I

103D CONGRESS

1ST SESSION H. R. 749

To amend the Internal Revenue Code of 1986 to encourage investment in

real estate and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 3, 1993

Mr. ANDREWS of Texas (for himself, Mr. THOMAS of California, Mr. MATSUI,

Mr. SHAW, Mr. HERGER, Mr. SUNDQUIST, Mr. MCCRERY, Mr. JEFFERSON, Mr. BREWSTER, Mr. GRANDY, Mr. NEAL of Massachusetts, Mr. JACOBS, Mr. ARCHER, Mr. HANCOCK, Mr. CARDIN, Mr. SANTORUM, Mr.

PAYNE of Virginia, Mr. BUNNING, Mr. PICKLE, Mr. KOPETSKI, Mr.

HOUGHTON, Mr. MCNULTY, Mr. DICKS, Mr. PETE GEREN of Texas, Mr.

MORAN, Mr. CRANE, Mrs. JOHNSON of Connecticut, Mr. LEHMAN, Mr.

LEWIS of California, Mr. LEWIS of Georgia, Mr. BEREUTER, Ms.

DANNER, and Mr. GILMAN) 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 encourage

investment in real estate and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; REFERENCE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Real Estate Stability and Recovery Amendments Act of

6 1993’’.
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1 (b) REFERENCE.—Except as otherwise expressly pro2 vided, whenever in this Act an amendment or repeal is

3 expressed in terms of an amendment to, or repeal of, a

4 section or other provision, the reference shall be consid5 ered to be made to a section or other provision of the In6 ternal Revenue Code of 1986.

7 TITLE I—MODIFICATION OF

8 PASSIVE LOSS RULES

9 SEC. 101. APPLICATION OF PASSIVE LOSS RULES TO RENT10 AL REAL ESTATE ACTIVITIES.

11 (a) RENTAL REAL ESTATE ACTIVITIES OF PERSONS

12 IN REAL PROPERTY BUSINESS NOT AUTOMATICALLY

13 TREATED AS PASSIVE ACTIVITIES.—Subsection (c) of sec14 tion 469 (defining passive activity) is amended by adding

15 at the end thereof the following new paragraph:

16 ‘‘(7) SPECIAL RULES FOR TAXPAYERS IN REAL

17 PROPERTY BUSINESS.—

18 ‘‘(A) IN GENERAL.—If this paragraph ap19 plies to any taxpayer for a taxable year—

20 ‘‘(i) paragraph (2) shall not apply to

21 any rental real estate activity of such tax22 payer for such taxable year, and

23 ‘‘(ii) this section shall be applied as if

24 each interest of the taxpayer in rental real

25 estate were a separate activity.
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1 Notwithstanding clause (ii), a taxpayer may

2 elect to treat all interests in rental real estate

3 as one activity. Nothing in the preceding provi4 sions of this subparagraph shall be construed as

5 affecting the determination of whether the tax6 payer materially participates with respect to

7 any interest in a limited partnership as a lim8 ited partner.

9 ‘‘(B) TAXPAYERS TO WHOM PARAGRAPH

10 APPLIES.—This paragraph shall apply to a tax11 payer for a taxable year if more than one-half

12 of the personal services performed in trades or

13 businesses by the taxpayer during such taxable

14 year are performed in real property trades or

15 businesses in which the taxpayer materially par16 ticipates.

17 ‘‘(C) REAL PROPERTY TRADE OR BUSI18 NESS.—For purposes of this paragraph, the

19 term ‘real property trade or business’ means

20 any real property development, redevelopment,

21 construction, reconstruction, acquisition, con22 version, rental, operation, management, leasing,

23 or brokerage trade or business.

24 ‘‘(D) SPECIAL RULES FOR SUBPARAGRAPH

25 (B).—
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1 ‘‘(i) CLOSELY HELD C CORPORA2 TIONS.—In the case of a closely held C

3 corporation, the requirements of subpara4 graph (B) shall be treated as met for any

5 taxable year if more than 50 percent of the

6 gross receipts of such corporation for such

7 taxable year are derived from real property

8 trades or businesses in which the corpora9 tion materially participates.

10 ‘‘(ii) PERSONAL SERVICES AS AN EM11 PLOYEE.—For purposes of subparagraph

12 (B), personal services performed as an em13 ployee shall not be treated as performed in

14 real property trades or businesses. The

15 preceding sentence shall not apply if such

16 employee is a 5-percent owner (as defined

17 in section 416(i)(1)(B)) in the employer.’’

