IB 

Union Calendar No. 49

108TH CONGRESS 

1ST SESSION H. R. 2

[Report No. 108–94] 

To amend the Internal Revenue Code of 1986 to provide additional tax 

incentives to encourage economic growth. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 27, 2003

Mr. THOMAS introduced the following bill; which was referred to the 

Committee on Ways and Means 

MAY 8, 2003

Additional sponsors: Mr. DELAY, Mr. BLUNT, Ms. PRYCE of Ohio, Mr. COX, 

Mr. REYNOLDS, Mr. DREIER, Mr. DOOLITTLE, Mr. KINGSTON, Mr. 

CRANE, Mr. SHAW, Mr. HERGER, Mr. MCCRERY, Mr. CAMP, Mr. 

RAMSTAD, Mr. SAM JOHNSON of Texas, Ms. DUNN, Mr. PORTMAN, Mr. 

HAYWORTH, Mr. HULSHOF, Mr. MCINNIS, Mr. LEWIS of Kentucky, Mr. 

FOLEY, Mr. BRADY of Texas, Mr. RYAN of Wisconsin, Mr. CANTOR, Mr. 

HENSARLING, Mr. PITTS, Mr. MCKEON, Mr. WILSON of South Carolina, 

Mr. DEMINT, Mr. FOSSELLA, Mr. MCCOTTER, Ms. GINNY BROWNWAITE of Florida, Mr. BOEHNER, Mr. FRANKS of Arizona, Mr. KELLER, 

Mr. GARY G. MILLER of California, Mr. COLLINS, Mr. ISAKSON, Mr. 

TERRY, Mr. GARRETT of New Jersey, Mr. KOLBE, Mr. BEAUPREZ, Mr. 

SESSIONS, Mr. CHOCOLA, Mr. PEARCE, Mr. BARRETT of South Carolina, 

Mr. BROWN of South Carolina, Ms. HART, Mr. RYUN of Kansas, and Mr. 

OSE

Deleted sponsor: Mrs. MUSGRAVE (added April 1, 2003; deleted May 7, 2003) 

MAY 8, 2003

Reported with amendments, committed to the Committee of the Whole House 

on the State of the Union, and ordered to be printed 
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[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on February 27, 2003] 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

additional tax incentives to encourage economic growth.

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; REFERENCES; TABLE OF CON4 TENTS. 

5 (a) SHORT TITLE.—This Act may be cited as the ‘‘Jobs 

6 and Growth Reconciliation Tax Act of 2003’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as otherwise 

8 expressly provided, whenever in this Act an amendment or 

9 repeal is expressed in terms of an amendment to, or repeal 

10 of, a section or other provision, the reference shall be consid11 ered to be made to a section or other provision of the Inter12 nal Revenue Code of 1986. 

13 (c) TABLE OF CONTENTS.—The table of contents of this 

14 Act is as follows:

Sec. 1. Short title; references; table of contents. 

TITLE I—ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX 

REDUCTIONS 

Sec. 101. Acceleration of increase in child tax credit. 

Sec. 102. Acceleration of 15-percent individual income tax rate bracket expansion 

for married taxpayers filing joint returns. 

Sec. 103. Acceleration of increase in standard deduction for married taxpayers 

filing joint returns. 
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Sec. 104. Acceleration of 10-percent individual income tax rate bracket expansion. 

Sec. 105. Acceleration of reduction in individual income tax rates. 

Sec. 106. Minimum tax relief to individuals. 

TITLE II—GROWTH INCENTIVES FOR BUSINESS 

Sec. 201. Increase and extension of bonus depreciation. 

Sec. 202. Increased expensing for small business. 

Sec. 203. 5-year carryback of certain net operating losses. 

TITLE III—REDUCTIONS IN TAXES ON DIVIDENDS AND CAPITAL 

GAINS 

Sec. 301. Reduction in capital gains rates for individuals; repeal of 5-year holding period requirement. 

Sec. 302. Dividends of individuals taxed at capital gain rates. 

Sec. 303. Sunset of title. 

TITLE IV—CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

Sec. 401. Time for payment of corporate estimated taxes.

1 TITLE I—ACCELERATION OF 

2 CERTAIN PREVIOUSLY EN3 ACTED TAX REDUCTIONS

4 SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX 

5 CREDIT. 

6 (a) IN GENERAL.—The items relating to calendar 

7 years 2001 through 2008 in the table contained in para8 graph (2) of section 24(a) (relating to per child amount) 

9 are amended to read as follows:

‘‘2003, 2004, 2005 .......................................................................... $1,000

2006, 2007, or 2008 ..................................................................... 700’’.

10 (b) ADVANCE PAYMENT OF PORTION OF INCREASED

11 CREDIT IN 2003.—

12 (1) IN GENERAL.—Subchapter B of chapter 65 

13 (relating to abatements, credits, and refunds) is 
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1 amended by inserting after section 6428 the following 

2 new section: 

3 ‘‘SEC. 6429. ADVANCE PAYMENT OF PORTION OF IN4 CREASED CHILD CREDIT FOR 2003. 

