1. Short title This Act may be cited as the Tax Fairness Act of 2018 . 2. Ordinary income treatment in the case of partnership interests held in connection with performance of services (a) In general Section 1061 of the Internal Revenue Code of 1986 is amended to read as follows: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, so much of— (1) the taxpayer’s net capital gain with respect to such interests for such taxable year, as does not exceed (2) the taxpayer’s recharacterization account balance for such taxable year, shall be treated as ordinary income. (b) Net capital gain (1) In general For purposes of subsection (a)(1), net capital gain shall be determined under section 1222, except that such section shall be applied— (A) without regard to the recharacterization of any item as ordinary income under this section, (B) by only taking into account items of gain and loss— (i) taken into account by the taxpayer under section 702 with respect to any applicable partnership interest, (ii) recognized by the taxpayer on the disposition of any such interest, or (iii) recognized by the taxpayer under paragraph (4) on a distribution of property with respect to such interest, and (C) in the case of a taxable year for which section 1231 gains (as defined in section 1231(a)(3)(A)) exceed section 1231 losses (as defined in section 1231(a)(3)(B)), by treating property which is taken into account in determining such gains and losses as capital assets held for more than 1 year. (2) Allocation to items of gain The amount treated as ordinary income under subsection (a) shall be allocated ratably among the items of long-term capital gain taken into account in determining net capital gain under paragraph (1). (3) Recognition of gain on disposition of applicable partnership interests Any gain on the disposition of any applicable partnership interest shall be recognized