Sponsors (15)
The bill clarifies and consolidates partnership tax rules and gives recipients an election option—reducing legal and valuation uncertainty going forward—but it also creates immediate tax liabilities for some service recipients, can increase taxable income under the chosen valuation approach, and raises compliance and guidance costs.
Taxpayers and small-business owners who receive service-related partnership interests will have clearer tax rules: income is recognized at transfer with a defined fair-market-value approach and amounts are added to partners' capital accounts (including treatment as invested capital where applicable), reducing uncertainty about timing, valuation, and basis computations.
All partnership taxpayers will operate under a clarified, consolidated set of partnership Code provisions for taxable years beginning after enactment, reducing ambiguity about which rules apply going forward.
Recipients of service-related partnership interests can opt out of immediate income inclusion by making an affirmative election, preserving the ability for some taxpayers to defer recognition under election rules.
Service providers who receive partnership interests may have to report immediate taxable income without receiving cash, creating a cash‑tax mismatch and potential difficulty paying the resulting tax
Valuing transferred partnership interests using a hypothetical full liquidation can produce larger taxable income amounts than other valuation methods, increasing tax liabilities for service providers and potentially financial intermediaries advising them.
New reporting obligations, elections, and the need for IRS guidance will raise compliance burdens and administrative costs for partnerships, recipients, advisors, and the IRS.
Based on analysis of 3 sections of legislative text.
Requires immediate income inclusion for partnership interests transferred for services (unless an opt-out is timely made) and relocates carried interest rules within the tax code.
Official title: Amend the Internal Revenue Code of 1986 to revise the treatment of partnership interests received in connection with the performance of services, and for other purposes.
Introduced April 16, 2026 by Ronald Lee Wyden · Last progress April 16, 2026
Treats transfers of partnership interests received for performing services as taxable to the recipient in the year of transfer unless the recipient timely elects out, and clarifies how fair market value is measured for those interests. Moves and reorganizes an existing carried interest rule into a new part of the tax code and makes the new rules apply to partnership interests transferred after enactment and to taxable years beginning after enactment for partnerships and their partners.