,,ii #aaith ,,congress #ast ,session ,s4 #bjid ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,june #ag1 #bjbe,mr4 ,wyden introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to modify the partnership rules for taxation of basis-shifting transactions involving related parties1 and for other purposes4 #a4 ,short title ,this ,act may be cited as the ,basis ,shifting is a ,rip-off ,act4 #b4 ,rules for basis-shifting transactions involving related parties 7a7 ,distributions 7#a7 ,recognition of gain ,section #gca of the ,internal ,revenue ,code of #aihf is amended by striking subsections 7a7 and 7b7 and inserting the following3 7a7 ,partners 7#a7 ,in general ,in the case of a distribution by a partnership to a partner-- 7,a7 gain shall not be recognized to such partner1 except to the extent that any money distributed exceeds the adjusted basis of such partner's interest in the partnership immediately before the distribution1 and 7,b7 loss shall not be recognized to such partner1 except that upon a distribution in liquidation of a partner's interest in a partnership where no property other than that described in clause 7i7 or 7ii7 is distributed to such partner1 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-- 7i7 any money distributed1 and 7ii7 the basis to the distributee1 as determined under section #gcb1 of any unrealized receivables 7as defined in section #gea7;c77 and inventory 7as defined in section #gea7;d774 ,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 partner4 7#b7 ,exception for certain related-party partnership distributions ,notwithstanding paragraph 7#a77;,a7-- 7,a7 ,in general ,in the case of any distribution of property to which section #gcb7;a77#b7 or 7b7 applies which is made from an applicable partnership to a partner 7including as part of the termination of such partnership71 such partner shall1 in addition to any amount which would be recognized without regard to this subparagraph1 recognize gain in an amount equal to the applicable basis increase4 7,b7 ,applicable basis increase ,for purposes of this paragraph1 the term applicable basis increase means1 with respect to any distribution of any property described in subparagraph 7,a7 to a partner1 the aggregate increases in basis to one or more partnership properties under section #gcd7;b77#a77;,b7 7without regard to whether any such increase is suspended under section #gee7 with respect to such distribution4 7,c7 ,basis adjustment ,in the case of each distributed property with respect to which gain is recognized by reason of subparagraph 7,a71 the basis of such property after the distribution shall be the basis determined under section #gcb1 increased by the amount of such gain with respect to such property4 7,d7 ,character of gain 7i7 ,in general ,if a distribution of any property to which subparagraph 7,a7 applies results in any portion of any applicable basis increase in partnership property under section #gcd7;b77#a77;,b71 gain under subparagraph 7,a7 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 #gee4 7ii7 ,special rule where basis increase suspended 7,i7 ,in general ,if the allocation under section #gee of any portion of an applicable basis increase described in clause 7i7 is suspended under such section by the absence of property1 or insufficient adjusted basis in property1 to which such portion is to be so allocated1 gain under subparagraph 7,a7 with respect to such distributed property shall be treated as ordinary income4 7,,ii7 ,secretarial authority ,the ,secretary may provide that subclause 7,i7 shall not apply in cases where the ,secretary determines necessary and appropriate to carry out1 or prevent avoidance of1 the purposes of this paragraph4 7,e7 ,coordination with marketable securities rules ,if any property described in subparagraph 7,a7 consists of marketable securities 7as defined in subsection 7c77#b77-- 7i7 this paragraph shall apply to such property before the application of subsection 7c71 and 7ii7 in applying subsection 7c71 the basis of such property shall be the basis determined after the application of subparagraph 7,c74 ,the ,secretary shall provide rules for the application of this subparagraph1 including coordination of the application of this subparagraph with subsection 7c7 and the other provisions of this subchapter4 7b7 ,partnerships 7#a7 ,in general ,except as provided in paragraph 7#b71 no gain or loss shall be recognized to a partnership on a distribution to a partner of property1 including money4 7#b7 ,exception for certain related-party partnership distributions 7,a7 ,in general ,in the case of any distribution of property from an applicable partnership to a partner which under section #gcb7;c7 results in an increase in basis in one or more properties so distributed1 gain shall be recognized to the partnership in an amount equal to the aggregate amount of such increases in basis4 7,b7 ,basis adjustment ,in the case of each partnership property with respect to which gain is recognized by reason of subparagraph 7,a71 the basis of such property after the distribution shall be the basis determined under section #gcd1 increased by the amount of such gain with respect to such property4 7,c7 ,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 7,a7 shall have the same character as gain from the sale or exchange of such property4 4 7#b7 ,applicable partnership ,section #gca of such ,code is amended by adding at the end the following new subsections3 7e7 ,applicable partnership ,for purposes of this section-- 7#a7 ,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 partner4 7#b7 ,small business exception 7,a7 ,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 #ddh7;c7 7determined with the modification described in subparagraph 7,c77 for such taxable year4 7,b7 ,exception not to apply to partnerships previously failing test or tax shelters 7i7 ,partnerships failing test disqualified prospectively ,if a partnership fails to meet the gross receipts test described in subparagraph 7,a7 for