View all text of Part IV [§ 1051 - § 1062]
§ 1061. Partnership interests held in connection with performance of services
(a) In generalIf one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of—
(1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over
(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 1
1 So in original. Probably should be “section”.
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).
(b) Special rule
(c) Applicable partnership interestFor purposes of this section—
(1) In general
(2) Applicable trade or businessThe 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—
(A) raising or returning capital, and
(B) either—
(i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or
(ii) developing specified assets.
(3) Specified asset
(4) ExceptionsThe term “applicable partnership interest” shall not include—
(A) any interest in a partnership directly or indirectly held by a corporation, or
(B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with—
(i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or
(ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest.
(5) Third party investorThe term “third party investor” means a person who—
(A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and
(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.
(d) Transfer of applicable partnership interest to related person
(1) In generalIf 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—
(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
(B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest.
(2) Related personFor purposes of this paragraph, a person is related to the taxpayer if—
(A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or
(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.
(e) Reporting
(f) Regulations
(Added Pub. L. 115–97, title I, § 13309(a)(2), Dec. 22, 2017, 131 Stat. 2130.)