article: 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.