II 

115TH CONGRESS 

2D SESSION S. 2688 

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

of certain assets for purposes of determining gain or loss. 

IN THE SENATE OF THE UNITED STATES 

APRIL 17, 2018 

Mr. CRUZ (for himself and Mr. INHOFE) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for the indexing of certain assets for purposes of determining gain or loss. 

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 ‘‘Capital Gains Inflation 

5 Relief Act of 2018’’. 

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 

10 basis rules of general application) is amended by redesigVerDate Sep 11 2014 21:36 Apr 19, 2018 Jkt 079200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2688.IS S2688

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1 nating section 1023 as section 1024 and by inserting after 

2 section 1022 the following new section: 

3 ‘‘SEC. 1023. 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.—Solely for purposes of determining 

8 gain or loss on the sale or other disposition by a tax9 payer (other than a corporation) of an indexed asset 

10 which has been held for more than 3 years, the in11 dexed basis of the asset shall be substituted for its 

12 adjusted basis. 

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

14 The deductions for depreciation, depletion, and am15 ortization shall be determined without regard to the 

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

17 other person. 

18 ‘‘(3) WRITTEN DOCUMENTATION REQUIRE19 MENT.—Paragraph (1) shall apply only with respect 

20 to indexed assets for which the taxpayer has written 

21 documentation of the original purchase price paid or 

22 incurred by the taxpayer to acquire such asset. 

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) common stock in a C corporation 

2 (other than a foreign corporation), or 

3 ‘‘(B) tangible property, 

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

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

6 ‘‘(2) STOCK IN CERTAIN FOREIGN CORPORA7 TIONS INCLUDED.—For purposes of this section— 

8 ‘‘(A) IN GENERAL.—The term ‘indexed 

9 asset’ includes common stock in a foreign cor10 poration which is regularly traded on an estab11 lished securities market. 

12 ‘‘(B) EXCEPTION.—Subparagraph (A) 

13 shall not apply to— 

14 ‘‘(i) stock of a foreign investment 

15 company, 

16 ‘‘(ii) stock in a passive foreign invest17 ment company (as defined in section 

18 1296), 

19 ‘‘(iii) stock in a foreign corporation 

20 held by a United States person who meets 

21 the requirements of section 1248(a)(2), 

22 and 

23 ‘‘(iv) stock in a foreign personal hold24 ing company. 


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1 ‘‘(C) TREATMENT OF AMERICAN DEPOSI2 TORY RECEIPTS.—An American depository re3 ceipt for common stock in a foreign corporation 

4 shall be treated as common stock in such cor5 poration. 

6 ‘‘(c) INDEXED BASIS.—For purposes of this sec7 tion— 

8 ‘‘(1) GENERAL RULE.—The indexed basis for 

9 any asset is— 

10 ‘‘(A) the adjusted basis of the asset, in11 creased by 

12 ‘‘(B) the applicable inflation adjustment. 

13 ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.— 

14 The applicable inflation adjustment for any asset is 

15 an amount equal to— 

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

18 ‘‘(B) the percentage (if any) by which— 

19 ‘‘(i) the gross domestic product 

20 deflator for the last calendar quarter end21 ing before the asset is disposed of, exceeds 

22 ‘‘(ii) the gross domestic product 

23 deflator for the last calendar quarter end24 ing before the asset was acquired by the 

25 taxpayer. 


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1 The percentage under subparagraph (B) shall be 

rounded to the nearest 1 2 ⁄10 of 1 percentage point. 

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

4 The gross domestic product deflator for any cal5 endar quarter is the implicit price deflator for the 

6 gross domestic product for such quarter (as shown 

7 in the last revision thereof released by the Secretary 

8 of Commerce before the close of the following cal9 endar quarter). 

10 ‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DI11 MINISHED RISK OF LOSS; TREATMENT OF SHORT

12 SALES.— 

13 ‘‘(1) IN GENERAL.—If the taxpayer (or a re14 lated person) enters into any transaction which sub15 stantially reduces the risk of loss from holding any 

16 asset, such asset shall not be treated as an indexed 

17 asset for the period of such reduced risk. 

18 ‘‘(2) SHORT SALES.— 

19 ‘‘(A) IN GENERAL.—In the case of a short 

20 sale of an indexed asset with a short sale period 

21 in excess of 3 years, for purposes of this title, 

22 the amount realized shall be an amount equal 

23 to the amount realized (determined without re24 gard to this paragraph) increased by the appli25 cable inflation adjustment. In applying subVerDate Sep 11 2014 21:36 Apr 19, 2018 Jkt 079200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2688.IS S2688

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1 section (c)(2) for purposes of the preceding sen2 tence, the date on which the property is sold 

3 short shall be treated as the date of acquisition 

4 and the closing date for the sale shall be treat5 ed as the date of disposition. 

6 ‘‘(B) SHORT SALE PERIOD.—For purposes 

7 of subparagraph (A), the short sale period be8 gins on the day that the property is sold and 

9 ends on the closing date for the sale. 

