[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 3235 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 3235

To amend the Internal Revenue Code of 1986 to provide for a deferral of 
tax on gain from the sale of telecommunications businesses in specific 
circumstances or a tax credit and other incentives to promote diversity 
             of ownership in telecommunications businesses.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            October 25 (legislative day, September 22), 2000

 Mr. McCain (for himself and Mr. Burns) 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 provide for a deferral of 
tax on gain from the sale of telecommunications businesses in specific 
circumstances or a tax credit and other incentives to promote diversity 
             of ownership in telecommunications businesses.

    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 ``Telecommunications Ownership 
Diversification Act of 2000''.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress makes the following findings:
            (1) Current trends in the telecommunications industry show 
        that there is increasing convergence among various media, 
        including broadcasting, cable television, and Internet-based 
        businesses, and that these media are providing competing 
        sources of news, information, and entertainment.
            (2) This convergence and competitiveness will continue, and 
        therefore it should be recognized in both telecommunications 
        and tax policy.
            (3) Notwithstanding these trends, diversifying the 
        ownership of telecommunications facilities remains a pre-
        eminent public interest concern.
            (4) A market-based, voluntary system of investment 
        incentives is the most effective, lawful, and economically 
        sound means of facilitating entry into the telecommunications 
        industry.
            (5) Opportunities for new entrants to participate in the 
        telecommunications industry have substantially decreased since 
        the end of the Federal Communications Commission's tax 
        certificate policy in 1995, particularly in light of the 
        increase in tax-free like-kind exchanges despite the most 
        robust period of transfers of radio and television stations in 
        history. Small businesses, and businesses owned or controlled 
        by members of minority groups or by women, have been at a 
        particular disadvantage, as indicated by their historic under 
        representation as owners of telecommunications facilities.
            (6) Access to and cost of capital has been a substantial 
        obstacle to new entry into telecommunications by small 
        businesses and businesses owned or controlled by members of 
        minority groups and by women who want to be long-term, active 
        participants in the telecommunications industry, because they 
        do not currently own properties that can be utilized in like-
        kind exchanges, they are either unable to secure financing from 
        lending institutions and equipment manufacturers at all, or 
        else cannot secure financing terms as advantageous as those 
        offered to large industry participants.
            (7) Telecommunications facilities owned by new entrants may 
        not be as attractive to investors because their start-up costs 
        are often high, their revenue streams are uncertain, and their 
        profit margins are unknown.
            (8) It is consistent with the public interest, and with the 
        pro-competition policies of the Telecommunications Act of 1996, 
        to provide incentives that will facilitate the ability of 
        existing owners of converging telecommunications media to 
        transact business so as to improve their ability to compete, 
        while the reinvestment of gains realized from such transactions 
        will also facilitate the acquisition of telecommunications 
        facilities by small businesses, especially those owned or 
        controlled by members of minority groups and by women, thereby 
        diversifying the ownership of telecommunications facilities.
            (9) Permitting sellers of telecommunications facilities to 
        defer taxation of gains from transactions involving small 
        businesses and businesses owned or controlled by members of 
        minority groups and by women, and resulting from investments in 
        capital funds whose stated purpose is to provide capital for 
        such entities, will further the development of a competitive 
        and diverse United States information distribution economy 
        without governmental intrusion in private investment decisions.
            (10) The public interest would not be served by attempts to 
        diversify the ownership of telecommunications businesses by 
        small businesses or businesses owned or controlled by 
        minorities and women through any approach that would involve 
        the use of mandated set-asides or quotas.
    (b) Purpose.--The purpose of this Act is to facilitate voluntary, 
pro-competitive transactions involving converging telecommunications 
media that will promote diversification in, and broaden the 
participation in, the telecommunications industry by small businesses, 
and businesses owned or controlled by members of minority groups and 
women.

SEC. 3. NONRECOGNITION OF GAIN ON QUALIFIED SALES OF TELECOMMUNICATIONS 
              BUSINESSES.

    (a) In General.--Subchapter O of chapter 1 of the Internal Revenue 
Code of 1986 (relating to gain or loss on disposition of property) is 
amended by inserting after part IV the following new part:

        ``PART V--CERTAIN SALES OF TELECOMMUNICATIONS BUSINESSES

                              ``Sec. 1071. Nonrecognition of gain on 
                                        certain sales of 
                                        telecommunications businesses.

``SEC. 1071. NONRECOGNITION OF GAIN ON CERTAIN SALES OF 
              TELECOMMUNICATIONS BUSINESSES.