5 ‘‘(a) IN GENERAL.—Each taxpayer who claimed a 

6 credit under section 24 on the return for the taxpayer’s first 

7 taxable year beginning in 2002 shall be treated as having 

8 made a payment against the tax imposed by chapter 1 for 

9 such taxable year in an amount equal to the child tax credit 

10 refund amount (if any) for such taxable year. 

11 ‘‘(b) CHILD TAX CREDIT REFUND AMOUNT.—For pur12 poses of this section, the child tax credit refund amount is 

13 the amount by which the aggregate credits allowed under 

14 part IV of subchapter A of chapter 1 for such first taxable 

15 year would have been increased if—

16 ‘‘(1) the per child amount under section 24(a)(2) 

17 for such year were $1,000, 

18 ‘‘(2) only qualifying children (as defined in sec19 tion 24(c)) of the taxpayer for such year who had not 

20 attained age 17 as of December 31, 2003, were taken 

21 into account, and 

22 ‘‘(3) section 24(d)(1)(B)(ii) did not apply. 

23 ‘‘(c) TIMING OF PAYMENTS.—In the case of any over24 payment attributable to this section, the Secretary shall, 

25 subject to the provisions of this title, refund or credit such 
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1 overpayment as rapidly as possible and, to the extent prac2 ticable, before October 1, 2003. No refund or credit shall 

3 be made or allowed under this section after December 31, 

4 2003. 

5 ‘‘(d) COORDINATION WITH CHILD TAX CREDIT.—

6 ‘‘(1) IN GENERAL.—The amount of credit which 

7 would (but for this subsection and section 26) be al8 lowed under section 24 for the taxpayer’s first taxable

9 year beginning in 2003 shall be reduced (but not 

10 below zero) by the payments made to the taxpayer 

11 under this section. Any failure to so reduce the credit 

12 shall be treated as arising out of a mathematical or 

13 clerical error and assessed according to section 

14 6213(b)(1). 

15 ‘‘(2) JOINT RETURNS.—In the case of a payment 

16 under this section with respect to a joint return, half 

17 of such payment shall be treated as having been made 

18 to each individual filing such return. 

19 ‘‘(e) NO INTEREST.—No interest shall be allowed on 

20 any overpayment attributable to this section.’’. 

21 (2) CLERICAL AMENDMENT.—The table of sec22 tions for subchapter B of chapter 65 is amended by 

23 adding at the end the following new item:

‘‘Sec. 6429. Advance payment of portion of increased child credit for 2003.’’.

24 (c) EFFECTIVE DATES.—
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1 (1) SUBSECTION (a).—The amendment made by 

2 subsection (a) shall apply to taxable years beginning 

3 after December 31, 2002. 

4 (2) SUBSECTION (b).—The amendments made by 

5 subsection (b) shall take effect on the date of the en6 actment of this Act. 

7 SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL IN8 COME TAX RATE BRACKET EXPANSION FOR 

9 MARRIED TAXPAYERS FILING JOINT RE10 TURNS. 

11 (a) IN GENERAL.—The item relating to 2005 in the 

12 table contained in subparagraph (B) of section 1(f )(8) (re13 lating to applicable percentage) is amended to read as fol14 lows:

‘‘2003, 2004, and 2005 ..................................................... 200’’.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 1(f)(8)(A) is amended by striking 

17 ‘‘2004’’ and inserting ‘‘2002’’. 

18 (2) Section 302(c) of the Economic Growth and 

19 Tax Relief Reconciliation Act of 2001 is amended by 

20 striking ‘‘2004’’ and inserting ‘‘2002’’. 

21 (c) EFFECTIVE DATE.—The amendments made by this 

22 section shall apply to taxable years beginning after Decem23 ber 31, 2002. 
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1 SEC. 103. ACCELERATION OF INCREASE IN STANDARD DE2 DUCTION FOR MARRIED TAXPAYERS FILING 

3 JOINT RETURNS. 

4 (a) IN GENERAL.—The item relating to 2005 in the 

5 table contained in paragraph (7) of section 63(c) (relating 

6 to applicable percentage) is amended to read as follows:

‘‘2003, 2004, and 2005 ..................................................... 200’’.

7 (b) CONFORMING AMENDMENT.—Section 301(d) of the 

8 Economic Growth and Tax Relief Reconciliation Act of 

9 2001 is amended by striking ‘‘2004’’ and inserting ‘‘2002’’. 

10 (c) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to taxable years beginning after Decem12 ber 31, 2002. 

