S.Amdt. 151

SA 151. Mr. DeMINT submitted an amendment intended to be proposed to
amendment SA 98 proposed by Mr. Inouye (for himself and Mr. Baucus) to
the bill H.R. 1, making supplemental appropriations for job
preservation and creation, infrastructure investment, energy efficiency
and science, assistance to the unemployed, and State and local fiscal
stabilization, for fiscal year ending September 30, 2009, and for other
purposes; which was ordered to lie on the table; as follows:

On page 570, after line 8, insert the following:

SEC. --. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF
DETERMINING GAIN OR LOSS.

(a) In General.--Part II of subchapter O of chapter 1 is
amended by redesignating section 1023 as section 1024 and by
inserting after section 1022 the following new section:

``SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF
DETERMINING GAIN OR LOSS.

``(a) General Rule.--
``(1) Indexed basis substituted for adjusted basis.--Solely
for purposes of determining gain or loss on the sale or other
disposition by a taxpayer (other than a corporation) of an
indexed asset which has been held for more than 3 years, the
indexed basis of the asset shall be substituted for its
adjusted basis.
``(2) Exception for depreciation, etc.--The deductions for
depreciation, depletion, and amortization shall be determined
without regard to the application of paragraph (1) to the
taxpayer or any other person.
``(3) Written documentation requirement.--Paragraph (1)
shall apply only with respect to indexed assets for which the
taxpayer has written documentation of the original purchase
price paid or incurred by the taxpayer to acquire such asset.
``(b) Indexed Asset.--
``(1) In general.--For purposes of this section, the term
`indexed asset' means--
``(A) common stock in a C corporation (other than a foreign
corporation), or
``(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 corporations included.--For
purposes of this section--
``(A) In general.--The term `indexed asset' includes common
stock in a foreign corporation which is regularly traded on
an established securities market.
``(B) Exception.--Subparagraph (A) shall not apply to--
``(i) stock of a foreign investment company,
``(ii) stock in a passive foreign investment 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 holding company.
``(C) Treatment of american depository receipts.--An
American depository receipt for common stock in a foreign
corporation shall be treated as common stock in such
corporation.
``(c) Indexed Basis.--For purposes of this section--
``(1) General rule.--The indexed basis for any asset is--
``(A) the adjusted basis of the asset, increased by
``(B) the applicable inflation adjustment.
``(2) Applicable inflation adjustment.--The applicable
inflation adjustment for any asset is an amount equal to--
``(A) the adjusted basis of the asset, multiplied by
``(B) the percentage (if any) by which--
``(i) the gross domestic product deflator for the last
calendar quarter ending before the asset is disposed of,
exceeds
``(ii) the gross domestic product deflator for the last
calendar quarter ending before the asset was acquired by the
taxpayer.
The percentage under subparagraph (B) shall be rounded to the
nearest \1/10\ of 1 percentage point.
``(3) Gross domestic product deflator.--The gross domestic
product deflator for any calendar quarter is the implicit
price deflator for the gross domestic product for such
quarter (as shown in the last revision thereof released by
the Secretary of Commerce before the close of the following
calendar quarter).
``(d) Suspension of Holding Period Where Diminished Risk of
Loss; Treatment of Short Sales.--
``(1) In general.--If the taxpayer (or a related person)
enters into any transaction which substantially reduces the
risk of loss from holding any asset, such asset shall not

[[Page S1454]]

