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 com-
mon trust funds to regulated investment companies.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. NONRECOGNITION TREATMENT FOR CERTAIN
TRANSFERS BY COMMON TRUST FUNDS TO
REGULATED INVESTMENT COMPANIES.
(a) GENERAL RULE.—Section 584 of the Internal
Revenue Code of 1986 (relating to common trust funds)
is amended by redesignating subsection (h) as subsection
(i) and by inserting after subsection (g) the following new
subsection:
‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN
TRANSFERS TO REGULATED INVESTMENT COMPANIES.—
‘‘(1) IN GENERAL.—If—
‘‘(A) pursuant to a single plan, a common
trust fund transfers substantially all of its as-
sets to one or more regulated investment com-
panies in exchange solely for stock in the com-
pany or companies to which such assets are so
transferred, and
‘‘(B) such stock is distributed by such
common trust fund to participants in such com-
mon trust fund in exchange solely for their in-
terests in such common trust fund,
no gain or loss shall be recognized by such common
trust fund by reason of such transfer or distribution,
and no gain or loss shall be recognized by any par-
ticipant in such common trust fund by reason of
such exchange.
‘‘(2) BASIS RULES.—
‘‘(A) 
REGULATED
INVESTMENT
COM-
PANY.—The basis of any asset received by a
regulated investment company in a transfer re-
ferred to in paragraph (1)(A) shall be the same
as it would be in the hands of the common
trust fund.
‘‘(B) PARTICIPANTS.—The basis of the
stock which is received in an exchange referred
to in paragraph (1)(B) shall be the same as
that of the property exchanged. If stock in more
than one regulated investment company is re-
ceived in such exchange, the basis determined
under the preceding sentence shall be allocated
among the stock in each such company on the
basis of respective fair market values.
‘‘(3) TREATMENT OF ASSUMPTIONS OF LIABIL-
ITY.—
‘‘(A) IN GENERAL.—In determining wheth-
er the transfer referred to in paragraph (1)(A)
is in exchange solely for stock in one or more
regulated investment companies, the assump-
tion by any such company of a liability of the
common trust fund, and the fact that any prop-
erty transferred by the common trust fund is
subject to a liability, shall be disregarded.
‘‘(B) SPECIAL RULE WHERE ASSUMED LI-
ABILITIES EXCEED BASIS.—
‘‘(i) IN GENERAL.—If in any transfer
referred to in paragraph (1)(A) the as-
sumed liabilities exceed the aggregate ad-
justed bases (in the hands of the common
trust fund) of the assets transferred to the
regulated investment company or compa-
nies—
‘‘(I) notwithstanding paragraph
(1), gain shall be recognized to the
common trust fund on such transfer
in an amount equal to such excess,
‘‘(II) the basis of the assets re-
ceived by the regulated investment
company or companies in such trans-
fer shall be increased by the amount
so recognized, and
‘‘(III) any adjustment to the
basis of a participant’s interest in the
common trust fund as a result of the
gain so recognized shall be treated as
occurring immediately before the ex-
change referred to in paragraph
(1)(B).
If the transfer referred to in paragraph
(1)(A) is to two or more regulated invest-
ment companies the basis increase under
subclause (II) shall be allocated among
such companies on the basis of the respec-
tive fair market values of the assets re-
ceived by each of such companies.
‘‘(ii) 
ASSUMED
LIABILITIES.—For
purposes of clause (i), the term ‘assumed
liabilities’ means the aggregate of—
‘‘(I) any liability of the common
trust fund assumed by any regulated
investment company in connection
with the transfer referred to in para-
graph (1)(A), and
‘‘(II) any liability to which prop-
erty so transferred is subject.
‘‘(4) COMMON TRUST FUND MUST MEET DIVER-
SIFICATION RULES.—This subsection shall not apply
to any common trust fund which would not meet the
requirements of section 368(a)(2)(F)(ii) if it were a
corporation. For purposes of the preceding sentence,
Government securities shall not be treated as securi-
ties of an issuer in applying the 25-percent and 50-
percent test and such securities shall not be excluded
for purposes of determining total assets under clause
(iv) of section 368(a)(2)(F).’’