II 

114TH CONGRESS 

1ST SESSION S. 1631 

To amend the Employee Retirement Income Security Act of 1974 and the 

Internal Revenue Code of 1986 to modify certain provisions relating 

to multiemployer pensions, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 18, 2015 

Mr. SANDERS (for himself, Mr. BROWN, and Ms. BALDWIN) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Employee Retirement Income Security Act 

of 1974 and the Internal Revenue Code of 1986 to 

modify certain provisions relating to multiemployer pensions, 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. 

4 This Act may be cited as the ‘‘Keep Our Pension 

5 Promises Act’’. 

6 SEC. 2. RESTORING ANTI-CUTBACK PROVISIONS. 

7 Section 201 of the Multiemployer Pension Reform 

8 Act of 2014 (division O of Public Law 113–235) and the 


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1 amendments made by such section are repealed, and the 

2 Employee Retirement Income Security Act of 1974 and 

3 the Internal Revenue Code of 1986 shall be applied as if 

4 such section and amendments had never been enacted. 

5 SEC. 3. PARTITIONS OF ELIGIBLE MULTIEMPLOYER PLANS. 

6 (a) IN GENERAL.—Section 4233 of the Employee Re7 tirement Income Security Act of 1974 (29 U.S.C. 1413), 

8 as amended by section 122 of the Multiemployer Pension 

9 Reform Act of 2014 (division O of Public Law 113–235), 

10 is amended to read as follows: 

11 ‘‘SEC. 4233. PARTITIONS OF ELIGIBLE MULTIEMPLOYER 

12 PLANS. 

13 ‘‘(a)(1) Upon the application by the plan sponsor of 

14 an eligible multiemployer plan for a partition of the plan, 

15 the corporation may order a partition of the plan in ac16 cordance with this section. The corporation shall make a 

17 determination regarding the application, in accordance 

18 with regulations promulgated by the corporation, not later 

19 than 270 days after— 

20 ‘‘(A) the date such application was filed; or 

21 ‘‘(B) if later, the date such application was 

22 completed. 

23 ‘‘(2) At least 14 days before submitting an applica24 tion for partition of a plan under paragraph (1), the plan 

25 sponsor of the plan shall notify all participants and beneVerDate Sep 11 2014 04:03 Jun 23, 2015 Jkt 049200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1631.IS S1631

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1 ficiaries of such application, in the form and manner pre2 scribed by regulations issued by the corporation. 

3 ‘‘(b) For purposes of this section, a multiemployer 

4 plan is an eligible multiemployer plan if— 

5 ‘‘(1) the plan is in critical status and is pro6 jected to become insolvent within the meaning of 

7 section 4245— 

8 ‘‘(A) during the current plan year or any 

9 of the 14 succeeding plan years; or 

10 ‘‘(B) during the current plan year or any 

11 of the 19 succeeding plan years, if the plan has 

12 a ratio of inactive participants to active partici13 pants that exceeds 2 to 1 and the funded per14 centage of the plan is less than 80 percent; 

15 ‘‘(2) the corporation determines, after consulta16 tion with the Participant and Plan Sponsor Advo17 cate selected under section 4004, that the plan spon18 sor has taken (or is taking concurrently with an ap19 plication for partition) all reasonable measures de20 scribed in section 432(e)(3)(A) of the Internal Rev21 enue Code of 1986, and has made (or is making) 

22 benefit adjustments under section 432(e)(8) of such 

23 Code to reduce the risk of insolvency; 

24 ‘‘(3) 20 percent or more of the amount by 

25 which the liabilities of the plan exceed the value of 


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1 plan assets is attributable to the service of partici2 pants whose employers— 

3 ‘‘(A) withdrew from the plan prior to the 

4 date of enactment of the Keep Our Pension 

5 Promises Act; and 

6 ‘‘(B) failed to pay (or are delinquent with 

7 respect to paying) the full amount of the em8 ployer’s withdrawal liability under section 

9 4201(b)(1) or as otherwise determined under 

10 an agreement with the plan; 

11 ‘‘(4) the corporation reasonably expects that— 

12 ‘‘(A) a partition of the plan will reduce the 

13 corporation’s expected long-term loss with re14 spect to the plan; and 

15 ‘‘(B) a partition of the plan is necessary 

16 for the plan to remain or become solvent; and 

17 ‘‘(5) the corporation certifies to Congress that 

18 after partition the corporation will continue to have 

19 the ability to meet existing financial assistance obli20 gations to other plans (including any liabilities asso21 ciated with multiemployer plans that are insolvent or 

22 that are projected to become insolvent within 10 

23 years). 

