We wanted to call your attention to draft legislation that Senators Ron Wyden and Sherrod Brown released today that would make significant changes to the taxation of partnership distributions, allocations, and gain recognition rules.

The bill text is available via the link below and a section-by-section summary is available at: https://www.finance.senate.gov/imo/media/doc/Wyden%20Pass-through%20Reform%20Section%20by%20Section.pdf.

Significantly, the proposal would make the following changes (generally effective after 2021):

  • Limit special allocations under section 704 (effective after 2023)
  • Require related-party partnerships to allocate all items of income, expense, deduction or loss based on the partner’s net contributed capital (effective after 2023);
  • Require all partnerships to use the remedial allocation method under section 704(c);
  • Require mandatory revaluations for reverse section 704(c) allocations;
  • Repeal the 7-year holding period for section 704(c) mixing-bowl transactions;
  • Repeal section 707(c) guaranteed payments;
  • Repeal the special rule for retiring and successor-in-interest partners under section 736;
  • Tighten the disguised-sale rules under section 707 (effective after date of enactment);
  • Limit technical terminations under section 708 (effective after date of enactment);
  • Tighten the hot-asset rules with respect to inventories under section 751;
  • Require all partnership debt to be shared among partners according to partnership profits under section 752;
  • Require mandatory basis adjustments under section 754, 743, and 734;
  • Treat all publicly traded partnerships under section 7704(c) as corporations (effective after 2022); and
  • Require partnerships and S corporations to retain any excess section 163(j) interest limitation at the entity level.

We are continuing to assess the implications and impact of these proposals, which Senator Wyden estimates would raise more than $172 billion over 10 years. Given the effect that some of these provisions would have on the tax-equity market and financing structures, particularly in the energy sector, it is unclear how much support many of these changes will have among policymakers. We are continuing to assess their potential for inclusion in the reconciliation legislation currently being developed in the House and Senate.

If you have any questions, please let us know.

Daniel Joseph
Policy Advisor
Brownstein Hyatt Farber Schreck, LLP
1155 F Street N.W., Suite 1200
Washington, DC 20004
202.216.4864 tel
[email protected]


Policy and Taxation Group is your voice in Washington on economic freedom. We advocate for policies that allow American families to fully enjoy the economic liberties and benefits of a robust free market unique to our nation. For over 25 years, we have been the loudest voice in the nation’s capital on eliminating the death tax. This ill-conceived tax has a destructive impact on families, family businesses, job creation, and the national economy.


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