DETERMINATION OF IMPUTED UNDERPAYMENTS.

SEC. 202. DETERMINATION OF IMPUTED UNDERPAYMENTS. (a) In General.—Section 6225(b) is amended to read as follows: “(b) Determination of Imputed Underpayments.—For purposes of this subchapter— “(1) In general.—Except as otherwise provided in this section, any imputed underpayment with respect to any reviewed year shall be determined by the Secretary by— “(A) appropriately netting all partnership adjustments with respect to such reviewed year, and “(B) applying the highest rate of tax in effect for the reviewed year under section 1 or 11. “(2) Adjustments to distributive shares of partners not netted.—In the case of any adjustment which reallocates the distributive share of any item from one partner to another, such adjustment shall be taken into account by disregarding so much of such adjustment as results in a decrease in the amount of the imputed underpayment. “(3) Adjustments separately netted by category.—For purposes of paragraph (1)(A), partnership adjustments for any reviewed year shall first be separately determined (and netted as appropriate) within each category of items that are required to be taken into account separately under section 702(a) or other provision of this title. “(4) Limitation on adjustments that may be taken into account.—If any adjustment would (but for this paragraph)— “(A) result in a decrease in the amount of the imputed underpayment, and “(B) could be subject to any additional limitation under the provisions of this title (or not allowed, in whole or in part, against ordinary income) if such adjustment were taken into account by any person, such adjustment shall not be taken into account under paragraph (1)(A) except to the extent otherwise provided by the Secretary.” . (b) Modifications of Imputed Underpayments.— (1) [26 U.S.C. 6225] Section 6225(c)(3)is amended by striking “without regard to the portion thereof” and inserting “without regard to the portion of the adjustment”. (2) Section 6225(c)(4)(A) is amended by striking “with respect to any portion of the imputed underpayment” and inserting “with respect to any portion of the adjustment”. (3) Section 6225(c)(5)(A)(i) is amended by striking “without regard to the portion thereof” and inserting “without regard to the portion of the adjustment”. (c) Conforming Amendments.— (1) Section 6225(a) is amended to read as follows: “(a) In General.—In the case of any adjustments by the Secretary to any partnership-related items with respect to any reviewed year of a partnership— “(1) if such adjustments result in an imputed underpayment, the partnership shall pay an amount equal to such imputed underpayment in the adjustment year as provided in section 6232, and “(2) if such adjustments do not result in an imputed underpayment, such adjustments shall be taken into account by the partnership in the adjustment year.” . (2) Section 6225(c) is amended by adding at the end the following new paragraph: “(9) Modification of adjustments not resulting in an imputed underpayment.—The Secretary shall establish procedures under which the adjustments described in subsection (a)(2) may be modified in such manner as the Secretary determines appropriate.” .