Codification of anti-abuse rule

(a) In general Section 701 is amended— (1) by striking A partnership and inserting the following: (a) In general A partnership, and (2) by adding at the end the following new subsection: (b) Regulations Under regulations established by the Secretary, in the case of a transaction involving a partnership, the Secretary may recast, disregard, or otherwise modify such transaction for purposes of the Internal Revenue Code of 1986 unless— (1) the tax consequences to each partner and the partnership reflect the partners' economic agreement and clearly reflect the partners' income, (2) the form of such transaction is consistent with it substance, and (3) there is a substantial purpose (apart from Federal income tax effects) for entering into such transaction.. (b) No inference Nothing in this section or the amendments made by this section shall be construed to create any inference with respect to the authority of the Secretary of the Treasury (or the Secretary's delegate) to regulate transactions described in section 701(b) of the Internal Revenue Code (as added by subsection (a)) without regard to the provisions of such section.