24 ‘‘(c)(1) A partition under this section shall consist of 

25 a transfer to the plan created by the partition order of 


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1 benefits to which eligible participants and beneficiaries 

2 were entitled under the plan that was partitioned, in an 

3 amount not to exceed the amount that would be guaran4 teed under section 4022A if the plan were insolvent as 

5 of the date of the partition order. 

6 ‘‘(2) The corporation’s partition order shall provide 

7 for an annual transfer by the corporation to the plan cre8 ated by the partition order of an amount equal to the year9 ly benefits that would be guaranteed under section 4022A 

10 to the eligible participants and beneficiaries if the plan 

11 were insolvent as of the date of the partition order. 

12 ‘‘(3)(A) Where practicable, the initial transfer in ac13 cordance with paragraph (2) shall be completed at least 

14 60 days prior to the plan year that immediately follows 

15 the partition start date. The partition order shall require 

16 that the initial transfer be sufficient to satisfy the guaran17 teed benefits in the first plan year of the partitioned plan. 

18 ‘‘(B) Subsequent transfers in accordance with para19 graph (2) shall be completed at least 60 days prior to the 

20 first day of each succeeding plan year. 

21 ‘‘(d)(1)(A) The plan created by the partition order 

22 is a successor plan to which section 4022A applies. 

23 ‘‘(B) At the discretion of the plan sponsor, the plan 

24 created by the partition order may remain a part of the 


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1 plan that was partitioned or be maintained as a separate 

2 plan. 

3 ‘‘(2)(A) The plan sponsor and the administrator of 

4 an eligible multiemployer plan prior to the partition shall 

5 be the plan sponsor and the administrator, respectively, 

6 of the plan created by the partition order, and shall adopt 

7 reasonable procedures to reduce administrative expenses 

8 and to coordinate benefit payments and communications 

9 with the participants and beneficiaries in the plan created 

10 by the partition order. 

11 ‘‘(B) Benefit payments equal to the amount of an eli12 gible participant or beneficiary’s guaranteed benefits shall 

13 be paid to such participant or beneficiary and may be— 

14 ‘‘(i) paid separately by the plan created by the 

15 partition order; or 

16 ‘‘(ii) paid in a single, monthly payment by the 

17 plan that was partitioned. 

18 ‘‘(3) In the event an employer withdraws from the 

19 plan that was partitioned, withdrawal liability shall be 

20 computed under section 4201 with respect to both the plan 

21 that was partitioned and the plan created by the partition 

22 order. 

23 ‘‘(e) In addition to the payment of guaranteed bene24 fits under subsection (d)(2)(B), each eligible participant 

25 or beneficiary of the plan created by the partition order 


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1 shall receive a monthly benefit for each month the benefit 

2 is in pay status in an amount that— 

3 ‘‘(1) the corporation, in consultation with the 

4 Participant and Plan Sponsor Advocate, determines 

5 to be fair to the plan, the participant or beneficiary, 

6 the employers, and the corporation; and 

7 ‘‘(2) is at least equal to the lesser of— 

8 ‘‘(A) the monthly nonforfeitable benefit for 

9 such participant or beneficiary payable under 

10 the plan that was partitioned; or 

11 ‘‘(B) 80 percent of the maximum benefit 

12 commencing at age 65 guaranteed under sec13 tion 4022(a) for participants and beneficiaries 

14 in terminated single employer plans, unreduced 

15 for early retirement. 

16 Such monthly benefit may be combined with the monthly 

17 payment under subsection (d)(2)(B)(ii). 

18 ‘‘(f)(1) The corporation shall establish a legacy fund 

19 for the purposes of funding the administrative and benefit 

20 costs to the corporation arising from partitions under this 

21 section, as described in paragraph (2). 

22 ‘‘(2) Any administrative and benefit costs to the cor23 poration arising from a partition ordered under this sec24 tion in excess of amounts available in such legacy fund 


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1 shall be paid from the fund for basic benefits guaranteed 

2 for multiemployer plans. 

3 ‘‘(g) Only one partition order shall be issued with re4 spect to each eligible multiemployer plan. 

