26 U.S.C. § 1061

Partnership interests held in connection with performance of services

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(a) In generalIf one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of—(1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over(2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 11 So in original. Probably should be “section”. 1222 by substituting “3 years” for “1 year”,shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b).(b) Special rule

To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors.

Except as provided in this paragraph or paragraph (4), the term “applicable partnership interest” means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity.

(2) Applicable trade or businessThe term “applicable trade or business” means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of—(A) raising or returning capital, and(B) either—(i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or(ii) developing specified assets.(3) Specified asset

The term “specified asset” means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing.

(4) ExceptionsThe term “applicable partnership interest” shall not include—(A) any interest in a partnership directly or indirectly held by a corporation, or(B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with—(i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or(ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest.(5) Third party investorThe term “third party investor” means a person who—(A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and(B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business.(d) Transfer of applicable partnership interest to related person(1) In generalIf a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of—(A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over(B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest.(2) Related personFor purposes of this paragraph, a person is related to the taxpayer if—(A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or(B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service.(e) Reporting

The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section.

(f) Regulations

The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section 22 So in original. Probably should be followed by a period.

(Added Pub. L. 115–97, title I, § 13309(a)(2), Dec. 22, 2017, 131 Stat. 2130.)Editorial NotesPrior Provisions

A prior section 1061 was renumbered section 1063 of this title.

Statutory Notes and Related SubsidiariesEffective Date

Pub. L. 115–97, title I, § 13309(c), Dec. 22, 2017, 131 Stat. 2131, provided that: “The amendments made by this section [enacting this section and renumbering former section 1061 of this title as section 1062] shall apply to taxable years beginning after December 31, 2017.”

Notes of Decisions

Cited in 48 cases, 1927–1936 · leading case: Austin Co. v. Comm'r of Internal Revenue, 35 F.2d 910 (6th Cir. 1929).

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Austin Co. v. Comm'r of Internal Revenue, 35 F.2d 910 (6th Cir. 1929). · cites it 2× “This is not a proceeding in distraint or in court to collect a tax, and admittedly the limitations of the Act of 1918, 40 Stat.”

Jaffee v. Comm'r of Internal Revenue, 45 F.2d 679 (2d Cir. 1930). · cites it 3× “At that time the Revenue Act of 1924 was in effect; no assessment had been made; the statutory period for assessment of the earlier taxes, as extended by the waiver, had not expired; and the time for assessment of the later taxes, unoxtendod by waiver, had not expired.”

WP Brown & Sons Lumber Co. v. Com'r of Internal Revenue, 38 F.2d 425 (6th Cir. 1930). · cites it 3× “Section 274(a), 26 USCA § 1048, note, provides for the appeal of such determination to the Board of Tax Appeals, and section 277(b), 26 USCA § 1057 note, extends the period during which such assessment may be made until after the final decision of the board.”

Loewer Realty Co. v. Anderson, 31 F.2d 268 (2d Cir. 1929). · cites it 2× “In section 278 (d), 26 USCA § 1061, note, the act went on to say that, where the assessment of the tax was made within the period prescribed in section 277 “or in this section the tax might be collected by a proceeding begun within six years after the assessment of the tax.”

Davidovitz v. United States, 58 F.2d 1063 (Ct. Cl. 1932). · cites it 3× “He insists that the signing by the commissioner of an assessment list and certificate does not constitute the assessment of tax within the meaning of the various revenue acts and that for the purpose of the operation of the statute of limitations, as provided in the various…”

Brampton Woolen Co. v. Field, 56 F.2d 23 (1st Cir. 1932). · cites it 2× “After a plea to, and a hearing on the merits, the District Court ordered judgment for the defendant on the ground that the collection on September 11, 1929, of the amount of the first deficiency assessment with interest was, by reason of the waivers, within the time *26 allowed…”

Uncasville Mfg. Co. v. Comm'r of Internal Revenue, 55 F.2d 893 (2d Cir. 1932). “Subdivision (d), 26 USCA § 1061 note, did not concern assessments but collections, and for that matter has been confined to assessments made after June 2, 1924, as we have said.”

Crown Willamette Paper Co. v. McLaughlin, 81 F.2d 365 (9th Cir. 1936). “870 , 26 U.S.C.A. § 1061 (see 26 U.S.C.A. § 276 (c), which provides: "\A.”

Daube v. United States, 59 F.2d 842 (Ct. Cl. 1932). · cites it 4× “In the case at bar, the parties agree that the period of limitation for the collection of the partnership taxes for 1917 was extended by the so-called "unlimited" waiver which the partnership had filed to April 1, 1924, when it expired.”

United States v. Updike, 32 F.2d 1 (8th Cir. 1929). “It has been expressly hold, however, that section 278 of the 1924 act has no “possible application to cases where assessment had been made prior to Juno 2, 1924.”

Von Weise v. Comm'r, 69 F.2d 439 (8th Cir. 1934). “” (26 USCA § 1061 and note). Revenue Act of 1928.”

United States v. Updike, 25 F.2d 746 (D. Neb. 1928). “Section 278 (d) of the Revenue Act of 1926 (26 USCA § 1061[d]) is as follows: “Where the assessment of any income, excess profits, or war profits tax imposed' by this title or by prior act of Congress has been made (whether before or after the enactment of this act) within the…”

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