119-hr3275

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3275 Introduced in House

    (IH) ]

<DOC>

119th CONGRESS
 1st Session
 H. R. 3275

 To amend the Internal Revenue Code of 1986 to lower the corporate tax 
rate for small businesses and close the carried interest loophole, and 
 for other purposes.

_______________________________________________________________________

 IN THE HOUSE OF REPRESENTATIVES

 May 8, 2025

 Ms. Craig introduced the following bill; which was referred to the 
 Committee on Ways and Means

_______________________________________________________________________

 A BILL

 To amend the Internal Revenue Code of 1986 to lower the corporate tax 
rate for small businesses and close the carried interest loophole, 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.

 This Act may be cited as the ``Small Business Tax Relief Act''.

SEC. 2. GRADUATED CORPORATE TAX RATE TO SUPPORT SMALL BUSINESSES.

    (a) In General.--

Section 11

    (b) of the Internal Revenue Code of 1986 
is amended to read as follows:
 ``

    (b) Amount of Tax.--
 ``

    (1) In general.--Except as provided by paragraph

    (2) , the 
 amount of the tax imposed by subsection

    (a) shall be 21 percent 
 of taxable income.
 ``

    (2) Small businesses.--In the case of a corporation with 
 taxable income that does not exceed $5,000,000 in the taxable 
 year, the amount of the tax imposed by subsection

    (a) shall be 
 the sum of--
 ``
        (A) 18 percent of so much of the taxable income 
 as does not exceed $400,000, and
 ``
        (B) 21 percent of so much of the taxable income 
 as equals or exceeds $400,000.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this 
section.

SEC. 3. PARTNERSHIP INTERESTS TRANSFERRED IN CONNECTION WITH 
 PERFORMANCE OF SERVICES.

    (a) Modification to Election To Include Partnership Interest in 
Gross Income in Year of Transfer.--Subsection
            (c) of 

section 83 of the 
Internal Revenue Code of 1986 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 
 provision of services to (or for the benefit of) such 
 partnership--
 ``
            (i) the fair market value of such 
 interest shall be treated for purposes of this 
 section as being equal to the amount of the 
 distribution which the partner would receive if 
 the partnership sold (at the time of the 
 transfer) all of its assets at fair market 
 value and distributed the proceeds of such sale 
 (reduced by the liabilities of the partnership) 
 to its partners in liquidation of the 
 partnership, 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) Election.--The election under subparagraph
        (A)
            (ii) shall be made under rules similar to the rules 
 of subsection

    (b)

    (2) .''.

    (b) Effective Date.--The amendments made by this section shall 
apply to interests in partnerships transferred in taxable years ending 
after the date of the enactment of this Act.

SEC. 4. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
 SERVICES TO PARTNERSHIPS.

    (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 PARTNERSHIPS.

 ``

    (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) an amount equal to the net capital gain with 
 respect to such interest for any partnership taxable 
 year shall be treated as ordinary income, and
 ``
        (B) subject to the limitation of paragraph

    (2) , 
 an amount equal to the net capital loss with respect to 
 such interest for any partnership taxable year shall be 
 treated as an ordinary loss.
 ``

    (2) Recharacterization of losses limited to 
 recharacterized gains.--The amount treated as ordinary loss 
 under paragraph

    (1)
        (B) for any taxable year shall not exceed 
 the excess (if any) of--
 ``
        (A) the aggregate amount treated as ordinary 
 income under paragraph

    (1)
        (A) with respect to the 
 investment services partnership interest for all 
 preceding partnership taxable years to which this 
 section applies, over
 ``
        (B) the aggregate amount treated as ordinary loss 
 under paragraph

    (1)
        (B) with respect to such interest 
 for all preceding partnership taxable years to which 
 this section applies.
 ``

    (3) Allocation to items of gain and loss.--
 ``
        (A) Net capital gain.--The amount treated as 
 ordinary income under paragraph

    (1)
        (A) shall be 
 allocated ratably among the items of long-term capital 
 gain taken into account in determining such net capital 
 gain.
 ``
        (B) Net capital loss.--The amount treated as 
 ordinary loss under paragraph

    (1)
        (B) shall be allocated 
 ratably among the items of long-term capital loss and 
 short-term capital loss taken into account in 
 determining such net capital loss.
 ``

    (4) Terms relating to capital gains and losses.--For 
 purposes of this section--
 ``
        (A) In general.--Net capital gain, long-term 
 capital gain, and long-term capital loss, with respect 
 to any investment services partnership interest for any 
 taxable year, shall be determined under 

section 1222, 
 except that such section shall be applied--
 ``
            (i) without regard to the 
 recharacterization of any item as ordinary 
 income or ordinary loss under this section,
 ``
            (ii) by only taking into account items of 
 gain and loss taken into account by the holder 
 of such interest under 

section 702 (other than 
 subsection

    (a)