5 ‘‘(h) For purposes of this subsection, the term ‘eligi6 ble participant or beneficiary’ means a participant or ben7 eficiary of an eligible multiemployer plan that is parti8 tioned in accordance with a petition order under this sec9 tion, and who is an employee or beneficiary of an employee 

10 of an employer that is described in subsection (b)(3). 

11 ‘‘(i) Not later than 14 days after the issuance of a 

12 partition order under this section, the corporation shall 

13 provide notice of such order to the Committee on Finance 

14 of the Senate, the Committee on Health, Education, 

15 Labor, and Pensions of the Senate, the Committee on 

16 Education and the Workforce of the House of Representa17 tives, the Committee on Ways and Means of the House 

18 of Representatives, and to all eligible participants or bene19 ficiaries whose guaranteed benefits will be paid directly or 

20 indirectly by the plan created by the partition order.’’. 

21 (b) EFFECTIVE DATE.—The amendments made by 

22 subsection (a) shall apply with respect to plan years begin23 ning after the date of enactment of this Act. 

24 (c) TRANSFERS TO LEGACY FUND.—The Secretary 

25 of the Treasury shall from time to time transfer from the 


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1 general fund of the Treasury to the legacy fund estab2 lished under section 4233(f)(1) of the Employee Retire3 ment Income Security Act of 1974 (29 U.S.C. 1413(f)(1)) 

4 (as amended by subsection (a)) amounts equal to the in5 crease in revenues to the Treasury by reason of the 

6 amendments made by sections 6 and 7 of this Act. 

7 (d) TRANSFERS BETWEEN FUNDS OF THE PBGC.— 

8 Section 4005 of the Employee Retirement Income Security 

9 Act of 1974 (29 U.S.C. 1305) is amended by adding at 

10 the end the following: 

11 ‘‘(i)(1) An eighth fund is established under section 

12 4233(f) and credited with the amounts described in sec13 tion 3(c) of the Keep Our Pension Promises Act. 

14 ‘‘(2) Notwithstanding subsection (g), the corporation 

15 may transfer amounts into the legacy fund established 

16 under section 4233(f)(1) from other funds established 

17 under this section, as the corporation determines appro18 priate.’’. 

19 SEC. 4. EMPLOYER WITHDRAWALS RELATING TO MULTIEM20 PLOYER PLANS. 

21 The matter preceding paragraph (1) of section 

22 4225(b) of the Employee Retirement Income Security Act 

23 of 1974 (29 U.S.C. 1405(b)) is amended by inserting ‘‘, 

24 including an employer undergoing liquidation under chapVerDate Sep 11 2014 04:03 Jun 23, 2015 Jkt 049200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1631.IS S1631

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1 ter 7 of title 11, United States Code, or similar provisions 

2 of State law,’’ after ‘‘dissolution,’’. 

3 SEC. 5. PRIORITIES OF CLAIMS IN BANKRUPTCY. 

4 (a) IN GENERAL.—Section 507(a) of title 11, United 

5 States Code is amended— 

6 (1) by redesignating paragraphs (1) through 10 

7 as paragraphs (2) through (11), respectively; 

8 (2) by inserting before paragraph (2) (as redes9 ignated) the following: 

10 ‘‘(1) First, withdrawal liability determined 

11 under part 1 of subtitle E of title IV of the Em12 ployee Retirement Income Security Act of 1974 (29 

13 U.S.C. 1381 et seq.).’’. 

14 (3) in the matter preceding subparagraph (A) 

15 of paragraph (2) (as redesignated), by striking 

16 ‘‘First:’’ and inserting ‘‘Second:’’; 

17 (4) in paragraph (3) (as redesignated), by strik18 ing ‘‘Second,’’ and inserting ‘‘Third,’’; 

19 (5) in paragraph (4) (as redesignated), by strik20 ing ‘‘Third,’’ and inserting ‘‘Fourth,’’; 

21 (6) in the matter preceding subparagraph (A) 

22 of paragraph (5) (as redesignated), by striking 

23 ‘‘Fourth,’’ and inserting ‘‘Fifth,’’; 


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1 (7) in the matter preceding subparagraph (A) 

2 of paragraph (6) (as redesignated), by striking 

3 ‘‘Fifth,’’ and inserting ‘‘Sixth,’’; 

4 (8) in the matter preceding subparagraph (A) 

5 of paragraph (7) (as redesignated), by striking 

6 ‘‘Sixth,’’ and inserting ‘‘Seventh,’’; 

7 (9) in paragraph (8) (as redesignated), by strik8 ing ‘‘Seventh,’’ and inserting ‘‘Eighth,’’; 

9 (10) in the matter preceding subparagraph (A) 

10 of paragraph (9) (as redesignated), by striking 

11 ‘‘Eighth,’’ and inserting ‘‘Ninth,’’; 

12 (11) in paragraph (10) (as redesignated), by 

13 striking ‘‘Ninth,’’ and inserting ‘‘Tenth,’’; and 

14 (12) in paragraph (11) (as redesignated), by 

15 striking ‘‘Tenth,’’ and inserting ‘‘Eleventh,’’. 