any taxable year which begins after the date of the enactment of this subsection1 subparagraph 7,a7 shall not apply to such partnership 7or any successor7 for such taxable year or any succeeding taxable year4 7ii7 ,tax shelters ,subparagraph 7,a7 shall not apply to a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section #ddh7;a77#c71 except that1 for purposes of applying this clause1 a syndicate 7as defined in section #abef7;e77#c77;,b77 shall not be treated as a tax shelter4 7,c7 ,modification ,in applying section #eb7;b7 to section #ddh7;c77#b7 for purposes of this paragraph1 the term trade or business shall include any activity treated as a trade or business under paragraph 7#e7 or 7#f7 of section #dfi7;c7 7determined without regard to the phrase ,to the extent provided in regulations in such paragraph 7#f774 7#c7 ,related person ,a person shall be treated as related to another person if they bear a relationship to such other person described in section #bfg7;b7 7without regard to section #bfg7;c77#c77 or #gjg7;b77#a74 7f7 ,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 7a77#b71 subsection 7b77#b71 and section #gdc7;g71 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 7including through the participation of tax-indifferent parties74 ,in the case of tax-indifferent parties1 such regulations may provide for equivalent methods for the recognition of gain1 including through the recognition of gain by the partner with an increase in basis under section #gcb or by reason of section #gcd7;b77#a74 4 7#c7 ,mandatory adjustments to applicable partnership property when partnership distributes property ,section #gcd7;a7 of such ,code is amended-- 7,a7 by striking distribution of property to a partner unless the election and inserting distribution of property to a partner unless-- 7#a7 the election 1 7,b7 by striking with respect to such partnership or unless there is and inserting with respect to such partnership1 7#b7 there is 1 7,c7 by striking the period at the end and inserting 1 or 7#c7 if paragraph 7#a7 and 7#b7 do not apply1 such distribution is a distribution from an applicable partnership 7as defined in section #gca7;e77 but only to the extent the application of this section to such distribution results in a decrease in basis to partnership property under subsection 7b77#b74 4 7#d7 ,conforming amendments 7,a7 ,section #gca7;c77#a7 of such ,code is amended by striking subsection 7a77#a7 and inserting subsection 7a77#a77;,a74 7,b7 ,section #gcd7;b7 of such ,code is amended-- 7i7 in the matter preceding paragraph 7#a7-- 7,i7 by striking or after effect and inserting a comma1 and 7,,ii7 by inserting or to which subsection 7a77#c7 applies1 after reduction11 7ii7 in paragraph 7#a77;,a71 by striking section #gca7;a77#a7 and inserting section #gca7;a77#a77;,a71 and 7iii7 in paragraph 7#b77;,a71 by striking section #gca7;a77#b7 and inserting section #gca7;a77#a77;,b74 7b7 ,transfers of partnership interests ,section #gdc of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7g7 ,special rules for related-,party transactions 7#a7 ,in general ,if subsection 7b77#a7 applies to an applicable transfer-- 7,a7 any increase to the adjusted basis of partnership property under subsection 7b77#a7 shall not exceed the total gain 7determined without regard to any loss7 recognized on such transfer1 and 7,b7 the adjusted basis of partnership property with respect to the transferee partner immediately after the transfer shall be equal to the sum of-- 7i7 the adjusted basis of partnership property with respect to the transferor partner immediately before such transfer1 plus 7ii7 the increase in the adjusted basis of the partnership property under subsection 7b77#a7 by reason of such transfer 7determined after application of subparagraph 7,a774 7#b7 ,applicable transfer ,for purposes of this subsection-- 7,a7 ,in general ,the term applicable transfer means any transfer of a partnership interest if-- 7i7 two or more partners of the partnership are related persons immediately before or after the transfer1 and 7ii7 any amount of gain on the transfer is not recognized under this chapter4 ,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 death4 7,b7 ,related person ,for purposes of subparagraph 7,a71 a person shall be treated as related to another person if they bear a relationship to such other person described in section #bfg7;b7 7without regard to section #bfg7;c77#c77 or #gjg7;b77#a74 4 7c7 ,application of accuracy related penalties 7#a7 ,in general ,section #fffb7;b7 of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new paragraph3 7#aa7 ,any related-party partnership distribution understatement4 4 7#b7 ,rules regarding related-party partnership transaction understatements ,section #fffb of such ,code is amended by adding at the end the following new subsection3 7m7 ,related-,party partnership distribution understatement 7#a7 ,related-party partnership distribution understatement ,for purposes of this section1 the term related-party partnership distribution understatement means1 for any taxable year1 the portion of the understatement for such taxable year which is attributable to gain recognized under section #gca7;a77#b7 or #gca7;b77#b74 7#b7 ,increase in penalty ,in the case of any portion of an underpayment which is attributable to a related-party partnership distribution understatement1 subsection 7a7 shall be applied with respect to such portion by substituting #dj percent for #bj percent4 4 7d7 ,effective date ,the amendments made by this section shall apply to distributions and transfers occurring after ,june #aa1 #bjbe4 7e7 ,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 7a77#b7 or 7b77#b7 of section #gca of the ,internal ,revenue ,code of #aihf 7as added by this section7 applies1 or any applicable transfer 7as defined in section #gdc7;g77#b7 of such ,code1 as added by this section71 has economic substance for purposes of applying the economic substance doctrine 7as defined in section #ggja7o7 of such ,code74