I

106TH CONGRESS

1ST SESSION H. R. 14

To amend the Internal Revenue Code of 1986 to provide maximum rates

of tax on capital gains of 14 percent for individuals and 28 percent

for corporations and to index the basis of assets of individuals for

purposes of determining gains and losses.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. DREIER (for himself, Ms. MCCARTHY of Missouri, Mr. FORBES, Mr.

DEUTSCH, Mr. HALL of Texas, Mr. MORAN of Virginia, and Mr.

ENGLISH) 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

maximum rates of tax on capital gains of 14 percent

for individuals and 28 percent for corporations and to

index the basis of assets of individuals for purposes

of determining gains and losses.

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, ETC.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Capital Gains Tax Reduction Act of 1999’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

4 to, or repeal of, a section or other provision, the reference

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

7 SEC. 2. 14 PERCENT MAXIMUM CAPITAL GAINS RATE FOR

8 INDIVIDUALS.

9 (a) IN GENERAL.—Subsection (h) of section 1 (relat10 ing to maximum capital gains rate) is amended to read

11 as follows:

12 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—

13 ‘‘(1) IN GENERAL.—If a taxpayer has a net

14 capital gain for any taxable year, the tax imposed by

15 this section for such taxable year shall not exceed

16 the sum of—

17 ‘‘(A) a tax computed at the rates and in

18 the same manner as if this subsection had not

19 been enacted on taxable income reduced by the

20 net capital gain,

21 ‘‘(B) 7.5 percent of so much of the tax22 payer’s net capital gain (or, if less, taxable in23 come) as does not exceed the excess (if any)

24 of—
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1 ‘‘(i) the amount of taxable income

2 which would (without regard to this para3 graph) be taxed at a rate of 15 percent or

4 less, over

5 ‘‘(ii) the amount on which tax is de6 termined under subparagraph (A), plus

7 ‘‘(C) 14 percent of the taxpayer’s net cap8 ital gain (or, if less, taxable income) in excess

9 of the amount of capital gain on which tax is

10 determined under subparagraph (B).

11 ‘‘(2) NET CAPITAL GAIN TAKEN INTO ACCOUNT

12 AS INVESTMENT INCOME.—For purposes of this sub13 section, the net capital gain for any taxable year

14 shall be reduced (but not below zero) by the amount

15 which the taxpayer elects to take into account as in16 vestment income under section 163(d)(4)(B)(iii).’’

17 (b) MINIMUM TAX.—

18 (1) IN GENERAL.—Subparagraph (A) of section

19 55(b)(1) is amended by redesignating clauses (ii)

20 and (iii) as clauses (iii) and (iv), respectively, and by

21 inserting after clause (i) the following new clause:

22 ‘‘(ii) MAXIMUM RATE OF TAX ON NET

23 CAPITAL GAIN.—The amount determined

24 under the first sentence of clause (i) shall

25 not exceed the sum of—
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1 ‘‘(I) the amount determined

2 under such first sentence computed at

3 the rates and in the same manner as

4 if this clause had not been enacted on

5 the taxable excess reduced by the net

6 capital gain, plus

7 ‘‘(II) a tax of 14 percent of the

8 lesser of the net capital gain or the

9 taxable excess.’’

10 (2) CONFORMING AMENDMENT.—Clause (iii) of

11 section 55(a)(1)(A) (as redesignated by paragraph

12 (1)) is amended by striking ‘‘clause (i)’’ and insert13 ing ‘‘this subparagraph’’.

14 (c) CONFORMING AMENDMENTS.—

15 (1) Section 1202 (relating to 50-percent exclu16 sion for gain from certain small business stock) is

17 hereby repealed.

18 (2)(A) Subsection (a) of section 57 is amended

19 by striking paragraph (7).

20 (B) Subclause (II) of section 53(d)(1)(B)(ii) is

21 amended by striking ‘‘, (5), and (7)’’ and inserting

22 ‘‘and (5)’’.

23 (3) Paragraph (1) of section 170(e) of such

24 Code is amended by striking ‘‘the amount of gain’’

25 in the material following subparagraph (B)(ii) and
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1 inserting ‘‘50 percent (80 percent in the case of a

2 corporation) of the amount of gain’’.

3 (4) Paragraph (2) of section 172(d) is amended

4 to read as follows:

5 ‘‘(2) CAPITAL GAINS AND LOSSES OF TAX6 PAYERS OTHER THAN CORPORATIONS.—In the case

7 of a taxpayer other than a corporation, the amount

8 deductible on account of losses from sales or ex9 changes of capital assets shall not exceed the

10 amount includible on account of gains from sales or

11 exchanges of capital assets.’’