13 SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL IN14 COME TAX RATE BRACKET EXPANSION. 

15 (a) IN GENERAL.—Clause (i) of section 1(i)(1)(B) (re16 lating to the initial bracket amount) is amended by striking 

17 ‘‘($12,000 in the case of taxable years beginning before Jan18 uary 1, 2008)’’ and inserting ‘‘($12,000 in the case of tax19 able years beginning after December 31, 2005, and before 

20 January 1, 2008)’’. 

21 (b) INFLATION ADJUSTMENT.—Subparagraph (C) of 

22 section 1(i)(1) is amended to read as follows: 

23 ‘‘(C) INFLATION ADJUSTMENT.—In pre24 scribing the tables under subsection (f) which 
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1 apply with respect to taxable years beginning in 

2 calendar years after 2000—

3 ‘‘(i) the Secretary shall make no ad4 justment to the $12,000 initial bracket 

5 amount for any taxable year, 

6 ‘‘(ii)(I) the Secretary shall make no 

7 adjustment to the $14,000 initial bracket 

8 amount for any taxable year beginning be9 fore January 1, 2004, 

10 ‘‘(II) the cost-of-living adjustment used 

11 in making adjustments to the $14,000 ini12 tial bracket amount for any taxable year be13 ginning during 2004 or 2005 shall be deter14 mined under subsection (f)(3) by sub15 stituting ‘2002’ for ‘1992’ in subparagraph 

16 (B) thereof, and 

17 ‘‘(III) the cost-of-living adjustment 

18 used in making adjustments to the $14,000 

19 initial bracket amount for any taxable year 

20 beginning after December 31, 2008, shall be 

21 determined under subsection (f)(3) by sub22 stituting ‘2007’ for ‘1992’ in subparagraph 

23 (B) thereof, and 
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1 ‘‘(iii) the adjustments under clause (ii) 

2 shall not apply to the amount referred to in 

3 subparagraph (B)(iii). 

4 If any amount after adjustment under the pre5 ceding sentence is not a multiple of $50, such 

6 amount shall be rounded to the next lowest mul7 tiple of $50.’’

8 (c) EFFECTIVE DATE.—

9 (1) IN GENERAL.—The amendments made by 

10 this section shall apply to taxable years beginning 

11 after December 31, 2002. 

12 (2) TABLES FOR 2003.—The Secretary of the 

13 Treasury shall modify each table which has been pre14 scribed under section 1(f) of the Internal Revenue 

15 Code of 1986 for taxable years beginning in 2003 and 

16 which relates to the amendment made by this section 

17 to reflect such amendment. 

18 SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL 

19 INCOME TAX RATES. 

20 (a) IN GENERAL.—The table in paragraph (2) of sec21 tion 1(i) (relating to reductions in rates after June 30, 

22 2001) is amended to read as follows:

‘‘In the case of taxable years

beginning during calendar year: 

The corresponding percentages 

shall be substituted for

the following percentages: 

28% 31% 36% 39.6%

2001 .................................................................................... 27.5% 30.5% 35.5% 39.1%

2002 .................................................................................... 27.0% 30.0% 35.0% 38.6%

2003 and thereafter ........................................................... 25.0% 28.0% 33.0% 35.0%’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2002. 

4 SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS. 

5 (a) IN GENERAL.—

6 (1) Subparagraph (A) of section 55(d)(1) is 

7 amended by striking ‘‘$49,000 in the case of taxable 

8 years beginning in 2001, 2002, 2003, and 2004’’ and

9 inserting ‘‘$64,000 in the case of taxable years begin10 ning in 2003, 2004, and 2005’’. 

11 (2) Subparagraph (B) of section 55(d)(1) is 

12 amended by striking ‘‘$35,750 in the case of taxable 

13 years beginning in 2001, 2002, 2003, and 2004’’ and 

14 inserting ‘‘$43,250 in the case of taxable years begin15 ning in 2003, 2004, and 2005’’. 

16 (b) EFFECTIVE DATE.—The amendments made by sub17 section (a) shall apply to taxable years beginning after De18 cember 31, 2002. 

19 TITLE II—GROWTH INCENTIVES 

20 FOR BUSINESS

21 SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIA22 TION. 

23 (a) IN GENERAL.—Section 168(k) (relating to special 

24 allowance for certain property acquired after September 10, 
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1 2001, and before September 11, 2004) is amended by adding 

2 at the end the following new paragraph: 

3 ‘‘(4) 50-PERCENT BONUS DEPRECIATION FOR

4 CERTAIN PROPERTY.—

5 ‘‘(A) IN GENERAL.—In the case of 50-per6 cent bonus depreciation property—

7 ‘‘(i) paragraph (1)(A) shall be applied 

8 by substituting ‘50 percent’ for ‘30 percent’, 

9 and 

10 ‘‘(ii) except as provided in paragraph 

11 (2)(C), such property shall be treated as 

12 qualified property for purposes of this sub13 section. 

14 ‘‘(B) 50-PERCENT BONUS DEPRECIATION

15 PROPERTY.—For purposes of this subsection, the 

16 term ‘50-percent bonus depreciation property’ 

17 means property described in paragraph 

18 (2)(A)(i)—

19 ‘‘(i) the original use of which com20 mences with the taxpayer after May 5, 

21 2003, 

22 ‘‘(ii) which is acquired by the taxpayer 

23 after May 5, 2003, and before January 1, 

24 2006, but only if no written binding con-
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1 tract for the acquisition was in effect before 

2 May 6, 2003, and 

3 ‘‘(iii) which is placed in service by the 

4 taxpayer before January 1, 2006, or, in the 

5 case of property described in paragraph 

6 (2)(B) (as modified by subparagraph (C) of 

7 this paragraph), before January 1, 2007. 

