Sponsors (14)
The bill standardizes and clarifies how service-related partnership interests are taxed—providing clearer valuation rules, basis allocation, and an opt-out plus a delayed effective date—but it can trigger immediate taxable income for service recipients, raise compliance costs, and create transitional uncertainty for some partners.
Taxpayers and small-business partners who receive service-related partnership interests will face clearer, consolidated rules and a defined fair-market-value (FMV) standard for income recognition at transfer, reducing ambiguity about timing and valuation of taxable income.
Recipients of service partnership interests can opt out of immediate income inclusion by making an affirmative election, preserving the ability for some taxpayers to defer tax treatment under current partnership rules.
Amounts included in income will be added to the partner's capital account and, where applicable, treated as invested capital under section 1299, clarifying basis and future gain/loss computations for partners.
Service providers who receive partnership interests may have to report immediate taxable income without receiving cash, creating a cash-to-tax mismatch that can strain finances for taxpayers and small businesses.
Partnerships, recipients, and the IRS will face new reporting, elections, and regulatory requirements, increasing compliance burdens and administrative costs for taxpayers, small businesses, and financial institutions.
Moving rules into a new consolidated Code part and changing prior provisions (e.g., section 1061) could alter substantive tax treatment for some partners in taxable years beginning after enactment, creating uncertainty until the IRS issues guidance.
Based on analysis of 3 sections of legislative text.
Requires service‑related partnership interests to be includible in income at their FMV (hypothetical taxable liquidation) in the year of transfer unless a timely election is made, and reorganizes related Code provisions.
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
Changes the tax treatment of partnership interests received for performing services by generally requiring recipients to include the fair‑market‑value of those interests in income in the year of transfer unless they timely elect out. It defines fair market value using a hypothetical fully taxable liquidation, treats the included amount as an addition to the partner’s capital account (and as invested capital where relevant), directs Treasury to issue implementing guidance for certain instruments, and phases the change in for partnerships and partner tax years that begin after enactment. The Act also reorganizes related Code provisions by moving rules (including section 1061 references) into a new Subchapter part and makes conforming table changes.