I
103D CONGRESS
2D SESSION
H. R. 4099
To amend the Internal Revenue Code of 1986 to index the basis of certain
assets for purposes of determining gain.
IN THE HOUSE OF REPRESENTATIVES
MARCH 21, 1994
Mr. MORAN 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 index
the basis of certain assets for purposes of determining gain.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
basis rules of general application) is amended by inserting
after section 1021 the following new section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Solely for purposes of determining
gain on the sale or other disposition by an individual
of an indexed asset which has been held for more
than 1 year, the indexed basis of the asset shall be
substituted for its adjusted basis.
‘‘(2) SPECIAL RULE FOR RECAPTURE GAIN.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply for purposes of determining the
amount of recapture gain on the sale or other
disposition of an indexed asset, but the amount
of any such recapture gain shall increase the
adjusted basis of the asset for purposes of ap-
plying paragraph (1) to determine the amount
of other gain on such sale or other disposition.
‘‘(B) RECAPTURE GAIN.—For purposes of
subparagraph (A), the term ‘recapture gain’
means any gain treated as ordinary income
under section 1245 or 1254 or which would be
treated as ordinary income under section 1250
if such section applied to all depreciation ad-
justments instead of only additional deprecia-
tion.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) any stock in a corporation, and
‘‘(B) any tangible property (or any interest
therein),
which is a capital asset or property used in the trade
or business (as defined in section 1231(b)).
‘‘(2) CERTAIN
PROPERTY
EXCLUDED.—For
purposes of this section, the term ‘indexed asset’
does not include—
‘‘(A) CREDITOR’S INTEREST.—Any interest
in property which is in the nature of a credi-
tor’s interest.
‘‘(B) COLLECTIBLES.—Any collectible (as
defined in section 408(m)(2) without regard to
section 408(m)(3)).
‘‘(C) OPTIONS.—Any option or other right
to acquire an interest in property.
‘‘(D) NET LEASE PROPERTY.—In the case
of a lessor, net lease property (within the mean-
ing of subsection (i)(3)).
‘‘(E) CERTAIN PREFERRED STOCK.—Stock
which is fixed and preferred as to dividends and
does not participate in corporate growth to any
significant extent.
‘‘(F) 
STOCK
IN
FOREIGN
CORPORA-
TIONS.—Stock in a foreign corporation.
‘‘(G) STOCK IN S CORPORATIONS.—Stock
in an S corporation.
‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR-
PORATION WHICH IS REGULARLY TRADED ON NA-
TIONAL
OR
REGIONAL
EXCHANGE.—Paragraph
(2)(F) shall not apply to stock in a foreign corpora-
tion the stock of which is listed on the New York
Stock Exchange, the American Stock Exchange, or
any domestic regional exchange for which quotations
are published on a regular basis or is authorized for
trading on the national market system operated by
the National Association of Securities Dealers other
than—
‘‘(A) stock of a foreign investment com-
pany (within the meaning of section 1246(b)),
‘‘(B) stock in a passive foreign investment
company (as defined in section 1296), and
‘‘(C) stock in a foreign corporation held by
a United States person who meets the require-
ments of section 1248(a)(2).
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion—
‘‘(1) INDEXED BASIS.—The indexed basis for
any asset is—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the applicable inflation ratio.
‘‘(2) APPLICABLE INFLATION RATIO.—The ap-
plicable inflation ratio for any asset shall be deter-
mined by dividing—
‘‘(A) the CPI for the calendar year preced-
ing the calendar year in which the disposition
takes place, by
‘‘(B) the CPI for the calendar year preced-
ing the calendar year in which the taxpayer’s
holding period for such asset began (or, if later,
for calendar year 1992).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-hundredth.
‘‘(3) CONVENTIONS.—For purposes of para-
graph (2), if any asset is disposed of during any cal-
endar year—
‘‘(A) such disposition shall be treated as
occurring on the last day of such calendar year,
and
‘‘(B) the taxpayer’s holding period for such
asset shall be treated as beginning in the same
calendar year as would be determined for an
asset actually disposed of on such last day with
a holding period of the same length as the ac-
tual holding period of the asset involved.
‘‘(4) CPI.—For purposes of this subsection, the
CPI for any calendar year shall be determined under
section 1(f)(4).
‘‘(d) SHORT SALES.—
‘‘(1) IN GENERAL.—In the case of a short sale
of an indexed asset with a short sale period in excess
of 1 year, for purposes of this title, the amount real-
ized shall be an amount equal to the amount realized
(determined without regard to this paragraph) mul-
tiplied by the applicable inflation ratio. In applying
subsection (c)(2) for purposes of the preceding sen-
tence, the date on which the property is sold short
shall be treated as the date on which the holding pe-
riod for the asset begins and the closing date for the
sale shall be treated as the date of disposition.
‘‘(2) SHORT
SALE
OF
SUBSTANTIALLY
IDEN-
TICAL PROPERTY.—If the taxpayer or the taxpayer’s
spouse sells short property substantially identical to
an asset held by the taxpayer, the asset held by the
taxpayer and the substantially identical property
shall not be treated as indexed assets for the short
sale period.
‘‘(3) SHORT SALE PERIOD.—For purposes of
this subsection, the short sale period begins on the
day after property is sold and ends on the closing
date for the sale.
‘‘(e) TREATMENT
OF
REGULATED
INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the adjustment
under subsection (a) shall be allowed to any
qualified investment entity (including for pur-
poses of determining the earnings and profits of
such entity).