8 ‘‘(C) SPECIAL RULES.—Rules similar to the 

9 rules of subparagraphs (B) and (D) of para10 graph (2) shall apply for purposes of this para11 graph; except that references to September 10, 

12 2001, shall be treated as references to May 5, 

13 2003. 

14 ‘‘(D) AUTOMOBILES.—Paragraph (2)(E) 

15 shall be applied by substituting ‘$9,200’ for 

16 ‘$4,600’ in the case of 50-percent bonus deprecia17 tion property. 

18 ‘‘(E) ELECTION OF 30 PERCENT BONUS.—If 

19 a taxpayer makes an election under this sub20 paragraph with respect to any class of property 

21 for any taxable year, subparagraph (A)(i) shall 

22 not apply to all property in such class placed in 

23 service during such taxable year.’’

24 (b) EXTENSION OF PLACED IN SERVICE DATES, ETC. 

25 FOR 30-PERCENT BONUS DEPRECIATION PROPERTY.—
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1 (1) IN GENERAL.—Clause (iv) of section 

2 168(k)(2)(A) is amended—

3 (A) by striking ‘‘January 1, 2005’’ and in4 serting ‘‘January 1, 2006’’, and 

5 (B) by striking ‘‘January 1, 2006’’ (as in 

6 effect before the amendment made by subpara7 graph (A)) and inserting ‘‘January 1, 2007’’. 

8 (2) PORTION OF BASIS TAKEN INTO ACCOUNT.—

9 (A) Subparagraphs (B)(ii) and (D)(i) of 

10 section 168(k)(2) are each amended by striking 

11 ‘‘September 11, 2004’’ each place it appears in 

12 the text and inserting ‘‘January 1, 2006’’. 

13 (B) Clause (ii) of section 168(k)(2)(B) is 

14 amended by striking ‘‘PRE-SEPTEMBER 11, 2004’’ 

15 in the heading and inserting ‘‘PRE-JANUARY 1, 

16 2006’’. 

17 (3) ACQUISITION DATE.—Clause (iii) of section 

18 168(k)(2)(A) is amended by striking ‘‘September 11, 

19 2004’’ each place it appears and inserting ‘‘January 

20 1, 2006’’. 

21 (4) ELECTION.—Clause (iii) of section 

22 168(k)(2)(C) is amended by adding at the end the fol23 lowing: ‘‘The preceding sentence shall be applied sepa24 rately with respect to property treated as qualified 
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1 property by paragraph (4) and other qualified prop2 erty.’’

3 (c) CONFORMING AMENDMENTS.—

4 (1) The subsection heading for section 168(k) is 

5 amended by striking ‘‘SEPTEMBER 11, 2004’’ and in6 serting ‘‘JANUARY 1, 2006’’. 

7 (2) The heading for clause (i) of section 

8 1400L(b)(2)(C) is amended by striking ‘‘30-PERCENT

9 ADDITIONAL ALLOWABLE PROPERTY’’ and inserting 

10 ‘‘BONUS DEPRECIATION PROPERTY UNDER SECTION

11 168(k)’’. 

12 (d) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to taxable years ending after the date 

14 of the enactment of this Act. 

15 SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS. 

16 (a) IN GENERAL.—Paragraph (1) of section 179(b) 

17 (relating to dollar limitation) is amended to read as follows: 

18 ‘‘(1) DOLLAR LIMITATION.—The aggregate cost 

19 which may be taken into account under subsection (a) 

20 for any taxable year shall not exceed $25,000 

21 ($100,000 in the case of taxable years beginning after 

22 2002 and before 2008).’’. 

23 (b) INCREASE IN QUALIFYING INVESTMENT AT WHICH

24 PHASEOUT BEGINS.—Paragraph (2) of section 179(b) (re25 lating to reduction in limitation) is amended by inserting 
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1 ‘‘($400,000 in the case of taxable years beginning after 2002 

2 and before 2008)’’ after ‘‘$200,000’’. 

3 (c) OFF-THE-SHELF COMPUTER SOFTWARE.—Para4 graph (1) of section 179(d) (defining section 179 property) 

5 is amended to read as follows: 

6 ‘‘(1) SECTION 179 PROPERTY.—For purposes of 

7 this section, the term ‘section 179 property’ means 

8 property—

9 ‘‘(A) which is—

10 ‘‘(i) tangible property (to which section 

11 168 applies), or

12 ‘‘(ii) computer software (as defined in 

13 section 197(e)(3)(B)) which is described in 

14 section 197(e)(3)(A)(i), to which section 167 

15 applies, and which is placed in service in a 

16 taxable year beginning after 2002 and be17 fore 2008, 

18 ‘‘(B) which is section 1245 property (as de19 fined in section 1245(a)(3)), and 

20 ‘‘(C) which is acquired by purchase for use 

21 in the active conduct of a trade or business. 