16 (b) TECHNICAL AND CONFORMING AMENDMENTS.— 

17 (1) Section 502(i) of title 11, United States 

18 Code, is amended by striking ‘‘section 507(a)(8)’’ 

19 and inserting ‘‘section 507(a)(9)’’. 

20 (2) Section 503(b)(1)(B)(i) of title 11, United 

21 States Code, is amended by striking ‘‘section 

22 507(a)(8)’’ and inserting ‘‘section 507(a)(9)’’. 

23 (3) Section 507(d) of title 11, United States 

24 Code, is amended by striking ‘‘(a)(1), (a)(4), (a)(5), 

25 (a)(6), (a)(7), (a)(8), or (a)(9)’’ and inserting 


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1 ‘‘(a)(2), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9), or 

2 (a)(10)’’. 

3 (4) Section 523(A) of title 11, United States 

4 Code, is amended by striking ‘‘section 507(a)(3) or 

5 507(a)(8)’’ and inserting ‘‘section 507(a)(4) or 

6 507(a)(9)’’. 

7 (5) Section 724 of title 11, United States Code, 

8 is amended— 

9 (A) in subsection (b)(2), by striking ‘‘sec10 tion 507(a)(1)(C) or 507(a)(2)’’ and inserting 

11 ‘‘section 507(a)(2)(C) or 507(a)(3)’’; and 

12 (B) in subsection (f)— 

13 (i) in paragraph (1), by striking ‘‘sec14 tion 507(a)(4)’’ and inserting ‘‘section 

15 507(a)(5)’’; and 

16 (ii) in paragraph (2), by striking ‘‘sec17 tion 507(a)(5)’’ and inserting ‘‘section 

18 507(a)(6)’’. 

19 (6) Section 726(b) of title 11, United States 

20 Code, is amended by striking ‘‘paragraph (1), (2), 

21 (3), (4), (5), (6), (7), (8), (9), or (10) of section 

22 507(a)’’ and inserting ‘‘paragraphs (2) through (11) 

23 of section 507(a)’’. 


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1 (7) Section 752(a) of title 11, United States 

2 Code, is amended by striking ‘‘section 507(a)(2)’’ 

3 and inserting ‘‘section 507(a)(3)’’. 

4 (8) Section 766 of title 11, United States Code, 

5 is amended— 

6 (A) in subsection (h), by striking ‘‘section 

7 507(a)(2)’’ and inserting ‘‘section 507(a)(3)’’; 

8 and 

9 (B) in subsection (i)— 

10 (i) in paragraph (1), by striking ‘‘sec11 tion 507(a)(2)’’ and inserting ‘‘section 

12 507(a)(3)’’; and 

13 (ii) in paragraph (2), by striking ‘‘sec14 tion 507(a)(2)’’ and inserting ‘‘section 

15 507(a)(3)’’. 

16 (9) Section 901 of title 11, United States Code, 

17 is amended by striking ‘‘507(a)(2)’’ and inserting 

18 ‘‘507(a)(3)’’. 

19 (10) Section 943(b)(5) of title 11, United 

20 States Code, is amended by striking ‘‘section 

21 507(a)(2)’’ and inserting ‘‘section 507(a)(3)’’. 

22 (11) Section 1123(a)(1) of title 11, United 

23 States Code, is amended by striking ‘‘section 

24 507(a)(2), 507(a)(3), or 507(a)(8)’’ and inserting 

25 ‘‘section 507(a)(3), 507(a)(4), or 507(a)(9)’’. 


