I 

108TH CONGRESS 

1ST SESSION H. R. 225

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. EXEMPTION OF DIVIDEND INCOME FROM TAX. 

7 (a) IN GENERAL.—Part III of subchapter B of chap8 ter 1 of the Internal Revenue Code of 1986 (relating to 

9 amounts specifically excluded from gross income) is 
2

•HR 225 IH 

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) LIMITATION BEFORE 2007.—In the case of a 

10 taxable year beginning before January 1, 2007, the aggre11 gate amount excluded under subsection (a) for any taxable 

12 year shall not exceed—

13 ‘‘(1) $25,000 in the case of taxable years begin14 ning during 2003, 

15 ‘‘(2) $50,000 in the case of taxable years begin16 ning during 2004, 

17 ‘‘(3) $75,000 in the case of taxable years begin18 ning during 2005, and 

19 ‘‘(4) $100,000 in the case of taxable years be20 ginning during 2006. 

21 In the case of a joint return, the preceding sentence shall 

22 be applied by doubling each amount contained therein. 

23 ‘‘(c) SPECIAL RULES.—For purposes of this sec24 tion—
3

•HR 225 IH 

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

2 GAIN DIVIDENDS FROM REGULATED INVESTMENT

3 COMPANIES AND REAL ESTATE INVESTMENT

4 TRUSTS.—

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

5 ‘‘(2) CERTAIN NONRESIDENT ALIENS INELI6 GIBLE FOR EXCLUSION.—In the case of a non7 resident alien individual, subsection (a) shall apply 

8 only in determining the taxes imposed for the tax9 able year pursuant to sections 871(b)(1) and 877(b). 

10 ‘‘(3) DIVIDENDS FROM EMPLOYEE STOCK OWN11 ERSHIP PLANS.—Subsection (a) shall not apply to 

12 any dividend described in section 404(k). 

13 ‘‘(4) CERTAIN DIVIDENDS EXCLUDED.—Sub14 section (a) shall not apply to any dividend from a 

15 corporation which for the taxable year of the cor16 poration in which the distribution is made is a cor17 poration exempt from tax under section 521 (relat18 ing to farmers’ cooperative associations).’’. 

19 (b) CONFORMING AMENDMENTS.—

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

21 such Code is amended by inserting ‘‘(determined 

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

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

24 such Code is amended to read as follows: 
4

•HR 225 IH 

1 ‘‘(B) increased by the sum of—

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

3 accrued by the taxpayer during the taxable 

4 year which is exempt from tax, and 

5 ‘‘(ii) the amount of dividends received 

6 during the taxable year which are excluded 

7 from gross income under section 116.’’. 

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

9 is amended by redesignating paragraph (4) as para10 graph (5) and by inserting after paragraph (3) the 

11 following new paragraph: 

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

13 section shall be applied before section 116.’’. 

14 (4) Subsection (c) of section 584 of such Code 

15 is amended by adding at the end the following new 

16 flush sentence: 

17 ‘‘The proportionate share of each participant in the 

18 amount of dividends received by the common trust fund 

19 and to which section 116 applies shall be considered for 

20 purposes of such section as having been received by such 

21 participant.’’. 

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

23 is amended by redesignating paragraph (7) as para24 graph (8) and by inserting after paragraph (6) the 

25 following new paragraph: 
5

•HR 225 IH 

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

2 amount of any dividends excluded from gross income 

3 pursuant to section 116.’’. 

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

5 inserting ‘‘section 116 (relating to exclusion of divi6 dends received by individuals) and’’ after ‘‘For pur7 poses of’’. 

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

9 read as follows: 

10 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE11 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

12 ‘‘(1) TREATMENT FOR SECTION 116.—For pur13 poses of section 116 (relating to exclusion of divi14 dends received by individuals), a capital gain divi15 dend (as defined in subsection (b)(3)(C)) received 

16 from a real estate investment trust which meets the 

17 requirements of this part shall not be considered as 

18 a dividend. 

19 ‘‘(2) TREATMENT FOR SECTION 243.—For pur20 poses of section 243 (relating to deductions for divi21 dends received by corporations), a dividend received 

22 from a real estate investment trust which meets the 

23 requirements of this part shall not be considered as 

24 a dividend.’’. 
6

•HR 225 IH 

1 (8) The table of sections for part III of sub2 chapter B of chapter 1 of such Code is amended by 

3 inserting after the item relating to section 115 the 

4 following new item:

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

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2002.

Æ