Page:United States Statutes at Large Volume 94 Part 3.djvu/751

 PUBLIC LAW 96-589—DEC. 24, 1980

94 STAT. 3395

be reduced, shall be determined under regulations prescribed by the Secretary. "(2) LIMITATION IN TITLE i i CASE OR INSOLVENCY.—In the case of n use loi a discharge to which subparagraph (A) or (B) of section 108(a)(1) Ante, p. 3389. ^^^f^\ applies, the reduction in basis under subsection (a) of this section shall not exceed the excess of— "(A) the aggregate of the bases of the property held by the taxpayer immediately after the discharge, over "(B) the aggregate of the liabilities of the taxpayer immediately after the discharge. The preceding sentence shall not apply to any reduction in basis by reason of an election under section 108(b)(5). "(3) CERTAIN REDUCTIONS MAY ONLY BE MADE IN THE BASIS OF DEPRECIABLE PROPERTY.—

"(A) IN GENERAL.—Any amount which under subsection (b)(5) or (c)(1)(A) of section 108 is to be applied to reduce basis shall be applied only to reduce the basis of depreciable property held by the taxpayer. "(B) DEPRECIABLE PROPERTY.—For purposes of this section, the term 'depreciable property' means any property of a character subject to the allowance for depreciation, but only if a basis reduction under subsection (a) will reduce the amount of depreciation or amortization which otherwise would be allowable for the period immediately following such reduction, "(C) SPECIAL RULE FOR PARTNERSHIP INTERESTS.—For purposes of this section, any interest of a partner in a partnership shall be treated as depreciable property to the extent of such partner's proportionate interest in the depreciable property held by such partnership. The preceding sentence shall apply only if there is a corresponding reduction in the partnership's basis in depreciable property with respect to such partner. "(D)

SPECIAL RULE IN CASE OF AFFILIATED GROUP.—For

purposes of this section, if— "(i) a corporation holds stock in another corporation (hereinafter in this subparagraph referred to as the 'subsidiary'), and "(ii) such corporations are members of the same affiliated group which file a consolidated return under section 1501 for the taxable year in which the discharge occurs, then such stock shall be treated as depreciable property to the extent that such subsidiary consents to a corresponding reduction in the basis of its depreciable property. "(E) ELECTION TO TREAT CERTAIN INVENTORY AS DEPRECIA-

BLE PROPERTY.— "(i) IN GENERAL.—At the election of the teixpayer, for "Depreciable purposes of this section, the term 'depreciable property' property" includes any real property which is described in section 1221(1). "(ii) ELECTION.—An election under clause (i) shall be made on the taxpayer's return for the taxable year in which the discharge occurs or at such other time as may be permitted in regulations prescribed by the Secretary. Such an election, once made, may be revoked only with the consent of the Secretary. "(c) SPECIAL RULES.—

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