12 (5) Paragraph (4) of section 642(c) is amended

13 by striking the first sentence.

14 (6) Paragraph (3) of section 643(a) is amended

15 by striking the last sentence.

16 (7) Paragraph (4) of section 691(c) is amended

17 by striking ‘‘1202,’’.

18 (8) The second sentence of section 871(a)(2) is

19 amended by striking ‘‘such gains and losses shall be

20 determined without regard to section 1202 and’’.

21 (9) Subsection (a) of section 1044 is amended

22 by striking the last sentence.

23 (10) Paragraph (1) of section 1445(e) is

24 amended by striking ‘‘28 percent’’ and inserting ‘‘14

25 percent’’.
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1 (11) Section 6652 is amended by striking sub2 section (k) and by redesignating subsections (l) and

3 (m) as subsections (k) and (l), respectively.

4 (12)(A) The second sentence of section

5 7518(g)(6)(A) is amended by striking ‘‘28 percent’’

6 and inserting ‘‘14 percent’’.

7 (B) The second sentence of section

8 607(h)(6)(A) of the Merchant Marine Act, 1936 is

9 amended by striking ‘‘28 percent’’ and inserting ‘‘14

10 percent’’.

11 (13) The table of sections for part I of sub12 chapter P of chapter 1 is amended by striking the

13 item relating to section 1202.

14 (d) EFFECTIVE DATES.—

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by this section

17 shall apply to taxable years beginning after Decem18 ber 31, 1998.

19 (2) WITHHOLDING.—The amendment made by

20 subsection (c)(10) shall apply to amounts paid after

21 the date of the enactment of this Act.

22 SEC. 3. 28 PERCENT MAXIMUM CAPITAL GAINS RATE FOR

23 CORPORATIONS.

24 (a) IN GENERAL.—Section 1201 is amended to read

25 as follows:
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1 ‘‘SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

2 ‘‘(a) GENERAL RULE.—If for any taxable year a cor3 poration has a net capital gain, then, in lieu of the tax

4 imposed by sections 11, 511, and 831 (a) and (b) (which5 ever is applicable), there is hereby imposed a tax (if such

6 tax is less than the tax imposed by such sections) which

7 shall consist of the sum of—

8 ‘‘(1) a tax computed on the taxable income re9 duced by the amount of the net capital gain, at the

10 rates and in the manner as if this subsection had

11 not been enacted, plus

12 ‘‘(2) a tax of 28 percent of the net capital gain

13 (or, if less, taxable income).

14 ‘‘(b) CROSS REFERENCES.—

‘‘For computation of the alternative tax—

‘‘(1) in the case of life insurance companies, see

section 801(a)(2),

‘‘(2) in the case of regulated investment companies and their shareholders, see section 852(b)(3)(A)

and (D), and

‘‘(3) in the case of real estate investment trusts,

see section 857(b)(3)(A).’’

15 (b) TECHNICAL AMENDMENTS.—

16 (1) Clause (iii) of section 852(b)(3)(D) is

17 amended by striking ‘‘65 percent’’ and inserting ‘‘72

18 percent’’.

19 (2) Subsection (e) of section 1445 is amended

20 by striking ‘‘35 percent’’ each place it appears and

21 inserting ‘‘28 percent’’.
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1 (3)(A) The second sentence of section

2 7518(g)(6)(A) is amended by striking ‘‘34 percent’’

3 and inserting ‘‘28 percent’’.

4 (B) The second sentence of section

5 607(h)(6)(A) of the Merchant Marine Act, 1936 is

6 amended by striking ‘‘34 percent’’ and inserting ‘‘28

7 percent’’.

8 (c) EFFECTIVE DATES.—

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section

11 shall apply to taxable years ending after December

12 31, 1998.

13 (2) WITHHOLDING.—The amendment made by

14 subsection (b)(2) shall apply to amounts paid after

15 the date of the enactment of this Act.

