I 

108TH CONGRESS 

1ST SESSION H. R. 178

To amend the Internal Revenue Code of 1986 to give a deduction to 

corporations for dividends paid and to exclude dividends from gross income. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 7, 2003

Mr. RYAN of Wisconsin 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 give a 

deduction to corporations for dividends paid and to exclude dividends from gross income.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Double Taxation 

5 Elimination and Economic Growth Act of 2003’’.

6 SEC. 2. DEDUCTION FOR DIVIDENDS PAID. 

7 (a) IN GENERAL.—Part VIII of subchapter B of 

8 chapter 1 of the Internal Revenue Code of 1986 (relating 

9 to special deductions for corporations) is amended by add10 ing at the end the following new section: 
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1 ‘‘SEC. 250. DIVIDENDS PAID BY CORPORATIONS. 

2 ‘‘(a) IN GENERAL.—In the case of a domestic cor3 poration, there shall be allowed as a deduction for the tax4 able year an amount equal to the amount of dividends paid 

5 during the taxable year. 

6 ‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply 

7 to—

8 ‘‘(1) any dividend from—

9 ‘‘(A) a regulated investment company, 

10 ‘‘(B) a real estate investment trust, or 

11 ‘‘(C) an S corporation, 

12 ‘‘(2) any dividend of a corporation which for 

13 the taxable year of the corporation in which the dis14 tribution is made is a corporation exempt from tax 

15 under section 521 (relating to farmers’ cooperative 

16 associations), and 

17 ‘‘(3) any dividend described in section 404(k). 

18 ‘‘(c) DISALLOWANCE OF DIVIDENDS RECEIVED DE19 DUCTION.—In the case of the deduction allowed by sub20 section (a) with respect to any dividend, no deduction shall 

21 be allowed under any other provision of this part with re22 spect to such dividend.’’. 

23 (b) CLERICAL AMENDMENT.—The table of sections 

24 for part VIII of subchapter B of chapter 1 of such Code 

25 is amended by adding at the end the following new item:

‘‘Sec. 250. Dividends paid by corporations.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2002. 

4 SEC. 3. DIVIDENDS RECEIVED BY INDIVIDUALS TAXED AT 

5 CAPITAL GAIN RATES. 

6 (a) IN GENERAL.—Subsection (h) of section 1 of the 

7 Internal Revenue Code of 1986 (relating to maximum cap8 ital gains rate) is amended by adding at the end the fol9 lowing new paragraph: 

10 ‘‘(13) DIVIDENDS TAXED AS NET CAPITAL

11 GAIN.—

12 ‘‘(A) IN GENERAL.—For purposes of this 

13 subsection, the term ‘net capital gain’ means 

14 net capital gain (determined without regard to 

15 this paragraph) increased by qualified dividend 

16 income. 

17 ‘‘(B) QUALIFIED DIVIDEND INCOME.—For 

18 purposes of this paragraph, the term ‘qualified 

19 dividend income’ means dividends received from 

20 domestic corporations during the taxable year 

21 other than— 

22 ‘‘(i) any dividend from a corporation 

23 which for the taxable year of the corpora24 tion in which the distribution is made, or 
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1 the preceding taxable year, is a corporation 

2 exempt from tax under section 501 or 521, 

3 ‘‘(ii) any dividend from a real estate 

4 investment trust which, for the taxable 

5 year in which the dividend is paid, quali6 fied under part II of subchapter M, 

7 ‘‘(iii) any amount allowed as a deduc8 tion under section 591 (relating to deduc9 tion for dividends paid by mutual savings 

10 banks, etc.), 

11 ‘‘(iv) any dividend described in section 

12 404(k), 

13 ‘‘(v) any dividend on any share of 

14 stock with respect to which the holding pe15 riod requirements of section 246(c) are not 

16 met, and 

17 ‘‘(vi) any dividend which the taxpayer 

18 takes into account as investment income 

19 under section 163(d)(4)(B). 

20 ‘‘(C) SPECIAL RULE FOR NONRESIDENT

21 ALIENS.—In the case of a nonresident alien in22 dividual, subparagraph (A) shall apply only—

23 ‘‘(i) in determining the tax imposed 

24 for the taxable year pursuant to section 

25 871(b) and only in respect of dividends 
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1 which are effectively connected with the 

2 conduct of a trade or business within the 

3 United States, and 

4 ‘‘(ii) in determining the tax imposed 

5 for the taxable year pursuant to section 

6 877. 

7 ‘‘(D) TREATMENT OF DIVIDENDS FROM

8 REGULATED INVESTMENT COMPANIES.—

‘‘For treatment of dividends from regulated investment companies, see section 854.’’.

9 (b) TREATMENT OF DIVIDENDS FROM REGULATED

10 INVESTMENT COMPANIES.—

11 (1) Subsection (a) of section 854 of such Code 

12 is amended by inserting ‘‘section 1(h)(13) (relating 

13 to maximum rate of tax on dividends) and’’ after 

14 ‘‘For purposes of’’. 

15 (2) Paragraph (1) of section 854(b) of such 

16 Code is amended by redesignating subparagraph (B) 

17 as subparagraph (C) and by inserting after subpara18 graph (A) the following new subparagraph: 

19 ‘‘(B) MAXIMUM RATE UNDER SECTION

20 1(H).—

21 ‘‘(i) IN GENERAL.—If the aggregate 

22 dividends received by a regulated invest23 ment company during any taxable year are 

24 less than 95 percent of its gross income, 
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1 then, in computing the maximum rate 

2 under section 1(h)(13), rules similar to the 

3 rules of subparagraph (A) shall apply. 

4 ‘‘(ii) GROSS INCOME.—For purposes 

5 of clause (i), in the case of 1 or more sales 

6 or other dispositions of stock or securities, 

7 the term ‘gross income’ includes only the 

8 excess of—

9 ‘‘(I) the net short-term capital 

10 gain from such sales or dispositions, 

11 over 

12 ‘‘(II) the net long-term capital 

13 loss from such sales or dispositions.’’. 

14 (3) Subparagraph (C) of section 854(b)(1) of 

15 such Code, as redesignated by paragraph (2), is 

16 amended by striking ‘‘subparagraph (A)’’ and insert17 ing ‘‘subparagraph (A) or (B)’’. 

18 (4) Paragraph (2) of section 854(b) of such 

19 Code is amended by inserting ‘‘the maximum rate 

20 under section 1(h)(13) and’’ after ‘‘for purposes of’’. 

21 (c) EXCLUSION OF DIVIDENDS FROM INVESTMENT

22 INCOME.—Subparagraph (B) of section 163(d)(4) of such 

23 Code is amended by adding at the end the following flush 

24 sentence: 
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1 ‘‘Such term shall include qualified dividend in2 come (as defined in section 1(h)(13)(B)) only to 

3 the extent the taxpayer elects to treat such in4 come as investment income for purposes of this 

5 subsection.’’. 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2002.

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