[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 253 Introduced in House (IH)]
103d CONGRESS
1st Session
H. R. 253
To amend the Internal Revenue Code of 1986 to index the basis of
certain assets for purposes of determining gain or loss and to exclude
from gross income all dividends from domestic corporations.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 5, 1993
Mr. Neal of North Carolina introduced the following bill; which was
referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to index the basis of
certain assets for purposes of determining gain or loss and to exclude
from gross income all dividends from domestic corporations.
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 ``Savings and Investment Incentive
Act''.
SECTION 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 inserting after section 1021 the following
new section:
``SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING
GAIN OR LOSS.
``(a) General Rule.--
``(1) Indexed basis substituted for adjusted basis.--Except
as provided in paragraph (2), if an indexed asset which has
been held for more than 1 year is sold or otherwise disposed
of, for purposes of this title the indexed basis of the asset
shall be substituted for its adjusted basis.
``(2) Exception for depreciation, etc.--The deduction for
depreciation, depletion, and amortization shall be determined
without regard to the application of paragraph (1) to the
taxpayer or any other person.
``(b) Indexed Asset.--
``(1) In general.--For purposes of this section, the term
`indexed asset' means--
``(A) stock in a corporation, and
``(B) 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) Options.--Any option or other right to
acquire an interest in property.
``(C) Net lease property.--In the case of a lessor,
net lease property (within the meaning of subsection
(h)(1)).
``(D) Certain preferred stock.--Stock which is
fixed and preferred as to dividends and does not
participate in corporate growth to any significant
extent.
``(E) Stock in certain corporations.--Stock in--
``(i) an S corporation (within the meaning
of section 1361),
``(ii) a personal holding company (as
defined in section 542), and
``(iii) a foreign corporation.
``(3) Exception for stock in foreign corporation which is
regularly traded on national or regional exchange.--Clause
(iii) of paragraph (2)(E) 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
other than--
``(A) stock of a foreign investment company (within
the meaning of section 1246(b)), and
``(B) 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 is the percentage arrived at by dividing--
``(A) the gross national product deflator for the
calendar quarter in which the disposition takes place,
by
``(B) the gross national product deflator for the
calendar quarter in which the asset was acquired by the
taxpayer (or, if later, the calendar quarter ending
December 31, 1993).
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-tenth of 1
percent.
``(3) Gross national product deflator.--The gross national
product deflator for any calendar quarter is the implicit price
deflator for the gross national product for such quarter (as
shown in the first revision thereof).
``(4) Secretary to publish tables.--The Secretary shall
publish tables specifying the applicable inflation ratios for
each calendar quarter.
``(d) 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, and
``(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.--
``(A) In general.--The applicable inflation ratio
shall be appropriately reduced for calendar months at
any time during which the asset was not an indexed
asset.
``(B) Certain short sales.--For purposes of
applying subparagraph (A), an asset shall be treated as
not an indexed asset for any short sale period during
which the taxpayer or the taxpayer's spouse sells short
property substantially identical to the asset. For
purposes of the preceding sentence, the short sale
period begins on the day after the substantially
identical property is sold and ends on the closing date
for the sale.
``(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.
``(6) Collapsible corporations.--The application of section
341(a) (relating to collapsible corporations) shall be
determined without regard to this section.
``(e) Certain Conduit Entities.--
``(1) Regulated investment companies; real estate
investment trusts; common trust funds.--
``(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.
``(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 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.
``(g) Transfers To Increase Indexing Adjustment or Depreciation
Allowance.--If any person transfers cash, debt, or any other property
to another person and the principal purpose of such transfer is--
``(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,
the Secretary may disallow part or all of such adjustment or increase.
``(h) Definitions.--For purposes of this section--
``(1) Net lease property defined.--The term `net lease
property' means leased real 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.
``(2) Stock includes interest in common trust fund.--The
term `stock in a corporation' includes any interest in a common
trust fund (as defined in section 584(a)).
``(i) 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 such chapter 1 of such Code is amended by inserting
after the item relating to section 1021 the following new item:
``Sec. 1022. Indexing of certain assets
for purposes of determining
gain or loss.''
(c) Adjustment To Apply for Purposes of Determining Earnings and
Profits.--Subsection (f) of section 312 of such Code (relating to
effect on earnings and profits of gain or loss and of receipt of tax-
free distributions) is amended by adding at the end thereof the
following new paragraph:
``(3) Effect on earnings and profits of indexed basis.--
``For substitution of indexed basis for
adjusted basis in the case of the disposition of certain assets after
December 31, 1993, see section 1022(a)(1).''