18 (b) CONFORMING AMENDMENTS.—

19 (1) Paragraph (2) of section 469(c) is amended

20 by striking ‘‘The’’ and inserting ‘‘Except as provided

21 in paragraph (7), the’’.

22 (2) Clause (iv) of section 469(i)(3)(E) is

23 amended by inserting ‘‘or any loss allowable by rea24 son of subsection (c)(7)’’ after ‘‘loss’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1992.

4 TITLE II—PROVISIONS RELAT5 ING TO REAL ESTATE INVEST6 MENTS BY PENSION FUNDS

7 SEC. 201. REAL ESTATE PROPERTY ACQUIRED BY A QUALI8 FIED ORGANIZATION.

9 (a) MODIFICATIONS OF EXCEPTIONS.—Paragraph

10 (9) of section 514(c) (relating to real property acquired

11 by a qualified organization) is amended by adding at the

12 end thereof the following new subparagraphs:

13 ‘‘(G) SPECIAL RULES FOR PURPOSES OF

14 THE EXCEPTIONS.—Except as otherwise pro15 vided by regulations—

16 ‘‘(i) SMALL LEASES DISREGARDED.—

17 For purposes of clauses (iii) and (iv) of

18 subparagraph (B), a lease to a person de19 scribed in such clause (iii) or (iv) shall be

20 disregarded if no more than 25 percent of

21 the leasable floor space in a building is

22 covered by the lease and if the lease is on

23 commercially reasonable terms.

24 ‘‘(ii) COMMERCIALLY REASONABLE FI25 NANCING.—Clause (v) of subparagraph (B)
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1 shall not apply if the financing is on com2 mercially reasonable terms.

3 ‘‘(H) QUALIFYING SALES BY FINANCIAL

4 INSTITUTIONS.—

5 ‘‘(i) IN GENERAL.—In the case of a

6 qualifying sale by a financial institution,

7 except as provided in regulations, clauses

8 (i) and (ii) of subparagraph (B) shall not

9 apply with respect to financing provided by

10 such institution for such sale.

11 ‘‘(ii) QUALIFYING SALE.—For pur12 poses of this clause, there is a qualifying

13 sale by a financial institution where—

14 ‘‘(I) a qualified organization ac15 quires property described in clause

16 (iii) from a financial institution and

17 any gain recognized by the financial

18 institution with respect to the prop19 erty is ordinary income,

20 ‘‘(II) the stated principal amount

21 of the financing provided by the finan22 cial institution does not exceed the

23 amount of the outstanding indebted24 ness (including accrued but unpaid in25 terest) of the financial institution with
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1 respect to the property described in

2 clause (iii) immediately before the ac3 quisition referred to in clause (iii) or

4 (v), whichever is applicable, and

5 ‘‘(III) the value (determined as

6 of the time of the sale) of the amount

7 pursuant to the financing that is de8 termined by reference to the revenue,

9 income, or profits derived from the

10 property does not exceed 30 percent

11 of the value of the property (deter12 mined as of such time).

13 ‘‘(iii) PROPERTY TO WHICH SUBPARA14 GRAPH APPLIES.—Property is described in

15 this clause if such property is foreclosure

16 property, or is real property which—

17 ‘‘(I) was acquired by the quali18 fied organization from a financial in19 stitution which is in conservatorship

20 or receivership, or from the conserva21 tor or receiver of such an institution,

22 and

23 ‘‘(II) was held by the financial

24 institution at the time it entered into

25 conservatorship or receivership.
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1 ‘‘(iv) FINANCIAL INSTITUTION.—For

2 purposes of this subparagraph, the term

3 ‘financial institution’ means—

4 ‘‘(I) any financial institution de5 scribed in section 581 or 591(a),

6 ‘‘(II) any other corporation which

7 is a direct or indirect subsidiary of an

8 institution referred to in subclause (I)

9 but only if, by virtue of being affili10 ated with such institution, such other

11 corporation is subject to supervision

12 and examination by a Federal or

13 State agency which regulates institu14 tions referred to in subclause (I), and

15 ‘‘(III) any person acting as a

16 conservator or receiver of an entity re17 ferred to in subclause (I) or (II) (or

18 any government agency or corporation

19 succeeding to the rights or interest of

20 such person).

21 ‘‘(v) FORECLOSURE PROPERTY.—For

22 purposes of this subparagraph, the term

23 ‘foreclosure property’ means any real prop24 erty acquired by the financial institution as

25 the result of having bid on such property
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1 at foreclosure, or by operation of an agree2 ment or process of law, after there was a

3 default (or a default was imminent) on in4 debtedness which such property secured.’’.

