Treatment of partnership debt

(a) In general Section 752 is amended by adding at the end the following new subsection: (e) Treatment and allocation of partnership liabilities (1) In general Except as provided in paragraph (2) or by the Secretary, all liabilities of a partnership shall be allocated among partners in accordance with each partner's share of partnership profits. (2) Exception (A) In general Paragraph (1) shall not apply to bona fide indebtedness of the partnership to a partner or to any related person to a partner. For purposes of the preceding sentence, a person is a related person to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). (B) Nonapplication to guarantees Subparagraph (A) shall not apply to any guarantee or similar arrangement. (3) Regulations and other guidance The Secretary shall prescribe such regulations and other guidance as necessary to carry out the purposes of this subsection, including regulations or other guidance with respect to arrangements that are similar to guarantees for purposes of paragraph (2)(B).. (b) Effective date The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2025. (c) Treatment of gain (1) In general In the case of a taxpayer which recognizes gain by reason of the application of the amendments made by subsection (a) with respect to its first taxable year beginning after December 31, 2025, such taxpayer may elect to pay the net tax liability under this subsection in 6 equal annual installments over the 6-taxable year period beginning with the first taxable year beginning after December 31, 2025. (2) Date for payment of installments If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return for the return of tax for the taxable year described in paragraph (1)) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made. (3) Acceleration of payment If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer. (4) Proration of deficiency to installments If an election is made under paragraph (1) to pay the net tax liability under this subsection in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. (5) Election Any election under paragraph (1) shall be made not later than the due date for the return of tax for the first taxable year beginning after December 31, 2025 and shall be made in such manner as the Secretary shall provide. (6) Net tax liability under this subsection For purposes of this subsection— (A) In general The net tax liability under this subsection with respect to any taxpayer is the excess (if any) of— (i) such taxpayer's net income tax for the taxable year beginning after December 31, 2025, over (ii) such taxpayer's net income tax for such taxable year determined without regard to any amount included in gross income by reason of the amendments made by subsection (a). (B) Net income tax The term net income tax means the regular tax liability (as defined in section 26 of the Internal Revenue Code of 1986) reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A of chapter 1 of such Code. (7) Installments not to prevent credit or refund of overpayments or increase estimated taxes If an election is made under paragraph (1) to pay the net tax liability under this subsection in installments— (A) no installment of such net tax liability shall— (i) in the case of a request for credit or refund, be taken into account as a liability for purposes of determining whether an overpayment exists for purposes of section 6402 of the Internal Revenue Code of 1986 before the date on which such installment is due, or (ii) for purposes of sections 6425, 6654, and 6655 of such Code, be treated as a tax imposed by section 1 of such Code, section 11 of such Code, or subchapter L of chapter 1 of such Code, and (B) the first sentence of section 6403 of such Code shall not apply with respect to any such installment.