    (9) thereof) with respect to such 
 interest for such taxable year, and
 ``
            (iii) by treating property which is taken 
 into account in determining gains and losses to 
 which 

section 1231 applies as capital assets 
 held for more than 1 year.
 ``
        (B) Net capital loss.--The term `net capital 
 loss' means the excess of the losses from sales or 
 exchanges of capital assets over the gains from such 
 sales or exchanges. Rules similar to the rules of 
 clauses
            (i) through
            (iii) of subparagraph
        (A) shall 
 apply for purposes of the preceding sentence.
 ``

    (5) Special rule for dividends.--Any dividend allocated 
 with respect to any investment services partnership interest 
 shall not be treated as qualified dividend income for purposes 
 of 

section 1

    (h) .
 ``

    (6) Special rule for qualified small business stock.--
 

Section 1202 shall not apply to any gain from the sale or 
 exchange of qualified small business stock (as defined in 
 

section 1202
            (c) ) allocated with respect to any investment 
 services partnership interest.
 ``

    (b) Dispositions of Partnership Interests.--
 ``

    (1) Gain.--
 ``
        (A) In general.--Any gain on the disposition of 
 an investment services partnership interest shall be--
 ``
            (i) treated as ordinary income, and
 ``
            (ii) recognized notwithstanding any other 
 provision of this subtitle.
 ``
        (B) Gift and transfers at death.--In the case of 
 a disposition of an investment services partnership 
 interest by gift or by reason of death of the 
 taxpayer--
 ``
            (i) subparagraph
        (A) shall not apply,
 ``
            (ii) such interest shall be treated as an 
 investment services partnership interest in the 
 hands of the person acquiring such interest, 
 and
 ``
            (iii) any amount that would have been 
 treated as ordinary income under this 
 subsection had the decedent sold such interest 
 immediately before death shall be treated as an 
 item of income in respect of a decedent under 
 

section 691.
 ``

    (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 amount treated as ordinary 
 income under subsection

    (a) with respect to such 
 interest for all partnership taxable years to which 
 this section applies, over
 ``
        (B) the aggregate amount treated as ordinary loss 
 under subsection

    (a) with respect to such interest for 
 all partnership taxable years to which this section 
 applies.
 ``

    (3) Election with respect to certain exchanges.--
 Paragraph

    (1)
        (A)
            (ii) shall not apply to the contribution of an 
 investment services partnership interest to a partnership in 
 exchange for an interest in such partnership if--
 ``
        (A) the taxpayer makes an irrevocable election to 
 treat the partnership interest received in the exchange 
 as an investment services partnership interest, and
 ``
        (B) the taxpayer agrees to comply with such 
 reporting and recordkeeping requirements as the 
 Secretary may prescribe.
 ``

    (4) Distributions of partnership property.--
 ``
        (A) In general.--In the case of any distribution 
 of property by a partnership with respect to any 
 investment services partnership interest held by a 
 partner, the partner receiving such property shall 
 recognize gain equal to the excess (if any) of--
 ``
            (i) the fair market value of such 
 property at the time of such distribution, over
 ``
            (ii) the adjusted basis of such property 
 in the hands of such partner (determined 
 without regard to subparagraph
            (C) ).
 ``
        (B) Treatment of gain as ordinary income.--Any 
 gain recognized by such partner under subparagraph
        (A) shall be treated as ordinary income to the same extent 
 and in the same manner as the increase in such 
 partner's distributive share of the taxable income of 
 the partnership would be treated under subsection

    (a) if, immediately prior to the distribution, the 
 partnership had sold the distributed property at fair 
 market value and all of the gain from such disposition 
 were allocated to such partner. For purposes of 
 applying subsection

    (a)

    (2) , any gain treated as 
 ordinary income under this subparagraph shall be 
 treated as an amount treated as ordinary income under 
 subsection

    (a)

    (1)
        (A) .
 ``
            (C) Adjustment of basis.--In the case a 
 distribution to which subparagraph
        (A) applies, the 
 basis of the distributed property in the hands of the 
 distributee partner shall be the fair market value of 
 such property.
 ``
            (D) Special rules with respect to mergers and 
 divisions.--In the case of a taxpayer which satisfies 
 requirements similar to the requirements of 
 subparagraphs
        (A) and
        (B) of paragraph

    (3) , this 
 paragraph and paragraph

    (1)
        (A)
            (ii) shall not apply to 
 the distribution of a partnership interest if such 
 distribution is in connection with a contribution (or 
 deemed contribution) of any property of the partnership 
 to which 

section 721 applies pursuant to a transaction 
 described in paragraph

    (2) of 

section 708

    (b) .
 ``
            (c) Investment Services Partnership Interest.--For purposes of 
this section--
 ``

    (1) In general.--The term `investment services 
 partnership interest' means any interest in an investment 
 partnership acquired or held by any person in connection with 
 the conduct of a trade or business described in paragraph

    (2) by such person (or any person related to such person). An 
 interest in an investment partnership held by any person--
 ``
        (A) shall not be treated as an investment 
 services partnership interest for any period before the 
 first date on which it is so held in connection with 
 such a trade or business,
 ``
        (B) shall not cease to be an investment services 
 partnership interest merely because such person holds 
 such interest other than in connection with such a 
 trade or business, and
 ``
            (C) shall be treated as an investment services 
 partnership interest if acquired from a related person 
 in whose hands such interest was an investment services 
 partnership interest.
 ``

