I
105TH CONGRESS
2D SESSION
H. R. 4852
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
OCTOBER 19, 1998
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 prop-
erty involving an assumption of liability.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. PROPERTY SUBJECT TO A LIABILITY TREATED
IN SAME MANNER AS ASSUMPTION OF LI-
ABILITY.
(a) REPEAL OF PROPERTY SUBJECT TO A LIABILITY
TEST.—
(1) SECTION 357.—Section 357(a)(2) of the In-
ternal Revenue Code of 1986 (relating to assump-
tion of liability) is amended by striking ‘‘, or ac-
quires from the taxpayer property subject to a liabil-
ity’’.
(2) SECTION 358.—Section 358(d)(1) of such
Code (relating to assumption of liability) is amended
by striking ‘‘or acquired from the taxpayer property
subject to a liability’’.
(3) SECTION 368.—
(A) Section 368(a)(1)(C) of such Code is
amended by striking ‘‘, or the fact that prop-
erty acquired is subject to a liability,’’.
(B) 
The 
last 
sentence 
of 
section
368(a)(2)(B) of such Code is amended by strik-
ing ‘‘, and the amount of any liability to which
any property acquired from the acquiring cor-
poration is subject,’’.
(b) CLARIFICATION
OF ASSUMPTION
OF LIABIL-
ITY.—
(1) IN GENERAL.—Section 357 of the Internal
Revenue Code of 1986 is amended by adding at the
end the following new subsection:
‘‘(d) DETERMINATION OF AMOUNT OF LIABILITY AS-
SUMED.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, 
section 
358(d), 
section 
362(d), 
section
368(a)(1)(C), and section 368(a)(2)(B), except as
provided in regulations—
‘‘(A) a recourse liability (or portion there-
of) shall be treated as having been assumed if,
as determined on the basis of all facts and cir-
cumstances, the transferee has agreed to, and is
expected to, satisfy such liability (or portion),
whether or not the transferor has been relieved
of such liability; and
‘‘(B) except to the extent provided in para-
graph (2), a nonrecourse liability shall be treat-
ed as having been assumed by the transferee of
any asset subject to such liability.
‘‘(2) EXCEPTION
FOR
NONRECOURSE
LIABIL-
ITY.—The amount of the nonrecourse liability treat-
ed as described in paragraph (1)(B) shall be reduced
by the lesser of—
‘‘(A) the amount of such liability which an
owner of other assets not transferred to the
transferee and also subject to such liability has
agreed with the transferee to, and is expected
to, satisfy, or
‘‘(B) the fair market value of such other
assets (determined without regard to section
7701(g)).
‘‘(3) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection and section
362(d). The Secretary may also prescribe regula-
tions which provide that the manner in which a li-
ability is treated as assumed under this subsection
is applied, where appropriate, elsewhere in this
title.’’
(2) LIMITATION ON BASIS INCREASE ATTRIB-
UTABLE
TO
ASSUMPTION
OF
LIABILITY.—Section
362 of such Code is amended by adding at the end
the following new subsection:
‘‘(d) LIMITATION
ON
BASIS
INCREASE
ATTRIB-
UTABLE TO ASSUMPTION OF LIABILITY.—
‘‘(1) IN GENERAL.—In no event shall the basis
of any property be increased under subsection (a) or
(b) above the fair market value of such property (de-
termined without regard to section 7701(g)) by rea-
son of any gain recognized to the transferor as a re-
sult of the assumption of a liability.
‘‘(2) TREATMENT OF GAIN NOT SUBJECT TO
TAX.—Except as provided in regulations, if—
‘‘(A) gain is recognized to the transferor as
a result of an assumption of a nonrecourse li-
ability by a transferee which is also secured by
assets not transferred to such transferee; and
‘‘(B) no person is subject to tax under this
title on such gain,
then, for purposes of determining basis under sub-
sections (a) and (b), the amount of gain recognized
by the transferor as a result of the assumption of
the liability shall be determined as if the liability as-
sumed by the transferee equaled such transferee’s
ratable portion of such liability determined on the
basis of the relative fair market values (determined
without regard to section 7701(g)) of all of the as-
sets subject to such liability.’’.
(c) APPLICATION TO PROVISIONS OTHER THAN SUB-
CHAPTER C.—
(1) SECTION 584.—Section 584(h)(3) of the In-
ternal Revenue Code of 1986 is amended—
(A) by striking ‘‘, and the fact that any
property transferred by the common trust fund
is subject to a liability,’’ in subparagraph (A);
and
(B) by striking clause (ii) of subparagraph
(B) and inserting:
‘‘(ii) 
ASSUMED
LIABILITIES.—For
purposes of clause (i), the term ‘assumed
liabilities’ means any liability of the com-
mon trust fund assumed by any regulated
investment company in connection with the
transfer referred to in paragraph (1)(A).
‘‘(C) ASSUMPTION.—For purposes of this
paragraph, in determining the amount of any li-
ability assumed, the rules of section 357(d)
shall apply.’’
(2) SECTION 1031.—The last sentence of section
1031(d) of such Code is amended—
(A) by striking ‘‘assumed a liability of the
taxpayer or acquired from the taxpayer prop-
erty subject to a liability’’ and inserting ‘‘as-
sumed (as determined under section 357(d)) a
liability of the taxpayer’’; and
(B) by striking ‘‘or acquisition (in the
amount of the liability)’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 351(h)(1) of the Internal Revenue
Code of 1986 is amended by striking ‘‘, or acquires
property subject to a liability,’’.
(2) Section 357 of such Code is amended by
striking ‘‘or acquisition’’ each place it appears in
subsection (a) or (b).
(3) Section 357(b)(1) of such Code is amended
by striking ‘‘or acquired’’.
(4) Section 357(c)(1) of such Code is amended
by striking ‘‘, plus the amount of the liabilities to
which the property is subject,’’.
(5) Section 357(c)(3) of such Code is amended
by striking ‘‘or to which the property transferred is
subject’’.
(6) Section 358(d)(1) of such Code is amended
by striking ‘‘or acquisition (in the amount of the li-
ability)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers after October 18,
1998.
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