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119-s-2095119th CongressWALLET

PARTNERSHIPS Act

Sponsored By: Senator Wyden, Ron [D-OR]

Introduced

Summary

This bill would overhaul how partnerships report and allocate taxable income and gains, and tighten rules to curb abusive or mismatched allocations. It would force many partnerships to use a new “consistent percentage method” tied to partners’ net equity, add new reporting and deemed-transfer rules, and give Treasury broader regulatory authority.

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  • Many partnerships and their partners would face new reporting and allocation rules. Covered partnerships must identify themselves and use a consistent percentage equal to each covered partner’s net equity for allocating income, loss, deductions, and credits. A partner with an “excess share” could be treated as transferring an interest and recognize immediate income with limits on deductible losses.
  • Liability shifts and transitional relief would affect partners who suddenly realize gain. Partnership liabilities would generally be allocated pro rata by profit share, effective for tax years after 2025, and taxpayers can elect to spread any gain caused by that change over six years.
  • Small business partnerships and distributions would face tighter basis rules. Section 754 elections would be limited to “qualified small business partnerships” under a gross receipts test, and distributions after enactment would trigger mandatory basis adjustments so remaining partners’ net liquidation amounts stay aligned.
  • High-income taxpayers, trusts, and estates would face a broader investment-income tax base. For taxpayers above the thresholds (about $400,000 single and $500,000 joint) the net investment income tax base would use a wider “specified net income” measure, with a phase-in cap on the extra tax of $100,000 (one-half for married filing separately), and similar substitution rules for trusts and estates.

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Bill Overview

Analyzed Economic Effects

6 provisions identified: 1 benefits, 4 costs, 1 mixed.

Earlier loss write-offs for worthless assets

If enacted, losses for worthless capital assets would be recognized when an identifiable event shows they are worthless, not just at year end. Abandonment would count as that identifiable event. A worthless partnership interest would be treated as a sale or exchange loss at the time of that event. These changes apply to tax years after enactment and can let taxpayers claim deductions sooner.

Higher investment tax for high earners

If enacted, the Net Investment Income Tax would apply to the greater of specified net income or net investment income for taxpayers over the bill's high-income thresholds. The thresholds are $400,000 for single filers, $500,000 for joint filers, and $250,000 for married filing separately. The added tax increase is phased in and capped so the extra amount cannot exceed what the formula allows, generally up to $100,000 per taxpayer (or $50,000 for married filing separately). The change also applies to trusts and estates.

New basis rules for partnership distributions

If enacted, many partnerships could no longer make a section 754 basis adjustment unless they meet a small business gross receipts test. Partnerships would be required to adjust property basis so remaining partners keep the same net liquidation amounts after distributions. The bill would require the remedial method for built-in gain on contributed property and repeal special liquidating distribution rules that applied to retired or deceased partners. The changes limit step-ups and change tax timing on distributions and transfers.

New partnership allocation and reporting rules

If enacted, covered partnerships would have new rules on how income, losses, and credits are divided and reported. Partnerships would need to tell the IRS they are a covered partnership and give new information about transfers of partnership interests. The bill would let Treasury recast or disregard partnership transactions that do not match partners' economic agreements. It would also change how some reimbursements and revaluation events are treated for tax purposes. These changes would raise compliance work and could increase tax for some partners.

Tax on transfers to investment funds

If enacted, transfers of marketable securities into certain investment companies or partnerships could trigger immediate taxable gain instead of nonrecognition. The rule covers transfers to registered investment companies, some exempt funds that offer interests to qualified purchasers, and transfers that let large holders diversify big blocks of securities. These changes apply to transfers after enactment and could alter how investors structure moves into funds.

Reallocating partnership debt and payment option

If enacted, partnership debts would generally be split by each partner's share of profits for tax basis and allocations. Guarantees would not get the same treatment and Treasury can write rules for similar arrangements. If that change causes taxable gain in the first year after 2025, affected taxpayers could elect to pay the extra tax in six equal annual installments. The loan reallocation can raise taxes for some partners, while the six-year election eases cash flow for those who qualify.

Sponsors & CoSponsors

Sponsor

Wyden, Ron [D-OR]

OR • D

Cosponsors

There are no cosponsors for this bill.

Roll Call Votes

No roll call votes available for this bill.

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