Limiting cessation of ira treatment to portion of account involved in a prohibited transaction

(a) In general Section 408(e)(2)(A) of the Internal Revenue Code of 1986 is amended by striking such account ceases to be an individual retirement account and inserting the following: the amount involved (as defined in section 4975(f)(4)) in such transaction shall be treated as distributed to the individual. (b) Conforming amendments (1) Section 408(e)(2)(B) of such Code is amended to read as follows: (B) Account treated as distributing potion of assets used in prohibited transaction In any case in which a portion of an individual retirement account is treated as distributed under subparagraph (A) as of the first day of any taxable year, paragraph (1) of subsection (d) applies as if there were a distribution on such first day in an amount equal to the fair market value of such portion, determined as of the date on which the transaction prohibited by section 4975 occurs.. (A) by striking all its assets. —In any case and all that follows through by reason of subparagraph (A) and inserting the following: portion of assets used in prohibited transaction. —In any case in which a portion of an individual retirement account is treated as distributed under subparagraph (A); and (B) by striking all assets in the account and inserting such portion. (2) Section 4975(c)(3) of such Code is amended by striking the account ceases and all that follows and inserting the following: the portion of the account used in the transaction is treated as distributed under paragraph (2)(A) or (4) of section 408(e).. (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.