22 Such term shall not include any property described in 

23 section 50(b) and shall not include air conditioning 

24 or heating units.’’. 
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1 (d) ADJUSTMENT OF DOLLAR LIMIT AND PHASEOUT

2 THRESHOLD FOR INFLATION.—Subsection (b) of section 

3 179 (relating to limitations) is amended by adding at the 

4 end the following new paragraph: 

5 ‘‘(5) INFLATION ADJUSTMENTS.—

6 ‘‘(A) IN GENERAL.—In the case of any tax7 able year beginning in a calendar year after 

8 2003 and before 2008, the $100,000 and 

9 $400,000 amounts in paragraphs (1) and (2) 

10 shall each be increased by an amount equal to—

11 ‘‘(i) such dollar amount, multiplied by 

12 ‘‘(ii) the cost-of-living adjustment de13 termined under section 1(f)(3) for the cal14 endar year in which the taxable year be15 gins, by substituting ‘calendar year 2002’ 

16 for ‘calendar year 1992’ in subparagraph 

17 (B) thereof. 

18 ‘‘(B) ROUNDING.—

19 ‘‘(i) DOLLAR LIMITATION.—If the 

20 amount in paragraph (1) as increased 

21 under subparagraph (A) is not a multiple 

22 of $1,000, such amount shall be rounded to 

23 the nearest multiple of $1,000. 

24 ‘‘(ii) PHASEOUT AMOUNT.—If the 

25 amount in paragraph (2) as increased 
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1 under subparagraph (A) is not a multiple 

2 of $10,000, such amount shall be rounded to 

3 the nearest multiple of $10,000.’’. 

4 (e) REVOCATION OF ELECTION.—Paragraph (2) of sec5 tion 179(c) (relating to election irrevocable) is amended to 

6 read as follows: 

7 ‘‘(2) REVOCATION OF ELECTION.—An election 

8 under paragraph (1) with respect to any taxable year 

9 beginning after 2002 and before 2008, and any speci10 fication contained in any such election, may be re11 voked by the taxpayer with respect to any property. 

12 Such revocation, once made, shall be irrevocable.’’. 

13 (f) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to taxable years beginning after Decem15 ber 31, 2002. 

16 SEC. 203. 5-YEAR CARRYBACK OF CERTAIN NET OPERATING 

17 LOSSES. 

18 (a) IN GENERAL.—Subparagraph (H) of section 

19 172(b)(1) is amended—

20 (1) by inserting ‘‘5-YEAR CARRYBACK OF CER21 TAIN LOSSES.—’’ after ‘‘(H)’’, and 

22 (2) by striking ‘‘or 2002’’ and inserting ‘‘, 2002, 

23 2003, 2004 or 2005’’. 
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1 (b) TEMPORARY SUSPENSION OF 90 PERCENT LIMIT

2 ON CERTAIN NOL CARRYBACKS.—Subclause (I) of section 

3 56(d)(1)(A)(ii) is amended—

4 (1) by striking ‘‘or 2002’’ and inserting ‘‘, 2002, 

5 2003, 2004, or 2005’’, and 

6 (2) by striking ‘‘and 2002’’ and inserting ‘‘, 

7 2002, 2003, 2004, or 2005’’. 

8 (c) TECHNICAL CORRECTIONS.—

9 (1) Subparagraph (H) of section 172(b)(1) is 

10 amended by striking ‘‘a taxpayer which has’’. 

11 (2) Section 102(c)(2) of the Job Creation and 

12 Worker Assistance Act of 2002 (Public Law 107–147) 

13 is amended by striking ‘‘before January 1, 2003’’ and 

14 inserting ‘‘after December 31, 1990’’. 

15 (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is 

16 amended by striking ‘‘attributable to carryovers’’. 

17 (B) Subclause (I) of section 56(d)(1)(A)(ii) is 

18 amended—

19 (i) by striking ‘‘for taxable years’’ and in20 serting ‘‘from taxable years’’, and 

21 (ii) by striking ‘‘carryforwards’’ and insert22 ing ‘‘carryovers’’. 

23 (d) EFFECTIVE DATES.—

24 (1) IN GENERAL.—Except as provided in para25 graph (2), the amendments made by this section shall 
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1 apply to net operating losses for taxable years ending 

2 after December 31, 2002. 

3 (2) TECHNICAL CORRECTIONS.—The amend4 ments made by subsection (c) shall take effect as if in5 cluded in the amendments made by section 102 of the 

6 Job Creation and Worker Assistance Act of 2002. 

7 (3) ELECTION.—In the case of a net operating 

8 loss for a taxable year ending during 2003—

9 (A) any election made under section 

10 172(b)(3) of such Code may (notwithstanding 

11 such section) be revoked before November 1, 2003, 

12 and 

13 (B) any election made under section 172(j) 

14 of such Code shall (notwithstanding such section) 

15 be treated as timely made if made before Novem16 ber 1, 2003. 

17 TITLE III—REDUCTION IN TAXES 

18 ON DIVIDENDS AND CAPITAL 

19 GAINS 

20 SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDI21 VIDUALS; REPEAL OF 5-YEAR HOLDING PE22 RIOD REQUIREMENT. 

23 (a) IN GENERAL.—
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1 (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each 

2 amended by striking ‘‘10 percent’’ and inserting ‘‘5 

3 percent’’. 

4 (2) The following sections are each amended by 

5 striking ‘‘20 percent’’ and inserting ‘‘15 percent’’: 

6 (A) Section 1(h)(1)(C). 

7 (B) Section 55(b)(3)(C). 