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1 (12) Section 1129(a)(9) of title 11, United 

2 States Code, is amended— 

3 (A) in subparagraph (A), by striking ‘‘sec4 tion 507(a)(3) or 507(a)(4)’’ and inserting 

5 ‘‘section 507(a)(4) or 507(a)(5)’’; 

6 (B) in the matter preceding clause (i) of 

7 subparagraph (B), by striking ‘‘section 

8 507(a)(1), 507(a)(4), 507(a)(5), 507(a)(6), or 

9 507(a)(7)’’ and inserting ‘‘section 507(a)(2), 

10 507(a)(5), 507(a)(6), 507(a)(7), or 507(a)(8)’’; 

11 (C) in the matter preceding clause (i) of 

12 subparagraph (C), by striking ‘‘section 

13 507(a)(8)’’ and inserting ‘‘section 507(a)(9)’’; 

14 and 

15 (D) in subparagraph (D), by striking ‘‘sec16 tion 507(a)(8)’’ and inserting ‘‘section 

17 507(a)(9)’’. 

18 (13) Section 1222(a)(4) of title 11, United 

19 States Code, is amended by striking ‘‘section 

20 507(a)(1)(B)’’ and inserting ‘‘507(a)(2)(B)’’. 

21 (14) Section 1226(b)(1) of title 11, United 

22 States Code, is amended by striking ‘‘section 

23 507(a)(2)’’ and inserting ‘‘section 507(a)(3)’’. 


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1 (15) Section 1322(a)(4) of title 11, United 

2 States Code, is amended by striking ‘‘section 

3 507(a)(1)(B)’’ and inserting ‘‘section 507(a)(2)(B)’’. 

4 (16) Section 1326(b)(1) of title 11, United 

5 States Code, is amended by striking ‘‘section 

6 507(a)(2)’’ and inserting ‘‘section 507(a)(3)’’. 

7 (17) Section 1328(a)(2) of title 11, United 

8 States Code, is amended by striking ‘‘section 

9 507(a)(8)(C)’’ and inserting ‘‘section 507(a)(9)(C)’’. 

10 SEC. 6. LIMITATION OF NONRECOGNITION OF LIKE-KIND 

11 EXCHANGES. 

12 (a) IN GENERAL.—Paragraph (2) of section 1031(a) 

13 of the Internal Revenue Code of 1986 is amended— 

14 (1) by redesignating subparagraphs (A), (B), 

15 (C), (D), (E), and (F) as clauses (i), (ii), (iii), (iv), 

16 (v), and (vi), and by moving such clauses 2 ems to 

17 the right, 

18 (2) by moving the flush language after the first 

19 sentence 2 ems to the right, 

20 (3) by striking ‘‘(2) EXCEPTION.—This sub21 section’’ and inserting ‘‘(2) EXCEPTIONS.— 

22 ‘‘(A) EXCLUDED PROPERTY.—This sub23 section’’, and 

24 (4) by adding at the end the following new sub25 paragraph: 


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1 ‘‘(B) DOLLAR LIMITATION FOR EX2 CHANGES OF REAL PROPERTY.— 

3 ‘‘(i) IN GENERAL.—Paragraph (1) 

4 shall not apply so much of the gain which, 

5 but for such paragraph, would be recog6 nized by the taxpayer with respect to real 

7 property exchanged during the taxable year 

8 as exceeds $1,000,000. 

9 ‘‘(ii) SPECIAL RULES FOR PARTNER10 SHIPS AND S-CORPORATIONS.—In the case 

11 of a pass-through entity, clause (i) shall be 

12 applied at both the entity and at the part13 ner or owner level. 

14 ‘‘(iii) AGGREGATION RULES.—For 

15 purposes of this subparagraph— 

16 ‘‘(I) FAMILY MEMBERS.—Individ17 uals who are spouses or who bear any 

18 of the relationships described in sec19 tion 152(d)(2) to each other shall be 

20 treated as 1 taxpayer (without regard 

21 to whether spouses file a joint return). 

22 ‘‘(II) CORPORATIONS AND OTHER

23 ENTITIES.—All persons treated as a 

24 single employer under subsection (a) 

25 or (b) of section 52 or subsection (m) 


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1 or (o) of section 414 shall be treated 

2 as 1 person. 

3 ‘‘(iv) ADJUSTMENT FOR INFLATION.— 

4 In the case of exchanges completed in a 

5 taxable year beginning after December 31, 

6 2016, the $1,000,000 amount in clause (i) 

7 shall be increased by an amount equal to— 

8 ‘‘(I) such dollar amount, multi9 plied by 

10 ‘‘(II) the cost-of-living adjust11 ment determined under section 1(f)(3) 

12 for the calendar year in which the tax13 able year begins, determined by sub14 stituting ‘calendar year 2015’ for ‘cal15 endar year 1992’ in subparagraph (B) 

16 thereof. 

