Ill STAT. 946 PUBLIC LAW 105-34—AUG. 5, 1997 "(B) to the extent of any basis remaining after the allocation under subparagraph (A), to other distributed properties— "(i) first by assigning to each such other property such other property's adjusted basis to the partnership, and "(ii) then, to the extent any increase or decrease in basis is required in order to have the adjusted bases of such other distributed properties equal such remaining basis, in the manner provided in paragraph (2) or (3), whichever is appropriate. "(2) METHOD OF ALLOCATING INCREASE.—Any increase required under paragraph (1)(B) shall be allocated among the properties— "(A) first to properties with unrealized appreciation in proportion to their respective amounts of unrealized appreciation before such increase (but only to the extent of each property's unrealized appreciation), and "(B) then, to the extent such increase is not allocated under subparagraph (A), in proportion to their respective fair market values. "(3) METHOD OF ALLOCATING DECREASE.— Any decrease required under paragraph (1)(A) or (1)(B) shall be allocated— "(A) first to properties with unrealized depreciation in proportion to their respective amounts of unrealized depreciation before such decrease (but only to the extent of each property's unrealized depreciation), and "(B) then, to the extent such decrease is not allocated under subparagraph (A), in proportion to their respective adjusted bases (as adjusted under subparagraph (A)).". 26 USC 732 note. (b) EFFECTIVE DATE. —The amendment made by subsection (a) shall apply to distributions after the date of the enactment of this Act. SEC. 1062. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTAN- TIALLY APPRECIATED WITH RESPECT TO SALE OR EXCHANGE OF PARTNERSHIP INTEREST. (a) IN GENERAL. —Paragraph (2) of section 751(a) is amended to read as follows: "(2) inventory items of the partnership,". (b) CONFORMING AMENDMENTS. — (1)(A) Paragraph (1) of section 751(b) is amended by striking subparagraphs (A) and (B) and inserting the following new subparagraphs: "(A) partnership property which is— "(i) unrealized receivables, or "(ii) inventory items which have appreciated substantially in value, in exchange for all or a part of his interest in other partnership property (including money), or "(B) partnership property (including money) other than property described in subparagraph (A)(i) or (ii) in exchange for all or a part of his interest in partnership property described in subparagraph (A)(i) or (ii),". (B) Subsection (b) of section 751 is amended by adding at the end the following new paragraph:
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