5 (b) CONFORMING AMENDMENT.—Paragraph (9) of

6 section 514(c) is amended—

7 (1) by adding the following new sentence at the

8 end of subparagraph (A): ‘‘For purposes of this

9 paragraph, an interest in a mortgage shall in no

10 event be treated as real property.’’, and

11 (2) by striking the last sentence of subpara12 graph (B).

13 (c) EFFECTIVE DATES.—

14 (1) IN GENERAL.—The amendments made by

15 this section shall apply to acquisitions on or after

16 January 1, 1993.

17 (2) SMALL LEASES.—The provisions of section

18 514(c)(9)(G)(i) of the Internal Revenue Code of

19 1986 shall, in addition to any leases to which the

20 provisions apply by reason of paragraph (1), apply

21 to leases entered into on or after January 1, 1993.

22 SEC. 202. SPECIAL RULES FOR INVESTMENTS IN PARTNER23 SHIPS.

24 (a) MODIFICATION TO ANTI-ABUSE RULES.—Para25 graph (9) of section 514(c) (as amended by section 201)
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1 is amended by adding at the end thereof the following new

2 subparagraph:

3 ‘‘(J) PARTNERSHIPS NOT INVOLVING TAX

4 AVOIDANCE.—

5 ‘‘(i) DE MINIMIS RULE FOR CERTAIN

6 LARGE PARTNERSHIPS.—The provisions of

7 subparagraph (B) shall not apply to an in8 vestment in a partnership having at least

9 250 partners if—

10 ‘‘(I) interests in such partnership

11 were offered for sale in an offering

12 registered with the Securities and Ex13 change Commission,

14 ‘‘(II) at least 50 percent of each

15 class of interests in such partnership

16 is owned by individuals who are not

17 disqualified persons, and

18 ‘‘(III) the principal purpose of

19 partnership allocations is not tax

20 avoidance.

21 The Secretary may disregard inadvertent

22 failures to meet the requirements of

23 subclause (II). For purposes of subclause

24 (II), interests owned by individual retire25 ment plans (as defined in section
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1 7701(a)(37)) shall not be taken into ac2 count.

3 ‘‘(ii) DISQUALIFIED PERSONS.—For

4 purposes of this subparagraph, the term

5 ‘disqualified person’ means any person de6 scribed in clause (iii) or (iv) of subpara7 graph (B) and any person who is not a

8 United States person.’’.

9 (b) REPEAL OF SPECIAL TREATMENT OF PUBLICLY

10 TRADED PARTNERSHIPS.—Subsection (c) of section 512

11 is amended—

12 (1) by striking paragraph (2),

13 (2) by redesignating paragraph (3) as para14 graph (2), and

15 (3) by striking ‘‘paragraph (1) or (2)’’ in para16 graph (2) (as so redesignated) and inserting ‘‘para17 graph (1)’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to partnership years ending after

20 December 31, 1992.
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1 SEC. 203. TITLE-HOLDING COMPANIES PERMITTED TO RE2 CEIVE SMALL AMOUNTS OF UNRELATED

3 BUSINESS TAXABLE INCOME.

4 (a) GENERAL RULE.—Paragraph (25) of section

5 501(c) is amended by adding at the end thereof the follow6 ing new subparagraph:

7 ‘‘(G)(i) An organization shall not be treat8 ed as failing to be described in this paragraph

9 merely by reason of the receipt of any otherwise

10 disqualifying income which is incidentally de11 rived from the holding of real property.

12 ‘‘(ii) Clause (i) shall not apply if the

13 amount of gross income described in such

14 clause exceeds 10 percent of the organization’s

15 gross income for the taxable year unless the or16 ganization establishes to the satisfaction of the

17 Secretary that the receipt of gross income de18 scribed in clause (i) in excess of such limitation

19 was inadvertent and reasonable steps are being

20 taken to correct the circumstances giving rise to

21 such income.’’

22 (b) CONFORMING AMENDMENT.—Paragraph (2) of

23 section 501(c) is amended by adding at the end thereof

24 the following new sentence: ‘‘Rules similar to the rules of

25 subparagraph (G) of paragraph (25) shall apply for pur26 poses of this paragraph.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1992.

