[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 3112 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 3112

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 15, 2002

  Mr. McCain 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 2002''.

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, that provide news, information, and entertainment.
            (2) This convergence will continue, and therefore, 
        diversifying the ownership of telecommunications facilities 
        remains a pre-eminent public interest concern that should be 
        reflected in both telecommunications and tax policy.
            (3) A market-based, voluntary system of investment 
        incentives is a very effective, lawful, and economically sound 
        means of facilitating entry and diversification of ownership in 
        the telecommunications industry.
            (4) Opportunities for new entrants to participate and grow 
        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. During this time, businesses owned or controlled by 
        socially disadvantaged individuals, including, but not limited 
        to, members of minority groups and women, have continued to be 
        underrepresented as owners of telecommunications facilities.
            (5) Businesses owned or controlled by socially 
        disadvantaged individuals are and historically have been 
        economically disadvantaged in the telecommunications industry. 
        For these businesses, access to and cost of capital are and 
        have been substantial obstacles to new entry and growth. 
        Consequently, diversification of ownership in the 
        telecommunications industry has been limited.
            (6) Telecommunications facilities owned by new entrants may 
        not be attractive to investors because their start-up costs are 
        often high, their revenue streams are uncertain, and their 
        profit margins are unknown.
            (7) 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 investments in, and 
        acquisition of telecommunications facilities by, socially and 
        economically disadvantaged businesses, thereby diversifying the 
        ownership of telecommunications facilities.
            (8) Increased participation by socially and economically 
        disadvantaged businesses in the ownership of telecommunications 
        facilities will enhance competition in the telecommunications 
        industry. Permitting sellers of telecommunications facilities 
        to defer taxation of gains from transactions involving socially 
        and economically disadvantaged businesses, and resulting from 
        investments in designated capital funds that provide capital 
        for such entities, will further the development of a 
        competitive and diverse United States telecommunications 
        industry without governmental intrusion in private investment 
        decisions.
            (9) The public interest would not be served by attempts to 
        diversify the ownership of telecommunications businesses 
        through any approach that would involve the use of mandated 
        set-asides or quotas.
            (10) Today, the telecommunications industry is struggling 
        to survive one of its most troubling times. Therefore, 
        facilitating voluntary, pro-competitive transactions that will 
        promote ownership of telecommunications facilities by 
        economically and socially disadvantaged businesses will aid in 
        providing the investment and capital that is crucial to this 
        sector.
    (b) Purpose.--The purpose of this Act is to facilitate voluntary, 
pro- competitive transactions that will promote ownership of 
telecommunications facilities by economically and socially 
disadvantaged businesses.

