I

103D CONGRESS

1ST SESSION H. R. 3101

To amend the Internal Revenue Code of 1986 to provide a temporary reduction in the tax on capital gains and to provide for the indexing of

certain assets.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 21, 1993

Mr. KYL 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

a temporary reduction in the tax on capital gains and

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 ‘‘Window of Oppor5 tunity Act’’.
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1 TITLE I—TEMPORARY REDUC2 TION IN TAX ON CAPITAL

3 GAINS

4 SEC. 101. TEMPORARY REDUCTION IN INDIVIDUAL CAPITAL

5 GAINS TAX.

6 Section 1 of the Internal Revenue Code of 1986 (re7 lating to tax imposed on individuals) is amended by adding

8 at the end thereof the following new subsection:

9 ‘‘(i) TEMPORARY REDUCTION IN CAPITAL GAINS

10 RATE.—

11 ‘‘(1) IN GENERAL.—If a taxpayer has a morato12 rium period gain for any taxable year—

13 ‘‘(A) subsection (h) shall not apply to such

14 taxable year, and

15 ‘‘(B) the tax imposed by this section for

16 such taxable year shall not exceed the sum of—

17 ‘‘(i) a tax computed at the rates and

18 in the same manner as if this subsection

19 had not been enacted on taxable income re20 duced by the amount of the net capital

21 gain,

22 ‘‘(ii) 6 percent of the lesser of—

23 ‘‘(I) the moratorium period gain

24 for the taxable year, or
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1 ‘‘(II) the portion of the tax2 payer’s taxable income for the taxable

3 year which would be taxed at a rate in

4 excess of 28 percent (determined with5 out regard to this subsection and sub6 section (h)),

7 ‘‘(iii) 3 percent of the portion of the

8 moratorium period gain for the taxable

9 year which is not subject to tax under

10 clause (ii), and

11 ‘‘(iv) 28 percent of the excess (if any)

12 of the net capital gain for the taxable year

13 over the moratorium period gain.

14 ‘‘(2) MORATORIUM PERIOD GAIN.—For pur15 poses of this subsection, the term ‘moratorium pe16 riod gain’ means the lesser of—

17 ‘‘(A) the net capital gain for the taxable

18 year determined by only taking into account

19 gain and loss properly taken into account for

20 the portion of the taxable year within the mora21 torium period, or

22 ‘‘(B) the net capital gain for the taxable

23 year.

24 ‘‘(3) MORATORIUM PERIOD.—For purposes of

25 this subsection, the term ‘moratorium period’ means
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1 the 1 year period beginning on the date of the enact2 ment of the Window of Opportunity Act.

3 ‘‘(4) TREATMENT OF PASS-THRU ENTITIES.—

4 ‘‘(A) IN GENERAL.—In applying this sub5 section with respect to any pass-thru entity, the

6 determination of the period for which any gain

7 or loss is properly taken into account shall be

8 made at the entity level.

9 ‘‘(B) PASS-THRU ENTITY.—For purposes

10 of subparagraph (A), the term ‘pass-thru entity’

11 means—

12 ‘‘(i) a regulated investment company,

13 ‘‘(ii) a real estate investment trust,

14 ‘‘(iii) an S corporation,

15 ‘‘(iv) a partnership,

16 ‘‘(v) an estate or trust, and

17 ‘‘(vi) a common trust fund.’’

18 SEC. 102. TEMPORARY REDUCTION IN CORPORATE CAP19 ITAL GAINS TAX.

20 Section 1201 of the Internal Revenue Code of 1986

21 (relating to alternative tax for corporations) is amended

22 by redesignating subsection (b) as subsection (c) and by

23 inserting after subsection (a) the following new subsection:

24 ‘‘(b) TEMPORARY REDUCTION IN CAPITAL GAINS

25 RATE.—
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1 ‘‘(1) IN GENERAL.—If a corporation has a mor2 atorium period gain for any taxable year—