4 SEC. 204. EXCLUSION FROM UNRELATED BUSINESS TAX OF

5 GAINS FROM CERTAIN PROPERTY.

6 (a) GENERAL RULE.—Subsection (b) of section 512

7 (relating to modifications) is amended by adding at the

8 end thereof the following new paragraph:

9 ‘‘(16)(A) Notwithstanding paragraph (5)(B),

10 there shall be excluded all gains or losses from the

11 sale, exchange, or other disposition of any real prop12 erty described in subparagraph (B) if—

13 ‘‘(i) such property was acquired by the or14 ganization from—

15 ‘‘(I) a financial institution described

16 in section 581 or 591(a) which is in

17 conservatorship or receivership, or

18 ‘‘(II) the conservator or receiver of

19 such an institution (or any government

20 agency or corporation succeeding to the

21 rights or interests of the conservator or re22 ceiver),

23 ‘‘(ii) such property is designated by the or24 ganization within the 9-month period beginning

25 on the date of its acquisition as property held
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1 for sale, except that not more than one-half (by

2 value determined as of such date) of property

3 acquired in a single transaction may be so

4 designated,

5 ‘‘(iii) such sale, exchange, or disposition

6 occurs before the later of—

7 ‘‘(I) the date which is 30 months after

8 the date of the acquisition of such prop9 erty, or

10 ‘‘(II) the date specified by the Sec11 retary in order to assure an orderly dis12 position of property held by persons de13 scribed in subparagraph (A), and

14 ‘‘(iv) while such property was held by the

15 organization, the aggregate expenditures on im16 provements and development activities included

17 in the basis of the property are (or were not)

18 in excess of 20 percent of the net selling price

19 of the property with respect to such property.

20 ‘‘(B) Property is described in this subparagraph

21 if it is real property which—

22 ‘‘(i) was held by the financial institution at

23 the time it entered into conservatorship or re24 ceivership, or
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1 ‘‘(ii) was foreclosure property (as defined

2 in section 514(c)(9)(H)(v)) which secured in3 debtedness held by the financial institution at

4 such time.

5 For purposes of this subparagraph, real property in6 cludes an interest in a mortgage.’’

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

8 subsection (a) shall apply to property acquired on or after

9 January 1, 1993.

10 SEC. 205. EXCLUSION FROM UNRELATED BUSINESS TAX

11 OF CERTAIN FEES AND OPTION PREMIUMS.

12 (a) LOAN COMMITMENT FEES.—Paragraph (1) of

13 section 512(b) (relating to modifications) is amended by

14 inserting ‘‘amounts received or accrued as consideration

15 for entering into agreements to make loans,’’ before ‘‘and

16 annuities’’.

17 (b) OPTION PREMIUMS.—The second sentence of sec18 tion 512(b)(5) is amended by inserting ‘‘or real property’’

19 before the period.

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to amounts received on or after

22 January 1, 1993.
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1 SEC. 206. TREATMENT OF PENSION FUND INVESTMENTS

2 IN REAL ESTATE INVESTMENT TRUSTS.

3 (a) GENERAL RULE.—Subsection (h) of section 856

4 (relating to closely held determinations) is amended by

5 adding at the end thereof the following new paragraph:

6 ‘‘(3) TREATMENT OF TRUSTS DESCRIBED IN

7 SECTION 401(a).—

8 ‘‘(A) LOOK-THRU TREATMENT.—

9 ‘‘(i) IN GENERAL.—Except as pro10 vided in clause (ii), in determining whether

11 the stock ownership requirement of section

12 542(a)(2) is met for purposes of paragraph

13 (1)(A), any stock held by a qualified trust

14 shall be treated as held directly by its

15 beneficiaries in proportion to their actuar16 ial interests in such trust and shall not be

17 treated as held by such trust.

18 ‘‘(ii) CERTAIN RELATED TRUSTS NOT

19 ELIGIBLE.—Clause (i) shall not apply to

20 any qualified trust if one or more disquali21 fied persons (as defined in section

22 4975(e)(2), without regard to subpara23 graphs (B) and (I) thereof) with respect to

24 such qualified trust hold in the aggregate

25 5 percent or more in value of the interests

26 in the real estate investment trust and
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1 such real estate investment trust has accu2 mulated earnings and profits attributable

3 to any period for which it did not qualify

4 as a real estate investment trust.

5 ‘‘(B) COORDINATION WITH PERSONAL

6 HOLDING COMPANY RULES.—If any entity

7 qualifies as a real estate investment trust for

8 any taxable year by reason of subparagraph

9 (A), such entity shall not be treated as a per10 sonal holding company for such taxable year for

11 purposes of part II of subchapter G of this

12 chapter.