    (2) Businesses to which this section applies.--A trade or 
 business is described in this paragraph if such trade or 
 business primarily involves the performance of any of the 
 following services with respect to assets held (directly or 
 indirectly) by one or more investment partnerships referred to 
 in paragraph

    (1) :
 ``
        (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) .
 ``

    (3) Investment partnership.--
 ``
        (A) In general.--The term `investment 
 partnership' means any partnership if, at the end of 
 any two consecutive calendar quarters ending after the 
 date of enactment of this section--
 ``
            (i) substantially all of the assets of 
 the partnership are specified assets 
 (determined without regard to any 

section 197 
 intangible within the meaning of 

section 197
            (d) ), and
 ``
            (ii) less than 75 percent of the capital 
 of the partnership is attributable to qualified 
 capital interests which constitute property 
 held in connection with a trade or business of 
 the owner of such interest.
 ``
        (B) Look-through of certain wholly owned entities 
 for purposes of determining assets of the 
 partnership.--
 ``
            (i) In general.--For purposes of 
 determining the assets of a partnership under 
 subparagraph
        (A)
            (i) --
 ``
            (I) any interest in a specified 
 entity shall not be treated as an asset 
 of such partnership, and
 ``
            (II) such partnership shall be 
 treated as holding its proportionate 
 share of each of the assets of such 
 specified entity.
 ``
            (ii) Specified entity.--For purposes of 
 clause
            (i) , the term `specified entity' means, 
 with respect to any partnership (hereafter 
 referred to as the upper-tier partnership), any 
 person which engages in the same trade or 
 business as the upper-tier partnership and is--
 ``
            (I) a partnership all of the 
 capital and profits interests of which 
 are held directly or indirectly by the 
 upper-tier partnership, or
 ``
            (II) a foreign corporation which 
 does not engage in a trade or business 
 in the United States and all of the 
 stock of which is held directly or 
 indirectly by the upper-tier 
 partnership.
 ``
            (C) Special rules for determining if property 
 held in connection with trade or business.--
 ``
            (i) In general.--Except as otherwise 
 provided by the Secretary, solely for purposes 
 of determining whether any interest in a 
 partnership constitutes property held in 
 connection with a trade or business under 
 subparagraph
        (A)
            (ii) --
 ``
            (I) a trade or business of any 
 person closely related to the owner of 
 such interest shall be treated as a 
 trade or business of such owner,
 ``
            (II) such interest shall be 
 treated as held by a person in 
 connection with a trade or business 
 during any taxable year if such 
 interest was so held by such person 
 during any 3 taxable years preceding 
 such taxable year, and
 ``
            (III) paragraph

    (5)
        (B) shall not 
 apply.
 ``
            (ii) Closely related persons.--For 
 purposes of clause
            (i) 
            (I) , a person shall be 
 treated as closely related to another person 
 if, taking into account the rules of 

section 267
            (c) , the relationship between such persons 
 is described in--
 ``
            (I) paragraph

    (1) or

    (9) of 
 

section 267

    (b) , or
 ``
            (II) section 267

    (b)

    (4) , but 
 solely in the case of a trust with 
 respect to which each current 
 beneficiary is the grantor or a person 
 whose relationship to the grantor is 
 described in paragraph

    (1) or

    (9) of 
 

section 267

    (b) .
 ``
            (D) Antiabuse rules.--The Secretary may issue 
 regulations or other guidance which prevent the 
 avoidance of the purposes of subparagraph
        (A) , 
 including regulations or other guidance which treat 
 convertible and contingent debt (and other debt having 
 the attributes of equity) as a capital interest in the 
 partnership.
 ``
        (E) Controlled groups of entities.--
 ``
            (i) In general.--In the case of a 
 controlled group of entities, if an interest in 
 the partnership received in exchange for a 
 contribution to the capital of the partnership 
 by any member of such controlled group would 
 (in the hands of such member) constitute 
 property held in connection with a trade or 
 business, then any interest in such partnership 
 held by any member of such group shall be 
 treated for purposes of subparagraph
        (A) as 
 constituting (in the hands of such member) 
 property held in connection with a trade or 
 business.
 ``
            (ii) Controlled group of entities.--For 
 purposes of clause
            (i) , the term `controlled 
 group of entities' means a controlled group of 
 corporations as defined in 

section 1563

    (a)

    (1) , 
 applied without regard to subsections

    (a)

    (4) and

    (b)

    (2) of 

section 1563. A partnership or 
 any other entity (other than a corporation) 
 shall be treated as a member of a controlled 
 group of entities if such entity is controlled 
 (within the meaning of 

section 954
            (d) (3) ) by 
 members of such group (including any entity 
 treated as a member of such group by reason of 
 this sentence).
 ``
        (F) Special rule for corporations.--For purposes 
 of this paragraph, in the case of a corporation, the 
 determination of whether property is held in connection 
 with a trade or business shall be determined as if the 
 taxpayer were an individual.
 ``