3 ‘‘(A) subsection (a) shall not apply to such

4 taxable year, and

5 ‘‘(B) in lieu of any tax imposed by section

6 11, 511, 801(a), or 831 (a) or (b), there is

7 hereby imposed a tax (if such tax is less than

8 the tax imposed by such sections) which shall

9 consist of the sum of—

10 ‘‘(i) a tax computed at the rates and

11 in the same manner as if this subsection

12 had not been enacted on taxable income re13 duced by the amount of the net capital

14 gain,

15 ‘‘(ii) 6 percent of the lesser of—

16 ‘‘(I) the moratorium period gain

17 for the taxable year, or

18 ‘‘(II) the portion of the tax19 payer’s taxable income for the taxable

20 year which would be taxed at a rate in

21 excess of 25 percent (determined with22 out regard to this subsection),

23 ‘‘(iii) 3 percent of the portion of the

24 moratorium period gain for the taxable
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1 year which is not subject to tax under

2 clause (ii), and

3 ‘‘(iv) 34 percent of the excess of the

4 net capital gain for the taxable year over

5 the moratorium period gain.

6 ‘‘(2) MORATORIUM PERIOD GAIN.—For pur7 poses of this subsection, the term ‘moratorium pe8 riod gain’ has the meaning given such term by sec9 tion 1(i)(2).’’

10 SEC. 103. TEMPORARY REDUCTION IN MINIMUM TAX.

11 Subsection (b) of section 55 of the Internal Revenue

12 Code of 1986 (defining tentative minimum tax) is amend13 ed by adding at the end thereof the following new para14 graph:

15 ‘‘(3) TEMPORARY REDUCTION IN TAX ON CAP16 ITAL GAINS.—

17 ‘‘(A) IN GENERAL.—If the taxpayer has a

18 moratorium period gain for any taxable year,

19 the amount determined under subparagraph (A)

20 of paragraph (1) shall not exceed the sum of—

21 ‘‘(i) the amount determined under

22 subparagraph (A) on the amount of the

23 taxable excess reduced by the moratorium

24 period gain,
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1 ‘‘(ii) 6 percent of the moratorium pe2 riod gain for the taxable year to the extent

3 such gain does not exceed the amount sub4 ject to tax under section 1(i)(1)(B)(ii) or

5 section 1201(b)(1)(B)(ii), and

6 ‘‘(iii) 3 percent of the portion of the

7 moratorium period gain for the taxable

8 year which is not subject to tax under

9 clause (ii).

10 ‘‘(B) TAXABLE EXCESS.—For purposes of

11 this paragraph, the term ‘taxable excess’ means

12 the excess of the alternative minimum taxable

13 income for the taxable year over the exemption

14 amount.

15 ‘‘(C) MORATORIUM PERIOD GAIN.—For

16 purposes of this paragraph, the term ‘morato17 rium period gain’ has the meaning given to

18 such term by section 1(i)(2); except that in no

19 event shall the amount of the moratorium pe20 riod gain exceed the taxable excess.’’

21 SEC. 104. EFFECTIVE DATE.

22 The amendments made by this title shall apply to tax23 able years ending after the date of the enactment of this

24 Act.
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1 TITLE II—INDEXING OF CERTAIN

2 ASSETS

3 SEC. 201. INDEXING OF CERTAIN ASSETS FOR PURPOSES

4 OF DETERMINING GAIN OR LOSS.

5 (a) IN GENERAL.—Part II of subchapter O of chap6 ter 1 of the Internal Revenue Code of 1986 (relating to

7 basis rules of general application) is amended by inserting

8 after section 1021 the following new section:

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

10 OF DETERMINING GAIN OR LOSS.

11 ‘‘(a) GENERAL RULE.—

12 ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD13 JUSTED BASIS.—Except as provided in paragraph

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

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

16 for purposes of this title the indexed basis of the

17 asset shall be substituted for its adjusted basis.

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

19 The deduction for depreciation, depletion, and amor20 tization shall be determined without regard to the

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

22 other person.

