Subtitle B—Enron-Related Tax 
Shelter Provisions 
SEC. 321. LIMITATION ON TRANSFER OR IMPORTATION OF 
BUILT-IN LOSSES. 
(a) IN GENERAL.—Section 362 (relating to basis to 
corporations) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.— 
‘‘(1) LIMITATION ON IMPORTATION OF BUILT- 
IN LOSSES.— 
‘‘(A) IN GENERAL.—If in any transaction 
described in subsection (a) or (b) there would 
(but for this subsection) be an importation of a 
net built-in loss, the basis of each property de-
scribed in subparagraph (B) which is acquired 
in such transaction shall (notwithstanding sub-
sections (a) and (b)) be its fair market value 
immediately after such transaction. 
‘‘(B) PROPERTY
DESCRIBED.—For pur-
poses of subparagraph (A), property is de-
scribed in this subparagraph if— 
‘‘(i) gain or loss with respect to such 
property is not subject to tax under this 
subtitle in the hands of the transferor im-
mediately before the transfer, and
‘‘(ii) gain or loss with respect to such 
property is subject to such tax in the 
hands of the transferee immediately after 
such transfer. 
In any case in which the transferor is a part-
nership, the preceding sentence shall be applied 
by treating each partner in such partnership as 
holding such partner’s proportionate share of 
the property of such partnership. 
‘‘(C) IMPORTATION
OF
NET
BUILT-IN 
LOSS.—For purposes of subparagraph (A), 
there is an importation of a net built-in loss in 
a transaction if the transferee’s aggregate ad-
justed bases of property described in subpara-
graph (B) which is transferred in such trans-
action would (but for this paragraph) exceed 
the fair market value of such property imme-
diately after such transaction. 
‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN 
LOSSES IN SECTION 351 TRANSACTIONS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) property is transferred by a 
transferor in any transaction which is de-
scribed in subsection (a) and which is not
described in paragraph (1) of this sub-
section, and 
‘‘(ii) the transferee’s aggregate ad-
justed bases of such property so trans-
ferred would (but for this paragraph) ex-
ceed the fair market value of such property 
immediately after such transaction, 
then, notwithstanding subsection (a), the trans-
feree’s aggregate adjusted bases of the property 
so transferred shall not exceed the fair market 
value of such property immediately after such 
transaction. 
‘‘(B) ALLOCATION
OF
BASIS
REDUC-
TION.—The aggregate reduction in basis by 
reason of subparagraph (A) shall be allocated 
among the property so transferred in proportion 
to their respective built-in losses immediately 
before the transaction. 
‘‘(C) EXCEPTION FOR TRANSFERS WITHIN 
AFFILIATED
GROUP.—Subparagraph (A) shall 
not apply to any transaction if the transferor 
owns stock in the transferee meeting the re-
quirements of section 1504(a)(2). In the case of 
property to which subparagraph (A) does not 
apply by reason of the preceding sentence, the
transferor’s basis in the stock received for such 
property shall not exceed its fair market value 
immediately after the transfer.’’. 
(b) COMPARABLE TREATMENT WHERE LIQUIDA-
TION.—Paragraph (1) of section 334(b) (relating to liq-
uidation of subsidiary) is amended to read as follows: 
‘‘(1) IN GENERAL.—If property is received by a 
corporate distributee in a distribution in a complete 
liquidation to which section 332 applies (or in a 
transfer described in section 337(b)(1)), the basis of 
such property in the hands of such distributee shall 
be the same as it would be in the hands of the trans-
feror; except that the basis of such property in the 
hands of such distributee shall be the fair market 
value of the property at the time of the distribu-
tion— 
‘‘(A) in any case in which gain or loss is 
recognized by the liquidating corporation with 
respect to such property, or 
‘‘(B) in any case in which the liquidating 
corporation is a foreign corporation, the cor-
porate distributee is a domestic corporation, 
and the corporate distributee’s aggregate ad-
justed bases of property described in section 
362(e)(1)(B) which is distributed in such liq-
uidation would (but for this subparagraph) ex-
ceed the fair market value of such property im-
mediately after such liquidation.’’. 
