I

103D CONGRESS

1ST SESSION H. R. 48

To amend the Internal Revenue Code of 1986 to provide for the indexing

of certain assets.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. ARCHER (for himself, Mr. SHAYS, Mrs. ROUKEMA, and Mr. BEREUTER)

introduced the following bill; which was referred to the Committee on

Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

for the indexing of certain assets.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Inflation Tax Relief

5 Act of 1993’’.

6 SEC. 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF

7 DETERMINING GAIN OR LOSS.

8 (a) IN GENERAL.—Part II of subchapter O of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 basis rules of general application) is amended by inserting

2 after section 1021 the following new section:

3 ‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES

4 OF DETERMINING GAIN OR LOSS.

5 ‘‘(a) GENERAL RULE.—

6 ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD7 JUSTED BASIS.—Except as provided in paragraph

8 (2), if an indexed asset which has been held for

9 more than 1 year is sold or otherwise disposed of,

10 for purposes of this title the indexed basis of the

11 asset shall be substituted for its adjusted basis.

12 ‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.—

13 The deduction for depreciation, depletion, and amor14 tization shall be determined without regard to the

15 application of paragraph (1) to the taxpayer or any

16 other person.

17 ‘‘(b) INDEXED ASSET.—

18 ‘‘(1) IN GENERAL.—For purposes of this sec19 tion, the term ‘indexed asset’ means—

20 ‘‘(A) stock in a corporation, and

21 ‘‘(B) tangible property (or any interest

22 therein), which is a capital asset or property

23 used in the trade or business (as defined in sec24 tion 1231(b)).
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1 ‘‘(2) CERTAIN PROPERTY EXCLUDED.—For

2 purposes of this section, the term ‘indexed asset’

3 does not include—

4 ‘‘(A) CREDITOR’S INTEREST.—Any interest

5 in property which is in the nature of a credi6 tor’s interest.

7 ‘‘(B) OPTIONS.—Any option or other right

8 to acquire an interest in property.

9 ‘‘(C) NET LEASE PROPERTY.—In the case

10 of a lessor, net lease property (within the mean11 ing of subsection (h)(1)).

12 ‘‘(D) CERTAIN PREFERRED STOCK.—Stock

13 which is fixed and preferred as to dividends and

14 does not participate in corporate growth to any

15 significant extent.

16 ‘‘(E) STOCK IN FOREIGN CORPORA17 TIONS.—Stock in a foreign corporation.

18 ‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR19 PORATION WHICH IS REGULARLY TRADED ON NA20 TIONAL OR REGIONAL EXCHANGE.—Paragraph

21 (2)(E) shall not apply to stock in a foreign corpora22 tion the stock of which is listed on the New York

23 Stock Exchange, the American Stock Exchange, or

24 any domestic regional exchange for which quotations

25 are published on a regular basis other than—
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1 ‘‘(A) stock of a foreign investment com2 pany (within the meaning of section 1246(b)),

3 and

4 ‘‘(B) stock in a foreign corporation held by

5 a United States person who meets the require6 ments of section 1248(a)(2).

7 ‘‘(c) INDEXED BASIS.—For purposes of this sec8 tion—

9 ‘‘(1) INDEXED BASIS.—The indexed basis for

10 any asset is—

11 ‘‘(A) the adjusted basis of the asset, multi12 plied by

13 ‘‘(B) the applicable inflation ratio.

14 ‘‘(2) APPLICABLE INFLATION RATIO.—The ap15 plicable inflation ratio for any asset is the percent16 age arrived at by dividing—

17 ‘‘(A) the gross national product deflator

18 the calendar quarter in which the disposition

19 takes place, by

20 ‘‘(B) the gross national product deflator

21 for the calendar quarter in which the asset was

22 acquired by the taxpayer (or, if later, the cal23 endar quarter ending December 31, 1991).

24 The applicable inflation ratio shall not be taken into

25 account unless it is greater than 1. The applicable
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1 inflation ratio for any asset shall be rounded to the

2 nearest one-tenth of 1 percent.

3 ‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—

4 The gross national product deflator for any calendar

5 quarter is the implicit price deflator for the gross

6 national product for such quarter (as shown in the

7 first revision thereof).

8 ‘‘(d) SPECIAL RULES.—For purposes of this sec9 tion—

10 ‘‘(1) TREATMENT AS SEPARATE ASSET.—In the

11 case of any asset, the following shall be treated as

12 a separate asset:

13 ‘‘(A) a substantial improvement to prop14 erty,

15 ‘‘(B) in the case of stock of a corporation,

16 a substantial contribution to capital, and

17 ‘‘(C) any other portion of an asset to the

18 extent that separate treatment of such portion

19 is appropriate to carry out the purposes of

20 this section.

21 ‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS

22 THROUGHOUT HOLDING PERIOD.—

23 ‘‘(A) IN GENERAL.—The applicable infla24 tion ratio shall be appropriately reduced for cal-
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1 endar months at any time during which the

2 asset was not an indexed asset.

3 ‘‘(B) CERTAIN SHORT SALES.—For pur4 poses of applying subparagraph (A), an asset

5 shall be treated as not an indexed asset for any

6 short sale period during which the taxpayer or

7 the taxpayer’s spouse sells short property sub8 stantially identical to the asset. For purposes of

9 the preceding sentence, the short sale period be10 gins on the day after the substantially identical

11 property is sold and ends on the closing date

12 for the sale.

13 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU14 TIONS.—A distribution with respect to stock in a

15 corporation which is not a dividend shall be treated

16 as a disposition.

