An Act relating to the release of liability under bonds filed under section 44(d) of the Internal Revenue Code of 1939 with respect to certain installment obligations transmitted at death, and to amend the Internal Revenue Code of 1954 with respect to certain reacquisitions of real property
PL 88-570 (H.R.4844), enacted 09/02/1964

854 
PUBLIC LAW 88-570-SEPT. 2, 1964 
[78 STAT. 
Public Law 88-570 
September 2, 1964 
A N A C T 
—[H- R. 4844]— Uelating to the release of liability under bonds filed under section 44(d) of 
the Internal Revenue Code of 1939 with respect to certain installment obliga-
tions transmitted at death, and to amend the Internal Revenue Code of 
1954 with respect to certain reacquisitions of real property. 
Taxes. 
Installment ob-
Be it enacted hy the Senate and House of Representatives 
of the 
_^ ^ 
r/miec;? States of America in Congress assembled, That section 691 
iigatTJ"ns. °'" " 
of the Internal Revenue Code of 1954 (relating to recipients of income 
26^scr*69"^* 
^^ respect of decedents) is amended by relettering subsection (e) as 
subsection (f) and by inserting after subsection (d) the following new 
subsection: 
"(e) INSTALLMENT OBLIGATIONS TRANSMITTED AT DEATH W H E N 
PRIOR LAW APPLIED TO TRANSMISSION.— 
"(1) I N GENERAL.—Effective with respect to the first taxable 
year to which the election referred to in paragraph (2) applies 
and to each taxable year thereafter, subsection (a) (4) shall 
apply in the case of installment obligations in respect of which 
53 Stat. 24. 
scctiou 44(d) of the Internal Revenue Code of 1939 (or the 
corresponding provisions of prior law) did not apply by reason 
of the filing of the bond referred to in such section or provisions. 
Subsection (c) of this section shall not apply in respect of any 
amount included in gross income by reason of this paragraph. 
"(2) ELECTION.—Installment obligations referred to in para-
graph (1) may, at the election of the taxpayer holding such obli-
gations, be treated as obligations in respect of which subsection 
(a) (4) applies. An election under this subsection for any taxable 
year shall be made not later than the time prescribed by law 
(including extensions thereof) for filing the return for such tax-
able year. The election shall be made in such manner as the Sec-
retary or his delegate may by regulations prescribe. 
"(3) RELEASE OF BOND.—The liability under any bond filed 
under section 44(d) of the Internal Revenue Code of 1939 (or the 
corresponding provisions of prior law) in respect of which an 
election under this subsection applies is hereby released with 
respect to taxable years to which such election applies." 
SEC. 2. (a) Part I I I of subchapter O of chapter 1 of the Internal 
26 use 1031- 
Kevenue Code of 1954 (relating to common nontaxable exchanges) is 
amended by adding at the end thereof the following new section: 
"SEC. 1038. CERTAIN REACQUISITIONS OF REAL PROPERTY. 
"(a) GENERAL RULE.—If— 
"(1) a sale of real property gives rise to indebtedness to the 
seller which is secured by the real property sold, and 
" (2) the seller of such property reacquires such property in par-
tial or full satisfaction of such indebtedness, 
then, except as provided in subsections (b) and (d), no gain or loss 
shall result to the seller from such reacquisition, and no debt shall 
become worthless or partially worthless as a result of such reacqui-
sition. 
"(b) AMOUNT OF GAIN RESULTING.— 
"(1) I N GENERAL.—In the case of a reacquisition of real prop-
erty to which subsection (a) applies, gain shall result from such 
reacquisition to the extent that>-— 
"(A) the amount of money and the fair market value of 
other property (other than obligations of the purchaser) 
received, prior to such reacquisition, with respect to the sale 
of such property, exceeds 
1037 
78 STAT. ] 
PUBLIC LAW 88-570-SEPT. 2, 1964 
855 
"(B) the amount of the gain on the sale of such property 
returned as income for periods prior to such reacquisition. 
" (2) LIMITATION.—^The amount of ^ain determined under para-
f
raph (1) resulting from a reacquisition during any taxable year 
eginning after the date of the enactment of this section shall not 
exceed the amount by which the price at which the real property 
was sold exceeded its adjusted basis, reduced by the sum of— 
"(A) the amount of the gain on the sale of such property 
returned as income for periods prior to the reacquisition of 
such property, and 
"(B) the amount of money and the fair market value of 
other property (other than obligations of the purchaser re-
ceived with respect to the sale of such property) paid or 
transferred by the seller in connection with the reacquisition 
of such property. 
For purposes of this paragraph, the price at which real property 
is sold is the gross sales price reduced by the selling commissions, 
legal fees, and other expenses incident to the sale of such property 
which are properly taken into account in determining gam or 
loss on such sale. 
