[Congressional Record Volume 172, Number 49 (Wednesday, March 18, 2026)]
[Senate]
[Pages S1223-S1224]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SA 4478. Mr. WYDEN submitted an amendment intended to be proposed by
him to the bill S. 1383, to establish the Veterans Advisory Committee
on Equal Access, and for other purposes; which was ordered to lie on
the table; as follows:
At the appropriate place, insert the following:
TITLE __--LIMITATIONS ON RELATED PARTY BASIS SHIFTING
SEC. __01. SHORT TITLE.
This title may be cited as the ``Basis Shifting is a Ripoff
Act''.
SEC. __02. RULES FOR BASIS-SHIFTING TRANSACTIONS INVOLVING
RELATED PARTIES.
(a) Distributions.--
(1) Recognition of gain.--Section 731 of the Internal
Revenue Code of 1986 is amended by striking subsections (a)
and (b) and inserting the following:
``(a) Partners.--
``(1) In general.--In the case of a distribution by a
partnership to a partner--
``(A) gain shall not be recognized to such partner, except
to the extent that any money distributed exceeds the adjusted
basis of such partner's interest in the partnership
immediately before the distribution, and
``(B) loss shall not be recognized to such partner, except
that upon a distribution in liquidation of a partner's
interest in a partnership where no property other than that
described in clause (i) or (ii) is distributed to such
partner, loss shall be recognized to the extent of the excess
of the adjusted basis of such partner's interest in the
partnership over the sum of--
``(i) any money distributed, and
``(ii) the basis to the distributee, as determined under
section 732, of any unrealized receivables (as defined in
section 751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this paragraph shall be
considered as gain or loss from the sale or exchange of the
partnership interest of the distributee partner.
``(2) Exception for certain related-party partnership
distributions.--Notwithstanding paragraph (1)(A)--
``(A) In general.--In the case of any distribution of
property to which section 732(a)(2) or (b) applies which is
made from an applicable partnership to a partner (including
as part of the termination of such partnership), such partner
shall, in addition to any amount which would be recognized
without regard to this subparagraph, recognize gain in an
amount equal to the applicable basis increase.
``(B) Applicable basis increase.--For purposes of this
paragraph, the term `applicable basis increase' means, with
respect to any distribution of any property described in
subparagraph (A) to a partner, the aggregate increases in
basis to one or more partnership properties under section
734(b)(1)(B) (without regard to whether any such increase is
suspended under section 755) with respect to such
distribution.
``(C) Basis adjustment.--In the case of each distributed
property with respect to which gain is recognized by reason
of subparagraph (A), the basis of such property after the
distribution shall be the basis determined under section 732,
increased by the amount of such gain with respect to such
property.
``(D) Character of gain.--
``(i) In general.--If a distribution of any property to
which subparagraph (A) applies results in any portion of any
applicable basis increase in partnership property under
section 734(b)(1)(B), gain under subparagraph (A) with
respect to such distributed property shall have the same
character as gain from the sale or exchange of the
partnership property to which such portion is allocated under
section 755.
``(ii) Special rule where basis increase suspended.--
``(I) In general.--If the allocation under section 755 of
any portion of an applicable basis increase described in
clause (i) is suspended under such section by the absence of
property, or insufficient adjusted basis in property, to
which such portion is to be so allocated, gain under
subparagraph (A) with respect to such distributed property
shall be treated as ordinary income.
``(II) Secretarial authority.--The Secretary may provide
that subclause (I) shall not apply in cases where the
Secretary determines necessary and appropriate to carry out,
or prevent avoidance of, the purposes of this paragraph.
``(E) Coordination with marketable securities rules.--If
any property described in subparagraph (A) consists of
marketable securities (as defined in subsection (c)(2))--
``(i) this paragraph shall apply to such property before
the application of subsection (c), and
``(ii) in applying subsection (c), the basis of such
property shall be the basis determined after the application
of subparagraph (C).
