I 111th CONGRESS 2d Session H. R. 4561 IN THE HOUSE OF REPRESENTATIVES February 2, 2010 Mr. Lewis of Georgia 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 provide a limited exclusion from gross income for the discharge of indebtedness of individuals.

1.

Exclusion from gross income for discharge of indebtedness of individuals

(a)

In general

Paragraph (1) of section 108(a) of the Internal Revenue Code of 1986 is amended by striking or at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting , or, and by adding at the end the following new subparagraph: (F)the indebtedness discharged is qualified individual indebtedness. . (b)

Qualified individual indebtedness

Section 108 of such Code is amended by adding at the end the following new subsection: (j)

Special rules relating to qualified individual indebtedness

(1)

Qualified individual indebtedness defined

For purposes of this section, the term qualified individual indebtedness means any indebtedness of an individual other than indebtedness which is— (A)discharged on account of services performed for the lender, or (B)held at any time by a person related to such individual. For purposes of subparagraph (B), a person shall be treated as related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b).(2)

Dollar limitation

The amount of qualified individual indebtedness excluded from gross income under subsection (a)(1)(F) with respect to any individual for any taxable year shall not exceed the excess of— (A)$10,000, over (B)the aggregate amount excluded from the gross income of such individual under subsection (a)(1) for such taxable year and all prior taxable years (determined without regard to the amount excluded under subsection (a)(1)(F) for such taxable year). (3)

Joint returns

In the case of a joint return— (A)the dollar limitation under paragraph (2) shall be applied separately to each spouse, and (B)the taxpayer may elect to treat any indebtedness of either spouse as indebtedness of the other spouse. . (c)

Coordination

(1)

In general

Paragraph (2) of section 108(a) of such Code is amended by adding at the end the following new subparagraph: (D)

Precedence of individual indebtedness exclusion

(i)

Individual indebtedness exclusion takes precedence over insolvency exclusion unless elected otherwise

Paragraph (1)(B) shall not apply to a discharge to which paragraph (1)(F) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(F). (ii)

Other exclusions take precedence

Subparagraph (F) shall not apply to a discharge to which subparagraph (C), (D), or (E) applies. . (2)

Title 11 exclusion takes precedence

Subparagraph (A) of section 108(a)(2) of such Code is amended by striking and (E) and inserting (E), and (F). (d)

Effective date

The amendments made by this section shall apply to discharges of indebtedness after the date of the enactment of this Act.