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.

SECTION 1. PROPERTY SUBJECT TO A LIABILITY TREATED IN SAME MANNER AS 
              ASSUMPTION OF LIABILITY.

    (a) Repeal of Property Subject to a Liability Test.--
            (1) Section 357.--Section 357(a)(2) of the Internal Revenue 
        Code of 1986 (relating to assumption of liability) is amended 
        by striking ``, or acquires from the taxpayer property subject 
        to a liability''.
            (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 property acquired is 
                subject to a liability,''.
                    (B) The last sentence of section 368(a)(2)(B) of 
                such Code is amended by striking ``, and the amount of 
                any liability to which any property acquired from the 
                acquiring corporation is subject,''.
    (b) Clarification of Assumption of Liability.--
            (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 Assumed.--
            ``(1) In general.--For purposes of this section, 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 thereof) 
                shall be treated as having been assumed if, as 
                determined on the basis of all facts and circumstances, 
                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 paragraph 
                (2), a nonrecourse liability shall be treated as having 
                been assumed by the transferee of any asset subject to 
                such liability.
            ``(2) Exception for nonrecourse liability.--The amount of 
        the nonrecourse liability treated 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 prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection and section 362(d). The Secretary may also 
        prescribe regulations which provide that the manner in which a 
        liability is treated as assumed under this subsection is 
        applied, where appropriate, elsewhere in this title.''
            (2) Limitation on basis increase attributable 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 Attributable 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 (determined without regard 
        to section 7701(g)) by reason of any gain recognized to the 
        transferor as a result 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 liability 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 subsections (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 assumed 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 assets subject 
        to such liability.''.
    (c) Application to Provisions Other Than Subchapter C.--
            (1) Section 584.--Section 584(h)(3) of the Internal 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 common 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 liability 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 property subject 
                to a liability'' and inserting ``assumed (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 liability)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to transfers after October 18, 1998.

Summary: Amends the Internal Revenue Code to revise provisions concerning a corporation, its shareholders, and the transferring of certain assets and liabilities.