    (4) Specified asset.--The term `specified asset' means 
 securities (as defined in 

section 475
            (c) (2) without regard to 
 the last sentence thereof), real estate held for rental or 
 investment, interests in partnerships, commodities (as defined 
 in 

section 475

    (e)

    (2) ), cash or cash equivalents, or options or 
 derivative contracts with respect to any of the foregoing.
 ``

    (5) Related persons.--
 ``
        (A) In general.--A person shall be treated as 
 related to another person if the relationship between 
 such persons is described in 

section 267

    (b) or 707

    (b) .
 ``
        (B) Attribution of partner services.--Any service 
 described in paragraph

    (2) which is provided by a 
 partner of a partnership shall be treated as also 
 provided by such partnership.
 ``
            (d) Exception for Certain Capital Interests.--
 ``

    (1) In general.--In the case of any portion of an 
 investment services partnership interest which is a qualified 
 capital interest, all items of gain and loss (and any 
 dividends) which are allocated to such qualified capital 
 interest shall not be taken into account under subsection

    (a) if--
 ``
        (A) allocations of items are made by the 
 partnership to such qualified capital interest in the 
 same manner as such allocations are made to other 
 qualified capital interests held by partners who do not 
 provide any services described in subsection
            (c) (2) and 
 who are not related to the partner holding the 
 qualified capital interest, and
 ``
        (B) the allocations made to such other interests 
 are significant compared to the allocations made to 
 such qualified capital interest.
 ``

    (2) Authority to provide exceptions to allocation 
 requirements.--To the extent provided by the Secretary in 
 regulations or other guidance--
 ``
        (A) Allocations to portion of qualified capital 
 interest.--Paragraph

    (1) may be applied separately with 
 respect to a portion of a qualified capital interest.
 ``
        (B) No or insignificant allocations to nonservice 
 providers.--In any case in which the requirements of 
 paragraph

    (1)
        (B) are not satisfied, items of gain and 
 loss (and any dividends) shall not be taken into 
 account under subsection

    (a) to the extent that such 
 items are properly allocable under such regulations or 
 other guidance to qualified capital interests.
 ``
            (C) Allocations to service providers' qualified 
 capital interests which are less than other 
 allocations.--Allocations shall not be treated as 
 failing to meet the requirement of paragraph

    (1)
        (A) merely because the allocations to the qualified capital 
 interest represent a lower return than the allocations 
 made to the other qualified capital interests referred 
 to in such paragraph.
 ``

    (3) Special rule for changes in services and capital 
 contributions.--In the case of an interest in a partnership 
 which was not an investment services partnership interest and 
 which, by reason of a change in the services with respect to 
 assets held (directly or indirectly) by the partnership or by 
 reason of a change in the capital contributions to such 
 partnership, becomes an investment services partnership 
 interest, the qualified capital interest of the holder of such 
 partnership interest immediately after such change shall not, 
 for purposes of this subsection, be less than the fair market 
 value of such interest (determined immediately before such 
 change).
 ``

    (4) Special rule for tiered partnerships.--Except as 
 otherwise provided by the Secretary, in the case of tiered 
 partnerships, all items which are allocated in a manner which 
 meets the requirements of paragraph

    (1) to qualified capital 
 interests in a lower-tier partnership shall retain such 
 character to the extent allocated on the basis of qualified 
 capital interests in any upper-tier partnership.
 ``

    (5) Exception for no-self-charged carry and management 
 fee provisions.--Except as otherwise provided by the Secretary, 
 an interest shall not fail to be treated as satisfying the 
 requirement of paragraph

    (1)
        (A) merely because the allocations 
 made by the partnership to such interest do not reflect the 
 cost of services described in subsection
            (c) (2) which are 
 provided (directly or indirectly) to the partnership by the 
 holder of such interest (or a related person).
 ``

    (6) Special rule for dispositions.--In the case of any 
 investment services partnership interest any portion of which 
 is a qualified capital interest, subsection

    (b) shall not apply 
 to so much of any gain or loss as bears the same proportion to 
 the entire amount of such gain or loss as--
 ``
        (A) the distributive share of gain or loss that 
 would have been allocated to the qualified capital 
 interest (consistent with the requirements of paragraph

    (1) ) if the partnership had sold all of its assets at 
 fair market value immediately before the disposition, 
 bears to
 ``
        (B) the distributive share of gain or loss that 
 would have been so allocated to the investment services 
 partnership interest of which such qualified capital 
 interest is a part.
 ``