8 (C) Section 1445(e)(1). 

9 (D) The second sentence of section 

10 7518(g)(6)(A).

11 (E) The second sentence of section 

12 607(h)(6)(A) of the Merchant Marine Act, 1936. 

13 (b) CONFORMING AMENDMENTS.—

14 (1) Section 1(h) is amended—

15 (A) by striking paragraphs (2) and (9), 

16 (B) by redesignating paragraphs (3) 

17 through (8) as paragraphs (2) through (7), re18 spectively, and 

19 (C) by redesignating paragraphs (10), (11), 

20 and (12) as paragraphs (8), (9), and (10), re21 spectively. 

22 (2) Paragraph (3) of section 55(b) is amended by 

23 striking ‘‘In the case of taxable years beginning after 

24 December 31, 2000, rules similar to the rules of sec-
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1 tion 1(h)(2) shall apply for purposes of subpara2 graphs (B) and (C).’’. 

3 (3) Paragraph (7) of section 57(a) is amended—

4 (A) by striking ‘‘42 percent’’ the first place 

5 it appears and inserting ‘‘7 percent’’, and 

6 (B) by striking the last sentence. 

7 (c) TRANSITIONAL RULES FOR TAXABLE YEARS

8 WHICH INCLUDE MAY 6, 2003.—For purposes of applying 

9 section 1(h) of the Internal Revenue Code of 1986 in the 

10 case of a taxable year which includes May 6, 2003—

11 (1) The amount of tax determined under sub12 paragraph (B) of section 1(h)(1) of such Code shall be 

13 the sum of—

14 (A) 5 percent of the lesser of—

15 (i) the net capital gain determined by 

16 taking into account only gain or loss prop17 erly taken into account for the portion of 

18 the taxable year on or after May 6, 2003 

19 (determined without regard to collectibles 

20 gain or loss, gain described in section 

21 1(h)(6)(A)(i) of such Code, and section 1202 

22 gain), or 

23 (ii) the amount on which a tax is de24 termined under such subparagraph (without 

25 regard to this subsection), 
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1 (B) 8 percent of the lesser of—

2 (i) the qualified 5-year gain (as de3 fined in section 1(h)(9) of the Internal Rev4 enue Code of 1986, as in effect on the day 

5 before the date of the enactment of this Act) 

6 properly taken into account for the portion 

7 of the taxable year before May 6, 2003, over 

8 (ii) the excess (if any) of—

9 (I) the amount on which a tax is 

10 determined under such subparagraph 

11 (without regard to this subsection), 

12 over 

13 (II) the amount on which a tax is 

14 determined under subparagraph (A), 

15 plus 

16 (C) 10 percent of the excess (if any) of—

17 (i) the amount on which a tax is deter18 mined under such subparagraph (without 

19 regard to this subsection), over 

20 (ii) the sum of the amounts on which 

21 a tax is determined under subparagraphs 

22 (A) and (B). 

23 (2) The amount of tax determined under sub24 paragraph (C) of section (1)(h)(1) of such Code shall 

25 be the sum of—
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1 (A) 15 percent of the lesser of—

2 (i) the excess (if any) of the amount of 

3 net capital gain determined under subpara4 graph (A)(i) of paragraph (1) of this sub5 section over the amount on which a tax is 

6 determined under subparagraph (A) of 

7 paragraph (1) of this subsection, or 

8 (ii) the amount on which a tax is de9 termined under such subparagraph (C) 

10 (without regard to this subsection), plus 

11 (B) 20 percent of the excess (if any) of—

12 (i) the amount on which a tax is deter13 mined under such subparagraph (C) (with14 out regard to this subsection), over 

15 (ii) the amount on which a tax is de16 termined under subparagraph (A) of this 

17 paragraph. 

18 (3) For purposes of applying section 55(b)(3) of 

19 such Code, rules similar to the rules of paragraphs (1) 

20 and (2) of this subsection shall apply. 

21 (4) In applying this subsection with respect to 

22 any pass-thru entity, the determination of when gains 

23 and loss are properly taken into account shall be 

24 made at the entity level. 
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1 (5) For purposes of applying section 1(h)(11) of 

2 such Code, as added by section 302 of this Act, to this 

3 subsection, dividends which are qualified dividend in4 come shall be treated as gain properly taken into ac5 count for the portion of the taxable year on or after 

6 May 6, 2003. 

7 (6) Terms used in this subsection which are also 

8 used in section 1(h) of such Code shall have the re9 spective meanings that such terms have in such sec10 tion. 

11 (d) EFFECTIVE DATES.—

12 (1) IN GENERAL.—Except as otherwise provided 

13 by this subsection, the amendments made by this sec14 tion shall apply to taxable years ending on or after 

15 May 6, 2003. 

16 (2) WITHHOLDING.—The amendment made by 

17 subsection (a)(2)(C) shall apply to amounts paid 

18 after the date of the enactment of this Act. 

