[Congressional Bills 118th Congress] [From the U.S. Government Publishing Office] [H.R. 8201 Introduced in House (IH)] <DOC> 118th CONGRESS 2d Session H. R. 8201 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 1, 2024 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