beginning before January 1, 1998) is
treated as a long-term capital loss for the
taxpayer’s first taxable year beginning
after December 31, 1997, over
‘‘(ii) the sum of—
‘‘(I) the aggregate amount deter-
mined under subparagraph (A)(ii) for
all prior taxable years beginning after
December 31, 1997, and
‘‘(II) the aggregate reductions
under subparagraph (A) for all such
prior taxable years.’’
(22) Subsection (b) of section 1374 of such
Code is amended by striking paragraph (4).
(23) Subsection (b) of section 1381 is amended
by striking ‘‘or 1201’’.
(24) Paragraph (1) of section 1402(i) of such
Code is amended by inserting ‘‘, and the deduction
provided by section 1201 shall not apply’’ before the
period at the end thereof.
(25) Subsection (e) of section 1445 of such
Code is amended—
(A) in paragraph (1) by striking ‘‘35 per-
cent (or, to the extent provided in regulations,
28 percent)’’ and inserting ‘‘17.5 percent (or, to
the extent provided in regulations, 19.8 per-
cent)’’, and
(B) in paragraph (2) by striking ‘‘35 per-
cent’’ and inserting ‘‘17.5 percent’’.
(26) Clause (i) of section 6425(c)(1)(A) of such
Code is amended by striking ‘‘or 1201(a)’’.
(27) Clause (i) of section 6655(g)(1)(A) of such
Code is amended by striking ‘‘or 1201(a)’’.
(28)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) of such Code is amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) applies’’, and
(ii) by striking ‘‘28 percent (34 percent’’
and inserting ‘‘19.8 percent (17.5 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936 is
amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) of such Code ap-
plies’’, and
(ii) by striking ‘‘28 percent (34 percent’’
and inserting ‘‘19.8 percent (17.5 percent’’.
(29) The table of sections for part I of sub-
chapter P of chapter 1 of such Code is amended by
striking the item relating to section 1201 and insert-
ing the following:
‘‘Sec. 1201. Capital gains deduction.’’
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to taxable years ending after
December 31, 1996.
(2) REPEAL OF SECTION 1(h).—The amendment
made by subsection (c)(1) shall apply to taxable
years beginning after January 1, 1997.
(3) CONTRIBUTIONS.—The amendment made
by subsection (c)(4) shall apply only to contributions
on or after January 1, 1997.
(4) USE OF LONG-TERM LOSSES.—The amend-
ments made by subsection (c)(21) shall apply to tax-
able years beginning after December 31, 1997.
(5) WITHHOLDING.—The amendment made by
subsection (c)(25) shall apply only to amounts paid
after the date of the enactment of this Act.
(6) COORDINATION
WITH
PRIOR
TRANSITION
RULE.—Any amount treated as long-term capital
gain by reason of paragraph (3) of section 1122(h)
of the Tax Reform Act of 1986 shall not be taken
into account for purposes of applying section 1201
of the Internal Revenue Code of 1986 (as added by
this section).
SEC. 3. INCREASED EXCLUSION AND OTHER MODIFICA-
TIONS APPLICABLE TO QUALIFIED SMALL
BUSINESS STOCK.
(a) INCREASED EXCLUSION.—
(1) IN
GENERAL.—Subsection (a) of section
1202 of the Internal Revenue Code of 1986 (50-per-
cent exclusion for gain from certain small business
stock) is amended—
(A) by striking ‘‘50 percent’’ and inserting
‘‘75 percent’’, and
(B) by striking ‘‘50-PERCENT’’ in the
heading and inserting ‘‘75-PERCENT’’.
(2) CONFORMING AMENDMENTS.—
(A) The heading for section 1202 of such
Code is amended by striking ‘‘50-PERCENT’’
and inserting ‘‘75-PERCENT’’.
(B) The table of sections for part I of sub-
chapter P of chapter 1 of such Code is amended
by striking ‘‘50-percent’’ in the item relating to
section 1202 and inserting ‘‘75-percent’’.
(b) REDUCTION IN HOLDING PERIOD.—Subsection
(a) of section 1202 of such Code is amended by striking
‘‘5 years’’ and inserting ‘‘3 years’’.
(c) EXCLUSION AVAILABLE TO CORPORATIONS.—
(1) IN
GENERAL.—Subsection (a) of section
1202 of such Code is amended by striking ‘‘other
than a corporation’’.
(2) TECHNICAL AMENDMENT.—Subsection (c)
of section 1202 of such Code is amended by adding
at the end the following new paragraph:
‘‘(4) STOCK HELD AMONG MEMBERS OF CON-
TROLLED GROUP NOT ELIGIBLE.—Stock of a mem-
ber of a parent-subsidiary controlled group (as de-
fined in subsection (d)(3)) shall not be treated as
qualified small business stock while held by another
member of such group.’’
(d) REPEAL OF MINIMUM TAX PREFERENCE.—
(1) IN GENERAL.—Subsection (a) of section 57
of such Code (relating to items of tax preference) is
amended by striking paragraph (7).
(2) TECHNICAL AMENDMENT.—Subclause (II)
of section 53(d)(1)(B)(ii) of such Code is amended
by striking ‘‘, (5), and (7)’’ and inserting ‘‘and (5)’’.
