[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5569 Introduced in House (IH)]







106th CONGRESS
  2d Session
                                H. R. 5569

To amend the Internal Revenue Code of 1986 to tax the net capital gain 
    of closely held corporations in the same manner as individuals.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 26, 2000

 Mr. English 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 tax the net capital gain 
    of closely held corporations in the same manner as individuals.

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

SECTION 1. CAPITAL GAINS TAX ON CLOSELY HELD CORPORATIONS.

    (a) In General.--Section 1201 of the Internal Revenue Code of 1986 
(relating to alternative tax for corporations) is amended by striking 
all that follows subsection (a) and inserting the following:
    ``(b) Special Rule for Certain Closely Held Corporations.--
            ``(1) In general.--If for any taxable year a corporation 
        that meets the stock ownership requirement of section 542(a)(2) 
        has a net capital gain and any rate of tax imposed by section 
        11 exceeds the applicable capital gains rate, then, in lieu of 
        the tax imposed by section 11, there is hereby imposed a tax 
        (if such tax is less than the tax imposed by section 11) which 
        shall consist of the sum of--
                    ``(A) a tax computed on the taxable income, reduced 
                by an amount equal to the net capital gain, at the 
                applicable ordinary income rate,
                    ``(B) a tax at the applicable capital gains rate on 
                the lesser of--
                            ``(i) the excess (if any) of--
                                    ``(I) the net capital gain, over
                                    ``(II) the unrecaptured section 
                                1250 gain, or
                            ``(ii) taxable income, plus
                    ``(C) a tax at the applicable recapture rate on the 
                taxable income in excess of the sum of the amounts on 
                which a tax is determined under subparagraphs (A) and 
                (B).
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Applicable capital gains rate.--The term 
                `applicable capital gains rate' means the rate 
                described in section 1(h)(1)(C).
                    ``(B) Applicable ordinary income rate.--The term 
                `applicable ordinary income rate' means the highest 
                rate of tax imposed by section 1 on the taxable income 
                of individuals.
                    ``(C) Applicable recapture rate.--The term 
                `applicable recapture rate' means the rate described in 
                section 1(h)(1)(D).
                    ``(D) Unrecaptured section 1250 gain.--
                            ``(i) In general.--The term `unrecaptured 
                        section 1250 gain' means the excess (if any) 
                        of--
                                    ``(I) the amount of long-term 
                                capital gain (not otherwise treated as 
                                ordinary income) which would be treated 
                                as ordinary income if section 
                                1250(b)(1) included all depreciation 
                                and the applicable percentage under 
                                section 1250(a) were 100 percent, over
                                    ``(II) the net short-term capital 
                                loss.
                            ``(ii) Limitation with respect to section 
                        1231 property.--The amount described in clause 
                        (i)(I) from sales, exchanges, and conversions 
                        described in section 1231(a)(3)(A) for any 
                        taxable year shall not exceed the net section 
                        1231 gain (as defined in section 1231(c)(3)) 
                        for such year.
    ``(c) Cross References.--For computation of the alternative tax--
            ``(1) in the case of life insurance companies, see section 
        801(a)(2).
            ``(2) in the case of regulated investment companies and 
        their shareholders, see section 852(b)(3)(A) and (D), and
            ``(3) in the case of real estate investment trusts, see 
        section 857(b)(3)(A).''
    (b) Conforming Amendments.--
            (1) Section 1201(a) of such Code is amended by inserting 
        ``(other than a corporation described in subsection (b))'' 
        after ``a corporation''.
            (2) Section 1374(b)(4) of such Code is amended to read as 
        follows:
            ``(4) Coordination with section 1201.--For purposes of 
        section 1201--
                    ``(A) the tax imposed by subsection (a) shall be 
                treated as if it were imposed by section 11, and
                    ``(B) the amount of the net recognized built-in 
                gain shall be treated as the taxable income.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
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