(c) EFFECTIVE DATES.— 
(1) IN
GENERAL.—The amendment made by 
subsection (a) shall apply to transactions after De-
cember 31, 2003. 
(2) LIQUIDATIONS.—The amendment made by 
subsection (b) shall apply to liquidations after De-
cember 31, 2003. 
SEC. 322. NO REDUCTION OF BASIS UNDER SECTION 734 IN 
STOCK HELD BY PARTNERSHIP IN COR-
PORATE PARTNER. 
(a) IN GENERAL.—Section 755 is amended by adding 
at the end the following new subsection: 
‘‘(c) NO ALLOCATION
OF BASIS DECREASE
TO 
STOCK OF CORPORATE PARTNER.—In making an alloca-
tion under subsection (a) of any decrease in the adjusted 
basis of partnership property under section 734(b)— 
‘‘(1) no allocation may be made to stock in a 
corporation (or any person which is related (within 
the meaning of section 267(b) or 707(b)(1)) to such 
corporation) which is a partner in the partnership, 
and
‘‘(2) any amount not allocable to stock by rea-
son of paragraph (1) shall be allocated under sub-
section (a) to other partnership property in such 
manner as the Secretary may prescribe. 
Gain shall be recognized to the partnership to the extent 
that the amount required to be allocated under paragraph 
(2) to other partnership property exceeds the aggregate 
adjusted basis of such other property immediately before 
the allocation required by paragraph (2).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions after February 13, 
2003. 
SEC. 323. REPEAL OF SPECIAL RULES FOR FASITS. 
(a) IN GENERAL.—Part V of subchapter M of chap-
ter 1 (relating to financial asset securitization investment 
trusts) is hereby repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (6) of section 56(g) is amended 
by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 
REMIC’’. 
(2) Clause (ii) of section 382(l)(4)(B) is amend-
ed by striking ‘‘a REMIC to which part IV of sub-
chapter M applies, or a FASIT to which part V of 
subchapter M applies,’’ and inserting ‘‘or a REMIC 
to which part IV of subchapter M applies,’’.
(3) Paragraph (1) of section 582(c) is amended 
by striking ‘‘, and any regular interest in a 
FASIT,’’. 
(4) Subparagraph (E) of section 856(c)(5) is 
amended by striking the last sentence. 
(5)(A) Section 860G(a)(1) is amended by add-
ing at the end the following new sentence: ‘‘An inter-
est shall not fail to qualify as a regular interest sole-
ly because the specified principal amount of the reg-
ular interest (or the amount of interest accrued on 
the regular interest) can be reduced as a result of 
the nonoccurrence of 1 or more contingent payments 
with respect to any reverse mortgage loan held by 
the REMIC if, on the startup day for the REMIC, 
the sponsor reasonably believes that all principal and 
interest due under the regular interest will be paid 
at or prior to the liquidation of the REMIC.’’. 
(B) The last sentence of section 860G(a)(3) is 
amended by inserting ‘‘, and any reverse mortgage 
loan (and each balance increase on such loan meet-
ing the requirements of subparagraph (A)(iii)) shall 
be treated as an obligation secured by an interest in 
real property’’ before the period at the end. 
(6) Paragraph (3) of section 860G(a) is amend-
ed by adding ‘‘and’’ at the end of subparagraph (B),
by striking ‘‘, and’’ at the end of subparagraph (C) 
and inserting a period, and by striking subparagraph 
(D). 