    (7) Qualified capital interest.--For purposes of this 
 section--
 ``
        (A) In general.--The term `qualified capital 
 interest' means so much of a partner's interest in the 
 capital of the partnership as is attributable to--
 ``
            (i) the fair market value of any money or 
 other property contributed to the partnership 
 in exchange for such interest (determined 
 without regard to 

section 752

    (a) ),
 ``
            (ii) any amounts which have been included 
 in gross income under 

section 83 with respect 
 to the transfer of such interest, and
 ``
            (iii) the excess (if any) of--
 ``
            (I) any items of income and gain 
 taken into account under 

section 702 
 with respect to such interest, over
 ``
            (II) any items of deduction and 
 loss so taken into account.
 ``
        (B) Adjustment to qualified capital interest.--
 ``
            (i) Distributions and losses.--The 
 qualified capital interest shall be reduced by 
 distributions from the partnership with respect 
 to such interest and by the excess (if any) of 
 the amount described in subparagraph
        (A)
            (iii) 
            (II) over the amount described in 
 subparagraph
        (A)
            (iii) 
            (I) .
 ``
            (ii) Special rule for contributions of 
 property.--In the case of any contribution of 
 property described in subparagraph
        (A)
            (i) with 
 respect to which the fair market value of such 
 property is not equal to the adjusted basis of 
 such property immediately before such 
 contribution, proper adjustments shall be made 
 to the qualified capital interest to take into 
 account such difference consistent with such 
 regulations or other guidance as the Secretary 
 may provide.
 ``
            (C) Merger, consolidation, division, etc., 
 disregarded.--No increase or decrease in the qualified 
 capital interest of any partner shall result from a 
 merger, consolidation, or division described in 

section 708, or any similar transaction.
 ``

    (8) Treatment of certain loans.--
 ``
        (A) Proceeds of partnership loans not treated as 
 qualified capital interest of service providing 
 partners.--For purposes of this subsection, an 
 investment services partnership interest shall not be 
 treated as a qualified capital interest to the extent 
 that such interest is acquired in connection with the 
 proceeds of any loan or other advance made or 
 guaranteed, directly or indirectly, by any other 
 partner or the partnership (or any person related to 
 any such other partner or the partnership). The 
 preceding sentence shall not apply to the extent the 
 loan or other advance is repaid before the date of the 
 enactment of this section unless such repayment is made 
 with the proceeds of a loan or other advance described 
 in the preceding sentence.
 ``
        (B) Reduction in allocations to qualified capital 
 interests for loans from nonservice-providing partners 
 to the partnership.--For purposes of this subsection, 
 any loan or other advance to the partnership made or 
 guaranteed, directly or indirectly, by a partner not 
 providing services described in subsection
            (c) (2) to 
 the partnership (or any person related to such partner) 
 shall be taken into account in determining the 
 qualified capital interests of the partners in the 
 partnership.
 ``

    (9) Special rule for qualified family partnerships.--
 ``
        (A) In general.--In the case of any specified 
 family partnership interest, paragraph

    (1)
        (A) shall be 
 applied without regard to the phrase `and who are not 
 related to the partner holding the qualified capital 
 interest'.
 ``
        (B) Specified family partnership interest.--For 
 purposes of this paragraph, the term `specified family 
 partnership interest' means any investment services 
 partnership interest if--
 ``
            (i) such interest is an interest in a 
 qualified family partnership,
 ``
            (ii) such interest is held by a natural 
 person or by a trust with respect to which each 
 beneficiary is a grantor or a person whose 
 relationship to the grantor is described in 
 

section 267

    (b)

    (1) , and
 ``
            (iii) all other interests in such 
 qualified family partnership with respect to 
 which significant allocations are made (within 
 the meaning of paragraph

    (1)
        (B) and in 
 comparison to the allocations made to the 
 interest described in clause
            (ii) ) are held by 
 persons who--
 ``
            (I) are related to the natural 
 person or trust referred to in clause
            (ii) , or
 ``
            (II) provide services described 
 in subsection
            (c) (2) .
 ``
            (C) Qualified family partnership.--For purposes 
 of this paragraph, the term `qualified family 
 partnership' means any partnership if--
 ``
            (i) all of the capital and profits 
 interests of such partnership are held by--
 ``
            (I) specified family members,
 ``
            (II) any person closely related 
 (within the meaning of subsection
            (c) (3)
            (C) 
            (ii) ) to a specified family 
 member, or
 ``
            (III) any other person (not 
 described in subclause
            (I) or
            (II) ) if 
 such interest is an investment services 
 partnership interest with respect to 
 such person, and
 ``
            (ii) such partnership does not hold 
 itself out to the public as an investment 
 advisor.
 ``
            (D) Specified family members.--For purposes of 
 subparagraph
            (C) , individuals shall be treated as 
 specified family members if such individuals would be 
 treated as one person under the rules of 

section 1361
            (c) (1) if the applicable date (within the meaning 
 of subparagraph
        (B)
            (iii) thereof) were the latest of--
 ``
            (i) the date of the establishment of the 
 partnership,
 ``
            (ii) the earliest date that the common 
 ancestor holds a capital or profits interest in 
 the partnership, or
 ``
            (iii) the date of the enactment of this 
 section.
 ``

    (e) 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 investment 
 entity,
 ``
        (B) such person holds (directly or indirectly) 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. Rules similar to the rules of 
 subsections

    (a)

