H.R. 3275

[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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