To amend the Internal Revenue Code of 1986 to allow individuals to defer recognition of reinvested capital gains distributions from regulated investment companies.

Summary: Generate Retirement Ownership Through Long-Term Holding Act of 2005 - Amends the Internal Revenue Code to provide that no gain shall be recognized on the receipt of a capital gain dividend distributed by a regulated investment company if such dividend is automatically reinvested in additional shares of the company pursuant to a dividend reinvestment plan.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Generate Retirement Ownership 
Through Long-Term Holding Act of 2005''.

SEC. 2. DEFERRAL OF REINVESTED CAPITAL GAIN DIVIDENDS OF REGULATED 
              INVESTMENT COMPANIES.

    (a) In General.--Part III of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to common nontaxable exchanges) 
is amended by inserting after section 1045 the following new section:

``SEC. 1046. REINVESTED CAPITAL GAIN DIVIDENDS OF REGULATED INVESTMENT 
              COMPANIES.

    ``(a) Nonrecognition of Gain.--In the case of an individual, no 
gain shall be recognized on the receipt of a capital gain dividend 
distributed by a regulated investment company to which part I of 
subchapter M applies if such capital gain dividend is automatically 
reinvested in additional shares of the company pursuant to a dividend 
reinvestment plan.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Capital gain dividend.--The term `capital gain 
        dividend' has the meaning given to such term by section 
        852(b)(3)(C).
            ``(2) Recognition of deferred capital gain dividends.--
                    ``(A) In general.--Gain treated as unrecognized in 
                accordance with subsection (a) shall be recognized in 
                accordance with subparagraph (B)--
                            ``(i) upon a subsequent sale or redemption 
                        by such individual of stock in the distributing 
                        company, or
                            ``(ii) upon the death of the individual.
                    ``(B) Gain recognition.--
                            ``(i) In general.--Upon a sale or 
                        redemption described in subparagraph (A), the 
                        taxpayer shall recognize that portion of total 
                        gain treated as unrecognized in accordance with 
                        subsection (a) (and not previously recognized 
                        pursuant to this subparagraph) that is 
                        equivalent to the portion of the taxpayer's 
                        shares in the distributing company that are 
                        sold or redeemed.
                            ``(ii) Death of individual.--Except as 
                        provided by regulations, any portion of such 
                        total gain not recognized under clause (i) 
                        prior to the taxpayer's death shall be 
                        recognized upon the death of the taxpayer and 
                        included in the taxpayer's gross income for the 
                        taxable year ending on the date of the 
                        taxpayer's death.
            ``(3) Holding period.--
                    ``(A) General rule.--The taxpayer's holding period 
                in shares acquired through reinvestment of a capital 
                gain dividend to which subsection (a) applies shall be 
                determined by treating the shareholder as having held 
                such shares for one year and a day as of the date such 
                shares are acquired.
                    ``(B) Special rule for distributions of qualified 
                5-year gains.--In the case of a distribution of a 
                capital gain dividend (or portion thereof) in a taxable 
                year beginning after December 31, 2008, and properly 
                treated as qualified 5-year gain (within the meaning of 
                section 1(h), as in effect after such date), 
                subparagraph (A) shall apply by substituting `5 years 
                and a day' for `one year and a day'.
    ``(c) Section not to Apply to Certain Taxpayers.--This section 
shall not apply to--
            ``(1) an individual with respect to whom a deduction under 
        section 151 is allowable to another taxpayer for a taxable year 
        beginning in the calendar year in which such individual's 
        taxable year begins, or
            ``(2) an estate or trust.
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Conforming Amendments.--
            (1) Section 852(b)(3)(B) of such Code is amended by adding 
        at the end the following new sentence: ``For rules regarding 
        nonrecognition of gain with respect to reinvested capital gain 
        dividends received by individuals, see section 1046.''.
            (2) The table of sections for part III of subchapter O of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 1045 the following new item:

``Sec. 1046. Reinvested capital gain dividends of regulated investment 
                            companies.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.