CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS CORPORATIONS.

SEC. 10211. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS CORPORATIONS. (a) General Rule.— Chapter 79 (relating to definitions) is amended by adding at the end thereof the following new section: “SEC. 7704. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS CORPORATIONS. “(a) General Rule.— For purposes of this title, except as provided in subsection (c), a publicly traded partnership shall be treated as a corporation. “(b) Publicly Traded Partnership.— For purposes of this section, the term ‘publicly traded partnership’ means any partnership if— “(1) interests in such partnership are traded on an established securities market, or “(2) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof). “(c) Exception for Partnerships With Passive-Type Income.— “(1) In general.— Subsection (a) shall not apply to any publicly traded partnership for any taxable year if such partnership met the gross income requirements of paragraph (2) for such taxable year and each preceding taxable year beginning after December 31, 1987, during which the partnership (or any predecessor) was in existence. “(2) Gross income requirements.— A partnership meets the gross income requirements of this paragraph for any taxable 101 STAT. 1330–404year if 90 percent or more of the gross income of such partnership for such taxable year consists of qualifying income. “(3) Exception not to apply to certain partnerships which could qualify as regulated investment companies.— This subsection shall not apply to any partnership which would be described in section 851(a) if such partnership were a domestic corporation. To the extent provided in regulations, the preceding sentence shall not apply to any partnership a principal activity of which is the buying and selling of commodities (not described in section 1221(1)), or options, futures, or forwards with respect to commodities. “(d) Qualifying Income.— For purposes of this section— “(1) In general.— Except as otherwise provided in this subsection, the term ‘qualifying income’ means— “(A) interest, “(B) dividends, “(C) real property rents, “(D) gain from the sale or other disposition of real property (including property described in section 1221(1)), “(E) income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber), “(F) any gain from the sale or disposition of a capital asset (or property described in section 1231(b)) held for the production of income described in any of the foregoing subparagraphs of this paragraph, and “(G) in the case of a partnership described in the second sentence of subsection (c)(3), income and gains from commodities (not described in section 1221(1)) or futures, forwards, and options with respect to commodities. “(2) Certain interest not qualified.— Interest shall not be treated as qualifying income if— “(A) such interest is derived in the conduct of a financial or insurance business, or “(B) such interest would be excluded from the term ‘interest’ under section 856(D. “(3) Real property rent.— The term ‘real property rent’ means amounts which would qualify as rent from real property under section 856(d) if such section were applied without regard to paragraph (2)(C) thereof (relating to independent contractor requirements). “(4) Certain income qualifying under regulated investment company or real estate trust provisions.— The term ’qualifying income’ also includes any income which would qualify under section 851(b)(2) or 856(c)(2). “(5) Special rule for determining gross income from certain real property sales.— In the case of the sale or other disposition of real property described in section 1221(1), gross income shall not be reduced by inventory costs. “(e) Inadvertent Terminations.— If— “(1) a partnership fails to meet the gross income requirements of subsection (c)(2), “(2) the Secretary determines that such failure was inadvertent, 101 STAT. 1330–405 “(3) no later than a reasonable time after the discovery of such failure, steps are taken so that such partnership once more meets such gross income requirements, and “(4) such partnership agrees to make such adjustments (including adjustments with respect to the partners) as may be required by the Secretary with respect to such period, then, notwithstanding such failure, such entity shall be treated as continuing to meet such gross income requirements for such period. “(f) Effect of Becoming Corporation.— As of the 1st day that a partnership is treated as a corporation under this section, for purposes of this title, such partnership shall be treated as— “(1) transferring all of its assets (subject to its liabilities) to a newly formed corporation in exchange for the stock of the corporation, and “(2) distributing such stock to its partners in liquidation of their interests in the partnership.” (b) Clerical Amendment.— The table of sections for chapter 79 is amended by adding at the end thereof the following new item: “Sec. 7704. Certain publicly traded partnerships treated as corporations.” (c) Effective Date.— (1) In general.— The amendments made by this section shall apply— (A) except as provided in subparagraph (B), to taxable years beginning after December 31, 1987, or (B) in the case of an existing partnership, to taxable years beginning after December 31, 1997. (2) Existing partnership.— For purposes of this subsection— (A) In general.— The term “existing partnership” means any partnership if— (i) such partnership was a publicly traded partnership on December 17, 1987, (ii) a registration statement indicating that such partnership was to be a publicly traded partnership was filed with the Securities and Exchange Commission with respect to such partnership on or before such date, or (iii) with respect to such partnership, an application was filed with a State regulatory commission on or before such date seeking permission to restructure a portion of a corporation as a publicly traded partnership. (B) Special rule where substantial new line of business added after december 17, 1987.— A partnership which, but for this subparagraph, would be treated as an existing partnership shall cease to be treated as an existing partnership as of the 1st day after December 17, 1987, on which there has been an addition of a substantial new line of business with respect to such partnership.