[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5626 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 5626

To amend the Internal Revenue Code of 1986 to revise the tax treatment 
 of derivative transactions entered into by a corporation with respect 
                             to its stock.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 10, 2002

  Mr. Neal of Massachusetts 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 revise the tax treatment 
 of derivative transactions entered into by a corporation with respect 
                             to its stock.

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

SECTION 1. REVISION OF TAX TREATMENT OF DERIVATIVE TRANSACTIONS ENTERED 
              INTO BY A CORPORATION WITH RESPECT TO ITS STOCK.

    (a) In General.--Section 1032 of the Internal Revenue Code of 1986 
(relating to exchange of stock for property) is amended to read as 
follows:

``SEC. 1032. TRANSACTIONS BY A CORPORATION WITH RESPECT TO ITS STOCK.

    ``(a) Nonrecognition of Gain or Loss.--No gain or loss shall be 
recognized to a corporation on the receipt of property (including 
money) or services in exchange for stock of such corporation.
    ``(b) Treatment of Derivative Transactions.--
            ``(1) Nonrecognition treatment.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), section 1032 derivative items of a corporation 
                shall not be taken into account in determining such 
                corporation's liability for tax under this subtitle.
                    ``(B) Section 1032 derivative items.--For purposes 
                of subparagraph (A), the term `section 1032 derivative 
                item' means any item of income, gain, loss, or 
                deduction if--
                            ``(i) such item arises out of the rights or 
                        obligations under any option or forward or 
                        futures contract to the extent such option or 
                        contract relates to the corporation's stock (or 
                        is attributable to any transfer or 
                        extinguishment of any such right or 
                        obligation), or
                            ``(ii) such item arises under any other 
                        contract or position but only to the extent 
                        that such item reflects (or is determined by 
                        reference to) changes in the value of such 
                        stock or distributions thereon.
                Such term shall not include any deduction allowable 
                under section 83 or under section 163 and shall not 
                include any deduction for any item which is in the 
                nature of compensation for services rendered. For 
                purposes of this subparagraph, de minimis relationships 
                shall be disregarded.
            ``(2) Income recognition on certain forward contracts.--
                    ``(A) In general.--If--
                            ``(i) a corporation acquires its stock, and
                            ``(ii) such acquisition is part of a plan 
                        (or series of related transactions) pursuant to 
                        which the corporation enters into a forward 
                        contract with respect to its stock,
                such corporation shall include amounts in income as if 
                the excess of the amount to be received under the 
                forward contract over the fair market value of the 
                stock as of the date the corporation entered into the 
                forward contract were original issue discount on a debt 
                instrument acquired on such date. The preceding 
                sentence shall apply only to the extent that the amount 
                of stock involved in the forward contract does not 
                exceed the amount acquired as described in clause (i).
                    ``(B) Plan presumed to exist.--If a corporation 
                enters into a forward contract with respect to its 
                stock within the 60-day period beginning on the date 
                which is 30 days before the date that the corporation 
                acquires its stock, such acquisition shall be treated 
                as pursuant to a plan described in subparagraph (A)(ii) 
                unless it is established that entering into such 
                contract and such acquisition are not pursuant to a 
                plan or series of related transactions.
                    ``(C) Forward contract.--The term `forward 
                contract' has the meaning given to such term by section 
                1259(d)(1); except that such term shall include any 
                transactions or series of related transactions having 
                the same effect as a forward contract (as so defined).
    ``(c) Treasury Stock Treated as Stock.--Any reference in this 
section to stock shall be treated as including a reference to treasury 
stock.
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations which treat the portion of an instrument which is 
described in subsection (b) separately from the portion of such 
instrument which is not so described.
    ``(e) Basis.--For basis of property acquired by a corporation in 
certain exchanges for its stock, see section 362.''.
    (b) Clerical Amendment.--The item relating to section 1032 in the 
table of sections for part III of subchapter O of chapter 1 of such 
Code is amended to read as follows:

                              ``Sec. 1032. Transactions by a 
                                        corporation with respect to its 
                                        stock.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.
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