S. 2094 — Basis Shifting is a Rip-off Act

This section revises the partnership distribution rules under IRC §731 to generally retain nonrecognition of gain or loss to partners and partnerships while requiring recognition in certain distributions from applicable partnerships (i.e., partnerships with two or more related partners before or after the distribution). Specifically, it (1) requires a partner receiving a qualifying property distribution (i.e., one to which §732(a)(2) or (b) applies, including partnership terminations) to recognize gain equal to the applicable basis increase (i.e., aggregate §734(b)(1)(B) increases in partnership property basis allocable to the distribution), with the distributed property's basis increased by such gain, gain character matching the allocated partnership property under §755 (or ordinary income if allocation suspended), and coordination with marketable securities rules; (2) requires the partnership to recognize gain equal to §732(c) basis increases in distributed properties, with remaining partnership property basis increased by such gain and matching character; and (3) excludes partnerships meeting the §448(c) gross receipts test (with modifications) from the applicable partnership definition for the taxable year, except for those previously failing the test or qualifying as tax shelters.