[Congressional Record Volume 146, Number 101 (Tuesday, September 5, 2000)]
[Senate]
[Pages S8023-S8024]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INOUYE:
  S. 3004. A bill to amend the Internal Revenue Code of 1986 to provide 
tax relief for the conversion of cooperative housing corporations into 
condominiums; to the Committee on Finance.


    to provide tax relief for the conversion of cooperative housing 
                     corporations into condominiums

  Mr. INOUYE. Mr. President, today I rise to introduce legislation that 
would amend the Internal Revenue Code of 1986 to allow Cooperative 
Housing Corporations (Co-ops) to convert to condominium forms of 
ownership without any immediate tax consequences.
  Under current law, a conversion from cooperative shareholding to 
condominium ownership is taxable at a corporate level as well as an 
individual level. The conversion is treated as a corporate liquidation, 
and therefore taxed accordingly. In addition, a capital gains tax is 
levied on any increase between the owner's basis in the co-op share 
pre-conversion and the market value of the condominium interest post-
conversion. This double taxation dissuades condominium conversion 
because the owner is being taxed on a transaction that is nothing more 
than a change in the form of ownership. While the Internal Revenue 
Service concedes that there are no discernible advantages to society 
from the cooperative form of ownership, it does not view Federal tax 
statutes as having the flexibility to allow co-ops to re-organize 
freely as condominiums.
  In cooperative housing, real property ownership is vested in a 
corporation, with shares of stock for each apartment unit, that are 
sold to buyers. The corporation then issues a proprietary lease 
entitling the owner of the stock to the use of the unit in perpetuity. 
Because the investment is in the form of a share of stock, investors 
sometimes lose their entire investment as a result of debt incurred by 
the corporation in construction and development. In addition, due to 
the structure of a cooperative housing corporation, a prospective 
purchaser of shares in the corporation from an existing tenant-
stockholder has difficulty obtaining mortgage financing for the 
purchase. Furthermore, tenant-stockholders of cooperative housing also 
encounter difficulties in securing bank loans for the full value of 
their investment.
  As a result, owners of cooperative housing are increasingly looking 
toward conversion to condominium ownership regimes. Condominium 
ownership permits each owner of a unit to directly own the unit itself, 
eliminating the cooperative housing dilemmas of corporate debt that 
supersedes the investment of cooperative housing share owners, and 
other financial concerns.
  The legislation I introduce today will remove the penalty of double 
taxation from the cooperative housing to condominium ownership, and 
will greatly benefit co-op owners across the Nation. I urge my 
colleagues' consideration and support for this measure.
  Mr. President, I ask unanimous consent that the text of this bill be 
printed in the Record
  There being no objection, the bill was ordered to be printed in the 
Record as follows:

                                S. 3004

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. NONRECOGNITION OF GAIN OR LOSS ON DISTRIBUTIONS BY 
                   COOPERATIVE HOUSING CORPORATIONS.

       (a) In General.--Section 216(e) of the Internal Revenue 
     Code of 1986 (relating to distributions by cooperative 
     housing corporations) is amended to read as follows:
       ``(e) Distributions by Cooperative Housing Corporations.--
       ``(1) In general.--Except as provided in regulations--
       ``(A) no gain or loss shall be recognized to a cooperative 
     housing corporation on the distribution by such corporation 
     of a dwelling unit to a stockholder in such corporation if 
     such distribution is in exchange for the stockholder's stock 
     in such corporation, and
       ``(B) no gain or loss shall be recognized to a stockholder 
     of such corporation on the transfer of such stockholder's 
     stock in an exchange described in subparagraph (A).

[[Page S8024]]

       ``(2) Basis.--The basis of a dwelling unit acquired in a 
     distribution to which paragraph (1) applies shall be the same 
     as the basis of the stock in the cooperative housing 
     corporation for which it is exchanged, decreased in the 
     amount of any money received by the taxpayer in such 
     exchange.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after the date of the enactment 
     of this Act.

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