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, the term `qualified telecommunications sale' means--
            ``(1) 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 
                        (within the meaning of Section 368(c)) such 
                        corporation, and
                            ``(ii) substantially all of the assets of 
                        such corporation are assets of 1 or more 
                        telecommunications businesses; and
            ``(2) any sale of a telecommunications business, if the 
        taxpayer purchases, within the replacement period specified in 
        section 1033(a)(2)(b), 1 or more equity interests in an entity 
        that is an eligible purchaser as defined in subsection 
        (f)(1)(A) (the Telecommunications Development Fund.).
    ``(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.
            ``(1) 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) 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)--
                            ``(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)(1)(B)(i)) 
                        of such corporation.
    ``(f) Definitions.--In 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 economically and socially disadvantaged 
                business, as defined in paragraph (2) of this 
                subsection; and
                    ``(C) an entity qualified under section 851, if 
                more than 50 percent of its gross income is derived 
                from equity investment in an economically and socially 
                disadvantaged business or businesses, as defined in 
                paragraph (2) of this subsection, as determined by the 
                Secretary.
            ``(2) Economically and socially disadvantaged business.--
        The term `economically and socially disadvantaged business' 
        means a person that is designated by the Secretary as an 
        `economically and socially disadvantaged business' based on a 
        determination that the subject person--
                    ``(A) meets the control requirements of paragraph 
                (6);
                    ``(B) will be a telecommunications business after 
                the purchase for which the eligibility determination is 
                sought; and
                    ``(C) before the purchase for which the eligibility 
                determination is sought does not have:
                            ``(i) attributable ownership interests in 
                        television broadcast stations having an 
                        aggregate national audience reach of more than 
                        5 percent as defined by the Federal 
                        Communications Commission under section 
                        73.3555(e)(2)(i) of title 47 of the Code of 
                        Federal Regulations as in effect on January 1, 
                        2001;
                            ``(ii) attributable ownership interests in: 
                        (a) more than 50 radio stations nationally; and 
                        (b) radio stations with a combined market share 
                        exceeding 10 percent of radio advertising 
                        revenues in the relevant market as defined by 
                        the Federal Communications Commission; or
                            ``(iii) attributable ownership interests in 
                        any other telecommunications business having 
                        more than 5 percent of national subscribers.
            ``(3) Relevant market.--The term `relevant market' means 
        the local market served by the radio station or stations being 
        purchased.
            ``(4) Telecommunications business.--The term 
        `telecommunications business' means a business which, as its 
        primary purpose, engages in electronic communications and is 
        regulated by the Federal Communications Commission pursuant to 
        the Communications Act, 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 
        provider of fixed satellite service; a reseller of 
        telecommunications service or commercial mobile service; or a 
        provider of multichannel multipoint distribution service.
            ``(5) Purchase.--The taxpayer shall be considered to have 
        purchased a property if, but for subsection (d)(2), the 
        unadjusted basis of the property would be its cost within the 
        meaning of section 1012.
            ``(6) Control.--
                    ``(A) Individuals.--For purposes of paragraph 
                (2)(A), an individual who meets the requirements of 
                paragraph (7) 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 (7) 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 (7) 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 (7) 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 (7) 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 corporation 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 (7) 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 (7), 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), he 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.
            ``(7) Individuals.--An individual is described in this 
        paragraph if that individual is
                    ``(A) a United States citizen, and
                    ``(B) a member of a socially or economically 
                disadvantaged class determined by the Secretary of 
                Treasury to be underrepresented in the ownership of the 
                relevant telecommunications business.''.

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:

                              ``1071. 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.''.

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 adding at the end of subsection (a) the following:
            ``(3) 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)(3)) 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; and
            ``(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 
                        their 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--TECHNICAL AND CONFORMING CHANGES.

    (a) Taxable Years.--The amendments made by section 4 shall apply to 
taxable years ending after the date of enactment of this Act.
    (b) Sales.--The amendments made by section 3 shall 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. The amendments made by section 5 shall apply to sales on or 
after the date of enactment of this Act.
    (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 section 3(a).

SEC. 7. REGULATIONS.

    The Secretary of the Treasury, in consultation with the Federal 
Communications Commission, shall promulgate regulations to implement 
this Act no later than 90 days after the effective date of this Act. 
The regulations shall provide for determination by the Secretary as to 
whether an applicant is an ``eligible purchaser'' as defined in new 
section 1071(f) of the IRC of 1986 (as added by section 3 of this Act). 
The regulations shall further provide that such determinations of 
eligibility shall be made not later than 45 calendar days after an 
application is filed with the Secretary. The regulations implementing 
section 1071(f)(7) of such Code (as added by section 3 of this Act) 
shall be updated on an ongoing basis no less frequently than every 5 
years.

SEC. 8. BIENNIAL PROGRAM AUDITS BY GAO.

    No later than January 1, 2004, 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 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 
        l07l(f)(1) of such Code) and any other taxpayer receiving a 
        benefit from the operation of section 48A or 1202 of such Code 
        as that section was added or amended by this Act; and
            (2) an assessment of the effect the amendments made by this 
        Act have on increasing new entry and growth in the 
        telecommunications industry by socially and economically 
        disadvantaged businesses, and the effect of this Act on 
        enhancing the competitiveness of the telecommunications 
        industry.
                                 <all>