The Secretary shall provide rules for the application of this
subparagraph, including coordination of the application of
this subparagraph with subsection (c) and the other
provisions of this subchapter.
``(b) Partnerships.--
``(1) In general.--Except as provided in paragraph (2), no
gain or loss shall be recognized to a partnership on a
distribution to a partner of property, including money.
``(2) Exception for certain related-party partnership
distributions.--
``(A) In general.--In the case of any distribution of
property from an applicable partnership to a partner which
under section 732(c) results in an increase in basis in one
or more properties so distributed, gain shall be recognized
to the partnership in an amount equal to the aggregate amount
of such increases in basis.
``(B) Basis adjustment.--In the case of each partnership
property with respect to which gain is recognized by reason
of subparagraph (A), the basis of such property after the
distribution shall be the basis determined under section 734,
increased by the amount of such gain with respect to such
property.
``(C) Character of gain.--Any gain recognized under this
paragraph which is allocable to a portion of any basis
increase in distributed property described in subparagraph
(A) shall have the same character as gain from the sale or
exchange of such property.''.
(2) Applicable partnership.--Section 731 of such Code is
amended by adding at the end the following new subsections:
[[Page S1224]]
``(e) Applicable Partnership.--For purposes of this
section--
``(1) In general.--The term `applicable partnership' means
any partnership in which two or more partners are related
persons immediately before or after any distribution to a
partner.
``(2) Small business exception.--
``(A) In general.--A partnership shall not be treated as an
applicable partnership with respect to any distribution made
during a taxable year if such partnership meets the gross
receipts test under section 448(c) (determined with the
modification described in subparagraph (C)) for such taxable
year.
``(B) Exception not to apply to partnerships previously
failing test or tax shelters.--
``(i) Partnerships failing test disqualified
prospectively.--If a partnership fails to meet the gross
receipts test described in subparagraph (A) for any taxable
year which begins after the date of the enactment of this
subsection, subparagraph (A) shall not apply to such
partnership (or any successor) for such taxable year or any
succeeding taxable year.
``(ii) Tax shelters.--Subparagraph (A) shall not apply to a
tax shelter prohibited from using the cash receipts and
disbursements method of accounting under section 448(a)(3),
except that, for purposes of applying this clause, a
syndicate (as defined in section 1256(e)(3)(B)) shall not be
treated as a tax shelter.
``(C) Modification.--In applying section 52(b) to section
448(c)(2) for purposes of this paragraph, the term `trade or
business' shall include any activity treated as a trade or
business under paragraph (5) or (6) of section 469(c)
(determined without regard to the phrase `To the extent
provided in regulations' in such paragraph (6)).
``(3) Related person.--A person shall be treated as related
to another person if they bear a relationship to such other
person described in section 267(b) (without regard to section
267(c)(3)) or 707(b)(1).
``(f) Regulations Relating to Related-partnership Basis-
shifting Transactions.--The Secretary shall prescribe such
regulations or other guidance as may be necessary or
appropriate to carry out the purposes of subsection (a)(2),
subsection (b)(2), and section 743(g), including regulations
or other guidance addressing distributions and transfers that
are substantially similar to the distributions and transfers
described in such provisions or which have substantially
similar results (including through the participation of tax-
indifferent parties). In the case of tax-indifferent parties,
such regulations may provide for equivalent methods for the
recognition of gain, including through the recognition of
gain by the partner with an increase in basis under section
732 or by reason of section 734(b)(1).''.
(3) Mandatory adjustments to applicable partnership
property when partnership distributes property.--Section
734(a) of such Code is amended--
(A) by striking ``distribution of property to a partner
unless the election'' and inserting ``distribution of
property to a partner unless--
``(1) the election'',
(B) by striking ``with respect to such partnership or
unless there is'' and inserting ``with respect to such
partnership,
``(2) there is'',
(C) by striking the period at the end and inserting ``, or
``(3) if paragraph (1) and (2) do not apply, such
distribution is a distribution from an applicable partnership
(as defined in section 731(e)) but only to the extent the
application of this section to such distribution results in a
decrease in basis to partnership property under subsection
(b)(2).''.
