I 

108TH CONGRESS 

1ST SESSION H. R. 226

To amend the Internal Revenue Code of 1986 to allow individuals to exclude 

dividend income. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 7, 2003

Mr. WILSON of South Carolina 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 allow 

individuals to exclude dividend 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 ‘‘Dividend Taxation 

5 Elimination Act of 2003’’. 

6 SEC. 2. EXCLUSION OF DIVIDENDS RECEIVED BY INDIVID7 UALS. 

8 (a) IN GENERAL.—Part III of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to 

10 amounts specifically excluded from gross income) is 
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1 amended by inserting after section 115 the following new 

2 section: 

3 ‘‘SEC. 116. EXCLUSION OF DIVIDENDS RECEIVED BY INDI4 VIDUALS. 

5 ‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in6 come does not include dividends which are otherwise in7 cludible in gross income and which are received during the 

8 taxable year by an individual. 

9 ‘‘(b) SPECIAL RULES.—For purposes of this sec10 tion—

11 ‘‘(1) EXCLUSION NOT TO APPLY TO CAPITAL

12 GAIN DIVIDENDS FROM REGULATED INVESTMENT

13 COMPANIES AND REAL ESTATE INVESTMENT

14 TRUSTS.—

‘‘For treatment of capital gain dividends, see sections 854(a) and 857(c).

15 ‘‘(2) CERTAIN NONRESIDENT ALIENS INELI16 GIBLE FOR EXCLUSION.—In the case of a non17 resident alien individual, subsection (a) shall apply 

18 only in determining the taxes imposed for the tax19 able year pursuant to sections 871(b)(1) and 877(b). 

20 ‘‘(3) DIVIDENDS FROM EMPLOYEE STOCK OWN21 ERSHIP PLANS.—Subsection (a) shall not apply to 

22 any dividend described in section 404(k). 

23 ‘‘(4) CERTAIN DIVIDENDS EXCLUDED.—Sub24 section (a) shall not apply to any dividend from a 
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1 corporation which for the taxable year of the cor2 poration in which the distribution is made is a cor3 poration exempt from tax under section 521 (relat4 ing to farmers’ cooperative associations).’’. 

5 (b) CONFORMING AMENDMENTS.—

6 (1) Subparagraph (A) of section 32(i)(2) of 

7 such Code is amended by inserting ‘‘(determined 

8 without regard to section 116)’’ before the comma. 

9 (2) Subparagraph (B) of section 86(b)(2) of 

10 such Code is amended to read as follows: 

11 ‘‘(B) increased by the sum of—

12 ‘‘(i) the amount of interest received or 

13 accrued by the taxpayer during the taxable 

14 year which is exempt from tax, and 

15 ‘‘(ii) the amount of dividends received 

16 during the taxable year which are excluded 

17 from gross income under section 116.’’. 

18 (3) Subsection (d) of section 135 of such Code 

19 is amended by redesignating paragraph (4) as para20 graph (5) and by inserting after paragraph (3) the 

21 following new paragraph: 

22 ‘‘(4) COORDINATION WITH SECTION 116.—This 

23 section shall be applied before section 116.’’. 
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1 (4) Subsection (c) of section 584 of such Code 

2 is amended by adding at the end the following new 

3 flush sentence: 

4 ‘‘The proportionate share of each participant in the 

5 amount of dividends received by the common trust fund 

6 and to which section 116 applies shall be considered for 

7 purposes of such section as having been received by such 

8 participant.’’. 

9 (5) Subsection (a) of section 643 of such Code 

10 is amended by redesignating paragraph (7) as para11 graph (8) and by inserting after paragraph (6) the 

12 following new paragraph: 

13 ‘‘(7) DIVIDENDS.—There shall be included the 

14 amount of any dividends excluded from gross income 

15 pursuant to section 116.’’. 

16 (6) Section 854(a) of such Code is amended by 

17 inserting ‘‘section 116 (relating to partial exclusion 

18 of dividends received by individuals) and’’ after ‘‘For 

19 purposes of’’. 

20 (7) Section 857(c) of such Code is amended to 

21 read as follows: 

22 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE23 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

24 ‘‘(1) TREATMENT FOR SECTION 116.—For pur25 poses of section 116 (relating to partial exclusion of 
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1 dividends received by individuals), a capital gain div2 idend (as defined in subsection (b)(3)(C)) received 

3 from a real estate investment trust which meets the 

4 requirements of this part shall not be considered as 

5 a dividend. 

6 ‘‘(2) TREATMENT FOR SECTION 243.—For pur7 poses of section 243 (relating to deductions for divi8 dends received by corporations), a dividend received 

9 from a real estate investment trust which meets the 

10 requirements of this part shall not be considered as 

11 a dividend.’’. 

12 (8) The table of sections for part III of sub13 chapter B of chapter 1 of such Code is amended by 

14 inserting after the item relating to section 115 the 

15 following new item:

‘‘Sec. 116. Exclusion of dividends received by individuals.’’.

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to taxable years ending after the 

18 date of the enactment of this Act.

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