6

"(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 the second sentence of section 1231(a) applies or

an ordinary loss to which any other provision of this

title applies, such provision shall not apply. The tax

payer 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.

"(6) COLLAPSIBLE CORPORATIONS.—The application of section 341(a) (relating to collapsible corporations) shall be determined without regard to this section.

7

1

2

3

4

“(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

8

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.

"(E) QUALIFIED INVESTMENT ENTITY.For purposes of this paragraph, the term 'qualified investment entity' means

"(i) a regulated investment company (within the meaning of section 851),

"(ii) a real estate investment trust (within the meaning of section 856), and

"(iii) a common trust fund (within the

meaning of section 584).

"(2) PARTNERSHIPS.-In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners.

"(3) SUBCHAPTER S CORPORATIONS.-In the case of an electing small business corporation, the adjustment under subsection (a) at the corporate level shall be passed through to the shareholders.

"(f) DISPOSITIONS BETWEEN RELATED PERSONS.

"(1) IN GENERAL.-This section shall not apply

to any sale or other disposition of property between re

9

10

lated 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 employers

under subsection (b) or (c) of section 414.

"(g) TRANSFERS TO INCREASE INDEXING ADJUST

11 MENT OR DEPRECIATION ALLOWANCE.-If any person 12 transfers cash, debt, or any other property to another person

13 and the principal purpose of such transfer is—

14

15

16

17

18

"(1) to secure or increase an adjustment under subsection (a), or

"(2) to increase (by reason of an adjustment under

subsection (a)) a deduction for depreciation, depletion, or amortization,

19 the Secretary may disallow part or all of such adjustment or

20 increase.

"(h) DEFINITIONS.-For purposes of this section

"(1) NET LEASE PROPERTY DEFINED.-The term

'net lease property' means leased real property

where

10

"(A) the term of the lease (taking into ac

count options to renew) was 57 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 per

cent or less of the rental income produced by such property.

"(2) STOCK INCLUDES INTEREST IN COMMON TRUST FUND.—The term 'stock in a corporation' in

cludes any interest in a common trust fund (as defined in section 584(a)).

"(i) REGULATIONS.-The Secretary shall prescribe

16 such regulations as may be necessary or appropriate to carry

17 out the purposes of this section.”.

18

(b) CLERICAL AMENDMENT.-The table of sections for

19 part II of subchapter O of such chapter 1 is amended by 20 inserting after the item relating to section 1019 the following 21 new item:

22

"Sec. 1020. Indexing of certain assets for purposes of determining gain or loss.". (c) EFFECTIVE DATE.-The amendments made by this

23 section shall apply to sales and exchanges after December 24 31, 1983.

25