    (5) and
            (d) shall apply for purposes of this 
 subsection.
 ``

    (2) === Definitions. ===
-For purposes of this subsection--
 ``
        (A) Disqualified interest.--
 ``
            (i) In general.--The term `disqualified 
 interest' means, with respect to any investment 
 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 
 subclause
            (I) or
            (II) , and
 ``
            (IV) any derivative instrument 
 entered into (directly or indirectly) 
 with such entity or any investor in 
 such entity.
 ``
            (ii) Exceptions.--Such term shall not 
 include--
 ``
            (I) a partnership interest,
 ``
            (II) except as provided by the 
 Secretary, any interest in a taxable 
 corporation, and
 ``
            (III) except as provided by the 
 Secretary, stock in an S corporation.
 ``
        (B) Taxable corporation.--The term `taxable 
 corporation' means--
 ``
            (i) a domestic C corporation, or
 ``
            (ii) a foreign corporation substantially 
 all of the income of which is--
 ``
            (I) effectively connected with 
 the conduct of a trade or business in 
 the United States, or
 ``
            (II) subject to a comprehensive 
 foreign income tax (as defined in 
 

section 457A
            (d) (2) ).
 ``
            (C) Investment management services.--The term 
 `investment management services' means a substantial 
 quantity of any of the services described in subsection
            (c) (2) .
 ``
            (D) Investment entity.--The term `investment 
 entity' means any entity which, if it were a 
 partnership, would be an investment partnership.
 ``

    (f) Exception for Domestic C Corporations.--Except as otherwise 
provided by the Secretary, in the case of a domestic C corporation--
 ``

    (1) subsections

    (a) and

    (b) shall not apply to any item 
 allocated to such corporation with respect to any investment 
 services partnership interest (or to any gain or loss with 
 respect to the disposition of such an interest), and
 ``

    (2) subsection

    (e) shall not apply.
 ``

    (g) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as is necessary or appropriate to carry out the 
purposes of this section, including regulations or other guidance to--
 ``

    (1) require such reporting and recordkeeping by any 
 person in such manner and at such time as the Secretary may 
 prescribe for purposes of enabling the partnership to meet the 
 requirements of 

section 6031 with respect to any item described 
 in 

section 702

    (a)

    (9) ,
 ``

    (2) provide modifications to the application of this 
 section (including treating related persons as not related to 
 one another) to the extent such modification is consistent with 
 the purposes of this section,
 ``

    (3) prevent the avoidance of the purposes of this section 
 (including through the use of qualified family partnerships), 
 and
 ``

    (4) coordinate this section with the other provisions of 
 this title.
 ``

    (h) Cross Reference.--For 40-percent penalty on certain 
underpayments due to the avoidance of this section, see 

section 6662.''.

    (b) Application of 

Section 751 To Indirect Dispositions of 
Investment Services Partnership Interests.--

    (1) In general.--Subsection

    (a) of 

section 751 of such Code 
 is amended by striking ``or'' at the end of paragraph

    (1) , by 
 inserting ``or'' at the end of paragraph

    (2) , and by inserting 
 after paragraph

    (2) the following new paragraph:
 ``

    (3) investment services partnership interests held by the 
 partnership,''.

    (2) Certain distributions treated as sales or exchanges.--
 Subparagraph
        (A) of 

section 751

    (b)

    (1) of such Code is amended 
 by striking ``or'' at the end of clause
            (i) , by inserting 
 ``or'' at the end of clause
            (ii) , and by inserting after clause
            (ii) the following new clause:
 ``
            (iii) investment services partnership 
 interests held by the partnership,''.

    (3) Application of special rules in the case of tiered 
 partnerships.--Subsection

    (f) of 

section 751 of such Code is 
 amended--
        (A) by striking ``or'' at the end of paragraph

    (1) , 
 by inserting ``or'' at the end of paragraph

    (2) , and by 
 inserting after paragraph

    (2) the following new 
 paragraph:
 ``

    (3) an investment services partnership interest held by 
 the partnership,'', and
        (B) by striking ``partner.'' and inserting 
 ``partner (other than a partnership in which it holds 
 an investment services partnership interest).''.

    (4) Investment services partnership interests; qualified 
 capital interests.--

Section 751 of such Code is amended by 
 adding at the end the following new subsection:
 ``

    (g) Investment Services Partnership Interests.--For purposes of 
this section--
 ``

    (1) In general.--The term `investment services 
 partnership interest' has the meaning given such term by 
 

section 710
            (c) .
 ``

    (2) Adjustments for qualified capital interests.--The 
 amount to which subsection

    (a) applies by reason of paragraph

    (3) thereof shall not include so much of such amount as is 
 attributable to any portion of the investment services 
 partnership interest which is a qualified capital interest 
 (determined under rules similar to the rules of 

section 710
            (d) ).
 ``

    (3) Exception for publicly traded partnerships.--Except 
 as otherwise provided by the Secretary, in the case of an 
 exchange of an interest in a publicly traded partnership (as 
 defined in 

section 7704) to which subsection

    (a) applies--
 ``
        (A) this section shall be applied without regard 
 to subsections

    (a)

    (3) ,

    (b)

    (1)
        (A)
            (iii) , and

    (f)

    (3) , and
 ``
        (B) such partnership shall be treated as owning 
 its proportionate share of the property of any other 
 partnership in which it is a partner.
 ``

    (4) Recognition of gains.--Any gain with respect to which 
 subsection

    (a) applies by reason of paragraph

    (3) thereof shall 
 be recognized notwithstanding any other provision of this 
 title.
 ``