(7) Section 860G(a)(3), as amended by para-
graph (6), is amended by adding at the end the fol-
lowing new sentence: ‘‘For purposes of subparagraph 
(A), if more than 50 percent of the obligations 
transferred to, or purchased by, the REMIC are 
originated by the United States or any State (or any 
political subdivision, agency, or instrumentality of 
the United States or any State) and are principally 
secured by an interest in real property, then each 
obligation transferred to, or purchased by, the 
REMIC shall be treated as secured by an interest in 
real property.’’. 
(8)(A) Section 860G(a)(3)(A) is amended by 
striking ‘‘or’’ at the end of clause (i), by inserting 
‘‘or’’ at the end of clause (ii), and by inserting after 
clause (ii) the following new clause: 
‘‘(iii) represents an increase in the 
principal amount under the original terms 
of an obligation described in clause (i) or 
(ii) if such increase—
‘‘(I) is attributable to an advance 
made to the obligor pursuant to the 
original terms of the obligation, 
‘‘(II) occurs after the startup 
day, and 
‘‘(III) 
is 
purchased 
by 
the 
REMIC pursuant to a fixed price con-
tract in effect on the startup day.’’. 
(B) Section 860G(a)(7)(B) is amended to read 
as follows: 
‘‘(B) QUALIFIED
RESERVE
FUND.—For 
purposes of subparagraph (A), the term ‘quali-
fied reserve fund’ means any reasonably re-
quired reserve to— 
‘‘(i) provide for full payment of ex-
penses of the REMIC or amounts due on 
regular interests in the event of defaults on 
qualified mortgages or lower than expected 
returns on cash flow investments, or 
‘‘(ii) provide a source of funds for the 
purchase of obligations described in clause 
(ii) or (iii) of paragraph (3)(A). 
The aggregate fair market value of the assets 
held in any such reserve shall not exceed 50 
percent of the aggregate fair market value of all
of the assets of the REMIC on the startup day, 
and the amount of any such reserve shall be 
promptly and appropriately reduced to the ex-
tent the amount held in such reserve is no 
longer reasonably required for purposes speci-
fied in clause (i) or (ii) of this subparagraph.’’. 
(9) Subparagraph (C) of section 1202(e)(4) is 
amended by striking ‘‘REMIC, or FASIT’’ and in-
serting ‘‘or REMIC’’. 
(10) Clause (xi) of section 7701(a)(19)(C) is 
amended— 
(A) by striking ‘‘and any regular interest 
in a FASIT,’’, and 
(B) by striking ‘‘or FASIT’’ each place it 
appears. 
(11) Subparagraph (A) of section 7701(i)(2) is 
amended by striking ‘‘or a FASIT’’. 
(12) The table of parts for subchapter M of 
chapter 1 is amended by striking the item relating 
to part V. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall take effect on February 14, 2003.
(2) EXCEPTION FOR EXISTING FASITS.—Para-
graph (1) shall not apply to any FASIT in existence 
on the date of the enactment of this Act to the ex-
tent that regular interests issued by the FASIT be-
fore such date continue to remain outstanding in ac-
cordance with the original terms of issuance. 
SEC. 324. EXPANDED DISALLOWANCE OF DEDUCTION FOR 
INTEREST ON CONVERTIBLE DEBT. 
(a) IN GENERAL.—Paragraph (2) of section 163(l) 
is amended by inserting ‘‘or equity held by the issuer (or 
any related party) in any other person’’ after ‘‘or a related 
party’’. 
(b) CAPITALIZATION ALLOWED WITH RESPECT TO 
EQUITY OF PERSONS OTHER THAN ISSUER AND RE-
LATED PARTIES.—Section 163(l) is amended by redesig-
nating paragraphs (4) and (5) as paragraphs (5) and (6) 
and by inserting after paragraph (3) the following new 
paragraph: 
‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT 
TO EQUITY OF PERSONS OTHER THAN ISSUER AND 
RELATED PARTIES.—If the disqualified debt instru-
ment of a corporation is payable in equity held by 
the issuer (or any related party) in any other person 
(other than a related party), the basis of such equity 
shall be increased by the amount not allowed as a