23 ‘‘(b) INDEXED ASSET.—

24 ‘‘(1) IN GENERAL.—For purposes of this sec25 tion, the term ‘indexed asset’ means—
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1 ‘‘(A) stock in a corporation, and

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

3 therein),

4 which is a capital asset or property used in the trade

5 or business (as defined in section 1231(b)).

6 ‘‘(2) CERTAIN PROPERTY EXCLUDED.—For

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

8 does not include—

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

10 in property which is in the nature of a credi11 tor’s interest.

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

13 to acquire an interest in property.

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

15 of a lessor, net lease property (within the mean16 ing of subsection (h)(1)).

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

18 which is fixed and preferred as to dividends and

19 does not participate in corporate growth to any

20 significant extent.

21 ‘‘(E) STOCK IN FOREIGN CORPORA22 TIONS.—Stock in a foreign corporation.

23 ‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR24 PORATION WHICH IS REGULARLY TRADED ON NA25 TIONAL OR REGIONAL EXCHANGE.—Paragraph
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1 (2)(E) shall not apply to stock in a foreign corpora2 tion the stock of which is listed on the New York

3 Stock Exchange, the American Stock Exchange, or

4 any domestic regional exchange for which quotations

5 are published on a regular basis other than—

6 ‘‘(A) stock of a foreign investment com7 pany (within the meaning of section 1246(b)),

8 and

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

10 a United States person who meets the require11 ments of section 1248(a)(2).

12 ‘‘(c) INDEXED BASIS.—For purposes of this sec13 tion—

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

15 any asset is—

16 ‘‘(A) the adjusted basis of the asset, multi17 plied by

18 ‘‘(B) the applicable inflation ratio.

19 ‘‘(2) APPLICABLE INFLATION RATIO.—The ap20 plicable inflation ratio for any asset is the percent21 age arrived at by dividing—

22 ‘‘(A) the gross national product deflator

23 the calendar quarter in which the disposition

24 takes place, by
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1 ‘‘(B) the gross national product deflator

2 for the calendar quarter in which the asset was

3 acquired by the taxpayer (or, if later, the cal4 endar quarter ending December 31, 1993).

5 The applicable inflation ratio shall not be taken into

6 account unless it is greater than 1. The applicable

7 inflation ratio for any asset shall be rounded to the

8 nearest one-tenth of 1 percent.

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

10 The gross national product deflator for any calendar

11 quarter is the implicit price deflator for the gross

12 national product for such quarter (as shown in the

13 first revision thereof).

14 ‘‘(d) SPECIAL RULES.—For purposes of this sec15 tion—

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

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

18 a separate asset:

19 ‘‘(A) a substantial improvement to prop20 erty,

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

22 a substantial contribution to capital, and

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

24 extent that separate treatment of such portion
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1 is appropriate to carry out the purposes of

2 this section.

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

4 THROUGHOUT HOLDING PERIOD.—

5 ‘‘(A) IN GENERAL.—The applicable infla6 tion ratio shall be appropriately reduced for cal7 endar months at any time during which the

8 asset was not an indexed asset.

9 ‘‘(B) CERTAIN SHORT SALES.—For pur10 poses of applying subparagraph (A), an asset

11 shall be treated as not an indexed asset for any

12 short sale period during which the taxpayer or

13 the taxpayer’s spouse sells short property sub14 stantially identical to the asset. For purposes of

15 the preceding sentence, the short sale period be16 gins on the day after the substantially identical

17 property is sold and ends on the closing date

18 for the sale.

19 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU20 TIONS.—A distribution with respect to stock in a

21 corporation which is not a dividend shall be treated

22 as a disposition.

23 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

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

25 this section would create or increase a net ordinary
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1 loss to which section 1231(a)(2) applies or an ordi2 nary loss to which any other provision of this title

3 applies, such provision shall not apply. The taxpayer

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

5 an amount equal to the amount of the ordinary loss

6 to which the preceding sentence applies.

7 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

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

9 WITH RESPECT TO THE TAXPAYER.—If there has

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

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

12 date of acquisition of such asset by the taxpayer

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

14 most recent such prior application.