    (5) Coordination with inventory items.--An investment 
 services partnership interest held by the partnership shall not 
 be treated as an inventory item of the partnership.
 ``

    (6) Prevention of double counting.--Under regulations or 
 other guidance prescribed by the Secretary, subsection

    (a)

    (3) shall not apply with respect to any amount to which 

section 710 
 applies.
 ``

    (7) Valuation methods.--The Secretary shall prescribe 
 regulations or other guidance which provide the acceptable 
 methods for valuing investment services partnership interests 
 for purposes of this section.''.
            (c) Treatment for Purposes of 

Section 7704.--Subsection
            (d) of 

section 7704 of such Code is amended by adding at the end the following 
new paragraph:
 ``

    (6) Income from certain carried interests not 
 qualified.--
 ``
        (A) In general.--Specified carried interest 
 income shall not be treated as qualifying income.
 ``
        (B) Specified carried interest income.--For 
 purposes of this paragraph--
 ``
            (i) In general.--The term `specified 
 carried interest income' means--
 ``
            (I) any item of income or gain 
 allocated to an investment services 
 partnership interest (as defined in 
 

section 710
            (c) ) held by the 
 partnership,
 ``
            (II) any gain on the disposition 
 of an investment services partnership 
 interest (as so defined) or a 
 partnership interest to which (in the 
 hands of the partnership) 

section 751 
 applies, and
 ``
            (III) any income or gain taken 
 into account by the partnership under 
 subsection

    (b)

    (4) or

    (e) of 

section 710.
 ``
            (ii) Exception for qualified capital 
 interests.--A rule similar to the rule of 
 

section 710
            (d) shall apply for purposes of 
 clause
            (i) .
 ``
            (C) Coordination with other provisions.--
 Subparagraph
        (A) shall not apply to any item described 
 in paragraph

    (1)
        (E) (or so much of paragraph

    (1)
        (F) as 
 relates to paragraph

    (1)
        (E) ).
 ``
            (D) Special rules for certain partnerships.--
 ``
            (i) Certain partnerships owned by real 
 estate investment trusts.--Subparagraph
        (A) shall not apply in the case of a partnership 
 which meets each of the following requirements:
 ``
            (I) Such partnership is treated 
 as publicly traded under this section 
 solely by reason of interests in such 
 partnership being convertible into 
 interests in a real estate investment 
 trust which is publicly traded.
 ``
            (II) Fifty 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) of 

section 856
            (c) .
 ``
            (ii) Certain partnerships owning other 
 publicly traded partnerships.--Subparagraph
        (A) shall not apply in the case of a partnership 
 which meets each of the following requirements:
 ``
            (I) Substantially all of the 
 assets of such partnership consist of 
 interests in one or more publicly 
 traded partnerships (determined without 
 regard to subsection

    (b)

    (2) ).
 ``
            (II) Substantially all of the 
 income of such partnership is ordinary 
 income or 

section 1231 gain (as defined 
 in 

section 1231

    (a)

    (3) ).
 ``
        (E) Transitional rule.--Subparagraph
        (A) shall 
 not apply to any taxable year of the partnership 
 beginning before the date which is 10 years after the 
 date of the enactment of this paragraph.''.
            (d) Imposition of Penalty on Underpayments.--

    (1) In general.--Subsection

    (b) of 

section 6662 of such 
 Code is amended by inserting after paragraph

    (10) the following 
 new paragraph:
 ``

    (11) The application of 

section 710

    (e) or the regulations 
 or other guidance prescribed under 

section 710

    (g) 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:
 ``
            (m) 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)

    (8) , subsection

    (a) shall be applied with respect to such portion by 
substituting `40 percent' for `20 percent'.''.
        (B) Conforming amendment.--Subparagraph
        (B) of 
 

section 6662A

    (e)

    (2) of such Code is amended by striking 
 ``or
            (i) '' and inserting ``,
            (i) , or
            (m) ''.

    (3) Special rules for application of reasonable cause 
 exception.--Subsection
            (c) of 

section 6664 of such Code is 
 amended--
        (A) by redesignating paragraphs

    (3) and

    (4) as 
 paragraphs

    (4) and

    (5) , respectively,
        (B) by striking ``paragraph

    (3) '' in paragraph

    (5)
        (A) , as so redesignated, and inserting ``paragraph

    (4) '', and
            (C) by inserting after paragraph

    (2) the following 
 new paragraph:
 ``

    (3) Special rule for underpayments attributable to 
 investment management services.--
 ``
        (A) In general.--Paragraph

    (1) shall not apply to 
 any portion of an underpayment to which 

section 6662 
 applies by reason of subsection

    (b)

    (8) unless--
 ``
            (i) the relevant facts affecting the tax 
 treatment of the item are adequately disclosed,
 ``
            (ii) there is or was substantial 
 authority for such treatment, and
 ``
            (iii) the taxpayer reasonably believed 
 that such treatment was more likely than not 
 the proper treatment.
 ``
        (B) Rules relating to reasonable belief.--Rules 
 similar to the rules of subsection
            (d) (3) shall apply 
 for purposes of subparagraph
        (A)
            (iii) .''.

