[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 3174 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 3174

To amend the Internal Revenue Code of 1986 to allow a long-term capital 
                    gains deduction for individuals.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            October 5 (legislative day, September 22), 2000

  Mr. Abraham introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to allow a long-term capital 
                    gains deduction for individuals.

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

SECTION 1. LONG-TERM CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

    (a) General Rule.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by redesignating section 1202 as section 1203 and by 
inserting after section 1201 the following new section:

``SEC. 1202. CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction for the taxable year an amount equal to the 
lesser of--
            ``(1) the net capital gain of the taxpayer for the taxable 
        year, or
            ``(2) $5,000.
    ``(b) Sales Between Related Parties.--Gains from sales and 
exchanges to any related person (within the meaning of section 267(b) 
or 707(b)(1)) shall not be taken into account in determining net 
capital gain.
    ``(c) Special Rule for Section 1250 Property.--Solely for purposes 
of this section, in applying section 1250 to any disposition of section 
1250 property, all depreciation adjustments in respect of the property 
shall be treated as additional depreciation.
    ``(d) Section Not To Apply to Certain Taxpayers.--No deduction 
shall be allowed under this section to--
            ``(1) an individual with respect to whom a deduction under 
        section 151 is allowable to another taxpayer for a taxable year 
        beginning in the calendar year in which such individual's 
        taxable year begins,
            ``(2) a married individual (within the meaning of section 
        7703) filing a separate return for the taxable year, or
            ``(3) an estate or trust.
    ``(e) Special Rule for Pass-Thru Entities.--
            ``(1) In general.--In applying this section with respect to 
        any pass-thru entity, the determination of when the sale or 
        exchange occurs shall be made at the entity level.
            ``(2) Pass-thru entity defined.--For purposes of paragraph 
        (1), the term `pass-thru entity' means--
                    ``(A) a regulated investment company,
                    ``(B) a real estate investment trust,
                    ``(C) an S corporation,
                    ``(D) a partnership, and
                    ``(E) a common trust fund.''.
    (b) Coordination With Maximum Capital Gains Rate.--Paragraph (3) of 
section 1(h) of the Internal Revenue Code of 1986 (relating to maximum 
capital gains rate) is amended to read as follows:
            ``(3) Coordination with other provisions.--For purposes of 
        this subsection, the amount of the net capital gain shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the amount of the net capital gain taken into 
                account under section 1202(a) for the taxable year, 
                plus
                    ``(B) the amount which the taxpayer elects to take 
                into account as investment income for the taxable year 
                under section 163(d)(4)(B)(iii).''.
    (c) Deduction Allowable in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of the Internal Revenue Code of 1986 
(defining adjusted gross income) is amended by inserting after 
paragraph (17) the following new paragraph:
            ``(18) Long-term capital gains.--The deduction allowed by 
        section 1202.''.
    (d) Treatment of Collectibles.--
            (1) In general.--Section 1222 of the Internal Revenue Code 
        of 1986 (relating to other terms relating to capital gains and 
        losses) is amended by inserting after paragraph (11) the 
        following new paragraph:
            ``(12) Special rule for collectibles.--
                    ``(A) In general.--Any gain or loss from the sale 
                or exchange of a collectible shall be treated as a 
                short-term capital gain or loss (as the case may be), 
                without regard to the period such asset was held. The 
preceding sentence shall apply only to the extent the gain or loss is 
taken into account in computing taxable income.
                    ``(B) Treatment of certain sales of interest in 
                partnership, etc.--For purposes of subparagraph (A), 
                any gain from the sale or exchange of an interest in a 
                partnership, S corporation, or trust which is 
                attributable to unrealized appreciation in the value of 
                collectibles held by such entity shall be treated as 
                gain from the sale or exchange of a collectible. Rules 
                similar to the rules of section 751(f) shall apply for 
                purposes of the preceding sentence.
                    ``(C) Collectible.--For purposes of this paragraph, 
                the term `collectible' means any capital asset which is 
                a collectible (as defined in section 408(m) without 
                regard to paragraph (3) thereof).''.
            (2) Charitable deduction not affected.--
                    (A) Paragraph (1) of section 170(e) of such Code is 
                amended by adding at the end the following new 
                sentence: ``For purposes of this paragraph, section 
                1222 shall be applied without regard to paragraph (12) 
                thereof (relating to special rule for collectibles).''.
                    (B) Clause (iv) of section 170(b)(1)(C) of such 
                Code is amended by inserting before the period at the 
                end the following: ``and section 1222 shall be applied 
                without regard to paragraph (12) thereof (relating to 
                special rule for collectibles)''.
    (e) Conforming Amendments.--
            (1) Section 57(a)(7) of the Internal Revenue Code of 1986 
        is amended by striking ``1202'' and inserting ``1203''.
            (2) Clause (iii) of section 163(d)(4)(B) of such Code is 
        amended to read as follows:
                            ``(iii) the sum of--
                                    ``(I) the portion of the net 
                                capital gain referred to in clause 
                                (ii)(II) (or, if lesser, the net 
                                capital gain referred to in clause 
                                (ii)(I)) taken into account under 
                                section 1202, reduced by the amount of 
                                the deduction allowed with respect to 
                                such gain under section 1202, plus
                                    ``(II) so much of the gain 
                                described in subclause (I) which is not 
                                taken into account under section 1202 
                                and which the taxpayer elects to take 
                                into account under this clause.''.
            (3) Subparagraph (B) of section 172(d)(2) of such Code is 
        amended to read as follows:
                    ``(B) the deduction under section 1202 and the 
                exclusion under section 1203 shall not be allowed.''.
            (4) Section 642(c)(4) of such Code is amended by striking 
        ``1202'' and inserting ``1203''.
            (5) Section 643(a)(3) of such Code is amended by striking 
        ``1202'' and inserting ``1203''.
            (6) Paragraph (4) of section 691(c) of such Code is amended 
        inserting ``1203,'' after ``1202,''.
            (7) The second sentence of section 871(a)(2) of such Code 
        is amended by inserting ``or 1203'' after ``section 1202''.
            (8) The last sentence of section 1044(d) of such Code is 
        amended by striking ``1202'' and inserting ``1203''.
            (9) Paragraph (1) of section 1402(i) of such Code is 
        amended by inserting ``, and the deduction provided by section 
        1202 and the exclusion provided by section 1203 shall not 
        apply'' before the period at the end.
            (10) Section 121 of such Code is amended by adding at the 
        end the following new subsection:
    ``(h) Cross Reference.--

                                ``For treatment of eligible gain not 
excluded under subsection (a), see section 1202.''.
            (11) Section 1203 of such Code, as redesignated by 
        subsection (a), is amended by adding at the end the following 
        new subsection:
    ``(l) Cross Reference.--

                                ``For treatment of eligible gain not 
excluded under subsection (a), see section 1202.''.
            (12) The table of sections for part I of subchapter P of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1202 and by inserting after the item relating to 
        section 1201 the following new items:

                              ``Sec. 1202. Capital gains deduction for 
                                        individuals.
                              ``Sec. 1203. 50-percent exclusion for 
                                        gain from certain small 
                                        business stock.''.
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2000.
            (2) Collectibles.--The amendments made by subsection (d) 
        shall apply to sales and exchanges after December 31, 2000.
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