[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 2095 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 2095
To amend the Internal Revenue Code of 1986 to improve the rules related
to partners and partnerships, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 17, 2025
Mr. Wyden introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to improve the rules related
to partners and partnerships, 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. REFERENCE, ETC.
(a) Short Title.--This Act may be cited as the ``Preventing Abusive
Routine Tax Nonsense Enabled by Rip-offs Shelters and Havens and
Instead Promoting Simplicity Act'' or the ``PARTNERSHIPS Act''.
(b) Reference.--Except as otherwise expressly provided, whenever in
this Act, an amendment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Reference, etc.
Sec. 2. Determination of partner's distributive share.
Sec. 3. Allocation of built-in-gains with respect to contributed
property.
Sec. 4. Treatment of revalued property.
Sec. 5. Repeal of time limitation on taxing precontribution gain.
Sec. 6. Repeal of rules relating to certain liquidating distributions.
Sec. 7. Clarification of rules relating to payments to partners for
property or services.
Sec. 8. Elimination of preformation expenditure exception to
partnership transaction rules.
Sec. 9. Partnership terminations.
Sec. 10. Repeal of requirement that inventory be substantially
appreciated in certain partnership
distributions treated as sale or exchange.
Sec. 11. Treatment of partnership debt.
Sec. 12. Adjustments to basis of partnership property.
Sec. 13. Application of net investment income tax to trade or business
income of certain high income individuals.
Sec. 14. Recognition of gain on transfers to swap funds.
Sec. 15. Modifications to treatment of certain losses.
Sec. 16. Codification of anti-abuse rule.
SEC. 2. DETERMINATION OF PARTNER'S DISTRIBUTIVE SHARE.
(a) In General.--Section 704(b) is amended to read as follows:
``(b) Determination of Distributive Share.--
``(1) In general.--Except as provided in paragraph (2), a
partner's distributive share of income, gain, loss, deduction,
or credit (or item thereof) shall be determined in accordance
with the partner's interest in the partnership (determined by
taking into account all facts and circumstances), if--
``(A) the partnership agreement does not provide as
to the partner's distributive share of income, gain,
loss, deduction, or credit (or item thereof), or
``(B) the allocation to a partner under the
agreement of income, gain, loss, deduction, or credit
(or item thereof) does not have substantial economic
effect.
``(2) Required use of consistent percentage method for
certain partners.--
``(A) In general.--Except as otherwise provided in
this subchapter or by the Secretary, in the case of any
covered partner which is a partner in a partnership
which is a covered partnership for the taxable year of
such partnership, such covered partner's distributive
share of the covered partnership's applicable items for
such taxable year shall be determined using the
consistent percentage method.
``(B) Covered partner; covered partnership.--For
purposes of this paragraph--
``(i) Covered partnership.--The term
`covered partnership' means any partnership if,
during any day during the taxable year of the
partnership--
``(I) two or more members of a
controlled group (within the meaning of
section 267(f)) own (within the meaning
of section 267(e)(3)) 50 percent or
more of the capital or profits
interests in such partnership, or
``(II) it is a partnership which is
specified by the Secretary in
regulations or other guidance as being
of a type to which this subparagraph
applies in order to prevent the
avoidance of the purposes of this
paragraph.
``(ii) Covered partner.--The term `covered
partner' means--
``(I) in the case of a covered
partnership described in clause (i)(I),
any partner which is a member of a
controlled group described in such
clause or any other partner any
ownership interest (other than a de
minimis interest) in which is held
directly or indirectly by a member of
such a controlled group, and
``(II) in the case of a covered
partnership described in clause
(i)(II), any partner which meets such
specifications as prescribed by the
Secretary under the regulations or
guidance referred to in such clause.
``(iii) Reporting rule.--Each covered
partnership shall submit to the Secretary, at
such time and in such manner as prescribed by
the Secretary--
``(I) a statement that such
partnership is a covered partnership,
and
``(II) such other information as
the Secretary shall require.
``(C) Consistent percentage method.--For purposes
of this paragraph, the term `consistent percentage
method' means a method under which--
``(i) a covered partner's distributive
share of any applicable item of a covered
partnership bears the same ratio to the
aggregate distributive shares of such item for
all covered partners in such partnership
(determined without regard to this paragraph)
as--
``(I) the covered partner's net
equity in the covered partnership,
bears to
``(II) the net equity of all
covered partners in the covered
partnership, and
``(ii) the covered partner is allocated the
same share of each applicable item of the
covered partnership.
Clause (i) shall only apply to an applicable item if it
is included in the distributive share of at least 1
covered partner (determined without regard to this
paragraph).
``(D) Net equity.--For purposes of this paragraph--
``(i) In general.--The term `net equity'
means, with respect to any covered partner in a
covered partnership, the contributed equity of
such covered partner, properly adjusted to take
into account any revaluation event described in
subparagraphs (A), (B), (C), (D), or (F) of
subsection (f)(3).
``(ii) Contributed equity.--The term
`contributed equity' means, with respect to any
covered partner in a covered partnership, the
excess of--
``(I) the sum of the value of all
property and money contributed by the
covered partner (or any predecessor of
such partner) to the covered
partnership plus the amount of
liabilities (within the meaning of
section 752) of the covered partnership
that are assumed by the covered partner
(or any predecessor of such partner),
over
``(II) the sum of the value of all
property and money distributed to the
covered partner (or any predecessor of
such partner) by the covered
partnership plus the amount of
liabilities (within the meaning of
section 752) of the covered partner (or
any predecessor of such partner) that
are assumed by the covered partnership.
For purposes of this clause, a predecessor of a
partner includes any person treated as
transferring an interest to such partner in a
transaction described in section 707(d)(1)(A).
