118 STAT. 1595 PUBLIC LAW 108–357—OCT. 22, 2004 ‘‘(i) gain or loss with respect to such property is not subject to tax under this subtitle in the hands of the transferor immediately before the transfer, and ‘‘(ii) gain or loss with respect to such property is subject to such tax in the hands of the transferee immediately after such transfer. In any case in which the transferor is a partnership, the preceding sentence shall be applied by treating each partner in such partnership as holding such partner’s proportionate share of the property of such partnership. ‘‘(C) IMPORTATION OF NET BUILT IN LOSS.—For purposes of subparagraph (A), there is an importation of a net built in loss in a transaction if the transferee’s aggregate adjusted bases of property described in subparagraph (B) which is transferred in such transaction would (but for this paragraph) exceed the fair market value of such prop erty immediately after such transaction. ‘‘(2) LIMITATION ON TRANSFER OF BUILT IN LOSSES IN SEC TION 351 TRANSACTIONS.— ‘‘(A) IN GENERAL.—If— ‘‘(i) property is transferred by a transferor in any transaction which is described in subsection (a) and which is not described in paragraph (1) of this sub section, and ‘‘(ii) the transferee’s aggregate adjusted bases of such property so transferred would (but for this para graph) exceed the fair market value of such property immediately after such transaction, then, notwithstanding subsection (a), the transferee’s aggregate adjusted bases of the property so transferred shall not exceed the fair market value of such property immediately after such transaction. ‘‘(B) ALLOCATION OF BASIS REDUCTION.—The aggregate reduction in basis by reason of subparagraph (A) shall be allocated among the property so transferred in propor tion to their respective built in losses immediately before the transaction. ‘‘(C) ELECTION TO APPLY LIMITATION TO TRANSFEROR’S STOCK BASIS.— ‘‘(i) IN GENERAL.—If the transferor and transferee of a transaction described in subparagraph (A) both elect the application of this subparagraph— ‘‘(I) subparagraph (A) shall not apply, and ‘‘(II) the transferor’s basis in the stock received for property to which subparagraph (A) does not apply by reason of the election shall not exceed its fair market value immediately after the transfer. ‘‘(ii) ELECTION.—An election under clause (i) shall be included with the return of tax for the taxable year in which the transaction occurred, shall be in such form and manner as the Secretary may prescribe, and, once made, shall be irrevocable.’’. (b) COMPARABLE TREATMENT WHERE LIQUIDATION.—Paragraph (1) of section 334(b) (relating to liquidation of subsidiary) is amended to read as follows:
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