text: SECTION 1. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN.
  
      (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 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 adjusted 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 applying 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 adjustments 
                  instead of only additional depreciation.
      ``(b) Indexed Asset.--
              ``(1) In general.--For purposes of this section, 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 creditor'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 meaning 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 corporations.--Stock in a 
                  foreign corporation.
                      ``(G) Stock in s corporations.--Stock in an S 
                  corporation.
              ``(3) Exception for stock in foreign corporation which is 
          regularly traded on national or regional exchange.--Paragraph 
          (2)(F) shall not apply to stock in a foreign corporation 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 company (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 requirements of 
                  section 1248(a)(2).
      ``(c) Indexed Basis.--For purposes of this section--
              ``(1) Indexed basis.--The indexed basis for any asset is--
                      ``(A) the adjusted basis of the asset, multiplied 
                  by
                      ``(B) the applicable inflation ratio.
              ``(2) Applicable inflation ratio.--The applicable inflation 
          ratio for any asset shall be determined by dividing--
                      ``(A) the CPI for the calendar year preceding the 
                  calendar year in which the disposition takes place, by
                      ``(B) the CPI for the calendar year preceding 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 paragraph (2), if any 
          asset is disposed of during any calendar 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 actual 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 realized shall be an amount 
          equal to the amount realized (determined without regard to this 
          paragraph) multiplied by the applicable inflation ratio. 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 on which the holding period for the asset 
          begins and the closing date for the sale shall be treated as 
          the date of disposition.
              ``(2) Short sale of substantially identical 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 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) 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 entity at the close of such month 
                  which are indexed 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 investment trust to value its 
                  assets more frequently 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 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 (but only for purposes of determining the 
                  income of partners who are individuals).
                      ``(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 (but only for 
          purposes of determining the income of participants who are 
          individuals).
      ``(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 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 as separate asset.--In the case of any 
          asset, the following shall be treated as a separate asset:
                      ``(A) A substantial improvement to property.
                      ``(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 inflation ratio shall be 
          appropriately reduced for periods 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 account 
                  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 reason of section 162 
                  (other than rents and reimbursed amounts with respect 
                  to such property) is 15 percent or less of the rental 
                  income produced 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 following 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.
target: Amends the Internal Revenue Code to require indexing, based on the consumer price index, of the adjusted basis of certain assets (corporate stock and tangible property that is a capital asset of property used in a trade or business) that have been held for more than one year at the time of sale or other transfer, solely for the purpose of determining gain or loss.
feat_title: To amend the Internal Revenue Code of 1986 to index the basis of certain assets for purposes of determining gain.