10 ‘‘(e) TREATMENT OF REGULATED INVESTMENT

11 COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.— 

12 ‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.— 

13 ‘‘(A) IN GENERAL.—Except as otherwise 

14 provided in this paragraph, the adjustment 

15 under subsection (a) shall be allowed to any 

16 qualified investment entity (including for pur17 poses of determining the earnings and profits of 

18 such entity). 

19 ‘‘(B) EXCEPTION FOR CORPORATE SHARE20 HOLDERS.—Under regulations— 

21 ‘‘(i) in the case of a distribution by a 

22 qualified investment entity (directly or in23 directly) to a corporation— 

24 ‘‘(I) the determination of whether 

25 such distribution is a dividend shall be 


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1 made without regard to this section, 

2 and 

3 ‘‘(II) the amount treated as gain 

4 by reason of the receipt of any capital 

5 gain dividend shall be increased by the 

6 percentage by which the entity’s net 

7 capital gain for the taxable year (de8 termined without regard to this sec9 tion) exceeds the entity’s net capital 

10 gain for such year determined with re11 gard to this section, and 

12 ‘‘(ii) there shall be other appropriate 

13 adjustments (including deemed distribu14 tions) so as to ensure that the benefits of 

15 this section are not allowed (directly or in16 directly) to corporate shareholders of quali17 fied investment entities. 

18 For purposes of the preceding sentence, any 

19 amount includible in gross income under section 

20 852(b)(3)(D) shall be treated as a capital gain 

21 dividend and an S corporation shall not be 

22 treated as a corporation. 

23 ‘‘(C) EXCEPTION FOR QUALIFICATION

24 PURPOSES.—This section shall not apply for 

25 purposes of sections 851(b) and 856(c). 


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1 ‘‘(D) EXCEPTION FOR CERTAIN TAXES IM2 POSED AT ENTITY LEVEL.— 

3 ‘‘(i) TAX ON FAILURE TO DISTRIBUTE

4 ENTIRE GAIN.—If any amount is subject to 

5 tax under section 852(b)(3)(A) for any 

6 taxable year, the amount on which tax is 

7 imposed under such section shall be in8 creased by the percentage determined 

9 under subparagraph (B)(i)(II). A similar 

10 rule shall apply in the case of any amount 

11 subject to tax under paragraph (2) or (3) 

12 of section 857(b) to the extent attributable 

13 to the excess of the net capital gain over 

14 the deduction for dividends paid deter15 mined with reference to capital gain divi16 dends only. The first sentence of this 

17 clause shall not apply to so much of the 

18 amount subject to tax under section 

19 852(b)(3)(A) as is designated by the com20 pany under section 852(b)(3)(D). 

21 ‘‘(ii) OTHER TAXES.—This section 

22 shall not apply for purposes of determining 

23 the amount of any tax imposed by para24 graph (4), (5), or (6) of section 857(b). 


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1 ‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN

2 ENTITY.— 

3 ‘‘(A) REGULATED INVESTMENT COMPA4 NIES.—Stock in a regulated investment com5 pany (within the meaning of section 851) shall 

6 be an indexed asset for any calendar quarter in 

7 the same ratio as— 

8 ‘‘(i) the average of the fair market 

9 values of the indexed assets held by such 

10 company at the close of each month during 

11 such quarter, bears to 

12 ‘‘(ii) the average of the fair market 

13 values of all assets held by such company 

14 at the close of each such month. 

15 ‘‘(B) REAL ESTATE INVESTMENT

16 TRUSTS.—Stock in a real estate investment 

17 trust (within the meaning of section 856) shall 

18 be an indexed asset for any calendar quarter in 

19 the same ratio as— 

20 ‘‘(i) the fair market value of the in21 dexed assets held by such trust at the close 

22 of such quarter, bears to 

23 ‘‘(ii) the fair market value of all as24 sets held by such trust at the close of such 

25 quarter. 


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1 ‘‘(C) RATIO OF 80 PERCENT OR MORE.—If 

2 the ratio for any calendar quarter determined 

3 under subparagraph (A) or (B) would (but for 

4 this subparagraph) be 80 percent or more, such 

5 ratio for such quarter shall be 100 percent. 

6 ‘‘(D) RATIO OF 20 PERCENT OR LESS.—If 

7 the ratio for any calendar quarter determined 

8 under subparagraph (A) or (B) would (but for 

9 this subparagraph) be 20 percent or less, such 

10 ratio for such quarter shall be zero. 

11 ‘‘(E) LOOK-THRU OF PARTNERSHIPS.—For 

12 purposes of this paragraph, a qualified invest13 ment entity which holds a partnership interest 

14 shall be treated (in lieu of holding a partnership 

15 interest) as holding its proportionate share of 

16 the assets held by the partnership. 

17 ‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS18 TRIBUTIONS.—Except as otherwise provided by the 

19 Secretary, a distribution with respect to stock in a 

20 qualified investment entity which is not a dividend 

21 and which results in a reduction in the adjusted 

22 basis of such stock shall be treated as allocable to 

23 stock acquired by the taxpayer in the order in which 

24 such stock was acquired. 


