Sponsors
Introduced June 17, 2025 by Ronald Lee Wyden · Last progress June 17, 2025
The bill tightens and clarifies partnership tax rules and anti‑abuse provisions—raising revenue and reducing tax shelters—while imposing significant new immediate tax liabilities, compliance costs, and administrative uncertainty that will especially affect partnerships and small‑business owners.
Millions of taxpayers, partners, and partnerships get clearer, more uniform rules (allocations, liability rules, revaluation, termination, reimbursements) that reduce audit risk and litigation and make tax outcomes more predictable.
Stronger anti‑abuse measures and rule clarifications reduce opportunities to use partnership and entity structures to inappropriately shelter gains, protecting federal revenue and leveling the playing field.
Higher‑income taxpayers face expanded NIIT coverage (including certain foreign inclusions), which raises federal revenue and reduces tax disparities between domestic and some international income.
Many partners (including small‑business owners) will face higher immediate taxable income and cash burdens because distributions, liability reallocations, deemed transfers, and remedial allocation rules are more likely to trigger current gain recognition.
The bill substantially increases compliance complexity and administrative costs for partnerships, preparers, and taxpayers (new filing requirements, valuations, multi‑tier rules, and Treasury/IRS rulemaking will require professional advice and systems changes).
Narrowing availability of §754 and related targeted limits can remove long‑standing tax relief that many small partnerships relied on, producing basis mismatches and higher tax bills for those businesses.
Based on analysis of 16 sections of legislative text.
Tightens partnership tax rules (liabilities, basis step‑ups, anti‑abuse, reporting), revises timing of losses, and expands the NIIT for high‑income taxpayers.
Strips and tightens many partnership tax rules and expands the 3.8% net investment income tax for high‑income individuals. It changes how partnership liabilities are allocated, restricts basis step‑ups and related elections to certain small partnerships, creates a new anti‑abuse recast rule for partnership transactions, imposes new reporting and allocation methods for related‑group partnerships, and changes timing and treatment of several partnership sale, contribution, and retirement rules. The bill also broadens which interests and transfers are treated as investment‑company transactions and alters when worthless partnership interests are recognized. The bill phases in an expanded NIIT for taxpayers above specified MAGI thresholds, adds transitional payment rules for some transitional tax liabilities, and directs Treasury to issue extensive regulations. Most changes apply to taxable years or transfers after enactment, with one major liability allocation rule effective for taxable years beginning after Dec. 31, 2025.