13 ‘‘(C) TREATMENT FOR PURPOSES OF UN14 RELATED BUSINESS TAX.—If any qualified

15 trust holds more than 10 percent (by value) of

16 the interests in any pension-held REIT at any

17 time during a taxable year, the trust shall be

18 treated as having for such taxable year gross

19 income from an unrelated trade or business in

20 an amount which bears the same ratio to the

21 aggregate dividends paid (or treated as paid) by

22 the REIT to the trust for the taxable year of

23 the REIT with or within which the taxable year

24 of the trust ends (the ‘REIT year’) as—
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1 ‘‘(i) the gross income (less direct ex2 penses related thereto) of the REIT for the

3 REIT year from unrelated trades or busi4 nesses (determined as if the REIT were a

5 qualified trust), bears to

6 ‘‘(ii) the gross income (less direct ex7 penses related thereto) of the REIT for the

8 REIT year.

9 This subparagraph shall apply only if the ratio

10 determined under the preceding sentence is at

11 least 5 percent.

12 ‘‘(D) PENSION-HELD REIT.—For purposes

13 of subparagraph (C)—

14 ‘‘(i) IN GENERAL.—A real estate in15 vestment trust is a pension-held REIT if

16 such trust would not have qualified as a

17 real estate investment trust but for the

18 provisions of this paragraph and if such

19 trust is predominantly held by qualified

20 trusts.

21 ‘‘(ii) PREDOMINANTLY HELD.—For

22 purposes of clause (i), a real estate invest23 ment trust is predominantly held by quali24 fied trusts if—
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1 ‘‘(I) at least 1 qualified trust

2 holds more than 25 percent (by value)

3 of the interests in such real estate in4 vestment trust, or

5 ‘‘(II) 1 or more qualified trusts

6 (each of whom own more than 10 per7 cent by value of the interests in such

8 real estate investment trust) hold in

9 the aggregate more than 50 percent

10 (by value) of the interests in such real

11 estate investment trust.

12 ‘‘(E) QUALIFIED TRUST.—For purposes of

13 this paragraph, the term ‘qualified trust’ means

14 any trust described in section 401(a) and ex15 empt from tax under section 501(a).’’

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

17 this section shall apply to taxable years beginning after

18 December 31, 1992.

19 TITLE III—DISCHARGE OF

20 INDEBTEDNESS

21 SEC. 301. EXCLUSION FROM GROSS INCOME FOR INCOME

22 FROM DISCHARGE OF QUALIFIED REAL

23 PROPERTY BUSINESS INDEBTEDNESS.

24 (a) IN GENERAL.—Paragraph (1) of section 108(a)

25 (relating to income from discharge of indebtedness) is
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1 amended by striking ‘‘or’’ at the end of subparagraph (B),

2 by striking the period at the end of subparagraph (C) and

3 inserting ‘‘, or’’, and by adding at the end thereof the fol4 lowing new subparagraph:

5 ‘‘(D) in the case of an individual, the indebted6 ness discharged is qualified real property business

7 indebtedness.’’

8 (b) QUALIFIED REAL PROPERTY BUSINESS INDEBT9 EDNESS.—Section 108 is amended by inserting after sub10 section (b) the following new subsection:

11 ‘‘(c) TREATMENT OF DISCHARGE OF QUALIFIED

12 REAL PROPERTY BUSINESS INDEBTEDNESS.—

13 ‘‘(1) BASIS REDUCTION.—

14 ‘‘(A) IN GENERAL.—The amount excluded

15 from gross income under subparagraph (D) of

16 subsection (a)(1) shall be applied to reduce the

17 basis of the depreciable real property of the tax18 payer.

19 ‘‘(B) CROSS REFERENCE.—For provisions

20 making the reduction described in subpara21 graph (A), see section 1017.

22 ‘‘(2) LIMITATIONS.—

23 ‘‘(A) INDEBTEDNESS IN EXCESS OF

24 VALUE.—The amount excluded under subpara25 graph (D) of subsection (a)(1) with respect to
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1 any qualified real property business indebted2 ness shall not exceed the excess (if any) of—

3 ‘‘(i) the outstanding principal amount

4 of such indebtedness (immediately before

5 the discharge), over

6 ‘‘(ii) the fair market value of the real

7 property described in paragraph (3)(A) (as

8 of such time), reduced by the outstanding

9 principal amount of any other qualified

10 real property business indebtedness se11 cured by such property (as of such time).

