[Congressional Record Volume 172, Number 49 (Wednesday, March 18, 2026)]
[Senate]
[Pages S1218-S1220]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SA 4475. Mr. WYDEN submitted an amendment intended to be proposed by
him to the bill S. 1383, to establish the Veterans Advisory Committee
on Equal Access, and for other purposes; which was ordered to lie on
the table; as follows:
At the appropriate place, insert the following:
TITLE __CARRIED INTEREST
SEC. _01. SHORT TITLE.
This title may be cited as the ``Ending the Carried
Interest Loophole Act''.
SEC. _02. PARTNERSHIP INTERESTS TRANSFERRED IN CONNECTION
WITH PERFORMANCE OF SERVICES.
(a) Modification of Election To Include Partnership
Interest in Gross Income in Year of Transfer.--Subsection (c)
of section 83 is amended by redesignating paragraph (4) as
paragraph (5) and by inserting after paragraph (3) the
following new paragraph:
``(4) Partnership interests.--Except as provided by the
Secretary--
``(A) In general.--In the case of any transfer of an
interest in a partnership in connection with the performance
of services--
``(i) the fair market value of such interest shall be
treated for purposes of this section as being equal to the
amount which the partner would receive if the partnership
sold (at the time of the transfer) all of its assets for cash
at their fair market value in a fully taxable transaction and
distributed the proceeds of such sale (reduced by the
liabilities of the partnership) to its partners in complete
liquidation, and
``(ii) the person receiving such interest shall be treated
as having made the election under subsection (b)(1) unless
such person makes an election under this paragraph to have
such subsection not apply.
``(B) Coordination with other partnership rules.--Except as
otherwise provided by the Secretary, if, by reason of
subparagraph (A), subsection (b)(1) applies to a partnership
interest transferred to a person, then the amount included in
the gross income of such person by reason of such subsection
shall (at the time of the transfer)--
``(i) be treated as an addition to the capital account of
such person with respect to such partnership for purposes of
subchapter K, and
``(ii) if such interest is an applicable partnership
interest under section 1299 at any time, be treated as
invested capital of such person with respect to such interest
for purposes of such section.
``(C) Election.--The election under subparagraph (A)(ii)
shall be made under rules similar to the rules of subsection
(b)(2).
``(D) Partnership interest.--
``(i) In general.--For purposes of this paragraph, any
applicable financial instrument or contract (as defined in
section 1299(b)(2)(B)) or interest in an entity other than a
partnership which is treated as an applicable partnership
interest under section 1299(b)(2) shall be treated as an
interest in a partnership.
``(ii) Regulations.--The Secretary shall prescribe such
regulations or other guidance as the Secretary determines
necessary or appropriate to carry out this paragraph,
including regulations for the application of this paragraph
to applicable financial instruments or contracts (as so
defined) or interests in entities other than partnerships
which are treated as partnership interests under clause
(i).''.
(b) Effective Date.--The amendments made by this section
shall apply to interests in partnerships transferred after
the date of the enactment of this Act.
SEC. _03. TREATMENT OF CERTAIN PARTNERSHIP INTERESTS RECEIVED
IN CONNECTION WITH PERFORMANCE OF SERVICES.
(a) In General.--Subchapter P of chapter 1 of the Internal
Revenue Code of 1986 is amended by adding at the end the
following new part:
``PART VII--TREATMENT OF CERTAIN PARTNERSHIP INTERESTS RECEIVED IN
CONNECTION WITH PERFORMANCE OF SERVICES
``Sec. 1299. Treatment of certain partnership interests received in
connection with performance of services.
``SEC. 1299. TREATMENT OF CERTAIN PARTNERSHIP INTERESTS
RECEIVED IN CONNECTION WITH PERFORMANCE OF
SERVICES.
``(a) In General.--In the case of a taxpayer who holds 1 or
more applicable partnership interests in any partnership at
any time during any taxable year of the partnership ending
with or within the taxable year of the taxpayer--
``(1) there shall be included in the gross income of the
taxpayer as ordinary income an amount equal to the aggregate
of the deemed compensation amounts determined under
subsection (c) with respect to such interests in all
partnerships, and
``(2) the taxpayer shall be treated as having for such
taxable year of the taxpayer a long-term capital loss equal
to the aggregate of such deemed compensation amounts.
``(b) Applicable Partnership Interest.--For purposes of
this section--
``(1) In general.--Except as provided in this subsection,
the term `applicable partnership interest' means any interest
in a partnership which--
``(A) is directly or indirectly transferred to (or held by)
the taxpayer in connection with the performance of services
by the taxpayer, or any other person, in any applicable trade
or business, or
``(B) is held by a taxpayer who received an applicable
loan.
Such term shall not include any interest which is acquired
pursuant to a sale or disposition to which subsection (c)(5)
applies.
