I

104TH CONGRESS

1ST SESSION H. R. 2761

To amend the Internal Revenue Code of 1986 to provide an election for

an overpayment in lieu of a basis increase where indebtedness secured

by property has original issue discount and is held by a cash method

taxpayer.

IN THE HOUSE OF REPRESENTATIVES

DECEMBER 12, 1995

Mr. GREENWOOD (for himself and Mr. MCHALE) introduced the following bill;

which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

an election for an overpayment in lieu of a basis increase

where indebtedness secured by property has original issue

discount and is held by a cash method taxpayer.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. ELECTION OF OVERPAYMENT IN LIEU OF BASIS

2 INCREASE WHERE INDEBTEDNESS SECURED

3 BY PROPERTY HAS ORIGINAL ISSUE DIS4 COUNT AND IS HELD BY CASH METHOD TAX5 PAYER.

6 (a) IN GENERAL.—Section 1038 of the Internal Rev7 enue Code of 1986 is amended by adding at the end the

8 following new subsection:

9 ‘‘(h) ELECTION OF OVERPAYMENT IN LIEU OF BASIS

10 INCREASE WHERE INDEBTEDNESS SECURED BY PROP11 ERTY HAS ORIGINAL ISSUE DISCOUNT AND IS HELD BY

12 CASH METHOD TAXPAYER.—

13 ‘‘(1) IN GENERAL.—In the case of a reacquisi14 tion of real property to which subsection (a) applies,

15 if—

16 ‘‘(A) with respect to the indebtedness re17 ferred to in subsection (a)(1), amounts were in18 cludible in the gross income of the seller under

19 section 1272 for periods prior to such reacquisi20 tion, and

21 ‘‘(B) the seller used the cash receipts and

22 disbursements method of accounting for all

23 such periods,

24 at the election of such seller, the excess inclusion tax

25 amount with respect to such indebtedness shall be

26 treated for purposes of this title as an overpayment
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1 of tax for the taxable year in which such reacquisi2 tion occurs.

3 ‘‘(2) EXCESS INCLUSION TAX AMOUNT.—For

4 purposes of paragraph (1), the term ‘excess inclu5 sion tax amount’ means, with respect to any indebt6 edness, the sum of the tax adjustments for each of

7 the taxable years in which amounts described in

8 paragraph (1)(A) were includible in gross income.

9 ‘‘(3) TAX ADJUSTMENTS.—For purposes of

10 paragraph (2), the term ‘tax adjustment’ means,

11 with respect to any taxable year, the sum of—

12 ‘‘(A) the amount by which the net chapter

13 1 tax liability of the taxpayer would be de14 creased or increased for such taxable year if

15 such liability were determined without regard to

16 section 1272 with respect to the indebtedness

17 referred to in subsection (a)(1) for such taxable

18 year and all prior taxable years, plus

19 ‘‘(B) interest on such decrease or increase

20 as determined under paragraph (4).

21 If, as of the due date (as defined in paragraph

22 (4)(B)) for the taxable year in which such reacquisi23 tion occurs, a refund or credit with respect to any

24 preceding taxable year is prevented by the operation

25 of any law or rule of law (including res judicata),
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1 subparagraph (B) shall not apply to such preceding

2 taxable year.

3 ‘‘(4) COMPUTATION OF INTEREST.—

4 ‘‘(A) IN GENERAL.—The amount of inter5 est referred to in paragraph (3)(B) with respect

6 to any taxable year shall be determined for the

7 period—

8 ‘‘(i) beginning on the due date for

9 such taxable year, and

10 ‘‘(ii) ending on the due date for the

11 taxable year in which the reacquisition re12 ferred to in paragraph (1) occurs,

13 by using the rates and methods applicable

14 under section 6621 for underpayments or over15 payments of tax (as appropriate) for such pe16 riod.

17 ‘‘(B) DUE DATE.—For purposes of this

18 paragraph, the term ‘due date’ means the date

19 prescribed by law (determined without regard to

20 extensions) for filing the return of the tax im21 posed by this chapter for the taxable year.

22 ‘‘(5) COORDINATION WITH AMOUNT OF GAIN

23 RESULTING AND BASIS ADJUSTMENT.—In the case

24 of a reacquisition with respect to which the election

25 under this subsection applies—
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1 ‘‘(A) the amount of gain (if any) deter2 mined under subsection (b) resulting from such

3 reacquisition shall not be less than the amount

4 of such gain which would be determined under

5 subsection (b), and

6 ‘‘(B) the amount of increase (if any) under

7 subsection (c) shall not exceed the amount of

8 the increase which would be determined under

9 subsection (c),

10 if section 1272 had not applied with respect to the

11 indebtedness referred to in subsection (a)(1).’’

12 (b) EFFECTIVE DATE.—The amendment made by

13 this section shall apply to reacquisitions occurring after

14 December 31, 1995.

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