I
104TH CONGRESS
1ST SESSION
H. R. 646
To amend the Internal Revenue Code of 1986 to index the basis of certain
capital assets for purposes of determining gain or loss.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 24, 1995
Mr. WYDEN 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 capital assets for purposes of deter-
mining gain or loss.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Family Savings and
Investors Protection Act of 1995’’.
SEC. 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF
DETERMINING GAIN OR LOSS.
(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 OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED
BASIS.—Except as otherwise provided in
this subsection, if an indexed asset which has been
held for more than 1 year is sold or otherwise dis-
posed of, for purposes of this title the indexed basis
of the asset shall be substituted for its adjusted
basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deduction for depreciation, depletion, and amor-
tization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) stock in a corporation, and
‘‘(B) 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) OPTIONS.—Any option or other right
to acquire an interest in property.
‘‘(C) NET LEASE PROPERTY.—In the case
of a lessor, net lease property (within the mean-
ing of subsection (i)(3)).
‘‘(D) CERTAIN PREFERRED STOCK.—Stock
which is fixed and preferred as to dividends and
does not participate in corporate growth to any
significant extent.
‘‘(E) 
STOCK
IN
FOREIGN
CORPORA-
TIONS.—Stock in a foreign corporation.
‘‘(F) 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)(E) 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, the
national market system operated by the National As-
sociation of Securities Dealers, or any domestic re-
gional exchange for which quotations are published
on a regular basis 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 section:
‘‘(1) GENERAL RULE.—Except as provided in
paragraph (2), 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 is the percent-
age arrived at by dividing—
‘‘(A) the gross national product deflator
for the calendar quarter in which the disposi-
tion takes place, by
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending on December 31, 1994).
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-tenth of 1 percent.
‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—
The gross national product deflator for any calendar
quarter is the implicit price deflator for the gross
national product for such quarter (as shown in the
first revision thereof).
‘‘(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)(3) 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
QUALIFICATION
PURPOSES.—This section shall not apply for
purposes of sections 851(b) and 856(c).
‘‘(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.
‘‘(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.
‘‘(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.
‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(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.
‘‘(4) TREATMENT
OF
CERTAIN
DISTRIBU-
TIONS.—A distribution with respect to stock in a
corporation which is not a dividend shall be treated
as a disposition.
‘‘(5) SECTION
CANNOT
INCREASE
ORDINARY
LOSS.—To the extent that (but for this paragraph)
this section would create or increase a net ordinary
loss to which section 1231(a)(2) applies or an ordi-
nary loss to which any other provision of this title
applies, such provision shall not apply. The taxpayer
shall be treated as having a long-term capital loss in