16 (d) TRANSITIONAL RULE.—

17 (1) IN GENERAL.—In the case of any taxable

18 year ending after December 31, 1998, and beginning

19 on or before such date, paragraph (2) of section

20 1201(a) of the Internal Revenue Code of 1986 (as

21 amended by this section) shall be applied as if it

22 read as follows:

23 ‘‘(2) the sum of—

24 ‘‘(A) a tax of 28 percent of the lesser of—
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1 ‘‘(i) the net capital gain for the tax2 able year, or

3 ‘‘(ii) the net capital gain taking into

4 account only gain or loss properly taken

5 into account for the portion of the taxable

6 year after December 31, 1998, plus

7 ‘‘(B) a tax of 35 percent of the excess of—

8 ‘‘(i) the net capital gain for the tax9 able year, over

10 ‘‘(ii) the amount of net capital gain

11 taken into account under subparagraph

12 (A).’’

13 (2) SPECIAL RULE FOR PASS-THRU ENTITIES.—

14 (A) IN GENERAL.—In applying paragraph

15 (1) with respect to any pass-thru entity, the de16 termination of when gains and losses are prop17 erly taken into account shall be made at the en18 tity level.

19 (B) PASS-THRU ENTITY DEFINED.—For

20 purposes of subparagraph (A), the term ‘‘pass21 thru entity’’ means—

22 (i) a regulated investment company,

23 (ii) a real estate investment trust,

24 (iii) an S corporation,

25 (iv) a partnership,
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1 (v) an estate or trust, and

2 (vi) a common trust fund.

3 SEC. 4. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF

4 DETERMINING GAIN OR LOSS.

5 (a) IN GENERAL.—Part II of subchapter O of chap6 ter 1 (relating to basis rules of general application) is

7 amended by inserting after section 1021 the following new

8 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.—Solely for purposes of determining

14 gain or loss on the sale or other disposition by a tax15 payer (other than a corporation) of an indexed asset

16 which has been held for more than 3 years, the in17 dexed basis of the asset shall be substituted for its

18 adjusted basis.

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

20 The deductions for depreciation, depletion, and am21 ortization shall be determined without regard to the

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

23 other person.

24 ‘‘(b) INDEXED ASSET.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘indexed asset’ means—

3 ‘‘(A) common stock in a C corporation

4 (other than a foreign corporation), and

5 ‘‘(B) tangible property,

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

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

8 ‘‘(2) STOCK IN CERTAIN FOREIGN CORPORA9 TIONS INCLUDED.—For purposes of this section—

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

11 asset’ includes common stock in a foreign cor12 poration which is regularly traded on an estab13 lished securities market.

14 ‘‘(B) EXCEPTION.—Subparagraph (A)

15 shall not apply to—

16 ‘‘(i) stock of a foreign investment

17 company (within the meaning of section

18 1246(b)),

19 ‘‘(ii) stock in a passive foreign invest20 ment company (as defined in section

21 1296),

22 ‘‘(iii) stock in a foreign corporation

23 held by a United States person who meets

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

25 and
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1 ‘‘(iv) stock in a foreign personal hold2 ing company (as defined in section 552).

3 ‘‘(C) TREATMENT OF AMERICAN DEPOSI4 TORY RECEIPTS.—An American depository re5 ceipt for common stock in a foreign corporation

6 shall be treated as common stock in such cor7 poration.

8 ‘‘(c) INDEXED BASIS.—For purposes of this

9 section—

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

11 any asset is—

12 ‘‘(A) the adjusted basis of the asset, in13 creased by

14 ‘‘(B) the applicable inflation adjustment.

15 ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—

16 The applicable inflation adjustment for any asset is

17 an amount equal to—

18 ‘‘(A) the adjusted basis of the asset, multi19 plied by

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

21 ‘‘(i) the gross domestic product

22 deflator for the last calendar quarter end23 ing before the asset is disposed of, exceeds

24 ‘‘(ii) the gross domestic product

25 deflator for the last calendar quarter end-
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1 ing before the asset was acquired by the

2 taxpayer (or, if later, the calendar quarter

3 ending on December 31, 1998).

4 The percentage under subparagraph (B) shall be

rounded to the nearest 1 5 ⁄10 of 1 percentage point.

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

7 The gross domestic product deflator for any cal8 endar quarter is the implicit price deflator for the

9 gross domestic product for such quarter (as shown

10 in the last revision thereof released by the Secretary

11 of Commerce before the close of the following cal12 endar quarter).

13 ‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DI14 MINISHED RISK OF LOSS; TREATMENT OF SHORT

15 SALES.—

16 ‘‘(1) IN GENERAL.—If the taxpayer (or a relat17 ed person) enters into any transaction which sub18 stantially reduces the risk of loss from holding any

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

20 asset for the period of such reduced risk.