19 (3) SMALL BUSINESS STOCK.—The amendments 

20 made by subsection (b)(3) shall apply to dispositions 

21 on or after May 6, 2003.
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1 SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL 

2 GAIN RATES. 

3 (a) IN GENERAL.—Section 1(h) (relating to maximum 

4 capital gains rate), as amended by section 301, is amended 

5 by adding at the end the following new paragraph: 

6 ‘‘(11) DIVIDENDS TAXED AS NET CAPITAL

7 GAIN.—

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

9 subsection, the term ‘net capital gain’ means net 

10 capital gain (determined without regard to this 

11 paragraph), increased by qualified dividend in12 come. 

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

14 purposes of this paragraph—

15 ‘‘(i) IN GENERAL.—The term ‘qualified 

16 dividend income’ means dividends received 

17 during the taxable year from domestic cor18 porations. 

19 ‘‘(ii) CERTAIN DIVIDENDS EX20 CLUDED.—Such term shall not include—

21 ‘‘(I) any dividend from a corpora22 tion which for the taxable year of the 

23 corporation in which the distribution 

24 is made, or the preceding taxable year, 

25 is a corporation exempt from tax 

26 under section 501 or 521, 
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1 ‘‘(II) any amount allowed as a 

2 deduction under section 591 (relating 

3 to deduction for dividends paid by mu4 tual savings banks, etc.), and 

5 ‘‘(III) any dividend described in 

6 section 404(k). 

7 ‘‘(iii) EXCLUSION OF CERTAIN DIVI8 DENDS.—Such term shall not include any 

9 dividend on any share of stock—

10 ‘‘(I) with respect to which the 

11 holding period requirements of section 

12 246(c) are not met, or 

13 ‘‘(II) to the extent that the tax14 payer is under an obligation (whether 

15 pursuant to a short sale or otherwise) 

16 to make related payments with respect 

17 to positions in substantially similar or 

18 related property. 

19 ‘‘(C) SPECIAL RULES.—

20 ‘‘(i) AMOUNTS TAKEN INTO ACCOUNT

21 AS INVESTMENT INCOME.—Qualified divi22 dend income shall not include any amount 

23 which the taxpayer takes into account as 

24 investment income under section 

25 163(d)(4)(B). 
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1 ‘‘(ii) EXTRAORDINARY DIVIDENDS.—If 

2 an individual receives, with respect to any 

3 share of stock, qualified dividend income 

4 from 1 or more dividends which are ex5 traordinary dividends (within the meaning 

6 of section 1059(c)), any loss on the sale or 

7 exchange of such share shall, to the extent of 

8 such dividends, be treated as long-term cap9 ital loss. 

10 ‘‘(iii) TREATMENT OF DIVIDENDS FROM

11 REGULATED INVESTMENT COMPANIES AND

12 REAL ESTATE INVESTMENT TRUSTS.—A div13 idend received from a regulated investment 

14 company or a real estate investment trust 

15 shall be subject to the limitations prescribed 

16 in sections 854 and 857.’’

17 (b) EXCLUSION OF DIVIDENDS FROM INVESTMENT IN18 COME.—Subparagraph (B) of section 163(d)(4) (defining 

19 net investment income) is amended by adding at the end 

20 the following flush sentence: 

21 ‘‘Such term shall include qualified dividend in22 come (as defined in section 1(h)(11)(B)) only to 

23 the extent the taxpayer elects to treat such in24 come as investment income for purposes of this 

25 subsection.’’
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1 (c) TREATMENT OF DIVIDENDS FROM REGULATED IN2 VESTMENT COMPANIES.—

3 (1) Subsection (a) of section 854 (relating to 

4 dividends received from regulated investment compa5 nies) is amended by inserting ‘‘section 1(h)(11) (relat6 ing to maximum rate of tax on dividends and inter7 est) and’’ after ‘‘For purposes of’’. 

8 (2) Paragraph (1) of section 854(b) (relating to 

9 other dividends) is amended by redesignating sub10 paragraph (B) as subparagraph (C) and by inserting 

11 after subparagraph (A) the following new subpara12 graph: 

13 ‘‘(B) MAXIMUM RATE UNDER SECTION

14 1(h).—

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

16 dividends received by a regulated invest17 ment company during any taxable year are 

18 less than 95 percent of its gross income, 

19 then, in computing the maximum rate 

20 under section 1(h)(11), rules similar to the 

21 rules of subparagraph (A) shall apply. 

22 ‘‘(ii) GROSS INCOME.—For purposes of 

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

24 other dispositions of stock or securities, the 
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1 term ‘gross income’ includes only the excess 

2 of—

3 ‘‘(I) the net short-term capital 

4 gain from such sales or dispositions, 

5 over 

6 ‘‘(II) the net long-term capital 

7 loss from such sales or dispositions.’’

8 (3) Subparagraph (C) of section 854(b)(1), as re9 designated by paragraph (2), is amended by striking 

10 ‘‘subparagraph (A)’’ and inserting ‘‘subparagraph (A) 

11 or (B)’’. 

12 (4) Paragraph (2) of section 854(b) is amended 

13 by inserting ‘‘the maximum rate under section 

14 1(h)(11) and’’ after ‘‘for purposes of’’. 