(e) STOCK OF LARGER BUSINESSES ELIGIBLE FOR
EXCLUSION.—
(1) IN
GENERAL.—Paragraph (1) of section
1202(d) of such Code (defining qualified small busi-
ness) is amended by striking ‘‘$50,000,000’’ each
place it appears and inserting ‘‘$100,000,000’’.
(2) INFLATION ADJUSTMENT.—Section 1202(d)
of such Code is amended by adding at the end the
following:
‘‘(4) INFLATION ADJUSTMENT OF ASSET LIMI-
TATION.—In the case of stock issued in any calendar
year after 1998, the $100,000,000 amount con-
tained in paragraph (1) shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1997’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of
$10,000.’’
(f) REPEAL OF PER-ISSUER LIMITATION.—Section
1202 of such Code is amended by striking subsection (b).
(g) OTHER MODIFICATIONS.—
period beginning on the date of such sale, reduced
by
‘‘(2) any portion of such cost previously taken
into account under this section.
This section shall not apply to any gain which is treated
as ordinary income for purposes of this title.
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) QUALIFIED SMALL BUSINESS STOCK.—The
term ‘qualified small business stock’ has the mean-
ing given such term by section 1202(c).
‘‘(2) ELIGIBLE GAIN.—The term ‘eligible gain’
means any gain from the sale or exchange of quali-
fied small business stock held for more than 6
months.
‘‘(3) PURCHASE.—A taxpayer shall be treated
as having purchased any property if, but for para-
graph (4), the unadjusted basis of such property in
the hands of the taxpayer would be its cost (within
the meaning of section 1012).
‘‘(4) BASIS ADJUSTMENTS.—If gain from any
sale is not recognized by reason of subsection (a),
such gain shall be applied to reduce (in the order ac-
quired) the basis for determining gain or loss of any
qualified small business stock which is purchased by
the taxpayer during the 60-day period described in
subsection (a).
‘‘(c) SPECIAL RULES FOR TREATMENT OF REPLACE-
MENT STOCK.—
‘‘(1) HOLDING PERIOD FOR ACCRUED GAIN.—
For purposes of this chapter, gain from the disposi-
tion of any replacement qualified small business
stock shall be treated as gain from the sale or ex-
change of qualified small business stock held more
than 6 months to the extent that the amount of such
gain does not exceed the amount of the reduction in
the basis of such stock by reason of subsection
(b)(4).
‘‘(2) TACKING OF HOLDING PERIOD FOR PUR-
POSES OF DEFERRAL.—Solely for purposes of apply-
ing this section, if any replacement qualified small
business stock is disposed of before the taxpayer has
held such stock for more than 6 months, gain from
such stock shall be treated eligible gain for purposes
of subsection (a).
‘‘(3) REPLACEMENT
QUALIFIED
SMALL
BUSI-
NESS STOCK.—For purposes of this subsection, the
term ‘replacement qualified small business stock’
means any qualified small business stock the basis
of which was reduced under subsection (b)(4).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a)(23) of such Code is amend-
ed—
(A) by striking ‘‘or 1044’’ and inserting ‘‘,
1044, or 1045’’; and
(B) by striking ‘‘or 1044(d)’’ and inserting
‘‘, 1044(d), or 1045(b)(4)’’.
(2) The table of sections for part III of sub-
chapter O of chapter 1 of such Code is amended by
adding at the end the following:
‘‘Sec. 1045. Rollover of gain from qualified small business stock
to another qualified small business stock.’’
(c) EFFECTIVE DATE.—The amendments made by
this section apply to stock sold or exchanged after the date
of the enactment of this Act.
SEC. 5. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER
DECEMBER 31, 1996, FOR PURPOSES OF DE-
TERMINING 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 ACQUIRED
AFTER DECEMBER 31, 1996, 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 3 years 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 deductions for depreciation, depletion, and am-
ortization 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) common stock in a C corporation
(other than a foreign corporation), and
‘‘(B) tangible property,
which is a capital asset or property used in the trade
or business (as defined in section 1231(b)).
‘‘(2) STOCK
IN
CERTAIN
FOREIGN
CORPORA-
TIONS INCLUDED.—For purposes of this section—
‘‘(A) IN
GENERAL.—The term ‘indexed
asset’ includes common stock in a foreign cor-
poration which is regularly traded on an estab-
lished securities market.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to—
‘‘(i) stock of a foreign investment
company (within the meaning of section
1246(b)),
‘‘(ii) stock in a passive foreign invest-
ment company (as defined in section
1296),
‘‘(iii) stock in a foreign corporation
held by a United States person who meets
the requirements of section 1248(a)(2),
and
‘‘(iv) stock in a foreign personal hold-
ing company (as defined in section 552).
‘‘(C) TREATMENT OF AMERICAN DEPOSI-
TORY RECEIPTS.—An American depository re-
ceipt for common stock in a foreign corporation
shall be treated as common stock in such cor-
poration.
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion—
‘‘(1) GENERAL RULE.—The indexed basis for
any asset is—