17 If any amount as adjusted under the pre18 ceding sentence is not a multiple of 

19 $1,000, such amount shall be rounded to 

20 the nearest multiple of $1,000.’’. 

21 (b) EXCLUSION OF ART AND COLLECTIBLES.—Sub22 paragraph (A) of section 1031(a)(2) of the Internal Rev23 enue Code of 1986, as amended by subsection (a), is 

24 amended— 

25 (1) by striking ‘‘or’’ at the end of clause (v), 


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1 (2) by striking the period at the end of clause 

2 (vi) and inserting ‘‘, or’’, and 

3 (3) by inserting after clause (vi) the following 

4 new clause: 

5 ‘‘(vii) any collectible (within the mean6 ing of section 408(m), without regard to 

7 paragraph (3) thereof).’’. 

8 (c) REGULATORY AUTHORITY.—Subsection (f) of 

9 section 1031 of the Internal Revenue Code of 1986 is 

10 amended by adding at the end the following new para11 graph: 

12 ‘‘(5) RULES RELATING TO DOLLAR LIMITA13 TION.—The Secretary shall prescribe such guidance 

14 as is necessary for applying subsection (a)(2)(B)(i) 

15 in the case of the exchange of multiple pieces of real 

16 property by related persons.’’. 

17 (d) CONFORMING AMENDMENTS.— 

18 (1) Subsection (b) of section 1031 of the Inter19 nal Revenue Code of 1986 is amended— 

20 (A) by striking ‘‘IN KIND.—If an ex21 change’’ and inserting ‘‘IN KIND.— 

22 ‘‘(1) IN GENERAL.—If an exchange’’, and 

23 (B) by adding at the end the following new 

24 paragraph: 


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1 ‘‘(2) COORDINATION WITH SUBSECTION

2 (A)(2)(B).—In the case of an exchange to which para3 graph (1) applies— 

4 ‘‘(A) paragraph (1) shall be applied before 

5 the application of subsection (a)(2)(B), and 

6 ‘‘(B) subsection (a)(2)(B) shall be ap7 plied— 

8 ‘‘(i) as if such exchange were within 

9 the provisions of subsection (a), and 

10 ‘‘(ii) by increasing the basis of the 

11 property disposed of by the taxpayer in 

12 such exchange by the amount of any gain 

13 determined under paragraph (1).’’. 

14 (2) Subsection (d) of section 1031 of such Code 

15 is amended by striking ‘‘in the amount of gain’’ and 

16 inserting ‘‘in the amount of gain (including any gain 

17 recognized by reason of subsection (a)(2)(B)(i))’’. 

18 (3) Subsection (i) of section 1031 of such Code 

19 is amended by striking ‘‘(a)(2)(B)’’ and inserting 

20 ‘‘(a)(2)(A)(ii)’’. 

21 (e) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to exchanges completed in taxable 

23 years beginning after December 31, 2015. 


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1 SEC. 7. VALUATION RULES FOR CERTAIN TRANSFERS OF 

2 NONBUSINESS ASSETS; LIMITATION ON MI3 NORITY DISCOUNTS. 

4 (a) IN GENERAL.—Section 2031 of the Internal Rev5 enue Code of 1986 is amended by redesignating subsection 

6 (d) as subsection (f) and by inserting after subsection (c) 

7 the following new subsections: 

8 ‘‘(d) VALUATION RULES FOR CERTAIN TRANSFERS

9 OF NONBUSINESS ASSETS.—For purposes of this chapter 

10 and chapter 12— 

11 ‘‘(1) IN GENERAL.—In the case of the transfer 

12 of any interest in an entity other than an interest 

13 which is actively traded (within the meaning of sec14 tion 1092)— 

15 ‘‘(A) the value of any nonbusiness assets 

16 held by the entity with respect to such interest 

17 shall be determined as if the transferor had 

18 transferred such assets directly to the trans19 feree (and no valuation discount shall be al20 lowed with respect to such nonbusiness assets), 

21 and 

22 ‘‘(B) such nonbusiness assets shall not be 

23 taken into account in determining the value of 

24 the interest in the entity. 

