cated outside the United States are not property of 
a like kind. 
‘‘(5) FOREIGN PERSONAL PROPERTY.—
‘‘(A) IN
GENERAL.—Personal property 
used predominantly within the United States 
and personal property used predominantly out-
side the United States are not property of a like 
kind. 
‘‘(B) PREDOMINANT USE.—Except as pro-
vided in subparagraphs (C) and (D), the pre-
dominant use of any property shall be deter-
mined based on— 
‘‘(i) in the case of the sale of any 
property by the taxpayer, the 2-year period 
ending on the date of such sale, and 
‘‘(ii) in the case of the purchase of 
any property by the taxpayer, the 2-year 
period beginning on the date of such pur-
chase. 
‘‘(C) PROPERTY HELD FOR LESS THAN 2 
YEARS.—Except in the case of a sale or pur-
chase which is part of a transaction (or series 
of transactions) structured to avoid the pur-
poses of this subsection, only the periods the 
property was held by the taxpayer (or any re-
lated person) shall be taken into account under 
subparagraph (B). 
‘‘(D) SPECIAL RULE FOR CERTAIN PROP-
ERTY.—Property described in any subpara-
graph of section 168(g)(4) shall be treated as 
used predominantly in the United States.’’. 
(b) PRESERVATION OF CERTAIN GAIN, LOSS, AND 
BASIS RULES FOR EXCHANGES.—
(1) Section 1035 (relating to certain exchanges 
of insurance policies) is amended—
(A) by striking subsection (d), 
(B) by redesignating subsections (b) and 
(c) as subsections (e) and (f), respectively, and 
(C) by inserting after subsection (a) the 
following new subsections: 
‘‘(b) GAIN FROM EXCHANGES NOT SOLELY
IN 
KIND.—If an exchange would be within the provisions of 
subsection (a), of section 1036(a), or of section 1037(a), 
if it were not for the fact that the property received in 
exchange consists not only of property permitted by such 
provisions to be received without the recognition of gain, 
but also of other property or money, then the gain, if any, 
to the recipient shall be recognized, but in an amount not 
in excess of the sum of such money and the fair market 
value of such other property.
‘‘(c) LOSS FROM EXCHANGES NOT SOLELY
IN 
KIND.—If an exchange would be within the provisions of 
subsection (a), of section 1036(a), or of section 1037(a), 
if it were not for the fact that the property received in 
exchange consists not only of property permitted by such 
provisions to be received without the recognition of gain 
or loss, but also of other property or money, then no loss 
from the exchange shall be recognized. 
‘‘(d) BASIS.—If property was acquired on an ex-
change described in subsection (a), section 1036(a), or 
section 1037(a), then the basis shall be the same as that 
of the property exchanged, decreased in the amount of any 
money received by the taxpayer and increased in the 
amount of gain or decreased in the amount of loss to the 
taxpayer that was recognized on such exchange. If the 
property so acquired consisted in part of the type of prop-
erty permitted by subsection (a), section 1036(a), or sec-
tion 1037(a), to be received without the recognition of 
gain or loss, and in part of other property, the basis pro-
vided in this subsection shall be allocated between the 
properties (other than money) received, and for the pur-
pose of the allocation there shall be assigned to such other 
property an amount equivalent to its fair market value at 
the date of the exchange. For purposes of subsection (a) 
and section 1036(a), where as part of the consideration
to the taxpayer another party to the exchange assumed 
(as determined under section 357(d)) a liability of the tax-
payer, such assumption shall be considered as money re-
ceived by the taxpayer on the exchange.’’. 
(2) Section 83(g), section 424(b), section 
424(c)(1)(B), section 454(c)(2), paragraphs (1) and 
(2) of section 1036(c), and paragraphs (1) and (2) 
of section 1037(c) are each amended by striking 
‘‘section 1031’’ and inserting ‘‘section 1035’’. 
(3) Paragraphs (1) and (2) of section 1037(b) 
are each amended by striking ‘‘section 1031(b)’’ and 
inserting ‘‘section 1035(b)’’. 
