II

106TH CONGRESS

2D SESSION S. 2354

To amend the Internal Revenue Code of 1986 to prevent the duplication

of losses through the assumption of liabilities giving rise to a deduction.

IN THE SENATE OF THE UNITED STATES

APRIL 4, 2000

Mr. ROTH (for himself and Mr. MOYNIHAN) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to prevent

the duplication of losses through the assumption of liabilities giving rise to a deduction.

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

3 SECTION 1. PREVENTION OF DUPLICATION OF LOSS

4 THROUGH ASSUMPTION OF LIABILITIES GIV5 ING RISE TO A DEDUCTION.

6 (a) IN GENERAL.—Section 358 of the Internal Rev7 enue Code of 1986 (relating to basis to distributees) is

8 amended by adding at the end the following new sub9 section:
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•S 2354 IS

1 ‘‘(h) SPECIAL RULES FOR ASSUMPTION OF LIABIL2 ITIES TO WHICH SUBSECTION (d) DOES NOT APPLY.—

3 ‘‘(1) IN GENERAL.—If, after application of the

4 other provisions of this section to an exchange or se5 ries of exchanges, the basis of property to which

6 subsection (a)(1) applies exceeds the fair market

7 value of such property, then such basis shall be re8 duced (but not below such fair market value) by the

9 amount (determined as of the date of the exchange)

10 of any liability—

11 ‘‘(A) which is assumed in exchange for

12 such property, and

13 ‘‘(B) with respect to which subsection

14 (d)(1) does not apply to the assumption.

15 ‘‘(2) EXCEPTIONS.—Except as provided by the

16 Secretary, paragraph (1) shall not apply to any li17 ability if—

18 ‘‘(A) the trade or business with which the

19 liability is associated is transferred to the per20 son assuming the liability as part of the ex21 change, or

22 ‘‘(B) substantially all of the assets with

23 which the liability is associated are transferred

24 to the person assuming the liability as part of

25 the exchange.
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1 ‘‘(3) LIABILITY.—For purposes of this sub2 section, the term ‘liability’ shall include any fixed or

3 contingent obligation to make payment, without re4 gard to whether the obligation is otherwise taken

5 into account for purposes of this title.’’

6 (b) DETERMINATION OF AMOUNT OF LIABILITY AS7 SUMED.—Section 357(d)(1) of the Internal Revenue Code

8 of 1986 is amended by inserting ‘‘section 358(h),’’ after

9 ‘‘section 358(d),’’.

10 (c) APPLICATION OF COMPARABLE RULES TO PART11 NERSHIPS AND S CORPORATIONS.—The Secretary of the

12 Treasury or his delegate—

13 (1) shall prescribe rules which provide appro14 priate adjustments under subchapter K of chapter 1

15 of the Internal Revenue Code of 1986 to prevent the

16 acceleration or duplication of losses through the as17 sumption of (or transfer of assets subject to) liabil18 ities described in section 358(h)(3) of such Code (as

19 added by subsection (a)) in transactions involving

20 partnerships, and

21 (2) may prescribe rules which provide appro22 priate adjustments under subchapter S of chapter 1

23 of such Code in transactions described in paragraph

24 (1) involving S corporations rather than partner25 ships.
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1 (d) EFFECTIVE DATES.—

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

3 this section shall apply to assumptions of liability

4 after October 18, 1999.

5 (2) RULES.—The rules prescribed under sub6 section (c) shall apply to assumptions of liability

7 after October 18, 1999, or such later date as may

8 be prescribed in such rules.

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