    ``(a) In General.--In the case of any qualified telecommunications 
sale, at the election of the taxpayer, such sale shall be treated as an 
involuntary conversion of property within the meaning of section 1033.
    ``(b) Limitation on Amount of Gain on Which Tax May Be Deferred.--
The amount of gain on any qualified telecommunications sale which is 
not recognized by reason of this section shall not exceed $250,000,000 
per transaction and shall not exceed $83,333,333 per taxable year. 
Excess amounts can be carried forward in future years subject to the 
annual limit.
    ``(c) Qualified Telecommunications Sale.--For purposes of this 
section--
            ``(1) In general.--The term `qualified telecommunications 
        sale' means any sale to an eligible purchaser of--
                    ``(A) the assets of a telecommunications business, 
                or
                    ``(B) stock in a corporation if, immediately after 
                such sale--
                            ``(i) the eligible purchaser controls such 
                        corporation, and
                            ``(ii) substantially all of the assets of 
                        such corporation are assets of 1 or more 
                        telecommunications businesses.
    ``(d) Special Rules.--
            ``(1) In general.--In applying section 1033 for purposes of 
        subsection (a) of this section, stock of a corporation 
        operating a telecommunications business, whether or not 
        representing control of such corporation, shall be treated as 
        property similar or related in service or use to the property 
        sold in the qualified telecommunications sale.
            ``(2) Election to reduce basis rather than recognize 
        remainder of gain.--If--
                    ``(A) a taxpayer elects the treatment under 
                subsection (a) with respect to any qualified 
                telecommunications sale, and
                    ``(B) an amount of gain would (but for this 
                paragraph) be recognized on such sale other than by 
                reason of subsection (b),
        then the amount of gain described in subparagraph (B) shall not 
        be recognized to the extent that the taxpayer elects to reduce 
        the basis of depreciable property (as defined in section 
        1017(b)(3)) held by the taxpayer immediately after the sale or 
        acquired in the same taxable year. The manner and amount of 
        such reduction shall be determined under regulations prescribed 
        by the Secretary.
            ``(3) Basis.--For basis of property acquired on a sale or 
        exchange treated as an involuntary conversion under subsection 
        (a), see section 1033(b).
    ``(e) Recapture of Tax Benefit If Telecommunications Business 
Resold Within 3 Years, Etc.--
            ``(1) In general.--If, within 3 years after the date of any 
        qualified telecommunications sale, there is a recapture event 
        with respect to the property involved in such sale, then the 
        purchaser's tax imposed by this chapter for the taxable year in 
        which such event occurs shall be increased by 20 percent of the 
        lesser of the consideration furnished by the purchaser in such 
        sale or the dollar amount specified in subsection (b).
            ``(2) Exception for reinvested amounts.--Paragraph (1) 
        shall not apply to any recapture event which is a sale if--
                    ``(A) the sale is a qualified telecommunications 
                sale, or
                    ``(B) during the 60-day period beginning on the 
                date of such sale, the taxpayer is the purchaser in 
                another qualified telecommunications sale in which the 
                consideration furnished by the taxpayer is not less 
                that the amount realized on the recapture event sale.
            ``(3) Recapture event.--For purposes of this subsection, 
        the term `recapture event' means, with respect to any qualified 
        telecommunications sale--
                    ``(A) any sale or other disposition of the assets 
                or stock referred to in subsection (c)(1) which were 
                acquired by the taxpayer in such sale, and
                    ``(B) in the case of a qualified telecommunications 
                sale described in subsection (c)(1)(B)(ii)--
                            ``(i), any sale or other disposition of a 
                        telecommunications business by the corporation 
                        referred to in such subsection, or
                            ``(ii) any other transaction which results 
                        in the eligible purchaser business not having 
                        control (as defined in subsection (c)(4)) of 
                        such corporation.
    ``(f) Definitions.--For purposes of this section--
            ``(1) Eligible purchaser.--The term `eligible purchaser' 
        means--
                    ``(A) the Telecommunications Development Fund 
                established under section 714 of the Communications Act 
                of 1934 (47 U.S.C. 614), or any wholly-owned affiliate 
                of that Fund;
                    ``(B) an entity or individual that is a 
                telecommunications business after the purchase and 
                before the purchase is--
                            ``(i) a broadcasting station providing 
                        television services and having not more than 5 
                        percent of market share as determined by the 
                        Federal Communications Commission's clearance 
                        data;
                            ``(ii) a radio station having a market 
                        share below 10 percent of advertising revenues 
                        in the relevant local market and ownership of 
                        less than 50 radio stations nationally; or
                            ``(iii) any other telecommunications 
                        business having no more than 5 percent of 
                        national subscribers; and
        meets the control requirement of paragraph (4); or
                    ``(C) An entity qualified under section 851 and 
                that more than 50 percent of its gross income is 
                derived from equity investment in entities that qualify 
                under paragraph (1)(B).
            ``(2) Telecommunications business.--The term 
        `telecommunications business' means--
                    ``(A) substantially all the assets of a facility 
                engaged in electronic communications, including a cable 
                system (as defined in section 602(7) of the 
                Communications Act of 1934 (47 U.S.C. 532(7)), a radio 
                station (as defined in section 3(35) of that Act (47 
                U.S.C. 153(35)), a broadcasting station providing 
                television service (as defined in section 3(49) of that 
                Act (47 U.S.C. 153(49)), a provider of direct broadcast 
satellite service (as defined in section 335(b)(5) of that Act (47 
U.S.C. 335(b)(5)), a provider of video programming (as defined in 
section 602(20) of that Act (47 U.S.C. 602(20)); a provider of 
commercial mobile services (as defined in section 332(d)(1) of that Act 
(47 U.S.C. 332(d)(1)), a telecommunications carrier (as defined in 
section 3(44) of that Act (47 U.S.C. 153(44)), a reseller of 
telecommunications service or commercial mobile service; a multichannel 
multipoint distribution service;
                    ``(B) stock possessing at least 80 percent of the 
                total combined voting power of all classes of stock 
                entitled to vote and at least 80 percent of the total 
                number of shares of all other classes of stock of a 
                corporation substantially all of the assets of which 
                consist, directly or indirectly, of assets described in 
                subparagraph (A); and
                    ``(C) 80 percent or more of the total interest in 
                the capital and profits of a partnership substantially 
                all of the assets of which consist, directly or 
                indirectly, of assets described in subparagraph (A).
