II 109th CONGRESS 1st Session S. 965 IN THE SENATE OF THE UNITED STATES April 28, 2005 Mr. Smith (for himself and Mrs. Lincoln) 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 reduce the recognition period for built-in gains for subchapter S corporations.

1.

Reduced recognition period for built-in gains

(a)

In general

Paragraph (7) of section 1374(d) of the Internal Revenue Code of 1986 (relating to definitions and special rules) is amended to read as follows: (7)

Recognition period

The term recognition period means the 7-year period beginning with the 1st day of the 1st taxable year for which the corporation was an S corporation. For purposes of applying this section to any amount includible in income by reason of distributions to shareholders pursuant to section 593(e), the preceding sentence shall be applied without regard to the duration of the recognition period in effect on the date of such distribution. . (b)

Effective date

(1)

General rule

The amendment made by this section shall apply to any recognition period in effect on or after the date of the enactment of this Act. (2)

Special application to existing periods exceeding 7 years

Any recognition period in effect on the date of the enactment of this Act, the length of which is greater than 7 years, shall end on such date.