[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3641 Introduced in House (IH)]







105th CONGRESS
  2d Session
                                H. R. 3641

   To amend the Internal Revenue Code of 1986 to allow capital gain 
    treatment on the transfer of a franchise in connection with the 
       transfer of an existing business, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 1, 1998

Mr. Bunning of Kentucky (for himself, Mr. Houghton, and Mr. English of 
Pennsylvania) 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 allow capital gain 
    treatment on the transfer of a franchise in connection with the 
       transfer of an existing business, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. TREATMENT OF TRANSFERS OF FRANCHISES IN CONNECTION WITH 
              TRANSFER OF EXISTING BUSINESS OPERATION.

    (a) Capital Gain Treatment.--Section 1253 of the Internal Revenue 
Code of 1986 (relating to transfers of franchises, trademarks, and 
trade names) is amended by adding at the end the following new 
subsection:
    ``(f) Exception for Transfers of Franchises In Connection With 
Existing Business Operation.--
            ``(1) In general.--Subsection (a) shall not apply to the 
        transfer of a franchise to an eligible transferee if--
                    ``(A) the trade or business which is the subject 
                matter of the franchise has been actively carried on 
                for not less than 2 years as of the date of the 
                transfer,
                    ``(B) the transferee acquires the right to operate 
                such trade or business in connection with such 
                transfer, and
                    ``(C) the transferee and the transferor are not 
                related persons (as defined in section 197(f)(9)(C)).
            ``(2) Eligible transferee.--For purposes of paragraph (1), 
        the term `eligible transferee' means--
                    ``(A) an individual,
                    ``(B) any domestic corporation all of the stock in 
                which is owned by an individual and the members of such 
                individual's family (within the meaning of section 
                267(c)(4)),
                    ``(C) a corporation--
                            ``(i) which meets the requirements of 
                        section 1361(b) (determined by substituting 
                        `35' for `75' in paragraph (1) thereof), and
                            ``(ii) which meets the requirements of 
                        section 1202(d) (determined by treating such 
                        transfer as the issuance referred to in such 
                        section), or, in the case of a corporation 
                        which is not a C corporation, would meet such 
                        requirements (as so determined) were it a C 
                        corporation), or
                    ``(D) a partnership which would meet the 
                requirements of subparagraph (B) or (C) if it were a 
                corporation and interests in the profits or capital of 
                the partnership were stock.''.
    (b) Exception From Ordinary Income Recapture on Disposition of 
Amortized Franchise Cost.--Paragraph (7) of section 197(f) of such Code 
is amended by adding at the end the following new sentence: ``The 
preceding sentence shall not apply to any franchise to which section 
1253(a) does not apply by reason of section 1253(f).''
    (c) Maximum Rate of Tax.--Subsection (a) of section 1201 of such 
Code (relating to alternative tax for corporations) is amended by 
striking ``plus'' at the end of paragraph (1) and by striking paragraph 
(2) and inserting the following new paragraphs:
            ``(2) 20 percent of the lesser of--
                    ``(A) the net capital gain determined by taking 
                into account only gain and loss attributable to 
                transfers of franchises to which section 1253(a) does 
                not apply by reason of section 1253(f), or
                    ``(B) the net capital gain (or, if less, taxable 
                income) for the taxable year, plus
            ``(3) 35 percent of the excess (if any) of--
                    ``(A) the net capital gain (or, if less, taxable 
                income) for the taxable year, over
                    ``(B) the amount of net capital gain taken into 
                account under paragraph (2).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.
                                 <all>