17 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

18 LOSS.—To the extent that (but for this paragraph)

19 this section would create or increase a net ordinary

20 loss to which section 1231(a)(2) applies or an ordi21 nary loss to which any other provision of this title

22 applies, such provision shall not apply. The taxpayer

23 shall be treated as having a long-term capital loss in

24 an amount equal to the amount of the ordinary loss

25 to which the preceding sentence applies.
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1 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

2 BEEN PRIOR APPLICATION OF SUBSECTION (a)(1)

3 WITH RESPECT TO THE TAXPAYER.—If there has

4 been a prior application of subsection (a)(1) to an

5 asset while such asset was held by the taxpayer, the

6 date of acquisition of such asset by the taxpayer

7 shall be treated as not earlier than the date of the

8 most recent such prior application.

9 ‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli10 cation of section 341(a) (relating to collapsible cor11 porations) shall be determined without regard to this

12 section.

13 ‘‘(e) CERTAIN CONDUIT ENTITIES.—

14 ‘‘(1) REGULATED INVESTMENT COMPANIES;

15 REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST

16 FUNDS.—

17 ‘‘(A) IN GENERAL.—Stock in a qualified

18 investment entity shall be an indexed asset for

19 any calendar month in the same ratio as the

20 fair market value of the assets held by such en21 tity at the close of such month which are in22 dexed assets bears to the fair market value of

23 all assets of such entity at the close of such

24 month.
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1 ‘‘(B) RATIO OF 90 PERCENT OR MORE.—If

2 the ratio for any calendar month determined

3 under subparagraph (A) would (but for this

4 subparagraph) be 90 percent or more, such

5 ratio for such month shall be 100 percent.

6 ‘‘(C) RATIO OF 10 PERCENT OR LESS.—If

7 the ratio for any calendar month determined

8 under subparagraph (A) would (but for this

9 subparagraph) be 10 percent or less, such ratio

10 for such month shall be zero.

11 ‘‘(D) VALUATION OF ASSETS IN CASE OF

12 REAL ESTATE INVESTMENT TRUSTS.—Nothing

13 in this paragraph shall require a real estate in14 vestment trust to value its assets more fre15 quently than once each 36 months (except

16 where such trust ceases to exist). The ratio

17 under subparagraph (A) for any calendar

18 month for which there is no valuation shall be

19 the trustee’s good faith judgment as to such

20 valuation.

21 ‘‘(E) QUALIFIED INVESTMENT ENTITY.—

22 For purposes of this paragraph, the term

23 ‘qualified investment entity’ means—

24 ‘‘(i) a regulated investment company

25 (within the meaning of section 851),
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1 ‘‘(ii) a real estate investment trust

2 (within the meaning of section 856), and

3 ‘‘(iii) a common trust fund (within the

4 meaning of section 584).

5 ‘‘(2) PARTNERSHIPS.—In the case of a partner6 ship, the adjustment made under subsection (a) at

7 the partnership level shall be passed through to the

8 partners.

9 ‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—

10 ‘‘(1) IN GENERAL.—This section shall not apply

11 to any sale or other disposition of property between

12 related persons except to the extent that the basis

13 of such property in the hands of the transferee is a

14 substituted basis.

15 ‘‘(2) RELATED PERSONS DEFINED.—For pur16 poses of this section, the term ‘related persons’

17 means—

18 ‘‘(A) persons bearing a relationship set

19 forth in section 267(b), and

20 ‘‘(B) persons treated as single employer

21 under subsection (b) or (c) of section 414.

22 ‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST23 MENT.—If any person transfers cash, debt, or any other

24 property to another person and the principal purpose of

25 such transfer is to secure or increase an adjustment under
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1 subsection (a), the Secretary may disallow part or all of

2 such adjustment or increase.

3 ‘‘(h) DEFINITIONS.—For purposes of this section—

4 ‘‘(1) NET LEASE PROPERTY DEFINED.—The

5 term ‘net lease property’ means leased real property

6 where—

7 ‘‘(A) the term of the lease (taking into ac8 count options to renew) was 50 percent or more

9 of the useful life of the property, and

10 ‘‘(B) for the period of the lease, the sum

11 of the deductions with respect to such property

12 which are allowable to the lessor solely by rea13 son of section 162 (other than rents and reim14 bursed amounts with respect to such property)

15 is 15 percent or less of the rental income pro16 duced by such property.

17 ‘‘(2) STOCK INCLUDES INTEREST IN COMMON

18 TRUST FUND.—The term ‘stock in a corporation’ in19 cludes any interest in a common trust fund (as de20 fined in section 584(a)).

21 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

22 such regulations as may be necessary or appropriate to

23 carry out the purposes of this section.’’

24 (b) CLERICAL AMENDMENT.—The table of sections

25 for part II of subchapter O of such chapter 1 is amended
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1 by inserting after the item relating to section 1021 the

2 following new item:

‘‘Sec. 1022. Indexing of certain assets for purposes of determining

gain or loss.’’

3 (c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE4 TERMINING EARNINGS AND PROFITS.—Subsection (f) of

5 section 312 (relating to effect on earnings and profits of

6 gain or loss and of receipt of tax-free distributions) is

7 amended by adding at the end thereof the following new

8 paragraph:

9 ‘‘(3) EFFECT ON EARNINGS AND PROFITS OF

10 INDEXED BASIS.—

For substitution of indexed basis for adjusted

basis in the case of the disposition of certain assets

after December 31, 1991 see section 1022(a)(1).’’

11 SEC. 3. EFFECTIVE DATE.

12 The amendments made by section 2 shall apply to

13 dispositions after December 31, 1993, in taxable years

14 ending after such date.

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