(c) CONFORMING AMENDMENTS.—
(1) Clause (i) of section 197(f)(2)(B) is amend-
ed by inserting ‘‘(including any purchase taken into 
account under subsection (a)(1) thereof)’’ after 
‘‘1031’’. 
(2) Paragraph (6) of section 453(f) is amended 
to read as follows: 
‘‘(6) LIKE-KIND EXCHANGES.—In the case of 
any sale or exchange to which section 1031 applies, 
the total contract price, the gross profit from such 
sale, and the amount of any payment (other than for 
purposes of subsection (b)(1)) shall be reduced to 
take into account any amount not recognized by rea-
son of section 1031. Similar rules shall apply in the 
case of an exchange which is described in section 
356(a) and is not treated as a dividend.’’. 
(3) BASIS LIMITATION FOR PLAYER CONTRACTS 
TRANSFERRED IN CONNECTION WITH THE SALE OF 
A FRANCHISE.—Paragraph (1) of section 1056(b) is 
amended to read as follows: 
‘‘(1) to any sale or exchange to which section 
1031 applies, and’’. 
(4) VALUATION OF CERTAIN FARM, ETC., REAL 
PROPERTY.—
(A) Clause (i) of section 2032A(e)(14)(C) 
is amended to read as follows: 
‘‘(i) QUALIFIED REPLACEMENT PROP-
ERTY.—The term ‘qualified replacement 
property’ means any real property the ac-
quisition of which results in the non-
recognition of gain under section 1031 or 
1033.’’. 
(B) 
Subclause 
(I) 
of 
section 
2032A(e)(14)(C)(ii) is amended by inserting 
‘‘sale or’’ before ‘‘exchange’’. 
(C) Subsection (i) of section 2032A is 
amended to read as follows:
‘‘(i) REPLACEMENT
OF QUALIFIED REAL PROP-
ERTY.—
‘‘(1) TREATMENT OF PROPERTY SOLD OR EX-
CHANGED.—
‘‘(A) SALES
AND
EXCHANGES
WITH
NO 
RECOGNITION OF GAIN.—If an interest in quali-
fied real property is sold or exchanged and no 
gain is recognized under section 1031 by reason 
of the acquisition of qualified replacement prop-
erty, no tax shall be imposed by subsection (c) 
by reason of such sale or exchange. 
‘‘(B) SALES AND EXCHANGES WITH PAR-
TIAL RECOGNITION OF GAIN.—Except as pro-
vided in paragraph (1), if an interest in quali-
fied real property is sold or exchanged and a 
portion of the gain is not recognized under sec-
tion 1031 by reason of the acquisition of quali-
fied replacement property, the amount of the 
tax imposed by subsection (c) by reason such 
sale or exchange shall be the amount of tax 
which (but for this paragraph) would have been 
imposed on such sale or exchange under sub-
section (c)(1), reduced by an amount which— 
‘‘(i) bears the same ratio to such tax, 
as
‘‘(ii) the fair market value of the 
qualified replacement property (determined 
as of the time or acquisition) bears to the 
fair market value of the qualified real 
property sold or exchanged (determined as 
of the time of disposition). 
‘‘(2) TREATMENT OF QUALIFIED REPLACEMENT 
PROPERTY.—For purposes of subsection (c)—
‘‘(A) any interest in qualified replacement 
property shall be treated in the same manner as 
if it were a portion of the interest in the quali-
fied real property which was sold or exchanged, 
‘‘(B) any tax imposed by subsection (c) by 
reason of the sale or exchange shall be treated 
as a tax imposed on a partial disposition, and 
‘‘(C) paragraph (6) of subsection (c) shall 
be applied by treating material participation 
with respect to the sold or exchanged property 
as material participation with respect to the 
qualified replacement property. 
