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<PRE>[DOCID: f:h1785ih.txt]






107th CONGRESS
  1st Session
                                H. R. 1785

To amend the Internal Revenue Code of 1986 to prevent the avoidance of 
                  gain recognition through swap funds.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 9, 2001

  Mr. Neal of Massachusetts introduced the following bill; which was 
              referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to prevent the avoidance of 
                  gain recognition through swap funds.

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

SECTION 1. RECOGNITION OF GAIN ON TRANSFERS TO SWAP FUNDS.

    (a) Interests Similar to Preferred Stock Treated as Stock.--Clause 
(vi) of section 351(e)(1)(B) of the Internal Revenue Code of 1986 
(relating to transfer of property to an investment company) is amended 
to read as follows:
                            ``(vi) except as otherwise provided in 
                        regulations prescribed by the Secretary--
                                    ``(I) any interest in an entity if 
                                the return on such interest is limited 
                                and preferred, and
                                    ``(II) interests (not described in 
                                subclause (I)) in any entity if 
                                substantially all of the assets of such 
                                entity consist (directly or indirectly) 
                                of any assets described in subclause 
                                (I), any preceding clause, or clause 
                                (viii).''
    (b) Certain Transfers Deemed To Be to Investment Companies.--
Subsection (e) of section 351 of such Code is amended by adding at the 
end the following new paragraph:
            ``(3) Transfers of marketable securities to certain 
        corporations.--A transfer of property to a corporation if--
                    ``(A) such property is marketable securities (as 
                defined in section 731(c)(2)), and
                    ``(B) such corporation--
                            ``(i) is registered under the Investment 
                        Company Act of 1940 as an investment company, 
                        or is exempt from registration as a investment 
                        company under section 3(c)(7) of such Act 
                        because interests in such corporation are 
                        offered to qualified purchasers within the 
                        meaning of section 2(a)(51) of such Act, or
                            ``(ii) is formed or availed of for purposes 
                        of allowing persons who have significant blocks 
                        of marketable securities with unrealized 
                        appreciation to diversify those holdings 
                        without recognition of gain.''
    (c) Transfers to Partnerships.--Subsection (b) of section 721 of 
such Code is amended to read as follows:
    ``(b) Special Rule.--Subsection (a) shall not apply to gain 
realized on a transfer of property to a partnership if, were the 
partnership incorporated--
            ``(1) such partnership would be treated as an investment 
        company (within the meaning of section 351), or
            ``(2) section 351 would not apply to such transfer by 
        reason of section 351(e)(3).''
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of action by the Committee on Ways 
and Means.
                                 &lt;all&gt;

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