            ``(3) Purchase.--The taxpayer shall be considered to have 
        purchased a property if, but for subsection (d), the unadjusted 
        basis of the property would be its cost within the meaning of 
        section 1012.
            ``(4) Control.--
                    ``(A) Individuals.--For purposes of paragraph 
                (1)(B), an individual who meets the requirements of 
                paragraph (5) also meets the requirements of this 
                paragraph.
                    ``(B) Entities.--For purposes of paragraph (1)(B), 
                an entity meets the requirement of this paragraph if 
                the requirements of subparagraph (C), (D), or (E) are 
                satisfied.
                    ``(C) 30-percent test.--The requirements of this 
                subparagraph are satisfied if--
                            ``(i) with respect to any entity which is a 
                        corporation, individuals who meet the 
                        requirements of paragraph (5) own 30 percent or 
                        more in value of the outstanding stock of the 
                        corporation, and more than 50 percent of the 
                        total combined voting power of all classes of 
                        stock entitled to vote of the corporation; and
                            ``(ii) with respect to any entity which is 
                        a partnership, individuals who meet the 
                        requirements of paragraph (5) own 30 percent or 
                        more of the capital interest and the profits 
                        interest in the partnership, and more than 50 
                        percent of the total combined voting power of 
                        all classes of partnership interests entitled 
                        to vote.
                    ``(D) 15-percent test.--The requirements of this 
                subparagraph are satisfied if--
                            ``(i) with respect to any entity which is a 
                        corporation--
                                    ``(I) individuals who meet the 
                                requirements of paragraph (5) own 15 
                                percent or more in value of the 
                                outstanding stock of the corporation, 
                                and more than 50 percent of the total 
                                combined voting power of all classes of 
                                stock entitled to vote of the 
                                corporation; and
                                    ``(II) no other person owns more 
                                than 25 percent in value of the 
                                outstanding stock of the corporation; 
                                and
                            ``(ii) with respect to any entity which is 
                        a partnership--
                                    ``(I) individuals who meet the 
                                requirements of paragraph (5) own 15 
                                percent or more of the capital interest 
                                and profits interest of the 
                                partnership, and more than 50 percent 
                                of the total combined voting power of 
                                all classes of partnership interests 
                                entitled to vote; and
                                    ``(II) no other person owns more 
                                than 25 percent of the capital interest 
                                and profits interest of the 
                                partnership.
                    ``(E) Publicly-traded corporations test.--The 
                requirements of this subparagraph are satisfied if, 
                with respect to a corporation the securities of which 
                are traded on an established securities market--
                            ``(i) individuals who meet the requirements 
                        of paragraph (5) own 50 percent or more of the 
                        total combined voting power of all classes of 
                        stock entitled to vote of the corporation; and
                            ``(ii) the stock owned by those individuals 
                        is not subject to any agreement, arrangement, 
                        or understanding which provides for, or relates 
                        to, the voting of the stock in any manner by, 
                        or at the direction of, any person other than 
                        an eligible individual who meets the 
                        requirements of paragraph (5), or the right of 
                        any person other than one of those individuals 
                        to acquire the voting power through purchase of 
                        shares or otherwise.
                    ``(F) Constructive ownership.--In applying 
                subparagraphs (C), (D), and (E), the following rules 
                apply:
                            ``(i) Stock or partnership interests owned, 
                        directly or indirectly, by or for a 
                        corporation, partnership, estate, or trust 
                        shall be considered as being owned 
                        proportionately by or for its shareholders, 
                        partners, or beneficiaries.
                            ``(ii) An individual shall be considered as 
                        owning stock and partnership interests owned, 
                        directly or indirectly, by or for his family.
                            ``(iii) An individual owning (otherwise 
                        than by the application of clause (ii)) any 
                        stock in corporation shall be considered as 
                        owning the stock or partnership 
interests owned, directly or indirectly, by or for his partner.
                            ``(iv) An individual owning (otherwise than 
                        by the application of clause (ii)) any 
                        partnership interest in a partnership shall be 
                        considered as owning the stock or partnership 
                        interests owned, directly or indirectly, by or 
                        for his partner.
                            ``(v) The family of an individual shall 
                        include only his brothers and sisters (whether 
                        by the whole or half blood), spouse, ancestors, 
                        and lineal descendants.
                            ``(vi) Stock or partnership interests 
                        constructively owned by a person by reason of 
                        the application of clause (i) shall, for the 
                        purposes of applying clause (i), (ii), (iii), 
                        or (iv), be treated as actually owned by that 
                        person, but stock constructively owned by an 
                        individual by reason of the application of 
                        clause (ii), (iii), or (iv) shall not be 
                        treated as owned by that individual for the 
                        purpose of again applying any of those clauses 
                        in order to make another the constructive owner 
                        of the stock or partnership interests.
            ``(5) Individuals.--An individual is described in this 
        paragraph if that individual is--
                    ``(A) a United States citizen; or
                    ``(B) a United States citizen who is--
                            ``(i) a woman;
                            ``(ii) a Black or African American;
                            ``(iii) a Latino or Hispanic American;
                            ``(iv) an Asian American, Native Hawaiian, 
                        or other Pacific Islander; or
                            ``(v) an American Indian, Alaskan Indian, 
                        American Eskimo, or an Aluet.
    ``(g) Effective Date.--The amendments made by this section apply 
with respect to a sale described in section 1071(a) of the Internal 
Revenue Code of 1986 (as added by this section) of a telecommunications 
business or any equity interest on or after the date of enactment of 
this Act.''.