‘‘(B) EXCEPTION FOR CORPORATE SHARE-
HOLDERS.—Under regulations—
‘‘(i) in the case of a distribution by a
qualified investment entity (directly or in-
directly) to a corporation—
‘‘(I) the determination of whether
such distribution is a dividend shall be
made without regard to this section,
and
‘‘(II) the amount treated as gain
by reason of the receipt of any capital
gain dividend shall be increased by the
percentage by which the entity’s net
capital gain for the taxable year deter-
mined without regard to this section
exceeds the entity’s net capital gain
for such year determined with regard
to this section, and
‘‘(ii) there shall be other appropriate
adjustments (including deemed distribu-
tions) so as to ensure that the benefits of
this section are not allowed (directly or in-
directly) to corporate shareholders of quali-
fied investment entities.
For purposes of the preceding sentence, any
amount includible in gross income under section
852(b)(3)(D) shall be treated as a capital gain
dividend and an S corporation shall not be
treated as a corporation.
‘‘(C) 
EXCEPTION
FOR
QUALIFICATION
PURPOSES.—This section shall not apply for
purposes of sections 851(b) and 856(c).
‘‘(D) EXCEPTION FOR CERTAIN TAXES IM-
POSED AT ENTITY LEVEL.—
‘‘(i) TAX ON FAILURE TO DISTRIBUTE
ENTIRE GAIN.—If any amount is subject to
tax under section 852(b)(3)(A) for any
taxable year, the amount on which tax is
imposed under such section shall be in-
creased by the percentage determined
under subparagraph (B)(i)(II). A similar
rule shall apply in the case of any amount
subject to tax under paragraph (2) or (3)
of section 857(b) to the extent attributable
to the excess of the net capital gain over
the deduction for dividends paid deter-
mined with reference to capital gain divi-
dends only. The first sentence of this
clause shall not apply to so much of the
amount subject to tax under section
852(b)(3)(A) as is designated by the com-
pany under section 852(b)(3)(D).
‘‘(ii) OTHER
TAXES.—This section
shall not apply for purposes of determining
the amount of any tax imposed by para-
graph (4), (5), or (6) of section 857(b).
‘‘(2) ADJUSTMENTS
TO
INTERESTS
HELD
IN
ENTITY.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 90 percent or more, such
ratio for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(3) QUALIFIED
INVESTMENT
ENTITY.—For
purposes of this subsection, the term ‘qualified in-
vestment entity’ means—
‘‘(A) a regulated investment company
(within the meaning of section 851), and
‘‘(B) a real estate investment trust (within
the meaning of section 856).
‘‘(f) OTHER PASS-THRU ENTITIES.—
‘‘(1) PARTNERSHIPS.—
‘‘(A) IN GENERAL.—In the case of a part-
nership, the adjustment made under subsection
(a) at the partnership level shall be passed
through to the partners (but only for purposes
of determining the income of partners who are
individuals).
‘‘(B) SPECIAL RULE IN THE CASE OF SEC-
TION 754 ELECTIONS.—In the case of a transfer
of an interest in a partnership with respect to
which the election provided in section 754 is in
effect—
‘‘(i) the adjustment under section
743(b)(1) shall, with respect to the trans-
feror partner, be treated as a sale of the
partnership assets for purposes of applying
this section, and
‘‘(ii) with respect to the transferee
partner, the partnership’s holding period
for purposes of this section in such assets
shall be treated as beginning on the date
of such adjustment.
‘‘(2) S CORPORATIONS.—In the case of an S
corporation, the adjustment made under subsection
(a) at the corporate level shall be passed through to
the shareholders. This section shall not apply for
purposes of determining the amount of any tax im-
posed by section 1374 or 1375.
‘‘(3) COMMON TRUST FUNDS.—In the case of a
common trust fund, the adjustment made under sub-
section (a) at the trust level shall be passed through
to the participants (but only for purposes of deter-
mining the income of participants who are individ-
uals).
‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.—
This section shall not apply to any sale or other disposition
of property between related persons (within the meaning
of section 465(b)(3)(C)) if such property, in the hands of
the transferee, is of a character subject to the allowance
for depreciation provided in section 167.
‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT.—If any person transfers cash, debt, or any other
property to another person and the principal purpose of
such transfer is to secure or increase an adjustment under
subsection (a), the Secretary may disallow part or all of
such adjustment or increase.
‘‘(i) SPECIAL RULES.—For purposes of this section—
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) A substantial improvement to prop-
erty.
‘‘(B) In the case of stock of a corporation,
a substantial contribution to capital.
‘‘(C) Any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—The applicable in-
flation ratio shall be appropriately reduced for peri-
ods during which the asset was not an indexed asset.
‘‘(3) NET
LEASE
PROPERTY
DEFINED.—The
term ‘net lease property’ means leased property
where—
‘‘(A) the term of the lease (taking into ac-
count options to renew) was 50 percent or more
of the useful life of the property, and
‘‘(B) for the period of the lease, the sum
of the deductions with respect to such property
which are allowable to the lessor solely by rea-
son of section 162 (other than rents and reim-
bursed amounts with respect to such property)
is 15 percent or less of the rental income pro-
duced by such property.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part II of subchapter O of chapter 1 is amended by
inserting after the item relating to section 1021 the follow-
ing new item:
‘‘Sec. 1022. Indexing of certain assets acquired after 1991 for
purposes of determining gain.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to dispositions of any property
after the date of the enactment of this Act.
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