15 (5) Subsection (b) of section 854 is amended by 

16 adding at the end the following new paragraph: 

17 ‘‘(5) COORDINATION WITH SECTION 1(h)(11).—

18 For purposes of paragraph (1)(B), an amount shall 

19 be treated as a dividend only if the amount is quali20 fied dividend income (within the meaning of section 

21 1(h)(11)(B)).’’

22 (d) TREATMENT OF DIVIDENDS RECEIVED FROM REAL

23 ESTATE INVESTMENT TRUSTS.—Section 857(c) (relating to 

24 restrictions applicable to dividends received from real estate 

25 investment trusts) is amended to read as follows: 
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1 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE2 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

3 ‘‘(1) SECTION 243.—For purposes of section 243 

4 (relating to deductions for dividends received by cor5 porations), a dividend received from a real estate in6 vestment trust which meets the requirements of this 

7 part shall not be considered a dividend. 

8 ‘‘(2) SECTION 1(h)(11).—For purposes of section 

9 1(h)(11) (relating to maximum rate of tax on divi10 dends), rules similar to the rules of section 

11 854(b)(1)(B) shall apply to dividends received from a 

12 real estate trust which meets the requirements of this 

13 part.’’

14 (e) CONFORMING AMENDMENTS.—

15 (1) Paragraph (3) of section 1(h), as redesig16 nated by section 301, is amended to read as follows: 

17 ‘‘(3) ADJUSTED NET CAPITAL GAIN.—For pur18 poses of this subsection, the term ‘adjusted net capital 

19 gain’ means the sum of—

20 ‘‘(A) net capital gain (determined without 

21 regard to paragraph (11)) reduced (but not 

22 below zero) by the sum of—

23 ‘‘(i) unrecaptured section 1250 gain, 

24 and 

25 ‘‘(ii) 28-percent rate gain, plus 
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1 ‘‘(B) qualified dividend income (as defined 

2 in paragraph (11)).’’

3 (2) Subsection (f) of section 301 is amended add4 ing at the end the following new paragraph: 

5 ‘‘(4) For taxation of dividends received by indi6 viduals at capital gain rates, see section 1(h)(11).’’

7 (3) Paragraph (1) of section 306(a) is amended 

8 by adding at the end the following new subparagraph: 

9 ‘‘(D) TREATMENT AS DIVIDEND.—For pur10 poses of section l(h)(11), any amount treated as 

11 ordinary income under this paragraph shall be

12 treated as a dividend received from the corpora13 tion.’’

14 (4)(A) Subpart C of part II of subchapter C of 

15 chapter 1 (relating to collapsible corporations) is re16 pealed. 

17 (B)(i) Section 338(h) is amended by striking 

18 paragraph (14). 

19 (ii) Sections 467(c)(5)(C), 1255(b)(2), and 

20 1257(d) are each amended by striking ‘‘, 341(e)(12),’’. 

21 (iii) The table of subparts for part II of sub22 chapter C of chapter 1 is amended by striking the 

23 item related to subpart C. 
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1 (5) Section 531 is amended by striking ‘‘equal 

2 to’’ and all that follows and inserting ‘‘equal to 15 

3 percent of the accumulated taxable income.’’

4 (6) Section 541 is amended by striking ‘‘equal 

5 to’’ and all that follows and inserting ‘‘equal to 15 

6 percent of the undistributed personal holding com7 pany income.’’

8 (7) Section 584(c) is amended by adding at the 

9 end the following new flush sentence: 

10 ‘‘The proportionate share of each participant in the amount 

11 of dividends received by the common trust fund and to 

12 which section 1(h)(11) applies shall be considered for pur13 poses of such paragraph as having been received by such 

14 participant.’’

15 (8) Paragraph (5) of section 702(a) is amended 

16 to read as follows: 

17 ‘‘(5) dividends with respect to which section 

18 1(h)(11) or part VII of subchapter B applies,’’. 

19 (f) EFFECTIVE DATE.—The amendments made by this 

20 section shall apply to taxable years beginning after Decem21 ber 31, 2002. 

22 SEC. 303. SUNSET OF TITLE. 

23 All provisions of, and amendments made by, this title 

24 shall not apply to taxable years beginning after December 

25 31, 2012, and the Internal Revenue Code of 1986 shall be 
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1 applied and administered to such years as if such provi2 sions and amendments had never been enacted. 

3 TITLE IV—CORPORATE ESTI4 MATED TAX PAYMENTS FOR 

5 2003

6 SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED 

7 TAXES. 

8 Notwithstanding section 6655 of the Internal Revenue 

9 Code of 1986, 52 percent of the amount of any required 

10 installment of corporate estimated tax which is otherwise 

11 due in September 2003 shall not be due until October 1, 

12 2003.

Amend the title so as to read: ‘‘A bill to provide for 

reconciliation pursuant to section 201 of the concurrent 

resolution on the budget for fiscal year 2004.’’.
Union Calendar No. 49

108TH CONGRESS 

1ST SESSION H. R. 2

[Report No. 108–94] 

A BILL

To amend the Internal Revenue Code of 1986 to 

provide additional tax incentives to encourage economic growth. 

MAY 8, 2003

Reported with amendments, committed to the Committee 

of the Whole House on the State of the Union, and ordered to be printed