Long-awaited proposed regulations would revise the operation of section 751(b) to reflect modern concepts of partnership taxation. The Treasury should be commended for exercising its regulatory authority to thoroughly overhaul the section 751(b) regulations to achieve the goals of the statute—preventing shifts in unrealized ordinary income—in a more sensible manner. The novel approach under the proposed regulations relies on section 704(c) principles to measure a partner’s interest in hot asset gain before and after a distribution of partnership property. Ordinary income tax would be imposed only to the extent a partner’s interest in hot asset gain cannot be fully preserved through mandatory revaluations. When a disproportionate distribution reduces (but does not eliminate) a partner’s interest in the partnership, revaluations and reverse section 704(c) allocations would permit considerable flexibility to avoid section 751(b) and thus obtain continued deferral. This Article illustrates the hypothetical sale construct and reasonable approaches to determine the existence and consequences of a section 751(b) distribution, as well as the role of mandatory (or elective) capital gain recognition to prevent basis adjustments under sections 732 and 734(b). The Article suggests alternative approaches for reconciling the operation of sections 704(c) and 734(b), including enhanced capital gain recognition and exchanges of reverse section 704(c) hot asset gain. The Article also considers fixes to prevent basis-shifting to depreciable assets and the need to curtail deferral when no longer consistent with the purpose of section 751(b). The Article concludes that the proposed regulations could be significantly improved by mandating the deemed gain approach and requiring enhanced gain recognition to allow basis adjustments to function sensibly. Despite their daunting complexity, the proposed regulations should hopefully improve compliance with section 751(b).