"(3) GAIN RECOGNIZED.—Except as provided in this section, 
the gain determined under this subsection resulting from a reac-
quisition to which subsection (a) applies shall be recognized, 
notwithstanding any other provision of this subtitle. 
"(c) 
BASIS or EEACQUIRED REAL PROPERTY.—If subsection (a) 
applies to the reacquisition of any real property, the basis of such 
property upon such reacquisition shall be the adjusted basis of the 
indebtedness to the seller secured by such property (determined as of 
the date of reacquisition), increased by the sum of— 
"(1) the amount of the gain determined under subsection (b) 
resulting from such reacquisition, and 
"(2) the amount described in subsection (b) (2) (B). 
If any indebtedness to the seller secured by such property is not dis-
charged upon the reacquisition of such property, the basis of such 
indebtedness shall be zero. 
"(d) INDEBTEDNESS TREATED AS WORTHLESS PRIOR TO REACQUISI-
TION.—If, prior to a reacquisition of real property to which subsection 
(a) applies, the seller has treated indebtedness secured by such prop-
erty as having become worthless or partially worthless— 
"(1) such seller shall be considered as receiving, upon the 
reacquisition of such property, an amount equal to the amount of 
such indebtedness treated by him as having become worthless, 
and 
"(2) the adjusted basis of such indebtedness shall be increased 
(as of the date of reacquisition) by an amount equal to the amount 
so considered as received by such seller. 
"(e) PRINCIPAL RESIDENCES.—If— 
"(1) subsection (a) applies to a reacquisition of real property 
with respect to the sale of which— 
"(A) an election under section 121 (relating to gain from 
sale or exchange of residence of an individual who has 
attained age 65) is in effect, or 
"(B) gain was not recognized under section 1034 (relating 
to sale or exchange of residence); and 
" (2) within one year after the date of the reacquisition of such 
property by the seller, such property is resold by him, 
then, under regulations prescribed by the Secretary or his delegate, 
subsections (b), (c), and (d) of this section shall not apply to the 
reacquisition of such property and, for purposes of applying sections 
Ante, p. 38. 
68A Stat. 306. 
26 u s e 1034. 
31-667 0-65—57 
76 Stat. 977. 
26 u s e 593. 
856 
PUBLIC LAW 88-570-SEPT. 2, 1964 
[78 STAT. 
esA^stat.^a^oe 
^^^ ^"^ ^^^"^^ t'^® resale of such property shall be treated as a part 
26 use 1034." 
of the transaction constituting the original sale of such property. 
"(f) 
REACQUISITIONS BY DOMESTIC BUILDING AND LOAN ASSOCIA-
TIONS.—This section shall not apply to a reacquisition of real property 
by an organization described in section 593(a) (relating to domestic 
building and loan associations, etc.)." 
(b) The table of sections for such part I I I is amended by adding 
at the end thereof the following: 
"Sec. 1038. Certain reacquisitions of real property." 
(c) (1) The amendments made by this section shall apply to taxable 
years beginning after the date of the enactment of this Act. 
(2) If the taxpayer makes an election under this paragraph, the 
amendments made by this section shall also apply to taxable years 
beginning after December 31, 1957, except that such amendments 
shall not apply with respect to any reacquisition of real property in 
a taxable year for which the assessment of a deficiency, or the credit 
or refund of an overpayment, is prevented on the date of the enact-
ment of this Act by the operation of any law or rule of law. 
An 
election under this paragraph shall be made within one year after 
the date of the enactment of this Act and shall be made in such form 
and manner as the Secretary of the Treasury or his delegate shall 
prescribe by regulations. 
(3) If an election is made by the taxpayer under paragraph (2), 
and if the assessment of a deficiency, or the credit or refund of an 
overpayment, for any taxable year to which such election applies is 
not prevented on the date of the enactment of this Act by the 
operation of any law or rule of law— 
(A) the period within which a deficiency for such taxable 
year may be assessed (to the extent such deficiency is attributable 
to the application of the amendments made by this section) shall 
not expire prior to one year after the date of such election; and 
(B) the period within which a claim for credit or refund of 
an overpayment for such taxable year may be filed (to the 
extent such overpayment is attributable to the application of 
such amendments) shall not expire prior to one year after the 
date of such election. 
No interest shall be payable with respect to any deficiency attributable 
to the application of such amendments, and no interest shall be al-
lowed with respect to any credit or refund of any overpayment at-
tributable to the application of such amendments, for any period 
prior to the date of the enactment of this Act. 
An election by a 
taxpayer under paragraph (2) shall be deemed a consent to the 
application of this paragraph. 
Approved September 2, 1964.