(4) Conforming amendments.--
(A) Section 731(c)(1) of such Code is amended by striking
``subsection (a)(1)'' and inserting ``subsection (a)(1)(A)''.
(B) Section 734(b) of such Code is amended--
(i) in the matter preceding paragraph (1)--
(I) by striking ``or'' after ``effect'' and inserting a
comma, and
(II) by inserting ``or to which subsection (a)(3)
applies,'' after ``reduction,'',
(ii) in paragraph (1)(A), by striking ``section 731(a)(1)''
and inserting ``section 731(a)(1)(A)'', and
(iii) in paragraph (2)(A), by striking ``section
731(a)(2)'' and inserting ``section 731(a)(1)(B)''.
(b) Transfers of Partnership Interests.--Section 743 of the
Internal Revenue Code of 1986 is amended by adding at the end
the following new subsection:
``(g) Special Rules for Related-party Transactions.--
``(1) In general.--If subsection (b)(1) applies to an
applicable transfer--
``(A) any increase to the adjusted basis of partnership
property under subsection (b)(1) shall not exceed the total
gain (determined without regard to any loss) recognized on
such transfer, and
``(B) the adjusted basis of partnership property with
respect to the transferee partner immediately after the
transfer shall be equal to the sum of--
``(i) the adjusted basis of partnership property with
respect to the transferor partner immediately before such
transfer, plus
``(ii) the increase in the adjusted basis of the
partnership property under subsection (b)(1) by reason of
such transfer (determined after application of subparagraph
(A)).
``(2) Applicable transfer.--For purposes of this
subsection--
``(A) In general.--The term `applicable transfer' means any
transfer of a partnership interest if--
``(i) two or more partners of the partnership are related
persons immediately before or after the transfer, and
``(ii) any amount of gain on the transfer is not recognized
under this chapter.
Such term shall not include any transfer of a partnership
interest from a partner to the partner's estate or a deemed
transfer from a grantor trust owned by the partner to a trust
that becomes a separate entity for purposes of this chapter
by reason of the partner's death.
``(B) Related person.--For purposes of subparagraph (A), a
person shall be treated as related to another person if they
bear a relationship to such other person described in section
267(b) (without regard to section 267(c)(3)) or 707(b)(1).''.
(c) Application of Accuracy Related Penalties.--
(1) In general.--Section 6662(b) of the Internal Revenue
Code of 1986 is amended by adding at the end the following
new paragraph:
``(11) Any related-party partnership distribution
understatement.''.
(2) Rules regarding related-party partnership transaction
understatements.--Section 6662 of such Code is amended by
adding at the end the following new subsection:
``(m) Related-party Partnership Distribution
Understatement.--
``(1) Related-party partnership distribution
understatement.--For purposes of this section, the term
`related-party partnership distribution understatement'
means, for any taxable year, the portion of the
understatement for such taxable year which is attributable to
gain recognized under section 731(a)(2) or 731(b)(2).
``(2) Increase in penalty.--In the case of any portion of
an underpayment which is attributable to a related-party
partnership distribution understatement, subsection (a) shall
be applied with respect to such portion by substituting `40
percent' for `20 percent'.''.
(d) Effective Date.--The amendments made by this section
shall apply to distributions and transfers occurring after
June 17, 2025.
(e) No Inference.--The amendments made by this section
shall not be construed to create any inference with respect
to whether any distribution to which subsection (a)(2) or
(b)(2) of section 731 of the Internal Revenue Code of 1986
(as added by this section) applies, or any applicable
transfer (as defined in section 743(g)(2) of such Code, as
added by this section), has economic substance for purposes
of applying the economic substance doctrine (as defined in
section 7701(o) of such Code).
______