article: SECTION 1. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON TRUST FUNDS TO REGULATED INVESTMENT COMPANIES. (a) General Rule.--Section 584 of the Internal Revenue Code of 1986 (relating to common trust funds) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: ``(h) Nonrecognition Treatment for Certain Transfers to Regulated Investment Companies.-- ``(1) In general.--If-- ``(A) pursuant to a single plan, a common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which such assets are so transferred, and ``(B) such stock is distributed by such common trust fund to participants in such common trust fund in exchange solely for their interests in such common trust fund, no gain or loss shall be recognized by such common trust fund by reason of such transfer or distribution, and no gain or loss shall be recognized by any participant in such common trust fund by reason of such exchange. ``(2) Basis rules.-- ``(A) Regulated investment company.--The basis of any asset received by a regulated investment company in a transfer referred to in paragraph (1)(A) shall be the same as it would be in the hands of the common trust fund. ``(B) Participants.--The basis of the stock which is received in an exchange referred to in paragraph (1)(B) shall be the same as that of the property exchanged. If stock in more than one regulated investment company is received in such exchange, the basis determined under the preceding sentence shall be allocated among the stock in each such company on the basis of respective fair market values. ``(3) Treatment of assumptions of liability.-- ``(A) In general.--In determining whether the transfer referred to in paragraph (1)(A) is in exchange solely for stock in one or more regulated investment companies, the assumption by any such company of a liability of the common trust fund, and the fact that any property transferred by the common trust fund is subject to a liability, shall be disregarded. ``(B) Special rule where assumed liabilities exceed basis.-- ``(i) In general.--If in any transfer referred to in paragraph (1)(A) the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company or companies-- ``(I) notwithstanding paragraph (1), gain shall be recognized to the common trust fund on such transfer in an amount equal to such excess, ``(II) the basis of the assets received by the regulated investment company or companies in such transfer shall be increased by the amount so recognized, and ``(III) any adjustment to the basis of a participant's interest in the common trust fund as a result of the gain so recognized shall be treated as occurring immediately before the exchange referred to in paragraph (1)(B). If the transfer referred to in paragraph (1)(A) is to two or more regulated investment companies the basis increase under subclause (II) shall be allocated among such companies on the basis of the respective fair market values of the assets received by each of such companies. ``(ii) Assumed liabilities.--For purposes of clause (i), the term `assumed liabilities' means the aggregate of-- ``(I) any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A), and ``(II) any liability to which property so transferred is subject. ``(4) Common trust fund must meet diversification rules.-- This subsection shall not apply to any common trust fund which would not meet the requirements of section 368(a)(2)(F)(ii) if it were a corporation. For purposes of the preceding sentence, Government securities shall not be treated as securities of an issuer in applying the 25-percent and 50-percent test and such securities shall not be excluded for purposes of determining total assets under clause (iv) of section 368(a)(2)(F).'' (b) Effective Date.--The amendment made by subsection (a) shall apply to transfers after the date of the enactment of this Act.
summary: Amends the Internal Revenue Code to provide for the nonrecognition of gain or loss for the transfer of common trust fund assets to regulated investment companies in exchange for stock when the stock is distributed to participants of the common trust fund in exchange for their interest in such fund.