[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 24 Introduced in Senate (IS)]






108th CONGRESS
  1st Session
                                 S. 24

To amend the Internal Revenue Code of 1986 to exclude from gross income 
                   dividends received by individuals.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 7, 2003

 Mrs. Hutchison 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 exclude from gross income 
                   dividends received by individuals.

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

SECTION 1. EXCLUSION OF DIVIDEND INCOME FROM TAX.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by inserting after section 115 
the following new section:

``SEC. 116. EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
dividends otherwise includible in gross income which are received 
during the taxable year by an individual.
    ``(b) Certain Dividends Excluded.--Subsection (a) shall not apply 
to any dividend from a corporation which, for the taxable year of the 
corporation in which the distribution is made, or for the next 
preceding taxable year of the corporation, is a corporation exempt from 
tax under section 501 (relating to certain charitable, etc., 
organization) or section 521 (relating to farmers' cooperative 
associations).
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Exclusion not to apply to capital gain dividends from 
        regulated investment companies and real estate investment 
        trusts.--

                                ``For treatment of capital gain 
dividends, see sections 854(a) and 857(c).
            ``(2) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only--
                    ``(A) in determining the tax imposed for the 
                taxable year pursuant to section 871(b)(1) and only in 
                respect of dividends which are effectively connected 
                with the conduct of a trade or business within the 
                United States, or
                    ``(B) in determining the tax imposed for the 
                taxable year pursuant to section 877(b).
            ``(3) Dividends from employee stock ownership plans.--
        Subsection (a) shall not apply to any dividend described in 
        section 404(k).''
    (b) Conforming Amendments.--
            (1)(A) Subparagraph (A) of section 135(c)(4) of such Code 
        is amended by inserting ``116,'' before ``137''.
            (B) Subsection (d) of section 135 of such Code is amended 
        by redesignating paragraph (4) as paragraph (5) and by 
        inserting after paragraph (3) the following new paragraph:
            ``(4) Coordination with section 116.--This section shall be 
        applied before section 116.''
            (2) Subsection (c) of section 584 of such Code is amended 
        by adding at the end thereof the following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends received by the common trust fund and to which section 116 
applies shall be considered for purposes of such section as having been 
received by such participant.''
            (3) Subsection (a) of section 643 of such Code is amended 
        by redesignating paragraph (7) as paragraph (8) and by 
        inserting after paragraph (6) the following new paragraph:
            ``(7) Dividends.--There shall be included the amount of any 
        dividends excluded from gross income pursuant to section 116.''
            (4) Section 854(a) of such Code is amended by inserting 
        ``section 116 (relating to exclusion of dividends received by 
        individuals) and'' after ``For purposes of''.
            (5) Section 857(c) of such Code is amended to read as 
        follows:
    ``(c) Restrictions Applicable to Dividends Received From Real 
Estate Investment Trusts.--
            ``(1) Treatment for section 116.--For purposes of section 
        116 (relating to exclusion of dividends received by 
        individuals), a capital gain dividend (as defined in subsection 
        (b)(3)(C)) received from a real estate investment trust which 
        meets the requirements of this part shall not be considered as 
        a dividend.
            ``(2) Treatment for section 243.--For purposes of section 
        243 (relating to deductions for dividends received by 
        corporations), a dividend received from a real estate 
        investment trust which meets the requirements of this part 
        shall not be considered as a dividend.''
            (6) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 115 the following new item:

                              ``Sec. 116. Exclusion of dividends 
                                        received by individuals.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.
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