``(2) Determination of interest in a partnership.--
``(A) In general.--For purposes of paragraph (1), the term
`interest in a partnership' includes--
``(i) any applicable financial instrument or contract, or
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``(ii) to the extent provided by the Secretary, any
interest in an entity other than a partnership if such
interest would be treated as an applicable partnership
interest if such entity were a partnership.
``(B) Applicable financial instrument or contract.--For
purposes of this paragraph--
``(i) In general.--The term `applicable financial
instrument or contract' means any financial instrument or
contract the value of which is determined in whole or in part
by reference to any partnership or partnership-related item
(including the amount of partnership distributions, the value
of partnership assets, or the results of partnership
operations).
``(ii) Exception for non-convertible debt.--Such term shall
not include a financial instrument or contract if such
instrument or contract--
``(I) is treated as debt for Federal tax purposes, and
``(II) is not convertible into or exchangeable for any
partnership interest and does not provide for a payment of
similar or equivalent value.
``(3) Applicable trade or business.--
``(A) In general.--For purposes of paragraph (1)(A), the
term `applicable trade or business' means any activity
conducted on a regular, continuous, and substantial basis
which, regardless of whether the activity is conducted in one
or more entities, consists, in whole or in part, of--
``(i) raising or returning capital, and
``(ii) either--
``(I) investing in (including acquiring or disposing of)
specified assets (or identifying specified assets for such
investing, acquisition, or disposition), or
``(II) developing specified assets.
``(B) Specified assets.--
``(i) In general.--The term `specified assets' means
securities, commodities, real estate held for rental or
investment, cash or cash equivalents, options or derivative
contracts with respect to any of the foregoing, and an
interest in a partnership if such partnership has a direct or
indirect interest in any of the foregoing.
``(ii) Securities.--For purposes of clause (i), the term
`securities' has the meaning given such term under section
475(c)(2), determined--
``(I) by applying subparagraph (B) thereof without regard
to whether the partnership or trust is widely held or
publicly traded, and
``(II) without regard to the last sentence thereof.
``(iii) Commodities.--For purposes of clause (i), the term
`commodities' has the meaning given such term under section
475(e)(2), except that such term shall not include
commodities held in connection with the active conduct of a
commodities business as a producer, processor, merchant, or
handler of commodities.
``(4) Applicable loan.--
``(A) In general.--The term `applicable loan' means, with
respect to any partnership interest, any loan issued directly
or indirectly from the partnership, any other partner of the
partnership, or any person related to such other partner or
such partnership.
``(B) Safe harbor.--The term `applicable loan' does not
include any loan which--
``(i) is fully recourse to the borrower or fully secured by
the borrower's assets, and
``(ii) requires payments of interest with a stated rate not
less than the specified rate determined under subsection
(c)(2).
``(c) Deemed Compensation Amount.--For purposes of this
section--
``(1) Deemed compensation amount.--
``(A) In general.--The term `deemed compensation amount'
means, with respect to any applicable partnership interest
for any partnership taxable year, an amount equal to the
product of--
``(i) the specified rate determined under paragraph (2) for
the calendar year in which such taxable year begins,
multiplied by
``(ii) the excess (if any) of--
``(I) an amount equal to the applicable percentage of the
weighted average of the aggregate of invested capital of all
partners of the partnership on each measurement date
occurring within such taxable year, over
``(II) the weighted average of invested capital with
respect to the applicable partnership interest on each
measurement date occurring within such taxable year.
``(B) Measurement date.--For purposes of subparagraph (A),
the term `measurement date' means--
``(i) the last day of the partnership taxable year,
``(ii) any date specified in the regulations under
subchapter K as a date on which to revalue property of the
partnership for purposes of adjusting capital accounts of the
partner (without regard to whether the partnership capital
accounts are adjusted on that date), and
``(iii) any other date specified by the Secretary.
``(2) Specified rate.--The term `specified rate' means,
with respect to any calendar year, a percentage equal to the
sum of--
``(A) the first segment rate (as defined in section
430(h)(2)(C)(i)) for the first month of such calendar year,
plus
``(B) 9 percentage points.
``(3) Applicable percentage.--
``(A) In general.--The term `applicable percentage' means,
with respect to any applicable partnership interest, the
highest percentage of profits of the partnership which could
be allocated to such interest (consistent with the
partnership agreement and determined as if all performance
targets with respect to such interest had been met).
``(B) Secretarial authority.--The Secretary shall prescribe
rules for the determination of the applicable percentage in
cases in which the percentage of profits of a partnership
which may be allocated to the applicable partnership interest
under the partnership agreement may temporarily exceed the
highest percentage determined under subparagraph (A).
