414
HR 2014 RDS
life insurance policies and annuity and endowment
contracts to which section 264(e) applies,’’.
(5) Paragraph (1) of section 812(d) is amended
by striking ‘‘and’’ at the end of subparagraph (B),
by striking the period at the end of subparagraph
(C) and inserting ‘‘, and’’, and by adding at the end
the following new subparagraph:
‘‘(D) the increase for any taxable year in
the policy cash values (within the meaning of
section 264(e)(3)(A)) of life insurance policies
and annuity and endowment contracts to which
section 264(e) applies.’’.
(6) Subparagraph (B) of section 832(b)(5) is
amended by striking ‘‘and’’ at the end of clause (i),
by striking the period at the end of clause (ii) and
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new clause:
‘‘(iii) the increase for the taxable year
in policy cash values (within the meaning
of section 264(e)(3)(A)) of life insurance
policies and annuity and endowment con-
tracts to which section 264(e) applies.’’.
(c) CONFORMING AMENDMENT.—Subparagraph (A)
of section 265(b)(4) is amended by inserting ‘‘, section
264,’’ before ‘‘and section 291’’.
415
HR 2014 RDS
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to contracts issued after June 8,
1997, in taxable years ending after such date. For pur-
poses of the preceding sentence, any material increase in
the death benefit or other material change in the contract
shall be treated as a new contract but the addition of cov-
ered lives shall be treated as a new contract only with re-
spect to such additional covered lives. For purposes of this
subsection, an increase in the death benefit under a policy
or contract issued in connection with a lapse described in
section 501(d)(2) of the Health Insurance Portability and
Accountability Act of 1996 shall not be treated as a new
contract.
SEC. 1064. ALLOCATION OF BASIS AMONG PROPERTIES DIS-
TRIBUTED BY PARTNERSHIP.
(a) IN GENERAL.—Subsection (c) of section 732 is
amended to read as follows:
‘‘(c) ALLOCATION OF BASIS.—
‘‘(1) IN
GENERAL.—The basis of distributed
properties to which subsection (a)(2) or (b) is appli-
cable shall be allocated—
‘‘(A)(i) first to any unrealized receivables
(as defined in section 751(c)) and inventory
items (as defined in section 751(d)(2)) in an
416
HR 2014 RDS
amount equal to the adjusted basis of each such
property to the partnership, and
‘‘(ii) if the basis to be allocated is less than
the sum of the adjusted bases of such prop-
erties to the partnership, then, to the extent
any decrease is required in order to have the
adjusted bases of such properties equal the
basis to be allocated, in the manner provided in
paragraph (3), and
‘‘(B) to the extent of any basis not allo-
cated under subparagraph (A), to other distrib-
uted properties—
‘‘(i) first by assigning to each such
other property such other property’s ad-
justed basis to the partnership, and
‘‘(ii) then, to the extent any increase
or decrease in basis is required in order to
have the adjusted bases of such other dis-
tributed properties equal such remaining
basis, in the manner provided in paragraph
(2) or (3), whichever is appropriate.
‘‘(2) METHOD
OF
ALLOCATING
INCREASE.—
Any increase required under paragraph (1)(B) shall
be allocated among the properties—
417
HR 2014 RDS
‘‘(A) first to properties with unrealized ap-
preciation in proportion to their respective
amounts of unrealized appreciation before such
increase (but only to the extent of each prop-
erty’s unrealized appreciation), and
‘‘(B) then, to the extent such increase is
not allocated under subparagraph (A), in pro-
portion to their respective fair market values.
‘‘(3) METHOD
OF
ALLOCATING
DECREASE.—
Any decrease required under paragraph (1)(A) or
(1)(B) shall be allocated—
‘‘(A) first to properties with unrealized de-
preciation in proportion to their respective
amounts of unrealized depreciation before such
decrease (but only to the extent of each prop-
erty’s unrealized depreciation), and
‘‘(B) then, to the extent such decrease is
not allocated under subparagraph (A), in pro-
portion to their respective adjusted bases (as
adjusted under subparagraph (A)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to distributions after the date
of the enactment of this Act.
418
HR 2014 RDS
SEC. 1065. REPEAL OF REQUIREMENT THAT INVENTORY BE
SUBSTANTIALLY APPRECIATED.
(a) IN GENERAL.—Paragraph (2) of section 751(a)
is amended to read as follows:
‘‘(2) inventory items of the partnership,’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 751 is amended to
read as follows:
‘‘(d) INVENTORY ITEMS.—For purposes of this sub-
chapter, the term ‘inventory items’ means—
‘‘(1) property of the partnership of the kind de-
scribed in section 1221(1),
‘‘(2) any other property of the partnership
which, on sale or exchange by the partnership, would
be considered property other than a capital asset
and other than property described in section 1231,
‘‘(3) any other property of the partnership
which, if sold or exchanged by the partnership,
would result in a gain taxable under subsection (a)
of section 1246 (relating to gain on foreign invest-
ment company stock), and
‘‘(4) any other property held by the partnership
which, if held by the selling or distributee partner,
would be considered property of the type described
in paragraph (1), (2), or (3).’’.