To amend the Internal Revenue Code of 1986 to prevent the avoidance of gain recognition through swap funds.

Amends the Internal Revenue Code to include as an exception to the nonrecognition of gain or loss (thus subjecting to taxation) upon certain stock transfers the transfer of: (1) an interest in an entity if the return on such interest is limited and preferred; and (2) interests in any entity if substantially all of the entity assets consist of either limited and preferred assets or assets previously excepted from such nonrecognition requirement.

Includes as an additional exception a transfer of property to a corporation if such property is marketable securities (other than a diversified portfolio of securities), the corporation is an investment company or engages in investment company activities, and the transfer results, directly or indirectly, in diversification of the transferor's interest.

Includes as an exception to the nonrecognition of gain or loss for contributions to a partnership those gains realized on a transfer of property to a partnership if, were the partnership incorporated: (1) it would be treated as an investment company; or (2) the exceptions with regard to corporate stock transfers would not apply.