(d) Effective Date.--The amendments made by this section shall
apply to sales or exchanges occurring after December 31, 1993, in
taxable years ending after such date.
SEC. 3. EXCLUSION FROM GROSS INCOME FOR DIVIDENDS FROM DOMESTIC
CORPORATIONS.
(a) In General.--Part III of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to amounts specifically
excluded from gross income) is amended by inserting after section 115
the following new section:
``SEC. 116. EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.
``(a) Exclusion From Gross Income.--Gross income does not include
amounts received during the taxable year by an individual as dividends
from domestic corporations.
``(b) Certain Dividends Excluded.--Subsection (a) shall not apply
to any dividend from a corporation which, for the taxable year of the
corporation in which the distribution is made, or for the next
preceding taxable year of the corporation, is a corporation exempt from
tax under section 501 (relating to certain charitable, etc.,
organization) or section 521 (relating to farmers' cooperative
associations).
``(c) Special Rules.--For purposes of this section--
``(1) Distributions from regulated investment companies and
real estate investment trusts.--Subsection (a) shall apply with
respect to distributions by--
``(A) regulated investment companies to the extent
provided in section 854(c), and
``(B) real estate investment trusts to the extent
provided in section 857(c).
``(2) Distributions by a trust.--For purposes of subsection
(a), the amount of dividends properly allocable to a
beneficiary under section 652 or 662 shall be deemed to have
been received by the beneficiary ratably on the same date that
the dividends were received by the estate or trust.
``(3) Certain nonresident aliens ineligible for
exclusion.--In the case of a nonresident alien individual,
subsection (a) shall apply only--
``(A) in determining the tax imposed for the
taxable year pursuant to section 871(b)(1) and only in
respect of dividends and interest which are effectively
connected with the conduct of a trade or business
within the United States, or
``(B) in determining the tax imposed for the
taxable year pursuant to section 877(b).''
(b) Clerical and Conforming Amendments.--
(1) The table of sections for part III of subchapter B of
chapter 1 of such Code is amended by inserting after the item
relating to section 115 the following new item:
``Sec. 116. Exclusion of dividends
received by individuals.''
(2) Subsection (c) of section 584 of such Code is amended
by adding at the end thereof the following new sentence:
``The proportionate share of each participant in the amount of
dividends received by the common trust fund and to which section 116
applies shall be considered for purposes of such section as having been
received by such participant.''
(3) Subsection (a) of section 643(a) of such Code is
amended by inserting after paragraph (6) the following new
paragraph:
``(7) Dividends.--There shall be included the amount of any
dividends excluded from gross income pursuant to section 116.''
(4) Section 854 of such Code is amended by adding at the
end thereof the following new subsection:
``(c) Treatment Under Section 116.--
``(1) In general.--For purposes of section 116, in the case
of any dividend (other than a dividend described in subsection
(a)) received from a regulated investment company which meets
the requirements of section 852 for the taxable year in which
it paid the dividend--
``(A) the entire amount of such dividend shall be
treated as a dividend if the aggregate dividends
received by such company during the taxable year equal
or exceed 75 percent of its gross income, or
``(B) if subparagraph (A) does not apply, a portion
of such dividend shall be treated as a dividend based
on the portion of the company's gross income which
consists of aggregate dividends, as the case may be.
``(2) Notice to shareholders.--The amount of any
distribution by a regulated investment company which may be
taken into account as a dividend for purposes of the exclusion
under section 116 shall not exceed the amount so designated by
the company in a written notice to its shareholders mailed not
later than 45 days after the close of its taxable year.
``(3) Definitions.--For purposes of this subsection--
``(A) The term `gross income' does not include gain
from the sale or other disposition of stock or
securities.
``(B) The term `aggregate dividends received'
includes only dividends received from domestic
corporations other than dividends described in section
116(b). In determining the amount of any dividend for
purposes of this subparagraph, the rules provided in
section 116(c)(1) (relating to certain distributions)
shall apply.''
(6) Subsection (c) of section 857 of such Code is amended
to read as follows:
``(c) Limitations Applicable to Dividends Received From Real Estate
Investment Trusts.--For purposes of section 116 (relating to an
exclusion for dividends received by individuals) and section 243
(relating to deductions for dividends received by corporations), a
dividend received from a real estate investment trust which meets the
requirements of this part shall not be considered as a dividend.''
(c) Effective Date.--The amendments made by this section shall
apply with respect to taxable years beginning after December 31, 1993.
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