
                investment services partnership interest acquired by 
                purchase, paragraph (1)(B) shall not apply to so much 
                of any net loss with respect to such interest for any 
                taxable year as does not exceed the excess of--
                            ``(i) the basis of such interest 
                        immediately after such purchase, over
                            ``(ii) the aggregate net loss with respect 
                        to such interest to which paragraph (1)(B) did 
                        not apply by reason of this subparagraph for 
                        all prior taxable years.
                Any net loss to which paragraph (1)(B) does not apply 
                by reason of this subparagraph shall not be taken into 
                account under subparagraph (A).
                    ``(E) Prior partnership years.--Any reference in 
                this paragraph to prior partnership taxable years shall 
                only include prior partnership taxable years to which 
                this section applies.
            ``(3) Net income and loss.--For purposes of this section--
                    ``(A) Net income.--The term `net income' means, 
                with respect to any investment services partnership 
                interest, for any partnership taxable year, the excess 
                (if any) of--
                            ``(i) all items of income and gain taken 
                        into account by the holder of such interest 
                        under section 702 with respect to such interest 
                        for such year, over
                            ``(ii) all items of deduction and loss so 
                        taken into account.
                    ``(B) Net loss.--The term `net loss' means with 
                respect to such interest for such year, the excess (if 
                any) of the amount described in subparagraph (A)(ii) 
                over the amount described in subparagraph (A)(i).
    ``(b) Dispositions of Partnership Interests.--
            ``(1) Gain.--Any gain on the disposition of an investment 
        services partnership interest shall be treated as ordinary 
        income for the performance of services.
            ``(2) Loss.--Any loss on the disposition of an investment 
        services partnership interest shall be treated as an ordinary 
        loss to the extent of the excess (if any) of--
                    ``(A) the aggregate net income with respect to such 
                interest for all partnership taxable years, over
                    ``(B) the aggregate net loss with respect to such 
                interest allowed under subsection (a)(2) for all 
                partnership taxable years.
            ``(3) Disposition of portion of interest.--In the case of 
        any disposition of an investment services partnership interest, 
        the amount of net loss which otherwise would have (but for 
        subsection (a)(2)(C)) applied to reduce the basis of such 
        interest shall be disregarded for purposes of this section for 
        all succeeding partnership taxable years.
            ``(4) Distributions of partnership property.--In the case 
        of any distribution of appreciated property by a partnership 
        with respect to any investment services partnership interest, 
        gain shall be recognized by the partnership in the same manner 
        as if the partnership sold such property at fair market value 
        at the time of the distribution. For purposes of this 
        paragraph, the term `appreciated property' means any property 
        with respect to which gain would be determined if sold as 
        described in the preceding sentence.
            ``(5) Application of section 751.--In applying section 
        751(a), an investment services partnership interest shall be 
        treated as an inventory item.
    ``(c) Investment Services Partnership Interest.--For purposes of 
this section--
            ``(1) In general.--The term `investment services 
        partnership interest' means any interest in a partnership which 
        is held by any person if such person provides (directly or 
        indirectly) a substantial quantity of any of the following 
        services with respect to the assets of the partnership in the 
        conduct of the trade or business of providing such services:
                    ``(A) Advising as to the advisability of investing 
                in, purchasing, or selling any specified asset.
                    ``(B) Managing, acquiring, or disposing of any 
                specified asset.
                    ``(C) Arranging financing with respect to acquiring 
                specified assets.
                    ``(D) Any activity in support of any service 
                described in subparagraphs (A) through (C).
        For purposes of this paragraph, the term `specified asset' 
        means securities (as defined in section 475(c)(2) without 
        regard to the last sentence thereof), real estate, commodities 
        (as defined in section 475(e)(2)), or options or derivative 
        contracts with respect to securities (as so defined), real 
        estate, or commodities (as so defined).
            ``(2) Exception for certain capital interests.--
                    ``(A) In general.--If--
                            ``(i) a portion of an investment services 
                        partnership interest is acquired on account of 
                        a contribution of invested capital, and
                            ``(ii) the partnership makes a reasonable 
                        allocation of partnership items between the 
                        portion of the distributive share that is with 
                        respect to invested capital and the portion of 
                        such distributive share that is not with 
                        respect to invested capital,
                then subsection (a) shall not apply to the portion of 
                the distributive share that is with respect to invested 
                capital. An allocation will not be treated as 
                reasonable for purposes of this subparagraph if such 
                allocation would result in the partnership allocating a 
                greater portion of income to invested capital than any 
                other partner not providing services would have been 
                allocated with respect to the same amount of invested 
                capital.
