,,ii #aaith ,,congress #ast ,session ,s4 #gih ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,february #bg1 #bjbe,mr4 ,cruz 7for himself and ,mr4 ,tillis7 introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to provide for the indexing of certain assets for purposes of determining gain or loss4 #a4 ,short title ,this ,act may be cited as the ,capital ,gains ,inflation ,relief ,act of #bjbe4 #b4 ,indexing of certain assets for purposes of determining gain or loss 7a7 ,in ,general ,part ,,ii of subchapter ,o of chapter #a of the ,internal ,revenue ,code of #aihf 7relating to basis rules of general application7 is amended by redesignating section #ajbc as section #ajbd and by inserting after section #ajbb the following new section3 #ajbc4 ,indexing of certain assets for purposes of determining gain or loss 7a7 ,general rule 7#a7 ,indexed basis substituted for adjusted basis ,solely for purposes of determining gain or loss on the sale or other disposition by a taxpayer 7other than a corporation7 of an indexed asset which has been held for more than #c years1 the indexed basis of the asset shall be substituted for its adjusted basis4 7#b7 ,exception for depreciation1 etc ,the deductions for depreciation1 depletion1 and amortization shall be determined without regard to the application of paragraph 7#a7 to the taxpayer or any other person4 7#c7 ,written documentation requirement ,paragraph 7#a7 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 asset4 7b7 ,indexed asset 7#a7 ,in general ,for purposes of this section1 the term indexed asset means-- 7,a7 any common stock in a ,c corporation 7other than a foreign corporation71 7,b7 any digital asset1 or 7,c7 any tangible property1 which is a capital asset or property used in the trade or business 7as defined in section #abca7;b774 7#b7 ,stock in certain foreign corporations included ,for purposes of this section-- 7,a7 ,in general ,the term indexed asset includes common stock in a foreign corporation which is regularly traded on an established securities market4 7,b7 ,exception ,subparagraph 7,a7 shall not apply to-- 7i7 stock of a foreign investment company1 7ii7 stock in a passive foreign investment company 7as defined in section #abig71 7iii7 stock in a foreign corporation held by a ,united ,states person who meets the requirements of section #abdh7;a77#b71 and 7iv7 stock in a foreign personal holding company4 7,c7 ,treatment of ,american depository receipts ,an ,american depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation4 7#c7 ,digital asset ,for purposes of this section1 the term digital asset means any natively electronic asset which-- 7,a7 is recorded on a cryptographically secured distributed ledger1 and 7,b7 is designed to confer only economic or access rights4 7c7 ,indexed basis ,for purposes of this section-- 7#a7 ,general rule ,the indexed basis for any asset is-- 7,a7 the adjusted basis of the asset1 increased by 7,b7 the applicable inflation adjustment4 7#b7 ,applicable inflation adjustment ,the applicable inflation adjustment for any asset is an amount equal to-- 7,a7 the adjusted basis of the asset1 multiplied by 7,b7 the percentage 7if any7 by which-- 7i7 the gross domestic product deflator for the last calendar quarter ending before the asset is disposed of1 exceeds 7ii7 the gross domestic product deflator for the last calendar quarter ending before the asset was acquired by the taxpayer4 ,the percentage under subparagraph 7,b7 shall be rounded to the nearest #a_/aj of #a percentage point4 7#c7 ,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 7as shown in the last revision thereof released by the ,secretary of ,commerce before the close of the following calendar quarter74 7d7 ,suspension of holding period where diminished risk of loss2 treatment of short sales 7#a7 ,in general ,if the taxpayer 7or a related person7 enters into any transaction which substantially reduces the risk of loss from holding any asset1 such asset shall not be treated as an indexed asset for the period of such reduced risk4 7#b7 ,short sales 7,a7 ,in general ,in the case of a short sale of an indexed asset with a short sale period in excess of #c years1 for purposes of this title1 the amount realized shall be an amount equal to the amount realized 7determined without regard to this paragraph7 increased by the applicable inflation adjustment4 ,in applying subsection 7c77#b7 for purposes of the preceding sentence1 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 disposition4 7,b7 ,short sale period ,for purposes of subparagraph 7,a71 the short sale period begins on the day that the property is sold and ends on the closing date for the sale4 7e7 ,treatment of regulated investment companies and real estate investment trusts 7#a7 ,adjustments at entity level 7,a7 ,in general ,except as otherwise provided in this paragraph1 the adjustment under subsection 7a7 shall be allowed to any qualified investment entity 7including for purposes of determining the earnings and profits of such entity74 7,b7 ,exception for corporate shareholders ,under regulations-- 7i7 in the case of a distribution by a qualified investment entity 7directly or indirectly7 to a corporation-- 7,i7 the determination of whether such distribution is a dividend shall be made without regard to this section1 and 7,,ii7 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 7determined without regard to this section7 exceeds the entity's net capital gain for such year determined with regard to this section1 and 7ii7 there shall be other appropriate adjustments 7including deemed distributions7 so as to ensure that the benefits of this section are not allowed 7directly or indirectly7 to corporate shareholders of qualified investment entities4 ,for purposes of the preceding sentence1 any amount includible in gross income under section #heb7;b77#c77;,d7 shall be treated as a capital gain dividend and an ,s corporation shall not be treated as a corporation4 7,c7 ,exception for qualification purposes ,this section shall not apply for purposes of sections #hea7;b7 and #hef7;c74 7,d7 ,exception for certain taxes imposed at entity level 7i7 ,tax on failure to distribute entire gain ,if any amount is subject to tax under section #heb7;b77#c77;,a7 for any taxable year1 the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph 7,b77i77,,ii74 ,a similar rule shall apply in the case of any amount subject to tax under paragraph 