12 ‘‘(B) OVERALL LIMITATION.—The amount

13 excluded under subparagraph (D) of subsection

14 (a)(1) shall not exceed the aggregate adjusted

15 bases of depreciable real property (determined

16 after any reductions under subsections (b) and

17 (g)) held by the taxpayer immediately before

18 the discharge (other than depreciable real prop19 erty acquired in contemplation of such dis20 charge).

21 ‘‘(3) QUALIFIED REAL PROPERTY BUSINESS IN22 DEBTEDNESS.—The term ‘qualified real property

23 business indebtedness’ means indebtedness which—

24 ‘‘(A) was incurred or assumed by an indi25 vidual in connection with real property used in
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1 a trade or business and is secured by such real

2 property,

3 ‘‘(B) was incurred or assumed before Jan4 uary 1, 1993, or if incurred or assumed on or

5 after such date, is qualified acquisition indebt6 edness, and

7 ‘‘(C) with respect to which such taxpayer

8 makes an election to have this paragraph apply.

9 Such term shall not include qualified farm indebted10 ness. Indebtedness under subparagraph (B) shall in11 clude indebtedness resulting from the refinancing of

12 indebtedness under subparagraph (B) (or this sen13 tence), but only to the extent it does not exceed the

14 amount of the indebtedness being refinanced.

15 ‘‘(4) QUALIFIED ACQUISITION INDEBTED16 NESS.—For purposes of paragraph (3)(B), the term

17 ‘qualified acquisition indebtedness’ means, with re18 spect to any real property described in paragraph

19 (3)(A), indebtedness incurred or assumed to acquire,

20 construct, reconstruct, or substantially improve such

21 property.

22 ‘‘(5) REGULATIONS.—The Secretary shall issue

23 such regulations as are necessary to carry out this

24 subsection, including regulations preventing the
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1 abuse of this subsection through cross2 collateralization or other means.’’

3 (c) TECHNICAL AMENDMENTS.—

4 (1) Subparagraph (A) of section 108(a)(2) is

5 amended by striking ‘‘and (C)’’ and inserting ‘‘, (C),

6 and (D)’’.

7 (2) Subparagraph (B) of section 108(a)(2) is

8 amended to read as follows:

9 ‘‘(B) INSOLVENCY EXCLUSION TAKES

10 PRECEDENCE OVER QUALIFIED FARM EXCLU11 SION AND QUALIFIED REAL PROPERTY BUSI12 NESS EXCLUSION.—Subparagraphs (C) and (D)

13 of paragraph (1) shall not apply to a discharge

14 to the extent the taxpayer is insolvent.’’

15 (3) Subsection (d) of section 108 is amended by

16 striking ‘‘Subsections (a), (b), and (g)’’ each place

17 it appears in the heading thereof and in the text and

18 headings of paragraphs (6) and (7)(A) and inserting

19 ‘‘Subsections (a), (b), (c), and (g)’’.

20 (4) Subparagraph (B) of section 108(d)(7) is

21 amended by adding at the end thereof the following

22 new sentence: ‘‘The preceding sentence shall not

23 apply to any discharge to the extent that subsection

24 (a)(1)(D) applies to such discharge.’’
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1 (5) Subparagraph (A) of section 108(d)(9) is

2 amended by inserting ‘‘or under paragraph (3)(B) of

3 subsection (c)’’ after ‘‘subsection (b)’’.

4 (6) Paragraph (2) of section 1017(a) is amend5 ed by striking ‘‘or (b)(5)’’ and inserting ‘‘, (b)(5), or

6 (c)(1)’’.

7 (7) Subparagraph (A) of section 1017(b)(3) is

8 amended by inserting ‘‘or (c)(1)’’ after ‘‘subsection

9 (b)(5)’’.

10 (8) Section 1017(b)(3) is amended by adding at

11 the end the following new subparagraph:

12 ‘‘(F) SPECIAL RULES FOR QUALIFIED

13 REAL PROPERTY BUSINESS INDEBTEDNESS.—

14 In the case of any amount which under section

15 108(c)(1) is to be applied to reduce basis—

16 ‘‘(i) depreciable property shall only in17 clude depreciable real property for pur18 poses of subparagraphs (A) and (C),

19 ‘‘(ii) subparagraph (E) shall not

20 apply, and

21 ‘‘(iii) in the case of property taken

22 into account under section 108(c)(2)(B),

23 the reduction with respect to such property

24 shall be made as of the time immediately
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1 before disposition if earlier than the time

2 under subsection (a).’’

3 (d) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to discharges after December 31,

5 1992, in taxable years ending after such date.

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