118 STAT. 1590 PUBLIC LAW 108–357—OCT. 22, 2004 ‘‘(2) LOSS DEFERRAL FOR TRANSFEREE PARTNER.—In the case of a transfer of an interest in an electing investment partner ship, the transferee partner’s distributive share of losses (with out regard to gains) from the sale or exchange of partnership property shall not be allowed except to the extent that it is established that such losses exceed the loss (if any) recognized by the transferor (or any prior transferor to the extent not fully offset by a prior disallowance under this paragraph) on the transfer of the partnership interest. ‘‘(3) NO REDUCTION IN PARTNERSHIP BASIS.—Losses dis allowed under paragraph (2) shall not decrease the transferee partner’s basis in the partnership interest. ‘‘(4) EFFECT OF TERMINATION OF PARTNERSHIP.—This sub section shall be applied without regard to any termination of a partnership under section 708(b)(1)(B). ‘‘(5) CERTAIN BASIS REDUCTIONS TREATED AS LOSSES.—In the case of a transferee partner whose basis in property distrib uted by the partnership is reduced under section 732(a)(2), the amount of the loss recognized by the transferor on the transfer of the partnership interest which is taken into account under paragraph (2) shall be reduced by the amount of such basis reduction. ‘‘(6) ELECTING INVESTMENT PARTNERSHIP.—For purposes of this subsection, the term ‘electing investment partnership’ means any partnership if— ‘‘(A) the partnership makes an election to have this subsection apply, ‘‘(B) the partnership would be an investment company under section 3(a)(1)(A) of the Investment Company Act of 1940 but for an exemption under paragraph (1) or (7) of section 3(c) of such Act, ‘‘(C) such partnership has never been engaged in a trade or business, ‘‘(D) substantially all of the assets of such partnership are held for investment, ‘‘(E) at least 95 percent of the assets contributed to such partnership consist of money, ‘‘(F) no assets contributed to such partnership had an adjusted basis in excess of fair market value at the time of contribution, ‘‘(G) all partnership interests of such partnership are issued by such partnership pursuant to a private offering before the date which is 24 months after the date of the first capital contribution to such partnership, ‘‘(H) the partnership agreement of such partnership has substantive restrictions on each partner’s ability to cause a redemption of the partner’s interest, and ‘‘(I) the partnership agreement of such partnership pro vides for a term that is not in excess of 15 years. The election described in subparagraph (A), once made, shall be irrevocable except with the consent of the Secretary. ‘‘(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection, including regulations for applying this sub section to tiered partnerships.’’. (B) INFORMATION REPORTING.—Section 6031 is amended by adding at the end the following new subsection: Applicability.
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