SEC. 4. TELECOMMUNICATIONS BUSINESS CREDIT.

    (a) In General.--Subpart E of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to rules for computing 
investment credit) is amended by inserting after section 48 the 
following:

``SEC. 48A. TELECOMMUNICATIONS BUSINESS CREDIT.

    ``For purposes of section 46, there is allowed as a credit against 
the tax imposed by this chapter for any taxable year an amount equal to 
10 percent of the taxable income of any taxpayer that at all times 
during that taxable year--
            ``(1) is a local exchange carrier (as defined in section 
        3(44) of the Communications Act of 1934 (47 U.S.C. 153(44)));
            ``(2) is not a Bell operating company (as defined in 
        section 3(4) of that Act (47 U.S.C. 153(4))); and
            ``(3) is headquartered in an area designated as an 
        empowerment zone by the Secretary of Housing and Urban 
        Development.''.
    (b) Conforming Amendments.--
            (1) Amendment of section 46.--Section 46 of such Code 
        (relating to amount of credit) is amended by--
                    (A) striking ``and'' in paragraph (2);
                    (B) striking ``credit.'' in paragraph (3) and 
                inserting ``credit; and''; and
                    (C) adding at the end the following:
            ``(4) the telecommunications business credit.''.
            (2) Clerical amendments.--
                    (A) The analysis for part III of subchapter O of 
                chapter 1 of such Code is amended by adding at the end 
                thereof the following:

``1046. Sale of telecommunications business.''.
                    (B) The table of sections for Subpart E of part IV 
                of subchapter A of chapter 1 of such Code is amended by 
                inserting after the item relating to section 48 the 
                following:

``48A. Telecommunications business credit.''.
    (c) Technical and Conforming Changes.--The Secretary of the 
Treasury shall, within 150 days after the date of enactment of this 
Act, submit to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate, a draft of 
any technical and conforming changes in the Internal Revenue Code of 
1986 which are necessary to reflect throughout the Code the changes in 
the substantive provisions of the Code made by subsection (a) of this 
section.

