I

106TH CONGRESS

1ST SESSION H. R. 18

To amend the Internal Revenue Code of 1986 to provide that the transfer

of property subject to a liability shall be treated in the same manner

as the transfer of property involving an assumption of liability.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. ARCHER 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

that the transfer of property subject to a liability shall

be treated in the same manner as the transfer of property involving an assumption of liability.

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

3 SECTION 1. PROPERTY SUBJECT TO A LIABILITY TREATED

4 IN SAME MANNER AS ASSUMPTION OF LI5 ABILITY.

6 (a) REPEAL OF PROPERTY SUBJECT TO A LIABILITY

7 TEST.—
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1 (1) SECTION 357.—Section 357(a)(2) of the In2 ternal Revenue Code of 1986 (relating to assump3 tion of liability) is amended by striking ‘‘, or ac4 quires from the taxpayer property subject to a liabil5 ity’’.

6 (2) SECTION 358.—Section 358(d)(1) of such

7 Code (relating to assumption of liability) is amended

8 by striking ‘‘or acquired from the taxpayer property

9 subject to a liability’’.

10 (3) SECTION 368.—

11 (A) Section 368(a)(1)(C) of such Code is

12 amended by striking ‘‘, or the fact that prop13 erty acquired is subject to a liability,’’.

14 (B) The last sentence of section

15 368(a)(2)(B) of such Code is amended by strik16 ing ‘‘, and the amount of any liability to which

17 any property acquired from the acquiring cor18 poration is subject,’’.

19 (b) CLARIFICATION OF ASSUMPTION OF LIABIL20 ITY.—

21 (1) IN GENERAL.—Section 357 of the Internal

22 Revenue Code of 1986 is amended by adding at the

23 end the following new subsection:

24 ‘‘(d) DETERMINATION OF AMOUNT OF LIABILITY AS25 SUMED.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, section 358(d), section 362(d), section

3 368(a)(1)(C), and section 368(a)(2)(B), except as

4 provided in regulations—

5 ‘‘(A) a recourse liability (or portion there6 of) shall be treated as having been assumed if,

7 as determined on the basis of all facts and cir8 cumstances, the transferee has agreed to, and is

9 expected to, satisfy such liability (or portion),

10 whether or not the transferor has been relieved

11 of such liability; and

12 ‘‘(B) except to the extent provided in para13 graph (2), a nonrecourse liability shall be treat14 ed as having been assumed by the transferee of

15 any asset subject to such liability.

16 ‘‘(2) EXCEPTION FOR NONRECOURSE LIABIL17 ITY.—The amount of the nonrecourse liability treat18 ed as described in paragraph (1)(B) shall be reduced

19 by the lesser of—

20 ‘‘(A) the amount of such liability which an

21 owner of other assets not transferred to the

22 transferee and also subject to such liability has

23 agreed with the transferee to, and is expected

24 to, satisfy, or
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1 ‘‘(B) the fair market value of such other

2 assets (determined without regard to section

3 7701(g)).

4 ‘‘(3) REGULATIONS.—The Secretary shall pre5 scribe such regulations as may be necessary to carry

6 out the purposes of this subsection and section

7 362(d). The Secretary may also prescribe regula8 tions which provide that the manner in which a li9 ability is treated as assumed under this subsection

10 is applied, where appropriate, elsewhere in this

11 title.’’

12 (2) LIMITATION ON BASIS INCREASE ATTRIB13 UTABLE TO ASSUMPTION OF LIABILITY.—Section

14 362 of such Code is amended by adding at the end

15 the following new subsection:

16 ‘‘(d) LIMITATION ON BASIS INCREASE ATTRIB17 UTABLE TO ASSUMPTION OF LIABILITY.—

18 ‘‘(1) IN GENERAL.—In no event shall the basis

19 of any property be increased under subsection (a) or

20 (b) above the fair market value of such property (de21 termined without regard to section 7701(g)) by rea22 son of any gain recognized to the transferor as a re23 sult of the assumption of a liability.

24 ‘‘(2) TREATMENT OF GAIN NOT SUBJECT TO

25 TAX.—Except as provided in regulations, if—
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1 ‘‘(A) gain is recognized to the transferor as

2 a result of an assumption of a nonrecourse li3 ability by a transferee which is also secured by

4 assets not transferred to such transferee; and

5 ‘‘(B) no person is subject to tax under this

6 title on such gain,

7 then, for purposes of determining basis under sub8 sections (a) and (b), the amount of gain recognized

9 by the transferor as a result of the assumption of

10 the liability shall be determined as if the liability as11 sumed by the transferee equaled such transferee’s

12 ratable portion of such liability determined on the

13 basis of the relative fair market values (determined

14 without regard to section 7701(g)) of all of the as15 sets subject to such liability.’’.

16 (c) APPLICATION TO PROVISIONS OTHER THAN SUB17 CHAPTER C.—

18 (1) SECTION 584.—Section 584(h)(3) of the In19 ternal Revenue Code of 1986 is amended—

20 (A) by striking ‘‘, and the fact that any

21 property transferred by the common trust fund

22 is subject to a liability,’’ in subparagraph (A);

23 and

24 (B) by striking clause (ii) of subparagraph

25 (B) and inserting:
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1 ‘‘(ii) ASSUMED LIABILITIES.—For

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

3 liabilities’ means any liability of the com4 mon trust fund assumed by any regulated

5 investment company in connection with the

6 transfer referred to in paragraph (1)(A).

7 ‘‘(C) ASSUMPTION.—For purposes of this

8 paragraph, in determining the amount of any li9 ability assumed, the rules of section 357(d)

10 shall apply.’’

11 (2) SECTION 1031.—The last sentence of section

12 1031(d) of such Code is amended—

13 (A) by striking ‘‘assumed a liability of the

14 taxpayer or acquired from the taxpayer prop15 erty subject to a liability’’ and inserting ‘‘as16 sumed (as determined under section 357(d)) a

17 liability of the taxpayer’’; and

18 (B) by striking ‘‘or acquisition (in the

19 amount of the liability)’’.

20 (d) CONFORMING AMENDMENTS.—

21 (1) Section 351(h)(1) of the Internal Revenue

22 Code of 1986 is amended by striking ‘‘, or acquires

23 property subject to a liability,’’.
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1 (2) Section 357 of such Code is amended by

2 striking ‘‘or acquisition’’ each place it appears in

3 subsection (a) or (b).

4 (3) Section 357(b)(1) of such Code is amended

5 by striking ‘‘or acquired’’.

6 (4) Section 357(c)(1) of such Code is amended

7 by striking ‘‘, plus the amount of the liabilities to

8 which the property is subject,’’.

9 (5) Section 357(c)(3) of such Code is amended

10 by striking ‘‘or to which the property transferred is

11 subject’’.

12 (6) Section 358(d)(1) of such Code is amended

13 by striking ‘‘or acquisition (in the amount of the li14 ability)’’.

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

16 this section shall apply to transfers after October 18,

17 1998.

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