25 ‘‘(2) NONBUSINESS ASSETS.—For purposes of 

26 this subsection— 


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1 ‘‘(A) IN GENERAL.—The term ‘nonbusi2 ness asset’ means any asset which is not used 

3 in the active conduct of 1 or more trades or 

4 businesses. 

5 ‘‘(B) EXCEPTION FOR CERTAIN PASSIVE

6 ASSETS.—Except as provided in subparagraph 

7 (C), a passive asset shall not be treated for pur8 poses of subparagraph (A) as used in the active 

9 conduct of a trade or business unless— 

10 ‘‘(i) the asset is property described in 

11 paragraph (1) or (4) of section 1221(a) or 

12 is a hedge with respect to such property, 

13 or 

14 ‘‘(ii) the asset is real property used in 

15 the active conduct of 1 or more real prop16 erty trades or businesses (within the mean17 ing of section 469(c)(7)(C)) in which the 

18 transferor materially participates and with 

19 respect to which the transferor meets the 

20 requirements of section 469(c)(7)(B)(ii). 

21 For purposes of clause (ii), material participa22 tion shall be determined under the rules of sec23 tion 469(h), except that section 469(h)(3) shall 

24 be applied without regard to the limitation to 

25 farming activity. 


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1 ‘‘(C) EXCEPTION FOR WORKING CAP2 ITAL.—Any asset (including a passive asset) 

3 which is held as a part of the reasonably re4 quired working capital needs of a trade or busi5 ness shall be treated as used in the active con6 duct of a trade or business. 

7 ‘‘(3) PASSIVE ASSET.—For purposes of this 

8 subsection, the term ‘passive asset’ means any— 

9 ‘‘(A) cash or cash equivalents, 

10 ‘‘(B) except to the extent provided by the 

11 Secretary, stock in a corporation or any other 

12 equity, profits, or capital interest in any entity, 

13 ‘‘(C) evidence of indebtedness, option, for14 ward or futures contract, notional principal con15 tract, or derivative, 

16 ‘‘(D) asset described in clause (iii), (iv), or 

17 (v) of section 351(e)(1)(B), 

18 ‘‘(E) annuity, 

19 ‘‘(F) real property used in 1 or more real 

20 property trades or businesses (as defined in sec21 tion 469(c)(7)(C)), 

22 ‘‘(G) asset (other than a patent, trade23 mark, or copyright) which produces royalty in24 come, 

25 ‘‘(H) commodity, 


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•S 1631 IS

1 ‘‘(I) collectible (within the meaning of sec2 tion 401(m)), or 

3 ‘‘(J) any other asset specified in regula4 tions prescribed by the Secretary. 

5 ‘‘(4) LOOK-THRU RULES.— 

6 ‘‘(A) IN GENERAL.—If a nonbusiness asset 

7 of an entity consists of a 10-percent interest in 

8 any other entity, this subsection shall be ap9 plied by disregarding the 10-percent interest 

10 and by treating the entity as holding directly its 

11 ratable share of the assets of the other entity. 

12 This subparagraph shall be applied successively 

13 to any 10-percent interest of such other entity 

14 in any other entity. 

15 ‘‘(B) 10-PERCENT INTEREST.—The term 

16 ‘10-percent interest’ means— 

17 ‘‘(i) in the case of an interest in a cor18 poration, ownership of at least 10 percent 

19 (by vote or value) of the stock in such cor20 poration, 

21 ‘‘(ii) in the case of an interest in a 

22 partnership, ownership of at least 10 per23 cent of the capital or profits interest in the 

24 partnership, and 


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•S 1631 IS

1 ‘‘(iii) in any other case, ownership of 

2 at least 10 percent of the beneficial inter3 ests in the entity. 

4 ‘‘(5) COORDINATION WITH SUBSECTION (b).— 

5 Subsection (b) shall apply after the application of 

6 this subsection. 

7 ‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For 

8 purposes of this chapter and chapter 12, in the case of 

9 the transfer of any interest in an entity other than an in10 terest which is actively traded (within the meaning of sec11 tion 1092), no discount shall be allowed by reason of the 

12 fact that the transferee does not have control of such enti13 ty if the transferor, the transferee, and members of the 

14 family (as defined in section 2032A(e)(2)) of the trans15 feror and transferee— 

16 ‘‘(1) have control of such entity, or 

17 ‘‘(2) own the majority of the ownership inter18 ests (by value) in such entity.’’. 

19 (b) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to transfers after the date of the 

21 enactment of this Act. 

Æ 


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