SEC. 5. EXCLUSION OF 50 PERCENT OF GAIN.

    Section 1202 of the Internal Revenue Code of 1986 (relating to 50-
percent exclusion for gain from certain small business stock) is 
amended--
            (1) by striking subsection (a) and inserting the following:
    ``(a) 50-Percent Exclusion.--
            ``(1) Taxpayers not corporations.--In the case of a 
        taxpayer other than a corporation, gross income does not 
        include 50 percent of any gain from the sale or exchange of 
        qualified small business stock held for more than 5 years.
            ``(2) Certain telecommunications investments by 
        corporations and investment companies.--Gross income does not 
        include 50 percent of any gain from the sale or exchange of 
        stock in an eligible purchaser (as defined in section 
        1071(f)(1)) engaged in a telecommunications business (as 
        defined in section 1071(f)(2)) held for more than 5 years.'';
            (2) by striking subparagraphs (A) and (B) of subsection 
        (b)(1) and inserting the following:
                    ``(A) in the case of gain from the sale or exchange 
                of qualified small business stock held for more than 5 
                years--
                            ``(i) $10,000,000 reduced by the aggregate 
                        amount of eligible gain taken into account by 
                        the taxpayer under subsection (a) for prior 
                        taxable years and attributable to dispositions 
                        of stock issued by such corporations; or
                            ``(ii) 10 times the aggregate adjusted 
                        bases of qualified small business stock issued 
                        by such corporations and disposed of by the 
                        taxpayer during the taxable year;
                    ``(B) in the case of gain from the sale or exchange 
                of stock in an eligible purchaser engaged in a 
                telecommunications business for more than 5 years--
                            ``(i) $20,000,000 reduced by the aggregate 
                        amount of eligible gain taken into account by 
                        the taxpayer under subsection (a) for prior 
                        taxable years and attributable to dispositions 
                        of stock issued by an eligible purchaser 
                        engaged in a telecommunications business; or
                            ``(ii) 15 times the aggregate adjusted 
                        bases of stock of an eligible purchaser engaged 
                        in a telecommunications business issued by such 
                        eligible purchaser and disposed of by the 
                        taxpayer during the taxable year.'';
            (3) by striking ``years.'' in subsection (b)(2) and 
        inserting ``years or any gain from the sale or exchange of 
        stock in an eligible purchaser engaged in a telecommunications 
        business held for more than 5 years.''; and
            (4) by striking `` `$10,000,000'.'' in subsection (b)(3)(A) 
        and inserting `` `$10,000,000', and paragraph (1)(B) shall be 
        applied by substituting `$10,000,000' for `$20,000,000'.''.

SEC. 6. EFFECTIVE DATE.

    (a) Taxable Years.--The amendments made by section 4 shall apply to 
taxable years beginning after June 30, 2000.
    (b) Sales.--The amendments made by section 5 shall apply to sales 
after June 30, 2000.

SEC. 7. BIENNIAL PROGRAM AUDITS BY GAO.

    No later than January 1, 2003, and no less frequently than every 2 
years thereafter, the Comptroller General shall audit the 
administration of sections of the Internal Revenue Code of 1986 added 
or amended by section 3 of this Act, and issue a report on the results 
of that audit. The Comptroller General shall include in the report, 
notwithstanding any provision of section 6103 of the Internal Revenue 
Code of 1986 to the contrary--
            (1) a list of eligible purchasers (as defined in section 
        1071(g)(1) of such Code) and any other taxpayer receiving a 
        benefit from the operation of section 48A, 167, 197, 1044, 
        1046, 1202, or 1244A of such Code as that section was added or 
        amended by section 3 of this Act; and
            (2) an assessment of the effect the amendments made by 
        section 3 of this Act have had with respect to increasing new 
        entry into the telecommunications industry by small businesses 
        and businesses owned or controlled by members of minority 
        groups and women.
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