7#b7 or 7#c7 of section #heg7;b7 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 only4 ,the first sentence of this clause shall not apply to so much of the amount subject to tax under section #heb7;b77#c77;,a7 as is designated by the company under section #heb7;b77#c77;,d74 7ii7 ,other taxes ,this section shall not apply for purposes of determining the amount of any tax imposed by paragraph 7#d71 7#e71 or 7#f7 of section #heg7;b74 7#b7 ,adjustments to interests held in entity 7,a7 ,regulated investment companies ,stock in a regulated investment company 7within the meaning of section #hea7 shall be an indexed asset for any calendar quarter in the same ratio as-- 7i7 the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter1 bears to 7ii7 the average of the fair market values of all assets held by such company at the close of each such month4 7,b7 ,real estate investment trusts ,stock in a real estate investment trust 7within the meaning of section #hef7 shall be an indexed asset for any calendar quarter in the same ratio as-- 7i7 the fair market value of the indexed assets held by such trust at the close of such quarter1 bears to 7ii7 the fair market value of all assets held by such trust at the close of such quarter4 7,c7 ,ratio of #hj percent or more ,if the ratio for any calendar quarter determined under subparagraph 7,a7 or 7,b7 would 7but for this subparagraph7 be #hj percent or more1 such ratio for such quarter shall be #ajj percent4 7,d7 ,ratio of #bj percent or less ,if the ratio for any calendar quarter determined under subparagraph 7,a7 or 7,b7 would 7but for this subparagraph7 be #bj percent or less1 such ratio for such quarter shall be zero4 7,e7 ,look-thru of partnerships ,for purposes of this paragraph1 a qualified investment entity which holds a partnership interest shall be treated 7in lieu of holding a partnership interest7 as holding its proportionate share of the assets held by the partnership4 7#c7 ,treatment of return of capital distributions ,except as otherwise provided by the ,secretary1 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 acquired4 7#d7 ,qualified investment entity ,for purposes of this subsection1 the term qualified investment entity means-- 7,a7 a regulated investment company 7within the meaning of section #hea71 and 7,b7 a real estate investment trust 7within the meaning of section #hef74 7f7 ,other pass-,thru entities 7#a7 ,partnerships 7,a7 ,in general ,in the case of a partnership1 the adjustment made under subsection 7a7 at the partnership level shall be passed through to the partners4 7,b7 ,special rule in the case of section #ged elections ,in the case of a transfer of an interest in a partnership with respect to which the election provided in section #ged is in effect-- 7i7 the adjustment under section #gdc7;b77#a7 shall1 with respect to the transferor partner1 be treated as a sale of the partnership assets for purposes of applying this section1 and 7ii7 with respect to the transferee partner1 the partnership's holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment4 7#b7 ,s corporations ,in the case of an ,s corporation1 the adjustment made under subsection 7a7 at the corporate level shall be passed through to the shareholders4 ,this section shall not apply for purposes of determining the amount of any tax imposed by section #acgd or #acge4 7#c7 ,common trust funds ,in the case of a common trust fund1 the adjustment made under subsection 7a7 at the trust level shall be passed through to the participants4 7#d7 ,indexing adjustment disregarded in determining loss on sale of interest in entity ,notwithstanding the preceding provisions of this subsection1 for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership1 ,s corporation1 or common trust fund1 the adjustment made under subsection 7a7 shall not be taken into account in determining the adjusted basis of such interest4 7g7 ,dispositions between related persons 7#a7 ,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 basis4 7#b7 ,related persons defined ,for purposes of this section1 the term related persons means-- 7,a7 persons bearing a relationship set forth in section #bfg7;b71 and 7,b7 persons treated as single employer under subsection 7b7 or 7c7 of section #dad4 7h7 ,transfers ,to increase indexing adjustment ,if any person transfers cash1 debt1 or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection 7a71 the ,secretary may disallow part or all of such adjustment or increase4 7i7 ,special rules ,for purposes of this section-- 7#a7 ,treatment of improvements1 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-- 7,a7 such addition shall never be taken into account under subsection 7c77#a77;,a7 if the aggregate amount thereof during the taxable year with respect to such property or stock is less than #a1jjj1 and 7,b7 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 #a1jjj or more4 ,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 section4 7#b7 ,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 asset4 7#c7 ,treatment of certain distributions ,a distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition4 7#d7 ,section cannot increase ordinary loss ,to the extent that 7but for this paragraph7 this section would create or increase a net ordinary loss to which section #abca7;a77#b7 applies or an ordinary loss to which any other provision of this title applies1 such provision shall not apply4 ,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 applies4 7#e7 ,acquisition date where there has been prior application of subsection 7a77#a7 with respect to the taxpayer ,if there has been a prior application of subsection 7a77#a7 to an asset while such asset was held by the taxpayer1 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 application4 7j7 ,regulations ,the ,secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section4 4 7b7 ,clerical amendment ,the table of sections for part ,,ii of subchapter ,o of chapter #a of the ,internal ,revenue ,code of #aihf is amended by striking the item relating to section #ajbc and by inserting after the item relating to section #ajbb the following new item3 ,sec4 #ajbc4 ,indexing of certain assets for purposes of determining gain or loss4,sec4 #ajbd4 ,cross references4 4 7c7 ,effective date ,the amendments made by this section shall apply to indexed assets acquired by the taxpayer after ,december #ca1 #bjbe1 in taxable years ending after such date4