15 ‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli16 cation of section 341(a) (relating to collapsible cor17 porations) shall be determined without regard to this

18 section.

19 ‘‘(e) CERTAIN CONDUIT ENTITIES.—

20 ‘‘(1) REGULATED INVESTMENT COMPANIES;

21 REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST

22 FUNDS.—

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

24 investment entity shall be an indexed asset for

25 any calendar month in the same ratio as the
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1 fair market value of the assets held by such en2 tity at the close of such month which are in3 dexed assets bears to the fair market value of

4 all assets of such entity at the close of such

5 month.

6 ‘‘(B) RATIO OF 90 PERCENT OR MORE.—If

7 the ratio for any calendar month determined

8 under subparagraph (A) would (but for this

9 subparagraph) be 90 percent or more, such

10 ratio for such month shall be 100 percent.

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

12 the ratio for any calendar month determined

13 under subparagraph (A) would (but for this

14 subparagraph) be 10 percent or less, such ratio

15 for such month shall be zero.

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

17 REAL ESTATE INVESTMENT TRUSTS.—Nothing

18 in this paragraph shall require a real estate in19 vestment trust to value its assets more fre20 quently than once each 36 months (except

21 where such trust ceases to exist). The ratio

22 under subparagraph (A) for any calendar

23 month for which there is no valuation shall be

24 the trustee’s good faith judgment as to such

25 valuation.
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1 ‘‘(E) QUALIFIED INVESTMENT ENTITY.—

2 For purposes of this paragraph, the term

3 ‘qualified investment entity’ means—

4 ‘‘(i) a regulated investment company

5 (within the meaning of section 851),

6 ‘‘(ii) a real estate investment trust

7 (within the meaning of section 856), and

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

9 meaning of section 584).

10 ‘‘(2) PARTNERSHIPS.—In the case of a partner11 ship, the adjustment made under subsection (a) at

12 the partnership level shall be passed through to the

13 partners.

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

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

16 to any sale or other disposition of property between

17 related persons except to the extent that the basis

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

19 substituted basis.

20 ‘‘(2) RELATED PERSONS DEFINED.—For pur21 poses of this section, the term ‘related persons’

22 means—

23 ‘‘(A) persons bearing a relationship set

24 forth in section 267(b), and
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1 ‘‘(B) persons treated as single employer

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

3 ‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST4 MENT.—If any person transfers cash, debt, or any other

5 property to another person and the principal purpose of

6 such transfer is to secure or increase an adjustment under

7 subsection (a), the Secretary may disallow part or all of

8 such adjustment or increase.

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

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

11 term ‘net lease property’ means leased real property

12 where—

13 ‘‘(A) the term of the lease (taking into ac14 count options to renew) was 50 percent or more

15 of the useful life of the property, and

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

17 of the deductions with respect to such property

18 which are allowable to the lessor solely by rea19 son of section 162 (other than rents and reim20 bursed amounts with respect to such property)

21 is 15 percent or less of the rental income pro22 duced by such property.

23 ‘‘(2) STOCK INCLUDES INTEREST IN COMMON

24 TRUST FUND.—The term ‘stock in a corporation’ in-
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1 cludes any interest in a common trust fund (as de2 fined in section 584(a)).

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

4 such regulations as may be necessary or appropriate to

5 carry out the purposes of this section.’’

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

7 for part II of subchapter O of such chapter 1 is amended

8 by inserting after the item relating to section 1021 the

9 following new item:

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

gain or loss.’’

10 (c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE11 TERMINING EARNINGS AND PROFITS.—Subsection (f) of

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

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

14 amended by adding at the end thereof the following new

15 paragraph:

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

17 INDEXED BASIS.—

For substitution of indexed basis for adjusted

basis in the case of the disposition of certain assets

after December 31, 1993 see section 1022(a)(1).’’

18 SEC. 202. EFFECTIVE DATE.

19 The amendments made by section 201 shall apply to

20 dispositions after December 31, 1993, in taxable years

21 ending after such date.
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