REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY APPRECIATED WITH RESPECT TO SALE OR EXCHANGE OF PARTNERSHIP INTEREST.

SEC. 1062. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY 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)(1) 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:111 STAT. 947 “(3) Substantial appreciation.—For purposes of paragraph (1)— “(A) In general.—Inventory items of the partnership shall be considered to have appreciated substantially in value if their fair market value exceeds 120 percent of the adjusted basis to the partnership of such property. “(B) Certain property excluded.—For purposes of subparagraph (A), there shall be excluded any inventory property if a principal purpose for acquiring such property was to avoid the provisions of this subsection relating to inventory items.”. (2) Subsection (d) of section 751 is amended to read as follows: “(d) Inventory Items.—For purposes of this subchapter, the term ‘inventory items’ means— “(1) property of the partnership of the kind described in section 1221(1), “(2) any other property of the partnership which, on sale or exchange by the partnership, would be considered property other than a capital asset and other than property described in section 1231, “(3) any other property of the partnership which, if sold or exchanged by the partnership, would result in a gain taxable under subsection (a) of section 1246 (relating to gain on foreign investment company stock), and “(4) any other property held by the partnership which, if held by the selling or distributee partner, would be considered property of the type described in paragraph (1), (2), or (3).”. (3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), 732(c)(1)(A) (as amended by the preceding section), 735(a)(2), and 735(c)(1) are each amended by striking “section 751(d)(2)” and inserting “section 751(d)”. (c) Effective Date.— (1) In general.—The amendments made by this section shall apply to sales, exchanges, and distributions after the date of the enactment of this Act. (2) Binding contracts.—The amendments made by this section shall not apply to any sale or exchange pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such sale or exchange.