I

103D CONGRESS

1ST SESSION H. R. 3631

To amend the Internal Revenue Code of 1986 to provide nonrecognition

treatment for certain transfers by common trust funds to regulated

investment companies.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 22, 1993

Mr. COYNE (for himself, Mr. JACOBS, Mr. NEAL of Massachusetts, MR.

HOAGLAND, and Mr. BREWSTER) 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

nonrecognition treatment for certain transfers by common trust funds to regulated investment companies.

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

3 SECTION 1. NONRECOGNITION TREATMENT FOR CERTAIN

4 TRANSFERS BY COMMON TRUST FUNDS TO

5 REGULATED INVESTMENT COMPANIES.

6 (a) GENERAL RULE.—Section 584 of the Internal

7 Revenue Code of 1986 (relating to common trust funds)

8 is amended by redesignating subsection (h) as subsection
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1 (i) and by inserting after subsection (g) the following new

2 subsection:

3 ‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN

4 TRANSFERS TO REGULATED INVESTMENT COMPANIES.—

5 ‘‘(1) IN GENERAL.—If—

6 ‘‘(A) pursuant to a single plan, a common

7 trust fund transfers substantially all of its as8 sets to one or more regulated investment com9 panies in exchange solely for stock in the com10 pany or companies to which such assets are so

11 transferred, and

12 ‘‘(B) such stock is distributed by such

13 common trust fund to participants in such com14 mon trust fund in exchange solely for their in15 terests in such common trust fund,

16 no gain or loss shall be recognized by such common

17 trust fund by reason of such transfer or distribution,

18 and no gain or loss shall be recognized by any par19 ticipant in such common trust fund by reason of

20 such exchange.

21 ‘‘(2) BASIS RULES.—

22 ‘‘(A) REGULATED INVESTMENT COM23 PANY.—The basis of any asset received by a

24 regulated investment company in a transfer re25 ferred to in paragraph (1)(A) shall be the same
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1 as it would be in the hands of the common

2 trust fund.

3 ‘‘(B) PARTICIPANTS.—The basis of the

4 stock which is received in an exchange referred

5 to in paragraph (1)(B) shall be the same as

6 that of the property exchanged. If stock in more

7 than one regulated investment company is re8 ceived in such exchange, the basis determined

9 under the preceding sentence shall be allocated

10 among the stock in each such company on the

11 basis of respective fair market values.

12 ‘‘(3) TREATMENT OF ASSUMPTIONS OF LIABIL13 ITY.—

14 ‘‘(A) IN GENERAL.—In determining wheth15 er the transfer referred to in paragraph (1)(A)

16 is in exchange solely for stock in one or more

17 regulated investment companies, the assump18 tion by any such company of a liability of the

19 common trust fund, and the fact that any prop20 erty transferred by the common trust fund is

21 subject to a liability, shall be disregarded.

22 ‘‘(B) SPECIAL RULE WHERE ASSUMED LI23 ABILITIES EXCEED BASIS.—

24 ‘‘(i) IN GENERAL.—If in any transfer

25 referred to in paragraph (1)(A) the as-
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1 sumed liabilities exceed the aggregate ad2 justed bases (in the hands of the common

3 trust fund) of the assets transferred to the

4 regulated investment company or compa5 nies—

6 ‘‘(I) notwithstanding paragraph

7 (1), gain shall be recognized to the

8 common trust fund on such transfer

9 in an amount equal to such excess,

10 ‘‘(II) the basis of the assets re11 ceived by the regulated investment

12 company or companies in such trans13 fer shall be increased by the amount

14 so recognized, and

15 ‘‘(III) any adjustment to the

16 basis of a participant’s interest in the

17 common trust fund as a result of the

18 gain so recognized shall be treated as

19 occurring immediately before the ex20 change referred to in paragraph

21 (1)(B).

22 If the transfer referred to in paragraph

23 (1)(A) is to two or more regulated invest24 ment companies the basis increase under

25 subclause (II) shall be allocated among
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1 such companies on the basis of the respec2 tive fair market values of the assets re3 ceived by each of such companies.

4 ‘‘(ii) ASSUMED LIABILITIES.—For

5 purposes of clause (i), the term ‘assumed

6 liabilities’ means the aggregate of—

7 ‘‘(I) any liability of the common

8 trust fund assumed by any regulated

9 investment company in connection

10 with the transfer referred to in para11 graph (1)(A), and

12 ‘‘(II) any liability to which prop13 erty so transferred is subject.

14 ‘‘(4) COMMON TRUST FUND MUST MEET DIVER15 SIFICATION RULES.—This subsection shall not apply

16 to any common trust fund which would not meet the

17 requirements of section 368(a)(2)(F)(ii) if it were a

18 corporation. For purposes of the preceding sentence,

19 Government securities shall not be treated as securi20 ties of an issuer in applying the 25-percent and 50-

21 percent test and such securities shall not be excluded

22 for purposes of determining total assets under clause

23 (iv) of section 368(a)(2)(F).’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to transfers after the date of

3 the enactment of this Act.

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