``(4) Invested capital.--
``(A) In general.--The term `invested capital' means, with
respect to any partner as of any day, the excess of--
``(i) the sum of--
``(I) the total cumulative value, determined at the time of
contribution, of all money or other property contributed by
the partner to the partnership on or before such day (net of
any liabilities the partnership is considered to assume or
take subject to), plus
``(II) the aggregate amounts of the partner's distributive
share of income and gain as of such day, over
``(ii) the sum of--
``(I) the aggregate value, determined at the time of
distribution, of all money or other property distributed to
the partner from the partnership on or before such day (net
of any liabilities the partner is considered to assume or
take subject to), plus
``(II) the aggregate amount of the partner's distributive
share of loss and deductions of the partnership as of such
day.
``(B) Special rules.--
``(i) In general.--For purposes of subparagraph (A),
invested capital shall be determined--
``(I) without regard to amounts considered as a
contribution of money or as a distribution of money by reason
of subsection (a) or (B) of section 752, and
``(II) without regard to income required to be recognized
by a contributing partner under section 704(c) with respect
to property described in subparagraph (A)(i)(I).
``(ii) Adjustments.--The Secretary may provide for rules
making such adjustments as the Secretary determines necessary
to the determination of invested capital under subparagraph
(A) in order to carry out the purposes of this section.
``(C) Treatment of borrowings from partnerships or other
partners.--For purposes of paragraph (1)(A), the amount of
invested capital with respect to any applicable partnership
interest shall be reduced by the amount of any applicable
loan to a partner who is described in subsection (b)(1)(B).
``(5) Accelerated inclusion in case of disposition of
applicable partnership interest.--
``(A) In general.--If a taxpayer who holds an applicable
partnership interest sells or disposes of any portion of such
interest during a taxable year in the applicable period, the
amount determined under this subsection for such taxable year
shall be the sum of--
``(i) the amount determined under paragraph (1) for the
taxable year (determined as if no such sale or disposition
had occurred), plus
``(ii) an amount equal to the product of--
``(I) the excess of the amount determined under clause (i)
over the amount determined under paragraph (1) for the
taxable year, and
``(II) the number of taxable years beginning after the date
of the sale or disposition and before the last day of the
applicable period.
``(B) Applicable period.--For purposes of this paragraph,
the applicable period is the 10-year period beginning on the
later of--
``(i) the date the taxpayer acquired the applicable
partnership interest, or
``(ii) the last date described in paragraph (1)(B)(ii) on
which there was an increase in the amount of the taxpayers
applicable percentage of the aggregate invested capital of
all partners of the partnership.
``(6) Multiple interests.--If at any time during a taxable
year a taxpayer holds directly or indirectly more than 1
applicable partnership interest in a single partnership, such
interests shall be treated as 1 applicable partnership
interest for purposes of applying this subsection.
``(d) Related Person.--For purposes of this section, a
person shall be treated as related to another person if the
relationship between such persons would be described in
section 267(b) or 707(b).
``(e) Reporting.--A partnership shall report to the
Secretary, and include with the information required to be
furnished under section 6031(b) to each partner, the amount
of the partner's deemed compensation amount for the taxable
year, if any. A similar rule applies to any entity that
receives a report of a deemed compensation amount for the
taxable year.
``(f) Regulations.--The Secretary shall issue such
regulations or other guidance as necessary to carry out this
section, including regulations--
``(1) to prevent the abuse of the purposes of this section,
including through--
``(A) the allocation of income to tax indifferent parties,
or
``(B) a reduction or increase in the invested capital of
any partner (including attempts to undervalue or overvalue
property),
``(2) which provide for the application of the rules of
subsection (c) to applicable financial instruments and
contracts and to entities other than partnerships,
``(3) which provide in appropriate circumstances for
purposes of this section the
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aggregation of assets held by related partnerships or for the
disaggregation of assets within 1 partnership,
``(4) which provide for the application of this section in
cases of tiered structures or entities,
``(5) which provide guidance with respect to forgiveness of
any loan described in subsection (b)(4)(B), and
``(6) which provide rules for transfers or liquidations of
applicable partnership interests by gift, inheritance,
substituted basis transactions, and other transactions in
which income is not recognized at the time of the
transaction.''.
(b) Conforming Amendments.--
(1)(A) Part IV of subchapter O of chapter 1 of the Internal
Revenue Code of 1986 is amended by striking section 1061.
(B) The table of sections for part IV of subchapter O of
chapter 1 of such Code is amended by striking the item
relating to section 1061.
(2) The table of parts for subchapter P of such Code is
amended by adding at the end the following new item:
``Part VII--Treatment of Certain Partnership Interests Received in
Connection With Performance of Services''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years of a taxpayer beginning after
date of enactment of this Act, with or within which ends the
taxable year of a partnership which begins after such date.
______