text: SECTION 1. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON 
                TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.
  
      (a) General Rule.--Section 584 of the Internal Revenue Code of 1986 
  (relating to common trust funds) is amended by redesignating subsection 
  (h) as subsection (i) and by inserting after subsection (g) the 
  following new subsection:
      ``(h) Nonrecognition Treatment for Certain Transfers to Regulated 
  Investment Companies.--
              ``(1) In general.--If--
                      ``(A) pursuant to a single plan, a common trust 
                  fund transfers substantially all of its assets to one 
                  or more regulated investment companies in exchange 
                  solely for stock in the company or companies to which 
                  such assets are so transferred, and
                      ``(B) such stock is distributed by such common 
                  trust fund to participants in such common trust fund in 
                  exchange solely for their interests in such common 
                  trust fund,
          no gain or loss shall be recognized by such common trust fund 
          by reason of such transfer or distribution, and no gain or loss 
          shall be recognized by any participant in such common trust 
          fund by reason of such exchange.
              ``(2) Basis rules.--
                      ``(A) Regulated investment company.--The basis of 
                  any asset received by a regulated investment company in 
                  a transfer referred to in paragraph (1)(A) shall be the 
                  same as it would be in the hands of the common trust 
                  fund.
                      ``(B) Participants.--The basis of the stock which 
                  is received in an exchange referred to in paragraph 
                  (1)(B) shall be the same as that of the property 
                  exchanged. If stock in more than one regulated 
                  investment company is received in such exchange, the 
                  basis determined under the preceding sentence shall be 
                  allocated among the stock in each such company on the 
                  basis of respective fair market values.
              ``(3) Treatment of assumptions of liability.--
                      ``(A) In general.--In determining whether the 
                  transfer referred to in paragraph (1)(A) is in exchange 
                  solely for stock in one or more regulated investment 
                  companies, the assumption by any such company of a 
                  liability of the common trust fund, and the fact that 
                  any property transferred by the common trust fund is 
                  subject to a liability, shall be disregarded.
                      ``(B) Special rule where assumed liabilities exceed 
                  basis.--
                              ``(i) In general.--If in any transfer 
                          referred to in paragraph (1)(A) the assumed 
                          liabilities exceed the aggregate adjusted bases 
                          (in the hands of the common trust fund) of the 
                          assets transferred to the regulated investment 
                          company or companies--
                                      ``(I) notwithstanding paragraph 
                                  (1), gain shall be recognized to the 
                                  common trust fund on such transfer in 
                                  an amount equal to such excess,
                                      ``(II) the basis of the assets 
                                  received by the regulated investment 
                                  company or companies in such transfer 
                                  shall be increased by the amount so 
                                  recognized, and
                                      ``(III) any adjustment to the basis 
                                  of a participant's interest in the 
                                  common trust fund as a result of the 
                                  gain so recognized shall be treated as 
                                  occurring immediately before the 
                                  exchange referred to in paragraph 
                                  (1)(B).
                          If the transfer referred to in paragraph (1)(A) 
                          is to two or more regulated investment 
                          companies the basis increase under subclause 
                          (II) shall be allocated among such companies on 
                          the basis of the respective fair market values 
                          of the assets received by each of such 
                          companies.
                              ``(ii) Assumed liabilities.--For purposes 
                          of clause (i), the term `assumed liabilities' 
                          means the aggregate of--
                                      ``(I) any liability of the common 
                                  trust fund assumed by any regulated 
                                  investment company in connection with 
                                  the transfer referred to in paragraph 
                                  (1)(A), and
                                      ``(II) any liability to which 
                                  property so transferred is subject.
              ``(4) Common trust fund must meet diversification rules.--
          This subsection shall not apply to any common trust fund which 
          would not meet the requirements of section 368(a)(2)(F)(ii) if 
          it were a corporation. For purposes of the preceding sentence, 
          Government securities shall not be treated as securities of an 
          issuer in applying the 25-percent and 50-percent test and such 
          securities shall not be excluded for purposes of determining 
          total assets under clause (iv) of section 368(a)(2)(F).''
      (b) Effective Date.--The amendment made by subsection (a) shall 
  apply to transfers after the date of the enactment of this Act.
target: Amends the Internal Revenue Code to provide for the nonrecognition of gain or loss for the transfer of common trust fund assets to regulated investment companies in exchange for stock when the stock is distributed to participants of the common trust fund in exchange for their interest in such fund.
feat_title: To amend the Internal Revenue Code of 1986 to provide nonrecognition treatment for certain transfers by common trust funds to regulated investment companies.