2 1 taxable income) is amended by inserting after paragraph (15) 2 the following new paragraph: 3 4 5 6 7 8 9 110 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "(16)(A) In the case of a trust which constitutes a qualified trust under section 401 or which is described in section 408(a) or of an organization described in section 170(b)(1)(A) (ii) or (iv), there shall be excluded all income from a working interest in a domestic oil or gas well, and all deductions and credits directly connected with such income or interest, if such income is allocated to such trust or organization as a limited partner by a limited partnership which at no time during the partnership taxable year in which such allocation is made "(i) allocated to the limited partners a lesser share of any item of deduction, loss or credit than their share of income or gain, "(ii) allocated among the limited partners shares of any item of deduction, loss or credit which differed from the ratio in which they shared income or gain, "(iii) allocated cash distributions to partners in a different manner than the allocation of income or gain, and “(iv) had a general partner related to such trust or organization. HR 4167 IH 3 "(B) Subparagraph (A) shall not apply in any case, as determined under regulations prescribed by the Secretary, in which multitier partnerships or other ar rangements are used for the principal purpose of avoiding the conditions of such subparagraph. Clauses (i), (ii) and (iii) of subparagraph (A) shall not apply to allocations made in accordance with section 704(c)(2) (relat ing to property contributed to the partnership) on a nondiscriminatory basis as between exempt and nonexempt limited partners. "(C) For purposes of subparagraph (A)— "(i) a trust is related to any person that bears the relationship to it described in section 514(c)(9)(B)(iv) (I) and (II); and "(ii) an organization is related to any person described in section 4946(a)(1)(A) through (G); and "(iii) a trust or organization is related to"(I) any corporation in which it (directly or together with any persons described in clause (i) or (ii)) holds 35 percent or more of the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corpora tion, HR 4167 IH 9 10 11 12 13 14 15 16 17 18 19 20 21 4 "(II) any partnership in which it (direct ly or together with any persons described in clause (i) or (ii)) holds 35 percent or more of the capital interest or profits interest or "(III) a trust or estate in which it (directly or together with any persons described in clause (i) or (ii)) holds 35 percent or more of the beneficial interest. "For purposes of this subparagraph, in applying section 514(c)(9)(B)(iv) (I) and (II), '35 percent' shall be substituted for '50 percent' in section 4975(e)(2) (E) and (G), and in applying section 4946(a)(1) (A) through (G), ‘organization described in section 170(b)(1)(A) (ii) or (iv)' shall be substituted for 'foundation' or 'private foundation' in section 4946 and section 507(d)(2). In applying this subparagraph, a trust or organization which is a limited partner in a partnership shall be treated as owning an interest in the general partner held by any other such trust or organization (or any person related thereto) which is a partner in such partnership.". (b) Subsection (c) of section 514 of the Internal Revenue 22 Code of 1954 (relating to unrelated debt-financed income) is 23 amended by inserting after paragraph (9) the following new 24 paragraph: HR 4167 IH 5 "(10) CERTAIN OIL AND GAS INTERESTS.-—For purposes of this section "(A) IN GENERAL.-Except as provided in subparagraph (B), the term 'acquisition indebtedness' with respect to a trust which constitutes a qualified trust under section 401 or which is described in section 408(a) or an organization described in section 170(b)(1)(A) (ii) or (iv) does not include indebtedness incurred by a limited part nership described in section 512(b)(16) in acquiring, developing or operating a working interest in a domestic oil or gas well. "(B) EXCEPTIONS.-The provisions of subparagraph (A) shall not apply with respect to a trust or organization in any case in which "(i) the acquisition price of such working interest is not a fixed amount determined as of the date of acquisition; "(ii) the amount of any such indebtedness or any other amount payable with respect to such indebtedness or the time for making any payment of any such amount, is dependent, in whole or in part, upon any revenue, income, or profits derived by or from such limited partnership; HR 4167 IH 6 "(iii) such working interests are at any time after their acquisition leased by the limited partnership to the person selling such properties to the limited partnership or to any person who bears a relationship described in section 267(b) to such person; "(iv) such working interests are acquired from, or are at any time after the acquisition leased by the limited partnership to, any person who bears a relationship described in section 512(b)(16)(C) to such trust or organization; or "(v) any person described in clause (iii) or (iv) provides such limited partnership, trust, or organization with nonrecourse financing in connection with such transaction and such debt "(I) is subordinate to any other indebtedness on such property, or "(II) bears interest at a rate which is significantly less than the rate availa ble from any person not described in clause (iii) or (iv) at the time such in debtedness is incurred. HR 4167 IH |