21 ‘‘(2) SHORT SALES.—

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

23 sale of an indexed asset with a short sale period

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

25 the amount realized shall be an amount equal
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1 to the amount realized (determined without re2 gard to this paragraph) increased by the appli3 cable inflation adjustment. In applying sub4 section (c)(2) for purposes of the preceding sen5 tence, the date on which the property is sold

6 short shall be treated as the date of acquisition

7 and the closing date for the sale shall be treat8 ed as the date of disposition.

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

10 of subparagraph (A), the short sale period be11 gins on the day that the property is sold and

12 ends on the closing date for the sale.

13 ‘‘(e) TREATMENT OF REGULATED INVESTMENT

14 COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.—

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

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

17 provided in this paragraph, the adjustment

18 under subsection (a) shall be allowed to any

19 qualified investment entity (including for pur20 poses of determining the earnings and profits of

21 such entity).

22 ‘‘(B) EXCEPTION FOR CORPORATE SHARE23 HOLDERS.—Under regulations—
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1 ‘‘(i) in the case of a distribution by a

2 qualified investment entity (directly or in3 directly) to a corporation—

4 ‘‘(I) the determination of whether

5 such distribution is a dividend shall be

6 made without regard to this section,

7 and

8 ‘‘(II) the amount treated as gain

9 by reason of the receipt of any capital

10 gain dividend shall be increased by the

11 percentage by which the entity’s net

12 capital gain for the taxable year (de13 termined without regard to this sec14 tion) exceeds the entity’s net capital

15 gain for such year determined with re16 gard to this section, and

17 ‘‘(ii) there shall be other appropriate

18 adjustments (including deemed distribu19 tions) so as to ensure that the benefits of

20 this section are not allowed (directly or in21 directly) to corporate shareholders of quali22 fied investment entities.

23 For purposes of the preceding sentence, any

24 amount includible in gross income under section

25 852(b)(3)(D) shall be treated as a capital gain
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1 dividend and an S corporation shall not be

2 treated as a corporation.

3 ‘‘(C) EXCEPTION FOR QUALIFICATION

4 PURPOSES.—This section shall not apply for

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

6 ‘‘(D) EXCEPTION FOR CERTAIN TAXES IM7 POSED AT ENTITY LEVEL.—

8 ‘‘(i) TAX ON FAILURE TO DISTRIBUTE

9 ENTIRE GAIN.—If any amount is subject to

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

11 taxable year, the amount on which tax is

12 imposed under such section shall be in13 creased by the percentage determined

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

15 rule shall apply in the case of any amount

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

17 of section 857(b) to the extent attributable

18 to the excess of the net capital gain over

19 the deduction for dividends paid deter20 mined with reference to capital gain divi21 dends only. The first sentence of this

22 clause shall not apply to so much of the

23 amount subject to tax under section

24 852(b)(3)(A) as is designated by the com25 pany under section 852(b)(3)(D).
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1 ‘‘(ii) OTHER TAXES.—This section

2 shall not apply for purposes of determining

3 the amount of any tax imposed by para4 graph (4), (5), or (6) of section 857(b).

5 ‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN

6 ENTITY.—

7 ‘‘(A) REGULATED INVESTMENT COMPA8 NIES.—Stock in a regulated investment com9 pany (within the meaning of section 851) shall

10 be an indexed asset for any calendar quarter in

11 the same ratio as—

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

13 values of the indexed assets held by such

14 company at the close of each month during

15 such quarter, bears to

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

17 values of all assets held by such company

18 at the close of each such month.

19 ‘‘(B) REAL ESTATE INVESTMENT

20 TRUSTS.—Stock in a real estate investment

21 trust (within the meaning of section 856) shall

22 be an indexed asset for any calendar quarter in

23 the same ratio as—
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1 ‘‘(i) the fair market value of the in2 dexed assets held by such trust at the close

3 of such quarter, bears to

4 ‘‘(ii) the fair market value of all as5 sets held by such trust at the close of such

6 quarter.

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

8 the ratio for any calendar quarter determined

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

10 this subparagraph) be 80 percent or more, such

11 ratio for such quarter shall be 100 percent.

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

13 the ratio for any calendar quarter determined

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

15 this subparagraph) be 20 percent or less, such

16 ratio for such quarter shall be zero.

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

18 purposes of this paragraph, a qualified invest19 ment entity which holds a partnership interest

20 shall be treated (in lieu of holding a partnership

21 interest) as holding its proportionate share of

22 the assets held by the partnership.