    (e) Income and Loss From Investment Services Partnership Interests 
Taken Into Account in Determining Net Earnings From Self-Employment.--

    (1) Internal revenue code.--
        (A) In general.--

Section 1402

    (a) of such Code is 
 amended by striking ``and'' at the end of paragraph

    (16) , by striking the period at the end of paragraph

    (17) and inserting ``; and'', and by inserting after 
 paragraph

    (17) the following new paragraph:
 ``

    (18) notwithstanding the preceding provisions of this 
 subsection, in the case of any individual engaged in the trade 
 or business of providing services described in 

section 710
            (c) (2) with respect to any entity, investment services 
 partnership income or loss (as defined in subsection
            (m) ) of 
 such individual with respect to such entity shall be taken into 
 account in determining the net earnings from self-employment of 
 such individual.''.
        (B) Investment services partnership income or 
 loss.--

Section 1402 of such Code is amended by adding 
 at the end the following new subsection:
 ``
            (m) Investment Services Partnership Income or Loss.--For purposes 
of subsection

    (a) --
 ``

    (1) In general.--The term `investment services 
 partnership income or loss' means, with respect to any 
 investment services partnership interest (as defined in 

section 710
            (c) ) or disqualified interest (as defined in 

section 710

    (e) ), the net of--
 ``
        (A) the amounts treated as ordinary income or 
 ordinary loss under subsections

    (b) and

    (e) of 

section 710 with respect to such interest,
 ``
        (B) all items of income, gain, loss, and 
 deduction allocated to such interest, and
 ``
            (C) the amounts treated as realized from the sale 
 or exchange of property other than a capital asset 
 under 

section 751 with respect to such interest.
 ``

    (2) Exception for qualified capital interests.--A rule 
 similar to the rule of 

section 710
            (d) shall apply for purposes 
 of applying paragraph

    (1)
        (B) .''.

    (2) Social security act.--

Section 211

    (a) of the Social 
 Security Act is amended by striking ``and'' at the end of 
 paragraph

    (15) , by striking the period at the end of paragraph

    (16) and inserting ``; and'', and by inserting after paragraph

    (16) the following new paragraph:
 ``

    (17) Notwithstanding the preceding provisions of this 
 subsection, in the case of any individual engaged in the trade 
 or business of providing services described in 

section 710
            (c) (2) of the Internal Revenue Code of 1986 with respect to 
 any entity, investment services partnership income or loss (as 
 defined in 

section 1402
            (m) of such Code) shall be taken into 
 account in determining the net earnings from self-employment of 
 such individual.''.

    (f) Separate Accounting by Partner.--

Section 702

    (a) of the Internal 
Revenue Code of 1986 is amended by striking ``and'' at the end of 
paragraph

    (7) , by striking the period at the end of paragraph

    (8) and 
inserting ``, and'', and by inserting after paragraph

    (8) the 
following:
 ``

    (9) any amount treated as ordinary income or loss under 
 subsection

    (a) ,

    (b) , or

    (e) of 

section 710.''.

    (g) 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),'' after ``to the extent otherwise 
 provided by''.

    (2) Section 741 of such Code is amended by inserting ``or 
 

section 710 (relating to special rules for partners providing 
 investment management services to partnerships)'' before the 
 period at the end.

    (3) 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 partnerships.''.

    (4) Part IV of subchapter O of chapter 1 of such Code is 
 amended by striking 

section 1061, and the table of sections for 
 such part is amended by striking the item relating to 

section 1061.

    (h) 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 the 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 the 
 enactment of this Act, the amount of the net capital gain 
 referred to in such section shall be treated as being the 
 lesser of the net capital gain for the entire partnership 
 taxable year or the net capital gain 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.--
        (A) In general.--

Section 710

    (b) of such Code (as 
 added by this section) shall apply to dispositions and 
 distributions after the date of the enactment of this 
 Act.
        (B) Indirect dispositions.--The amendments made by 
 subsection

    (b) shall apply to transactions after the 
 date of the enactment of this Act.

    (4) Other income and gain in connection with investment 
 management services.--

Section 710

    (e) of such Code (as added by 
 this section) shall take effect on the date of the enactment of 
 this Act.

SEC. 5. ENHANCED DEDUCTION FOR CERTAIN SELF-EMPLOYED INDIVIDUALS.

    (a) In General.--

Section 164

    (f) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new paragraph:
 ``

    (3) Enhanced deduction for lower-income individuals.--In 
 the case of an individual with an adjusted gross income of less 
 than $400,000 for the taxable year, paragraph

    (1) shall be 
 applied by substituting `three quarters of the taxes imposed' 
 for `one-half of the taxes imposed'.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2024.

SEC. 6. INCREASED EXCISE TAX ON REPURCHASE OF CORPORATE STOCK.

    (a) In General.--

Section 4501

    (a) of the Internal Revenue Code of 
1986 is amended by striking ``1 percent'' and inserting ``1.5 
percent''.

    (b) Effective Date.--The amendment made by this section shall apply 
to repurchases of stock after December 31, 2024.
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