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1 ‘‘(4) QUALIFIED INVESTMENT ENTITY.—For 

2 purposes of this subsection, the term ‘qualified in3 vestment entity’ means— 

4 ‘‘(A) a regulated investment company 

5 (within the meaning of section 851), and 

6 ‘‘(B) a real estate investment trust (within 

7 the meaning of section 856). 

8 ‘‘(f) OTHER PASS-THRU ENTITIES.— 

9 ‘‘(1) PARTNERSHIPS.— 

10 ‘‘(A) IN GENERAL.—In the case of a part11 nership, the adjustment made under subsection 

12 (a) at the partnership level shall be passed 

13 through to the partners. 

14 ‘‘(B) SPECIAL RULE IN THE CASE OF SEC15 TION 754 ELECTIONS.—In the case of a transfer 

16 of an interest in a partnership with respect to 

17 which the election provided in section 754 is in 

18 effect— 

19 ‘‘(i) the adjustment under section 

20 743(b)(1) shall, with respect to the trans21 feror partner, be treated as a sale of the 

22 partnership assets for purposes of applying 

23 this section, and 

24 ‘‘(ii) with respect to the transferee 

25 partner, the partnership’s holding period 


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1 for purposes of this section in such assets 

2 shall be treated as beginning on the date 

3 of such adjustment. 

4 ‘‘(2) S CORPORATIONS.—In the case of an S 

5 corporation, the adjustment made under subsection 

6 (a) at the corporate level shall be passed through to 

7 the shareholders. This section shall not apply for 

8 purposes of determining the amount of any tax im9 posed by section 1374 or 1375. 

10 ‘‘(3) COMMON TRUST FUNDS.—In the case of a 

11 common trust fund, the adjustment made under sub12 section (a) at the trust level shall be passed through 

13 to the participants. 

14 ‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN

15 DETERMINING LOSS ON SALE OF INTEREST IN ENTI16 TY.—Notwithstanding the preceding provisions of 

17 this subsection, for purposes of determining the 

18 amount of any loss on a sale or exchange of an in19 terest in a partnership, S corporation, or common 

20 trust fund, the adjustment made under subsection 

21 (a) shall not be taken into account in determining 

22 the adjusted basis of such interest. 

23 ‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.— 

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

25 to any sale or other disposition of property between 


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1 related persons except to the extent that the basis 

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

3 substituted basis. 

4 ‘‘(2) RELATED PERSONS DEFINED.—For pur5 poses of this section, the term ‘related persons’ 

6 means— 

7 ‘‘(A) persons bearing a relationship set 

8 forth in section 267(b), and 

9 ‘‘(B) persons treated as single employer 

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

11 ‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUST12 MENT.—If any person transfers cash, debt, or any other 

13 property to another person and the principal purpose of 

14 such transfer is to secure or increase an adjustment under 

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

16 such adjustment or increase. 

17 ‘‘(i) SPECIAL RULES.—For purposes of this section— 

18 ‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If 

19 there is an addition to the adjusted basis of any tan20 gible property or of any stock in a corporation dur21 ing the taxable year by reason of an improvement to 

22 such property or a contribution to capital of such 

23 corporation— 

24 ‘‘(A) such addition shall never be taken 

25 into account under subsection (c)(1)(A) if the 


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1 aggregate amount thereof during the taxable 

2 year with respect to such property or stock is 

3 less than $1,000, and 

4 ‘‘(B) such addition shall be treated as a 

5 separate asset acquired at the close of such tax6 able year if the aggregate amount thereof dur7 ing the taxable year with respect to such prop8 erty or stock is $1,000 or more. 

9 A rule similar to the rule of the preceding sentence 

10 shall apply to any other portion of an asset to the 

11 extent that separate treatment of such portion is ap12 propriate to carry out the purposes of this section. 

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

14 THROUGHOUT HOLDING PERIOD.—The applicable in15 flation adjustment shall be appropriately reduced for 

16 periods during which the asset was not an indexed 

17 asset. 

18 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU19 TIONS.—A distribution with respect to stock in a 

20 corporation which is not a dividend shall be treated 

21 as a disposition. 

22 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

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

24 this section would create or increase a net ordinary 

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1 nary loss to which any other provision of this title 

2 applies, such provision shall not apply. The taxpayer 

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

4 an amount equal to the amount of the ordinary loss 

5 to which the preceding sentence applies. 

6 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

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

8 WITH RESPECT TO THE TAXPAYER.—If there has 

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

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

11 date of acquisition of such asset by the taxpayer 

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

13 most recent such prior application. 

14 ‘‘(j) REGULATIONS.—The Secretary shall prescribe 

15 such regulations as may be necessary or appropriate to 

16 carry out the purposes of this section.’’. 

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

18 for part II of subchapter O of chapter 1 of the Internal 

19 Revenue Code of 1986 is amended by striking the item 

20 relating to section 1023 and by inserting after the item 

21 relating to section 1022 the following new item: 

‘‘Sec. 1022. Indexing of certain assets for purposes of determining gain or loss. 

‘‘Sec. 1023. Cross references.’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to indexed assets acquired by the 


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1 taxpayer after December 31, 2018, in taxable years ending 

2 after such date. 

Æ 


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