23 ‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS24 TRIBUTIONS.—Except as otherwise provided by the

25 Secretary, a distribution with respect to stock in a
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1 qualified investment entity which is not a dividend

2 and which results in a reduction in the adjusted

3 basis of such stock shall be treated as allocable to

4 stock acquired by the taxpayer in the order in which

5 such stock was acquired.

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

7 purposes of this subsection, the term ‘qualified in8 vestment entity’ means—

9 ‘‘(A) a regulated investment company

10 (within the meaning of section 851), and

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

12 the meaning of section 856).

13 ‘‘(f) OTHER PASS-THRU ENTITIES.—

14 ‘‘(1) PARTNERSHIPS.—

15 ‘‘(A) IN GENERAL.—In the case of a part16 nership, the adjustment made under subsection

17 (a) at the partnership level shall be passed

18 through to the partners.

19 ‘‘(B) SPECIAL RULE IN THE CASE OF SEC20 TION 754 ELECTIONS.—In the case of a transfer

21 of an interest in a partnership with respect to

22 which the election provided in section 754 is in

23 effect—

24 ‘‘(i) the adjustment under section

25 743(b)(1) shall, with respect to the trans-
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1 feror partner, be treated as a sale of the

2 partnership assets for purposes of applying

3 this section, and

4 ‘‘(ii) with respect to the transferee

5 partner, the partnership’s holding period

6 for purposes of this section in such assets

7 shall be treated as beginning on the date

8 of such adjustment.

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

10 corporation, the adjustment made under subsection

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

12 the shareholders. This section shall not apply for

13 purposes of determining the amount of any tax im14 posed by section 1374 or 1375.

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

16 common trust fund, the adjustment made under sub17 section (a) at the trust level shall be passed through

18 to the participants.

19 ‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN

20 DETERMINING LOSS ON SALE OF INTEREST IN EN21 TITY.—Notwithstanding the preceding provisions of

22 this subsection, for purposes of determining the

23 amount of any loss on a sale or exchange of an in24 terest in a partnership, S corporation, or common

25 trust fund, the adjustment made under subsection
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1 (a) shall not be taken into account in determining

2 the adjusted basis of such interest.

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

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

5 to any sale or other disposition of property between

6 related persons except to the extent that the basis

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

8 substituted basis.

9 ‘‘(2) RELATED PERSONS DEFINED.—For pur10 poses of this section, the term ‘related persons’

11 means—

12 ‘‘(A) persons bearing a relationship set

13 forth in section 267(b), and

14 ‘‘(B) persons treated as single employer

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

16 ‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUST17 MENT.—If any person transfers cash, debt, or any other

18 property to another person and the principal purpose of

19 such transfer is to secure or increase an adjustment under

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

21 such adjustment or increase.

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

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

24 there is an addition to the adjusted basis of any tan25 gible property or of any stock in a corporation dur-
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1 ing the taxable year by reason of an improvement to

2 such property or a contribution to capital of such

3 corporation—

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

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

6 aggregate amount thereof during the taxable

7 year with respect to such property or stock is

8 less than $1,000, and

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

10 separate asset acquired at the close of such tax11 able year if the aggregate amount thereof dur12 ing the taxable year with respect to such prop13 erty or stock is $1,000 or more.

14 A rule similar to the rule of the preceding sentence

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

16 extent that separate treatment of such portion is ap17 propriate to carry out the purposes of this section.

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

19 THROUGHOUT HOLDING PERIOD.—The applicable in20 flation adjustment shall be appropriately reduced for

21 periods during which the asset was not an indexed

22 asset.

23 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU24 TIONS.—A distribution with respect to stock in a
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1 corporation which is not a dividend shall be treated

2 as a disposition.

3 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

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

5 this section would create or increase a net ordinary

6 loss to which section 1231(a)(2) applies or an ordi7 nary loss to which any other provision of this title

8 applies, such provision shall not apply. The taxpayer

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

10 an amount equal to the amount of the ordinary loss

11 to which the preceding sentence applies.

12 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

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

14 WITH RESPECT TO THE TAXPAYER.—If there has

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

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

17 date of acquisition of such asset by the taxpayer

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

19 most recent such prior application.

20 ‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli21 cation of section 341(a) (relating to collapsible cor22 porations) shall be determined without regard to this

23 section.
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1 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary or appropriate to

3 carry out the purposes of this section.’’

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

5 for part II of subchapter O of chapter 1 is amended by

6 inserting after the item relating to section 1021 the follow7 ing new item:

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

gain or loss.’’

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

9 this section shall apply to dispositions after December 31,

10 1998, in taxable years ending after such date.

Æ