``(E) Applicable items.--For purposes of this
paragraph, the term `applicable item' means, with
respect to any partnership, any item of income, gain,
deduction, loss, or credit.
``(F) Cross-reference.--For the treatment of
covered partners in the event of certain rights or
distributions not in accordance with the consistent
percentage method, see section 707(d).''.
(b) Treatment of Certain Rights and Distributions Not in Accordance
With Consistent Percentage Method.--Section 707 is amended by adding at
the end the following new subsection:
``(d) Deemed Transfers in Certain Cases Where Certain Rights Do Not
Reflect Partnership Distributive Share.--
``(1) In general.--If a covered partner has an excess share
with respect to any covered partnership on any applicable
date--
``(A) such partner shall be treated as having
received an interest in the partnership in a
transaction between 2 or more partners acting other
than in their capacity as members of the partnership,
and
``(B) notwithstanding any other provision of this
chapter--
``(i) the value of such interest shall be
included in the gross income of the covered
partner receiving such interest in such
transaction, and
``(ii) no deduction or loss shall be
allowed with respect to such transfer to any
covered partner treated as transferring all or
a portion of such interest in such transaction.
``(2) Excess share.--For purposes of this subsection--
``(A) In general.--The term `excess share' means,
with respect to any covered partner, the amount by
which--
``(i) the covered partner's interest in
partnership assets distributable to such
covered partner upon liquidation of the covered
partnership as of any applicable date, exceeds
``(ii) the covered partner's interest in
partnership assets, determined as if the amount
distributable upon liquidation to all covered
partners as of such applicable date were
distributable to each covered partner based on
the ratio of--
``(I) such covered partner's net
equity (as defined in section
704(b)(2)(D)) in the covered
partnership on such applicable date, to
``(II) the net equity (as so
defined) of all covered partners in the
covered partnership on such applicable
date.
``(B) Applicable date.--For purposes of this
paragraph, the term `applicable date' means any of the
following:
``(i) The last day of any taxable year of
the covered partnership.
``(ii) The date of any revaluation event
(as defined in section 704(f)).
``(3) Covered partner; covered partnership.--For purposes
of this subsection, the terms `covered partnership' and
`covered partner' have the meanings give such terms under
section 704(b)(2).
``(4) Regulations and guidance.--The Secretary shall
prescribe such regulations and other guidance as necessary to
carry out the purposes of this subsection, including
regulations or other guidance providing exceptions to the
application of paragraph (1) to the extent such exceptions are
consistent with the purposes of this subsection.''.
(c) Regulations and Guidance.--Section 704 is amended by
redesignating subsection (f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
``(f) Regulations and Guidance.--The Secretary shall prescribe such
regulations and other guidance as necessary to carry out the purposes
of this section, including regulations or other guidance for the
application of this section to one or more tiers of entities.''.
(d) Reporting Penalties.--Section 6724(d)(1)(B) is amended by
striking ``or'' at the end of clause (xxvii), by striking ``and'' at
the end of clause (xxviii) and inserting ``or'', and by adding at the
end the following new clause:
``(xxix) section 704(b)(2)(B)(iii)
(relating to reporting rule for required use of
consistent percentage method), and''.
(e) Conforming Amendments.--
(1) Section 168(h)(6)(B)(ii) is amended by striking
``section 704(b)(2)'' and inserting ``section 704(b)(1)(B)''.
(2) Section 514(c)(9)(E)(i)(II) is amended by striking
``section 704(b)(2)'' and inserting ``section 704(b)(1)(B)''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years of partnerships beginning after the date of the
enactment of this Act.
SEC. 3. ALLOCATION OF BUILT-IN-GAINS WITH RESPECT TO CONTRIBUTED
PROPERTY.
(a) In General.--Subparagraph (A) of section 704(c)(1) is amended
to read as follows:
``(A) income, gain, loss, and deduction (including
notional items thereof) with respect to property
contributed to the partnership by a partner shall be
shared among the partners under the remedial method
prescribed by the Secretary so as to take into account
all of the variation between the basis of the property
to the partnership and its fair market value at the
time of contribution,''.
(b) Effective Date.--The amendment made by this section shall apply
to property contributed to a partnership after the date of the
enactment of this Act.
SEC. 4. TREATMENT OF REVALUED PROPERTY.
(a) In General.--Section 704, as amended by section 2, is amended
by redesignating subsections (f) and (g) as subsections (g) and (h),
respectively, and by inserting after subsection (e) the following new
subsection:
``(f) Revalued Property.--
``(1) In general.--Under regulations prescribed by the
Secretary, rules similar to the rules of paragraphs (1)(A) and
(1)(C) of subsection (c) shall apply to any property held by a
partnership at the time of a revaluation event.
``(2) Exception.--Paragraph (1) shall not apply to any
revaluation event which occurs during a taxable year in which
the partnership meets the gross receipts test of section 448(c)
unless the partnership elects, at such time and in such manner
as prescribed by the Secretary, to not have this paragraph
apply.
``(3) Revaluation event.--For purposes of this subsection,
the term `revaluation event' means--
``(A) any disproportionate contribution of money or
other property (other than a de minimis amount) to the
partnership,
``(B) any disproportionate distribution of money or
other property (other than a de minimis amount) by the
partnership,
``(C) any grant of an interest in the partnership
(other than a de minimis interest) as consideration for
the provision of services,
``(D) any issuance by the partnership of a non-
compensatory option (other than an option for a de
minimis partnership interest),
``(E) except as provided by the Secretary, any
agreement to change (other than a de minimis change)
the manner in which the partners share any item or
class of items of income, gain, loss, deduction, or
credit of the partnership, or
``(F) any other event prescribed by the Secretary.
``(4) Application to tiered entities.--If--
``(A) a partnership (hereinafter in this paragra