I 

108TH CONGRESS 

1ST SESSION H. R. 1989

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

recognition of reinvested capital gains distributions from regulated investment companies. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 6, 2003

Mr. RYAN of Wisconsin (for himself and Mr. SAXTON) 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 defer recognition of reinvested capital gains 

distributions from regulated investment companies.

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

3 SECTION. 1. DEFERRAL OF REINVESTED CAPITAL GAIN 

4 DIVIDENDS OF REGULATED INVESTMENT 

5 COMPANIES. 

6 (a) IN GENERAL.—Part III of subchapter O of chap7 ter 1 of the Internal Revenue Code of 1986 (relating to 

8 common nontaxable exchanges) is amended by inserting 

9 after section 1045 the following new section: 
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1 ‘‘SEC. 1046. REINVESTED CAPITAL GAIN DIVIDENDS OF 

2 REGULATED INVESTMENT COMPANIES. 

3 ‘‘(a) NONRECOGNITION OF GAIN.—In the case of an 

4 individual, no gain shall be recognized on the receipt of 

5 a capital gain dividend distributed by a regulated invest6 ment company to which part I of subchapter M applies 

7 if such capital gain dividend is automatically reinvested 

8 in additional shares of the company pursuant to a dividend 

9 reinvestment plan. 

10 ‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur11 poses of this section—

12 ‘‘(1) CAPITAL GAIN DIVIDEND.—The term ‘cap13 ital gain dividend’ has the meaning given to such 

14 term by section 852(b)(3)(C). 

15 ‘‘(2) RECOGNITION OF DEFERRED CAPITAL

16 GAIN DIVIDENDS.—

17 ‘‘(A) IN GENERAL.—Gain treated as unrec18 ognized in accordance with subsection (a) shall 

19 be recognized in accordance with subparagraph 

20 (B) upon a subsequent sale or redemption by 

21 such individual of stock in the distributing com22 pany. 

23 ‘‘(B) GAIN RECOGNITION.—Upon a sale or 

24 redemption described in subparagraph (A), the 

25 taxpayer shall recognize that portion of total 

26 gain treated as unrecognized in accordance with 
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1 subsection (a) (and not previously recognized 

2 pursuant to this subparagraph) that is equiva3 lent to the portion of the taxpayer’s shares in 

4 the distributing company that are sold or re5 deemed. 

6 ‘‘(3) HOLDING PERIOD.—

7 ‘‘(A) GENERAL RULE.—The taxpayer’s 

8 holding period in shares acquired through rein9 vestment of a capital gain dividend to which 

10 subsection (a) applies shall be determined by 

11 treating the shareholder as having held such 

12 shares for one year and a day as of the date 

13 such shares are acquired. 

14 ‘‘(B) SPECIAL RULE FOR DISTRIBUTIONS

15 OF QUALIFIED 5-YEAR GAINS.—In the case of a 

16 capital gain dividend (or portion thereof) prop17 erly treated as qualified 5-year gain (within the 

18 meaning of section 1(h)(9)), subparagraph (A) 

19 shall apply by substituting ‘5 years and a day’ 

20 for ‘one year and a day.’

21 ‘‘(c) SECTION NOT TO APPLY TO CERTAIN TAX22 PAYERS.—This section shall not apply to—

23 ‘‘(1) an individual with respect to whom a de24 duction under section 151 is allowable to another 

25 taxpayer for a taxable year beginning in the cal-
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1 endar year in which such individual’s taxable year 

2 begins, or 

3 ‘‘(2) an estate or trust.’’

4 (b) CONFORMING AMENDMENTS.—

5 (1) Section 852(b)(3)(B) of such Code is 

6 amended by adding at the end the following new 

7 sentence: ‘‘For rules regarding nonrecognition of 

8 gain with respect to reinvested capital gain dividends 

9 received by individuals, see section 1046.’’

10 (2) The table of sections for part III of sub11 chapter O of chapter 1 of such Code is amended by 

12 inserting after the item relating to section 1045 the 

13 following new item:

‘‘Sec. 1046. Reinvested capital gain dividends of regulated investment companies.’’

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

15 this section shall apply to taxable years ending after the 

16 date of the enactment of this Act.

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