[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 1225 Introduced in Senate (IS)]
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118th CONGRESS
1st Session
S. 1225
To amend the Internal Revenue Code of 1986 to provide for the indexing
of certain assets for purposes of determining gain or loss.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 20, 2023
Mr. Cruz (for himself, Mr. Braun, and Mr. Hagerty) introduced the
following bill; which was read twice and referred to the Committee on
Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for the indexing
of certain assets for purposes of determining gain or loss.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Capital Gains Inflation Relief Act
of 2023''.
SEC. 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR
LOSS.
(a) In General.--Part II of subchapter O of chapter 1 of the
Internal Revenue Code of 1986 (relating to basis rules of general
application) 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) any common stock in a C corporation (other
than a foreign corporation),
``(B) any digital asset, or
``(C) any 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
1297),
``(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.
``(3) Digital asset.--For purposes of this section, the
term `digital asset' means any natively electronic asset
which--
``(A) is recorded on a cryptographically secured
distributed ledger, and
``(B) is designed to confer only economic or access
rights.
``(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 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.''.
(b) Clerical Amendment.--The table of sections for part II of
subchapter O of chapter 1 of the Internal Revenue Code of 1986 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. 1023. Indexing of certain assets for purposes of determining
gain or loss.
``Sec. 1024. Cross references.''.
(c) Effective Date.--The amendments made by this section shall
apply to indexed assets acquired by the taxpayer after December 31,
2023, in taxable years ending after such date.
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