[Congressional Record Volume 148, Number 135 (Tuesday, October 15, 2002)]
[Senate]
[Pages S10446-S10449]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN:
  S. 3112. 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; to the Committee on Finance.
  Mr. McCAIN. Mr. President, today I am introducing The 
Telecommunications Ownership Diversity Act of 2002. This legislation is 
designed to ensure that new entrants and small businesses will have the 
chance to participate in today's telecommunications marketplace.
  At a time when the telecommunications industry is economically 
depressed, this bill promotes the entry of new competitors and small 
businesses into the field by providing carefully limited changes to the 
tax law. Too often today, new entrants and small businesses lose out on 
opportunities to purchase telecom assets because they don't offer 
sellers the same tax treatment as their larger competitors. 
Specifically, a small purchaser's cash offer triggers tax liability, 
while a larger purchaser's cash offer triggers tax liability, while a 
larger purchaser's stock offer may be accepted effectively tax-free. 
When an entity chooses to sell a telecom business, our tax laws should 
not make one bidder more attractive than another.
  This legislation would give sellers of telecommunications businesses 
a tax deferral when their assets are bought for cash by small business 
telecom companies. It would also encourage the entry of new players and 
the growth of existing small businesses by enabling the seller of a 
telecom business to claim a tax deferral on capital gains if it invests 
the proceeds of any sale of its business in purchasing an interest in 
an eligible small telecom business.
  While large companies continue to merge into even larger companies, 
small businesses have faced substantial barriers in trying to become 
long-term players in the telecommunications market. These barriers can 
be even more formidable for members of minority groups and for women, 
for whom it has historically been more difficult to obtain necessary 
capital. Since new entry and the ability to grow existing businesses 
are key components of competition, and since competition is usually the 
most successful way to achieve the goals of better service and lower 
prices, restricting small business' ownership opportunities does not 
serve consumers' interests.

[[Page S10447]]

  It's easy to forget that telecommunications industry transactions are 
routinely valued in the billions. Even radio, which has traditionally 
been a comparatively easier telecom segment to enter, has been priced 
out of range of most would-be entrants. In addition to these monetary 
barriers, the tax code makes cash sales less attractive to sellers than 
stock-swaps. So new entrants and smaller incumbents, which typically 
must finance telecom acquisitions with cash rather than stock, are 
less-preferred purchasers than large incumbents. As a result, telecom 
business sellers have little incentive to sell their businesses to new 
entrants and small incumbents.
  But what should Congress do? Clamp down on merger activity? Insist 
that hopelessly-outdated ownership restrictions set by the Federal 
Communications Commission be retained? Rush to concoct new telecom 
ownership ``opportunities'' from government programs or regulations 
that, in the real world, present small business with only one real 
opportunity, the opportunity to fail? None of these proposals would 
succeed because all of them, like the Telecommunications Act of 1996, 
ignore marketplace realities instead of working with them.
  One answer is to level the playing field and give established telecom 
industry players the same economic incentives to deal with new entrants 
and small businesses as they currently have with respect to larger 
companies. And that's what this legislation would do.
  Specifically, the bill would amend the Internal Revenue Code by 
adding a new Section 1071 entitled ``Nonrecognition of gain on certain 
sales of telecommunications business.'' This new section of the tax 
code would allow a telecom business seller to elect to have capital 
gains deferred under the existing Section 1033 rules for any 
``qualified telecommunications sale.'' The aggregate amount of any gain 
deferred under the qualified sale would be limited to $250 million per 
transaction, and less than $84 million per taxable year.
  A qualified telecommunications sale would be defined in two ways. The 
first type of qualified sale would be sales to an ``eligible 
purchaser'' of either the assets of a telecom business or the stock 
that makes up a controlling interest in a corporation with 
substantially all of its assets in one or more telecom businesses. 
Eligible purchasers would include economically and socially 
disadvantaged businesses that qualify under a carefully drawn three-
part test. The second type of qualified sale would be the sale of any 
telecom business to any purchaser, as long as the seller reinvests the 
proceeds in equity interests in eligible small telecom businesses.
  To account for the variety of telecommunications services available 
today, the legislation would broadly define telecommunications 
businesses eligible for capital gains tax deferral to include not only 
radio, broadcast TV, DBS, and cable TV, but also wireline and wireless 
telephone service providers and resellers.
  Some may be concerned that this legislation could potentially allow 
entities seeking to ``game the system'' to set up eligible purchasers 
to take advantage of the bill's provisions. In order to eliminate the 
potential for abuse, the bill would require the eligible purchaser to 
hold any property acquired for three years, during which time it could 
only so sold to an unrelated eligible purchaser. Moreover, the bill 
would require the General Accounting Office to thoroughly audit and 
report on the administration and effect of the law every two years.
  By sharing with smaller companies a portion of the investment 
benefits our tax laws give to the major telecom companies we have a 
chance to make sure that, at the end of the day, we won't regret what 
``might have been'' for small business. By enabling individuals and 
small businesses to use industry restructurings as opportunities for 
expansion, we will keep faith with those who have been, and remain, 
enduringly valuable contributors to our free-market system.
  Over the next several months, I look forward to working with 
interested organizations to further improve this legislation. In 
particular, I welcome comments on how to further refine the concepts of 
``qualified telecommunications business'' and ``eligible purchaser'' to 
ensure that this legislation can meet its goals in the most fair and 
effective manner.
  Revolutionary developments in the telecommunications industry have 
been made by gifted individuals with small companies and unlimited 
vision. In this sense, the telecommunciaitons industry is a true 
microcosm of the American free-market system. New entrants and small 
businesses should have a fair chance to participate across the broad 
spectrum of industries that will make up the telecommunications 
industry in the Information Age. This legislation will help them do 
that.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 3112

       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 under represented 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)

[[Page S10448]]

     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 telecommunication 
              businesses.

     ``SEC. 1071. NONRECOGNITION OF GAIN ON CERTAIN SALES OF 
                   TELECOMMUNICATION BUSINESSES.

       ``(a) In General.--In 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 sales 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 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 purpose 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 interest 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, engaged 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

[[Page S10449]]

     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 designed 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 0 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 the 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)(!) 
     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 
     1071(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.

                          ____________________