Sponsor
Mike Carey
Representative · R-OH
Representative · R-OH
The bill simplifies tax and withholding rules for many small investors and clarifies RIC qualification, trading off reduced tax receipts, potential opportunities for wealthier investors to shelter passive losses, and increased compliance uncertainty and recordkeeping burdens for market participants.
Small investors (holders of regularly traded partnership interests who meet the de minimis ownership test) and their brokers/financial intermediaries will often avoid effectively connected income (ECI) treatment and related withholding on sales, reducing withholding complexity and preserving more after-tax proceeds for ordinary investors.
Many limited partners in publicly traded partnerships (especially holders under 5% or those previously subject to special passive loss rules) will face simpler tax treatment because certain PTP items are excluded from section 512(b) and the special passive activity loss application is removed, reducing filing complexity.
Regulated investment companies (RICs) and the funds that rely on RIC status gain clearer qualification rules due to the adjusted 25% asset test, helping some funds maintain pass-through tax status and avoid entity-level taxation.
Taxpayers as a whole may see reduced immediate tax receipts because excluding certain PTP-related items from section 512(b) and avoiding withholding can lower U.S. tax collection on partnership activity.
Buyers, sellers, brokers, and withholding agents face uncertainty and transitional compliance risk because an incomplete edit to section 1446(f)(1) leaves withholding rules unclear for dispositions of partnership interests.
Wealthier or more sophisticated investors could use the eliminated special passive loss rules for publicly traded partnerships to shelter passive losses more easily, potentially shifting tax burdens away from other taxpayers.
Based on analysis of 2 sections of legislative text.
Alters tax rules for publicly traded partnership interests: excludes certain PTP income for owners under 5%, revises RIC asset tests, removes the PTP passive activity special rule, and narrows ECI treatment for small holders.
Official title: To amend the Internal Revenue Code of 1986 to modernize rules related to publicly traded partnerships, and for other purposes.
Introduced July 22, 2026 by Mike Carey · Last progress July 22, 2026
Changes how certain publicly traded partnership (PTP) interests are taxed for owners and makes related edits to several Internal Revenue Code rules, taking effect for tax years beginning after December 31, 2026. The bill excludes income, gain, deduction, loss, or credit attributable to specified publicly traded classes of PTP units from unrelated business taxable income for owners holding under 5%, adjusts tests used by regulated investment companies, removes a special passive activity rule for PTPs, and narrows when sales of regularly traded partnership interests are treated as effectively connected with a U.S. trade or business for non‑U.S. partners held under a 10% threshold.