I.R.C. § 1061(a) In General —
If one or more applicable partnership interests are held by a taxpayer at any time
during the taxable year, the excess (if any) of—
I.R.C. § 1061(a)(1) —
the taxpayer's net long-term capital gain with respect to such interests for such
taxable year, over
I.R.C. § 1061(a)(2) —
the taxpayer's net long-term capital gain with respect to such interests for such
taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting “3 years” for “1 year”,
shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b).
I.R.C. § 1061(b) Special Rule —
To the extent provided by the Secretary, subsection (a)
shall not apply to income or gain attributable to any asset not held for portfolio
investment on behalf of third party investors.
I.R.C. § 1061(c) Applicable Partnership Interest —
For purposes of this section—
I.R.C. § 1061(c)(1) In General —
Except as provided in this paragraph or paragraph (4), the term “applicable partnership
interest” means any interest in a partnership which, directly or indirectly, is transferred
to
(or is held by) the taxpayer in connection with the performance of substantial services
by the taxpayer, or any other related person, in any applicable trade or business.
The previous sentence shall not apply to an interest held by a person who is employed
by another entity that is conducting a trade or business (other than an applicable
trade or business) and only provides services to such other entity.
I.R.C. § 1061(c)(2) Applicable Trade Or Business —
The term “applicable trade or business” means any activity conducted on a regular,
continuous, and substantial basis which, regardless of whether the activity is conducted
in one or more entities, consists, in whole or in part, of—
I.R.C. § 1061(c)(2)(A) —
raising or returning capital, and
I.R.C. § 1061(c)(2)(B) —
either—
I.R.C. § 1061(c)(2)(B)(i) —
investing in (or disposing of) specified assets (or identifying specified assets for
such investing or disposition), or
I.R.C. § 1061(c)(2)(B)(ii) —
developing specified assets.
I.R.C. § 1061(c)(3) Specified Asset —
The term “specified asset” means securities
(as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section
475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or
derivative contracts with respect to any of the foregoing, and an interest in a partnership
to the extent of the partnership's proportionate interest in any of the foregoing.
I.R.C. § 1061(c)(4) Exceptions —
The term “applicable partnership interest”
shall not include—
I.R.C. § 1061(c)(4)(A) —
any interest in a partnership directly or indirectly held by a corporation, or
I.R.C. § 1061(c)(4)(B) —
any capital interest in the partnership which provides the taxpayer with a right to
share in partnership capital commensurate with—
I.R.C. § 1061(c)(4)(B)(i) —
the amount of capital contributed (determined at the time of receipt of such partnership
interest), or
I.R.C. § 1061(c)(4)(B)(ii) —
the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest.
I.R.C. § 1061(c)(5) Third Party Investor —
The term “third party investor” means a person who—
I.R.C. § 1061(c)(5)(A) —
holds an interest in the partnership which does not constitute property held in connection
with an applicable trade or business; and
I.R.C. § 1061(c)(5)(B) —
is not (and has not been) actively engaged, and is (and was) not related to a person
so engaged, in (directly or indirectly) providing substantial services described in
paragraph
(1) for such partnership or any applicable trade or business.
I.R.C. § 1061(d) Transfer Of Applicable Partnership Interest To Related Person
I.R.C. § 1061(d)(1) In General —
If a taxpayer transfers any applicable partnership interest, directly or indirectly,
to a person related to the taxpayer, the taxpayer shall include in gross income (as
short term capital gain) the excess
(if any) of—
I.R.C. § 1061(d)(1)(A) —
so much of the taxpayer's long-term capital gains with respect to such interest for
such taxable year attributable to the sale or exchange of any asset held for not more
than 3 years as is allocable to such interest, over
I.R.C. § 1061(d)(1)(B) —
any amount treated as short term capital gain under subsection (a) with respect to
the transfer of such interest.
I.R.C. § 1061(d)(2) Related Person —
For purposes of this paragraph, a person is related to the taxpayer if—
I.R.C. § 1061(d)(2)(A) —
the person is a member of the taxpayer's family within the meaning of section 318(a)(1), or
I.R.C. § 1061(d)(2)(B) —
the person performed a service within the current calendar year or the preceding three
calendar years in any applicable trade or business in which or for which the taxpayer
performed a service.
I.R.C. § 1061(e) Reporting —
The Secretary shall require such reporting (at the time and in the manner prescribed
by the Secretary) as is necessary to carry out the purposes of this section.
I.R.C. § 1061(f) Regulations —
The Secretary shall issue such regulations or other guidance as is necessary or appropriate
to carry out the purposes of this section.
(Added Pub. L. 115-97, title I, Sec. 13309, Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
EFFECTIVE DATE
Effective for taxable years beginning after December 31, 2017.
PRIOR PROVISIONS
A prior Section 1061 was redesignated as Section 1062 by Pub. L. 115-97, Sec. 13309(a)(2).