be treated as an indexed asset for the period of such reduced
risk.
``(2) Short sales.--
``(A) In general.--In the case of a short sale of an
indexed asset with a short sale period in excess of 3 years,
for purposes of this title, the amount realized shall be an
amount equal to the amount realized (determined without
regard to this paragraph) increased by the applicable
inflation adjustment. In applying subsection (c)(2) for
purposes of the preceding sentence, the date on which the
property is sold short shall be treated as the date of
acquisition and the closing date for the sale shall be
treated as the date of disposition.
``(B) Short sale period.--For purposes of subparagraph (A),
the short sale period begins on the day that the 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
purposes of determining the earnings and profits of such
entity).
``(B) Exception for corporate shareholders.--Under
regulations--
``(i) in the case of a distribution by a qualified
investment entity (directly or indirectly) 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 (determined 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 distributions) so as to ensure that the
benefits of this section are not allowed (directly or
indirectly) to corporate shareholders of qualified 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 imposed 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 increased 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
determined with reference to capital gain dividends 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 company 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
paragraph (4), (5), or (6) of section 857(b).
``(2) Adjustments to interests held in entity.--
``(A) Regulated investment companies.--Stock in a regulated
investment company (within the meaning of section 851) shall
be an indexed asset for any calendar quarter in the same
ratio as--
``(i) the average of the fair market values of the indexed
assets held by such company at the close of each month during
such quarter, bears to
``(ii) the average of the fair market values of all assets
held by such company at the close of each such month.
``(B) Real estate investment trusts.--Stock in a real
estate investment trust (within the meaning of section 856)
shall be an indexed asset for any calendar quarter in the
same ratio as--
``(i) the fair market value of the indexed assets held by
such trust at the close of such quarter, bears to
``(ii) the fair market value of all assets held by such
trust at the close of such quarter.
``(C) Ratio of 80 percent or more.--If the ratio for any
calendar quarter determined under subparagraph (A) or (B)
would (but for this subparagraph) be 80 percent or more, such
ratio for such quarter shall be 100 percent.
``(D) Ratio of 20 percent or less.--If the ratio for any
calendar quarter determined under subparagraph (A) or (B)
would (but for this subparagraph) be 20 percent or less, such
ratio for such quarter shall be zero.
``(E) Look-thru of partnerships.--For purposes of this
paragraph, a qualified investment entity which holds a
partnership interest shall be treated (in lieu of holding a
partnership interest) as holding its proportionate share of
the assets held by the partnership.
``(3) Treatment of return of capital distributions.--Except
as otherwise provided by the Secretary, a distribution with
respect to stock in a qualified investment entity which is
not a dividend and which results in a reduction in the
adjusted basis of such stock shall be treated as allocable to
stock acquired by the taxpayer in the order in which such
stock was acquired.
``(4) Qualified investment entity.--For purposes of this
subsection, the term `qualified investment 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 partnership, the
adjustment made under subsection (a) at the partnership level
shall be passed through to the partners.
``(B) Special rule in the case of section 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 transferor 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 imposed by section 1374 or 1375.
``(3) Common trust funds.--In the case of a common trust
fund, the adjustment made under subsection (a) at the trust
level shall be passed through to the participants.
``(4) Indexing adjustment disregarded in determining loss
on sale of interest in entity.--Notwithstanding the preceding
provisions of this subsection, for purposes of determining
the amount of any loss on a sale or exchange of an interest
in a partnership, S corporation, or common trust fund, the
adjustment made under subsection (a) shall not be taken into
account in determining the adjusted basis of such interest.
``(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 purposes 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 Adjustment.--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 of improvements, etc.--If there is an
addition to the adjusted basis of any tangible property or of
any stock in a corporation during the taxable year by reason
of an improvement to such property or a contribution to
capital of such corporation--
``(A) such addition shall never be taken into account under
subsection (c)(1)(A) if the aggregate amount thereof during
the taxable year with respect to such property or stock is
less than $1,000, and
``(B) such addition shall be treated as a separate asset
acquired at the close of such taxable year if the aggregate
amount thereof during the taxable year with respect to such
property or stock is $1,000 or more.

A rule similar to the rule of the preceding sentence shall
apply to 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 inflation adjustment shall be
appropriately reduced for periods during which the asset was
not an indexed asset.
``(3) Treatment of certain distributions.--A distribution
with respect to stock in a corporation which is not a
dividend shall be treated as a disposition.
``(4) 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 ordinary 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 an amount equal to the amount of the ordinary loss to
which the preceding sentence applies.
``(5) Acquisition date where there has been prior
application of subsection (a)(1) with respect to the
taxpayer.--If there has been a prior application of
subsection (a)(1) to an asset while such asset was held by
the taxpayer, the date of acquisition of such asset by the
taxpayer shall be treated as not earlier than the date of the
most recent such prior application.
``(j) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section.''.

[[Page S1455]]

(b) Clerical Amendment.--The table of sections for part II
of subchapter O of chapter 1 is amended by striking the item
relating to section 1023 and by inserting after the item
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.''.

(c) Effective Date.--The amendments made by this section
shall apply to indexed assets acquired by the taxpayer after
December 31, 2008, in taxable years ending after such date.
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