Free Response to Motion [Dispositive] - District Court of Federal Claims - federal

Case 1:05-cv-00231-EJD

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106m CONGRESS J

REPORT

2d Session HOUSE OF REPRESENTATIVS

i

106-1033

MAKING OMNIBUS CONSOLIDATED AND
EMERGENCY SUPPLEMENTAL APPROPRIATIONS FOR FISCAL YEAR 2001

CONFERENCE REPORT
TO ACCOMPAN

H.R. 4577

DECEMBER 15, 2000.-0rdered to be printed

z OVER.t,.eNT -; G

.. . - Appendix A3

'EXHIBIT

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in December 1974, when the values for the months of Apri through
October 1974 were recalculated and released with issuance of the
the present situation.

November CPl. Therefore, past precedent does not strictly apply to

The conferees believe that integrty of offcial governent data

is vital to policymakers and private individuals and businesses throughout the country. The conferees emphasize that the CPI plays an important role in economic planning. For this reason the conferees are concerned that, while the BLS. has published cor-

rected CPI numbers for 2000, the BLS does not intend to publish correct CPI numbers for 1999 as part of the offcial CPI series. To
its credit, the BLS anounced the error publicly. The national press

reported the error.50 In the absence of a correction to the offcial CPI series, the Federal government wil be left in the position of maintaining, as an offcial data series, index numbers that the Federal government has admitted are incorrect. The conferees believe that the public's trust in the integrity of offcial government data
is a paramount goal and the conferees strongly encourage the Com-

missioner of the Bureau of Labor Statistics to review carefully the
agency's current policy with respect to publishing as par of an off-

cial series corrections to data found to be in error for reasons of
computational error. The conferees believe such a review should be made both with respect to the error announced on September 28,
2000, and as a matter for the future for those rare circumstances

when such a similar computational error might once again arise.
1. PREVENT DUPLICATION OR ACCELERATION OF Loss THROUGH As-

SUMPTION OF CERTAIN LIABILITIES (SEC. 309 OF THE BILL AND
SEC. 358 OF THE CODE)
PRESENT LAW

Generally, no gain or loss is recognized when one or more perfe t' property to a corporation in exchange for stock and immediately after the exchange such person or persons control the corporation. However, a transferor recognizes gain to the extent it receives money or other property ("boot") as part of the exchange
sons trans

(sec. 351).

The assumption of liabilities by the controlled corporation gen-

erally is not treated as boot received by the transferor,5! except that the transferor recognizes gain to the extent that the liabilties

assumed exceed the total of the adjusted basis of the property
(sec. 357(e)).

transferred to the controlled corporation pursuant to the exchange
SOFor example, John M. Berry, "Inflation Higher Than Reportd," The Washington Post,
Washington Post, September 29, 2000, p. E-3, Nicholas Kulish. "Major Price Index b Revised Upward As Result of Error," The Wall Street Journal, September 28, 2000, p. A2, and Nicholas ¡(uJish, "Second-Period GDP Rose at 5.6% Anual Ratc," The Wall Street Journal, September 29, 2000. p. A2. The conferees observe that these press reportFl highlight the potential confusion
for the public regarding these data. The Washington Post reported that "the CPI figures for
1999 were not revi.ed" (September 29, 2000 story) while The Wall Street Journal reported that

September 27, 2000, p. E-l, John M. Herry, "Rent ¡'rror Leads to Revision Of the CPI," The

"(tlhe BLS said a complete revision of all the data seta would be released" (September 28, 2000 story) and "it lHLSJ announced that it would revise the index" (September 29, 2000 story). "The assumption of liabilties is treated as boot if it can be shown that "the principal purpose" of t.h~ a:;sumptìon is tax avoidance on the exchange, or is a non-bona fide business purpose
(see. 357(b)).

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The assumption of liabilities by the controlled corporation generally reduces the transferor's basis in the stock of the controlled

corporation that assumed the liabilties. The transferor's basis in the stock of the controlled corporation is the same as the basis of
the property contributed to the controlled corporation, increased by

the amount of any gain (or dividend) recognized by the transferor

on the exchange, and reduced by the amount of any money or prop-

transferor (sec. 358). For this purpose, the assumption of a liability

erty received, and by the amount of any loss recognized by the

ities applies to assumptions of liabilties that would give rise to a deduction, provided the incurrence of such liabilities did not result in the creation or increase of basis of any property. The assumption of such liabilities is not treated as money received by the transferor
in determining whether the transferor has gain on the exchange.
Similarly, the transferor's basis in the stock of the controlled cor-

is treated as money received by the transferor. An exception to the general treatment of assumption of liabil-

poration is not reduced by the assumption of such liabilities. The
Internal Revenue Service has ruled that the assumption by an ac-

crual basis corporation of certain contingent liabilities for soil and groundwater remediation would be covered by this exeeption.52
HOUSE BILL

No provision. However, H.R. 5542 contains a provisions to limit
the acceleration or duplication of losses through assumptions of liabilities.

gard to this provision) received by a transferor as par of a tax-free

Under H.R. 5542, if the basis of stock (determined without. re-

exchange with a controlled corporation exceeds the fair market
value of the stock, then the basis of the stock received is reduced

(but not below the fair market value) by the amount (determined as of the date of the exchange) of any liability that (1) is assumed in exchange for such stock, and (2) did not otherwise reduce the
transferor's basis of the stock by reason on the assumption. Except

not apply where the trade or business with which the liability is
ated ar transferred to the corporation as par of the exchange.