‘‘(3) QUALIFIED
REPLACEMENT
PROPERTY.—
For purposes of this subsection, the term ‘qualified 
replacement property’ means real property which is 
to be used for the qualified use set forth in subpara-
graph (A) or (B) of subsection (b)(2) under which
the qualified real property sold in the qualified sale 
originally qualified under subsection (a).’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for part III of subchapter O of chapter 1 is amended by 
striking the item relating to section 1031 and inserting 
the following new item:
‘‘Sec. 1031. Rollover of property held for productive use or invest-
ment.’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers made after December 
31, 2002, in tax years ending after such date. 
SEC. 204. REPEAL OF COLLAPSIBLE CORPORATIONS. 
(a) IN GENERAL.—Subpart C of part II of sub-
chapter C of chapter 1 (relating to collapsible corpora-
tions) is hereby repealed. 
(b) CLERICAL AMENDMENT.—The table of subparts 
for part II of subchapter C of chapter 1 is amended by 
striking the item relating to subpart C. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales, exchanges, and distribu-
tions made after the date of the enactment of this Act. 
SEC. 205. REFERENCES TO GENERAL PARTNERS. 
(a) EXCLUSION OF CERTAIN ACTIVE BUSINESSES 
FROM
AT
RISK
RULES.—Subclause (I) of section 
465(c)(7)(D)(ii) (defining qualified corporate partner) is 
amended to read as follows:
‘‘(I) such corporation is not pro-
hibited or limited under State law 
from participation in the management 
or business of the partnership.’’. 
(b) PAYMENTS TO RETIRING PARTNERS.—Subpara-
graph (B) of section 736(b)(3) (relating to limitation on 
application of paragraph (2)) is amended to read as fol-
lows: 
‘‘(B) any portion of the retiring or de-
ceased partner’s distributive share of partner-
ship income was subject to tax under section 
1401. 
(c) FOREIGN CURRENCY TRANSACTIONS.—Subclause 
(I) of section 988(c)(1)(E)(v) is amended to read as fol-
lows: 
‘‘(I) CERTAIN
GENERAL
PART-
NERS.—The interest of a partner in 
the partnership shall not be treated as 
failing to meet the 20-percent owner-
ship requirements of clause (iii)(I) for 
any taxable year of the partnership if 
for the taxable year of the partner in 
which such partnership taxable year 
ends—
‘‘(aa) the partner is not lim-
ited as to participation in the 
management or activity of the 
qualified fund, and 
‘(bb) such partner (and each 
corporation filing a consolidated 
return with such partner) had no 
ordinary income or loss from a 
section 988 transaction which is 
foreign currency gain or loss (as 
the case may be).’’. 
(d) SPECIAL VALUATION RULES FOR GENERATION-
SKIPPING TAX.—Clause (ii) of section 2701(b)(2)(B) (re-
lating to partnerships) is amended to read as follows: 
‘‘(ii) in the case of a limited partner-
ship, the holding of any interest as a part-
ner who is not limited as to participation 
in management or activity of the partner-
ship.’’. 
(e) TAX MATTERS PARTNER.—Paragraph (7) of sec-
tion 6231(a) (defining tax matters partner) is amended 
to read as follows: 
‘‘(7) TAX MATTERS PARTNER.—
‘‘(A) IN GENERAL.—The tax matters part-
ner of any partnership is—
‘‘(i) the partner designated as the tax 
matters partner as provided in regulations, 
or 
‘‘(ii) if there is no partner who has 
been so designated, the partner having the 
largest profits interest in the partnership 
at the close of the taxable year involved 
(or, where there is more than 1 such part-
ner, the 1 of such partners whose name 
would appear first in an alphabetical list-
ing). 
‘‘(B) SELECTION BY SECRETARY.—If there 
is no partner designated under subparagraph 
(A)(i) and the Secretary determines that it is 
impracticable to apply subparagraph (A)(ii), the 
partner selected by the Secretary shall be treat-
ed as the tax matters partner. The Secretary 
shall, within 30 days of selecting a tax matters 
partner under the preceding sentence, notify all 
partners required to receive notice under sec-
tion 6223(a) of the name and address of the 
person selected. 
‘‘(C) RESTRICTION
ON
DESIGNATION
OF 
PARTNER.—A partner may not be designated as 
a tax matters partner under subparagraph