                    ``(B) Special rule for dispositions.--In any case 
                to which subparagraph (A) applies, subsection (b) shall 
                not apply to any gain or loss allocable to invested 
                capital. The portion of any gain or loss attributable 
                to invested capital is the proportion of such gain or 
                loss which is based on the distributive share of gain 
                or loss that would have been allocable to invested 
                capital under subparagraph (A) if the partnership sold 
                all of its assets immediately before the disposition.
                    ``(C) Invested capital.--For purposes of this 
                paragraph, the term `invested capital' means, the fair 
                market value at the time of contribution of any money 
                or other property contributed to the partnership.
                    ``(D) Treatment of certain loans.--
                            ``(i) Proceeds of partnership loans not 
                        treated as invested capital of service 
                        providing partners.--For purposes of this 
                        paragraph, an investment services partnership 
                        interest shall not be treated as acquired on 
                        account of a contribution of invested capital 
                        to the extent that such capital is attributable 
                        to the proceeds of any loan or other advance 
                        made or guaranteed, directly or indirectly, by 
                        any partner or the partnership.
                            ``(ii) Loans from nonservice providing 
                        partners to the partnership treated as invested 
                        capital.--For purposes of this paragraph, any 
                        loan or other advance to the partnership made 
                        or guaranteed, directly or indirectly, by a 
                        partner not providing services to the 
                        partnership shall be treated as invested 
                        capital of such partner and amounts of income 
                        and loss treated as allocable to invested 
                        capital shall be adjusted accordingly.
    ``(d) Other Income and Gain in Connection With Investment 
Management Services.--
            ``(1) In general.--If--
                    ``(A) a person performs (directly or indirectly) 
                investment management services for any entity,
                    ``(B) such person holds a disqualified interest 
                with respect to such entity, and
                    ``(C) the value of such interest (or payments 
                thereunder) is substantially related to the amount of 
                income or gain (whether or not realized) from the 
                assets with respect to which the investment management 
                services are performed,
        any income or gain with respect to such interest shall be 
        treated as ordinary income for the performance of services. 
        Rules similar to the rules of subsection (c)(2) shall apply 
        where such interest was acquired on account of invested capital 
        in such entity.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Disqualified interest.--The term 
                `disqualified interest' means, with respect to any 
                entity--
                            ``(i) any interest in such entity other 
                        than indebtedness,
                            ``(ii) convertible or contingent debt of 
                        such entity,
                            ``(iii) any option or other right to 
                        acquire property described in clause (i) or 
                        (ii), and
                            ``(iv) any derivative instrument entered 
                        into (directly or indirectly) with such entity 
                        or any investor in such entity.
                Such term shall not include a partnership interest and 
                shall not include stock in a taxable corporation.
                    ``(B) Taxable corporation.--The term `taxable 
                corporation' means--
                            ``(i) a domestic C corporation, or
                            ``(ii) a foreign corporation subject to a 
                        comprehensive foreign income tax (as defined in 
                        section 457A(d)(4)).
                    ``(C) Investment management services.--The term 
                `investment management services' means a substantial 
                quantity of any of the services described in subsection 
                (c)(1) which are provided in the conduct of the trade 
                or business of providing such services.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as are necessary or appropriate to carry out the purposes of this 
section, including regulations to--
            ``(1) prevent the avoidance of the purposes of this 
        section, and
            ``(2) coordinate this section with the other provisions of 
        this subchapter.
    ``(f) Cross Reference.--For 40 percent no fault penalty on certain 
underpayments due to the avoidance of this section, see section 
6662.''.
    (b) Application to Real Estate Investment Trusts.--Subsection (c) 
of section 856 of such Code is amended by adding at the end the 
following new paragraph:
            ``(8) Exception from recharacterization of income from 
        investment services partnership interests.--
                    ``(A) In general.--Paragraphs (2), (3), and (4) 
                shall be applied without regard to section 710 
                (relating to special rules for partners providing 
                investment management services to partnership).
                    ``(B) Special rule for partnerships owned by 
                reits.--Section 7704 shall be applied without regard to 
                section 710 in the case of a partnership which meets 
                each of the following requirements:
                            ``(i) Such partnership is treated as 
                        publicly traded under section 7704 solely by 
                        reason of interests in such partnership being 
                        convertible into interests in a real estate 
                        investment trust which is publicly traded.
                            ``(ii) 50 percent or more of the capital 
                        and profits interests of such partnership are 
                        owned, directly or indirectly, at all times 
                        during the taxable year by such real estate 
                        investment trust (determined with the 
                        application of section 267(c)).