as provided by the Secretary of the Treasury, this provision does

associated is transferred to the corporation as part of the exchange, or where substantially all the assets which the liability is associ-

ing the selective transfer of assets that may bear some relationship

The exception for transfers of a trade or business, or of substantially all the assets, with which a liability is associated, are intended to obviate the need for valuation or basis reduction in such cases. The exceptions are not intended to apply to situation involvto the liability, but that do not represent the full scope of the trade
52 Rev. RuL. 95-74, 1995-2 C.B. 36. The ruling addressed a parent corporation's transf~r to

a subsidiary of sl1bstantisdly all the assets of a manufacturing business, in exchange fur stuck
and the ati~umpt.uii of liabilities as:iociated with the business, including certain contingent envi-

ronmental remediation liobilitics..Thcse liabilities arose due to contamination of land during the
parent corporation's operation of the manufacturing business. The transferor had no plan or in-

tention tr. dispose of (or to have the subsidiary issue) any subsidiary stock. The IRS ruled that

because the liabilities hud not been taken into account by the transferor prior to the transferor
and had not given rise to deductions or basis for the transferor.

the coni.ingcnt. liabilities would Ilut reduce the transferor's basis in the stock of the subsidiary

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or business, (or substantially all the assets) with which the liability is associated.
fixed or contingent obligation to make payment, without regard to whether such obligation or potential obligation is otherwse taken

For purposes of the provision, the term "liabilty" includes

into account under the Code. The determnation whether a liability (as more broadly defined for purposes of this provision) has been assumed is made in accordance with the provisions of section 357(dX1) of the Code. Under the standard of 357(d)(1), a recourse

liability is treated as assumed if, bascd on all the facts and cir-

cumstances, the transferee has agreed to and is expected to satisfY such liability (or portion thereof), whether or not the transfcror has

becn relieved of the liability. For example, if a transferee corporation does not formally assume a recourse obligation or potential obligation of the transferor, but instead agrees and is expected to in-

demnify the transferor with respect to all or a portion of such an

obligation, then the amount that is agreed to be indemnified is treated as assumed for purposes of the provision, whether or not

the transferor has been relieved of such liability. Similarly, a nonrecourse liability is treated as assumed by the transferee of any
asset subject to such liability.

53

basis and fair market value of $100 to its wholly-owned corporation

example: Assume a taxpayer transfers assets with an adjusted

The application of the provision is illustrated in the following

and the corporation assumes $40 of liabilities (the payment of which would give rise to a deduction). Thus, the value of the stock
the stock would be $100. The provision requires that the basis of
the stock be reduced to $60 (i.e., a reduction of $40). Except as pro-

received by the transferor is $60. Under present law, the basis of
vided by the Secretary, no basis reduction is required if the transferred assets consisted of the trade or business, or substantially all the assets, with which the liability is associated.
to the transferee corporation.

The provision does not change the tax treatment with respect

The Secretary of the Treasury is directed to prescribe rules providing appropriate adjustments to prevent the acceleration or duplication of losses through the assumption of liabilities (as defined in the provision) in transactions involving partnerships. The Secretary may also provide appropriate adjustments in the case of
transactions involving S corporations. In the case of S corporations,

such rules may be applied instead of the otherwise applicable basis reduction rules.
Secretary, the rule addressing transactions involving partnerships

Effective Dale.-The provision is effective for assumptions of li-

abilities on or after October 19, 1999. Except as provided by the
transactions involving S corporations may likewise be effective for
date as may be prescribed in such rules.
63 Section 357(d)(2) i;onlains a limitation in the case of certain nonrecourse liabilities. Also,
under section 357, regulations, if issued, may provide fDr different result8.

are effective with the same effective date. Any rules addressing

assumptions ofliabilities on or after October 19, 1999, or such later

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SENATE AMENDMENT

introduced a bill (S. 2354) that is the same as the provision in H.R. 5542.
CONFERENCE AGREEMENT

No provision. On April 4, 2000, Senators Roth and Moynihan

The conference agreement follows H.R. 5542.
J. DISCLOSURE OF RETURN INORMATION TO THE CONGRESSIONAL BUDGET OFFICE (SEC. 310 OF THE BIL Ai"I NEW SEC. 6103(j)(6) OF
THE CODE)
PRESENT LAW

Federal tax returns and return information are confidential and canot be disclosed unless authorized by the Code. Section
6103 authorizes certain agencies to receive tax returns and return information for statistical use and for other specified purposes.54

Section 6103 also permits the Secretary of the Treasury ("the Secretary") to provide return information to any person authorized to receive it by any mode or means that the Secretary determines necessary or appropriate.55 Persons makig unauthorized disclosures or inspections of tax returns and return information are subject to
criminal and civil penalties.56
No provision.
SENATE AMENDMENT

HOUSE BILL

No provision.
CONFERENCE AGREEMENT

Disclosure or return information The Congressional Budget Offce ("CBO") is in the process of developing the capability to make projections of the Social Security and Medicare programs over long periods of time. To facilitate the
development and operation of long-term models of Social Security

IRS. Specifically, CBO seeks two SSA fies that contain return in-

and Medicare, CBO needs continuing access to records from the

formation-the Social Securty Earnings Record and the Master
Beneficiary Record. These files contain individual earnings data
compiled from tax returs (Forms W-2), which are protected from

disclosure by section 6103. In addition, CBO may request other
records, including those matched with survey data. The conference agreement amends section 6103 to permit the Secretary to furnish to CBO return information to the extent such information is necessary for purposes of CBO's long-term models of
els of Social Securty and Medicare. It is the intent of Congress
5. E.g., sec. 6103(j), and 6103(1)(1) and (5).
"Sec. 6103(p)(2)fB).

Social Security and Medicare. This authority extends to the development, operation, and maintenance by CBO of its long-term mod-

56 Sec. sees. 7431, 7213, and 7213A.

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