[Congressional Record Volume 144, Number 149 (Monday, October 19, 1998)]
[Extensions of Remarks]
[Pages E2236-E2237]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       INTRODUCTION OF H.R. 4852

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                            HON. BILL ARCHER

                                of texas

                    in the house of representatives

                        Monday, October 19, 1998

  Mr. ARCHER. Mr. Speaker, today, in coordination with the Treasury 
Department, I am introducing H.R. 4852, a bill to clarify the tax 
treatment of certain transfers of assets and liabilities to a 
corporation.
  In general, when a shareholder transfers assets to a corporation it 
controls and receives stock in return, the shareholder does not have 
gain from the exchange. The shareholder may have gain, however, if the 
corporation assumes a liability of the shareholder, or receives assets 
from the shareholder that secure a liability. If the shareholder has 
gain, the corporation's basis in the assets is received is increased by 
the gain.
  The tax treatment under present law is unclear in situations 
involving the transfer of liabilities, and some taxpayers are 
structuring transactions to take advantage of the uncertainty. For 
example, where more than one asset secures a single liability, some 
taxpayers take the position that, on a transfer of the assets to 
different subsidiaries, each subsidiary counts the liability in 
determining the basis of the asset. This interpretation arguably could 
result in assets having a tax basis in excess of their value and 
excessive depreciation deductions--results that are clearly 
inconsistent with fundamental tax policy.
  The legislation I am introducing today is intended to eliminate the 
uncertainty and to focus on the underlying economics of these corporate 
transfers. Under the legislation, a corporation is treated as assuming 
a liability if, based on the facts and circumstances, the corporation 
has agreed and is expected to satisfy the liability. In addition, in 
determining the corporation's basis in property it receives as part of 
these transfers, the corporation's basis cannot exceed the fair market 
value of the property. Special rules apply with respect to nonrecourse 
liabilities.
  The House of Representatives and the Senate passed substantially 
identical legislation earlier this year which did not become law at the 
time originally anticipated. To discourage continued use of corporate 
transaction structuring that the Congress and the Administration 
believe is inappropriate, I am introducing the legislation today, and 
it applies to transfers on or after today. I anticipate including this 
proposal in tax legislation next year.
  A Joint Committee on Taxation explanation of the bill follows.

                         Technical Explanation

       Under the bill, the distinction between the assumption of a 
     liability and the acquisition of an asset subject to a 
     liability is generally eliminated. First, except as provided 
     in regulations, a recourse liability or any portion thereof 
     is treated as having been assumed if, as determined on the 
     basis of all facts and circumstances, the transferee has 
     agreed and is expected to satisfy the liability or portion 
     thereof (whether or not the transferor has been relieved of 
     the liability). Thus, where more than one person agrees to 
     satisfy a liability or portion thereof, only one will be 
     treated as expected to satisfy such liability or portion 
     thereof. Second, except as provided in regulations, a 
     nonrecourse liability is treated as having been assumed by 
     the transferee of any asset subject to the liability with a 
     limitation. The amount treated as assumed shall be reduced by 
     the amount of the 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, up to the fair market value of such other assets 
     (determined without regard to section 7701(g)).
       In determining whether any person has agreed to and is 
     expected to satisfy a liability, all facts and circumstances 
     are to be considered. In any case where the transferee does 
     agree to satisfy a liability, the transferee will be treated 
     as expected to satisfy the liability in the absence of facts 
     indicating the contrary.
       In determining any increase to the basis of property 
     transferred to the transferee as a result of gain recognized 
     because of the assumption of liabilities under section 357, 
     the increase cannot cause the basis to exceed the fair market 
     value of the property (determined without regard to sec. 
     7701(g)). In addition, if gain is recognized to the 
     transferor

[[Page E2237]]

     as the result of an assumption by a corporation of a 
     nonrecourse liability that is also secured by property not 
     transferred to the corporation, and if no person is subject 
     to tax under the Internal Revenue Code on such gain, then for 
     purposes of determining the basis of assets transferred, the 
     amount of gain so treated as recognized shall be determined 
     as if the liability assumed by the transferee equaled such 
     transferee's ratable portion of the liability, based on the 
     relative fair market values (determined without regard to 
     sec. 7701(g)) of all assets subject to such nonrecourse 
     liability.
       The Treasury Department has authority to prescribe any 
     regulations which may be necessary to carry out the purposes 
     of the provision. Where appropriate, the Treasury Department 
     may also prescribe regulations which provide that the manner 
     in which a liability is treated as assumed under the 
     provision is applied elsewhere in the Code.
       The bill would be effective for transfers on or after 
     October 19, 1998. No inference regarding the tax treatment 
     under present law is intended.

     

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