                            ``(iii) Such partnership meets the 
                        requirements of paragraphs (2), (3), and (4) 
                        (applied without regard to section 710).''.
    (c) Imposition of Penalty on Underpayments.--
            (1) In general.--Subsection (b) of section 6662 of such 
        Code is amended by inserting after paragraph (5) the following 
        new paragraph:
            ``(6) The application of subsection (d) of section 710 or 
        the regulations prescribed under section 710(e) to prevent the 
        avoidance of the purposes of section 710.''.
            (2) Amount of penalty.--
                    (A) In general.--Section 6662 of such Code is 
                amended by adding at the end the following new 
                subsection:
    ``(i) Increase in Penalty in Case of Property Transferred for 
Investment Management Services.--In the case of any portion of an 
underpayment to which this section applies by reason of subsection 
(b)(6), subsection (a) shall be applied with respect to such portion by 
substituting `40 percent' for `20 percent'.''.
                    (B) Conforming amendments.--Subparagraph (B) of 
                section 6662A(e)(2) of such Code is amended--
                            (i) by striking ``section 6662(h)'' and 
                        inserting ``subsection (h) or (i) of section 
                        6662'', and
                            (ii) by striking ``gross valuation 
                        misstatement penalty'' in the heading and 
                        inserting ``certain increased underpayment 
                        penalties''.
            (3) Reasonable cause exception not applicable.--Subsection 
        (c) of section 6664 of such Code is amended--
                    (A) by redesignating paragraphs (2) and (3) as 
                paragraphs (3) and (4), respectively,
                    (B) by striking ``paragraph (2)'' in paragraph (4), 
                as so redesignated, and inserting ``paragraph (3)'', 
                and
                    (C) by inserting after paragraph (1) the following 
                new paragraph:
            ``(2) Exception.--Paragraph (1) shall not apply to any 
        portion of an underpayment to which this section applies by 
        reason of subsection (b)(6).''.
    (d) Conforming Amendments.--
            (1) Subsection (d) of section 731 of such Code is amended 
        by inserting ``section 710(b)(4) (relating to distributions of 
        partnership property),'' before ``section 736''.
            (2) Section 741 of such Code is amended by inserting ``or 
        section 710 (relating to special rules for partners providing 
        investment management services to partnership)'' before the 
        period at the end.
            (3) Paragraph (13) of section 1402(a) of such Code is 
        amended--
                    (A) by striking ``other than guaranteed'' and 
                inserting ``other than--
                    ``(A) guaranteed'',
                    (B) by striking the semi-colon at the end and 
                inserting ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(B) any income treated as ordinary income under 
                section 710 received by an individual who provides 
                investment management services (as defined in section 
                710(d)(2));''.
            (4) Paragraph (12) of section 211(a) of the Social Security 
        Act is amended--
                    (A) by striking ``other than guaranteed'' and 
                inserting ``other than--
                    ``(A) guaranteed'',
                    (B) by striking the semi-colon at the end and 
                inserting ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(B) any income treated as ordinary income under 
                section 710 of the Internal Revenue Code of 1986 
                received by an individual who provides investment 
                management services (as defined in section 710(d)(2) of 
                such Code);''.
            (5) The table of sections for part I of subchapter K of 
        chapter 1 of such Code is amended by adding at the end the 
        following new item:

``Sec. 710. Special rules for partners providing investment management 
                            services to partnership.''.
    (e) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending after the date of enactment of this Act.
            (2) Partnership taxable years which include effective 
        date.--In applying section 710(a) of the Internal Revenue Code 
        of 1986 (as added by this section) in the case of any 
        partnership taxable year which includes the date of enactment 
        of this Act, the amount of the net income referred to in such 
        section shall be treated as being the lesser of the net income 
        for the entire partnership taxable year or the net income 
        determined by only taking into account items attributable to 
        the portion of the partnership taxable year which is after such 
        date.
            (3) Dispositions of partnership interests.--Section 710(b) 
        of the Internal Revenue Code of 1986 (as added by this section) 
        shall apply to dispositions and distributions after the date of 
        enactment of this Act.
            (4) Other income and gain in connection with investment 
        management services.--Section 710(d) of such Code (as added by 
        this section) shall take effect on the date of enactment of 
        this Act.
            (5) Publicly traded partnerships.--For purposes of applying 
        section 7704, the amendments made by this section shall apply 
        to taxable years beginning after December 31, 2009.
                                 <all>