108TH CONGRESS

1ST SESSION H. R. 2

AN ACT

To provide for reconciliation pursuant to section

201 of the concurrent resolution on the budgetfor fiscal year 2004.

108TH CONGRESS

1ST SESSION H. R. 2

AN ACT

To provide for reconciliation pursuant to section 201 of

the concurrent resolution on the budget for fiscal year 2004.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CON2 TENTS.

3 (a) SHORT TITLE.—This Act may be cited as the

4 ‘‘Jobs and Growth Reconciliation Tax Act of 2003’’.

5 (b) AMENDMENT OF 1986 CODE.—Except as other6 wise expressly provided, whenever in this Act an amend7 ment or repeal is expressed in terms of an amendment

8 to, or repeal of, a section or other provision, the reference

9 shall be considered to be made to a section or other provi10 sion of the Internal Revenue Code of 1986.

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

12 this 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.

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.
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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

14 amended by inserting after section 6428 the fol15 lowing new section:

16 ‘‘SEC. 6429. ADVANCE PAYMENT OF PORTION OF IN17 CREASED CHILD CREDIT FOR 2003.

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

19 credit under section 24 on the return for the taxpayer’s

20 first taxable year beginning in 2002 shall be treated as

21 having made a payment against the tax imposed by chap-
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1 ter 1 for such taxable year in an amount equal to the child

2 tax credit refund amount (if any) for such taxable year.

3 ‘‘(b) CHILD TAX CREDIT REFUND AMOUNT.—For

4 purposes of this section, the child tax credit refund

5 amount is the amount by which the aggregate credits al6 lowed under part IV of subchapter A of chapter 1 for such

7 first taxable year would have been increased if—

8 ‘‘(1) the per child amount under section

9 24(a)(2) for such year were $1,000,

10 ‘‘(2) only qualifying children (as defined in sec11 tion 24(c)) of the taxpayer for such year who had

12 not attained age 17 as of December 31, 2003, were

13 taken into account, and

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

15 ‘‘(c) TIMING OF PAYMENTS.—In the case of any over16 payment attributable to this section, the Secretary shall,

17 subject to the provisions of this title, refund or credit such

18 overpayment as rapidly as possible and, to the extent prac19 ticable, before October 1, 2003. No refund or credit shall

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

21 2003.

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

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

24 which would (but for this subsection and section 26)

25 be allowed under section 24 for the taxpayer’s first
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1 taxable year beginning in 2003 shall be reduced (but

2 not below zero) by the payments made to the tax3 payer under this section. Any failure to so reduce

4 the credit shall be treated as arising out of a mathe5 matical or clerical error and assessed according to

6 section 6213(b)(1).

7 ‘‘(2) JOINT RETURNS.—In the case of a pay8 ment under this section with respect to a joint re9 turn, half of such payment shall be treated as hav10 ing been made to each individual filing such return.

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

12 any overpayment attributable to this section.’’.

13 (2) CLERICAL AMENDMENT.—The table of sec14 tions for subchapter B of chapter 65 is amended by

15 adding at the end the following new item:

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

2003.’’.

16 (c) EFFECTIVE DATES.—

17 (1) SUBSECTION (a).—The amendment made

18 by subsection (a) shall apply to taxable years begin19 ning after December 31, 2002.

20 (2) SUBSECTION (b).—The amendments made

21 by subsection (b) shall take effect on the date of the

22 enactment of this Act.
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1 SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL IN2 COME TAX RATE BRACKET EXPANSION FOR

3 MARRIED TAXPAYERS FILING JOINT RE4 TURNS.

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

6 table contained in subparagraph (B) of section 1(f)(8) (re7 lating to applicable percentage) is amended to read as fol8 lows:

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

9 (b) CONFORMING AMENDMENTS.—

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

11 ‘‘2004’’ and inserting ‘‘2002’’.

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

13 Tax Relief Reconciliation Act of 2001 is amended by

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

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

16 this section shall apply to taxable years beginning after

17 December 31, 2002.

18 SEC. 103. ACCELERATION OF INCREASE IN STANDARD DE19 DUCTION FOR MARRIED TAXPAYERS FILING

20 JOINT RETURNS.

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

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

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

‘‘2003, 2004, and 2005 ................................................ 200’’.
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1 (b) CONFORMING AMENDMENT.—Section 301(d) of

2 the Economic Growth and Tax Relief Reconciliation Act

3 of 2001 is amended by striking ‘‘2004’’ and inserting

4 ‘‘2002’’.

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

6 this section shall apply to taxable years beginning after

7 December 31, 2002.

8 SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL IN9 COME TAX RATE BRACKET EXPANSION.

10 (a) IN GENERAL.—Clause (i) of section 1(i)(1)(B)

11 (relating to the initial bracket amount) is amended by

12 striking ‘‘($12,000 in the case of taxable years beginning

13 before January 1, 2008)’’ and inserting ‘‘($12,000 in the

14 case of taxable years beginning after December 31, 2005,

15 and before January 1, 2008)’’.

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

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

18 ‘‘(C) INFLATION ADJUSTMENT.—In pre19 scribing the tables under subsection (f) which

20 apply with respect to taxable years beginning in

21 calendar years after 2000—

22 ‘‘(i) the Secretary shall make no ad23 justment to the $12,000 initial bracket

24 amount for any taxable year,
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1 ‘‘(ii)(I) the Secretary shall make no

2 adjustment to the $14,000 initial bracket

3 amount for any taxable year beginning be4 fore January 1, 2004,

5 ‘‘(II) the cost-of-living adjustment

6 used in making adjustments to the

7 $14,000 initial bracket amount for any

8 taxable year beginning during 2004 or

9 2005 shall be determined under subsection

10 (f)(3) by substituting ‘2002’ for ‘1992’ in

11 subparagraph (B) thereof, and

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

13 used in making adjustments to the

14 $14,000 initial bracket amount for any

15 taxable year beginning after December 31,

16 2008, shall be determined under subsection

17 (f)(3) by substituting ‘2007’ for ‘1992’ in

18 subparagraph (B) thereof, and

19 ‘‘(iii) the adjustments under clause

20 (ii) shall not apply to the amount referred

21 to in subparagraph (B)(iii).

22 If any amount after adjustment under the pre23 ceding sentence is not a multiple of $50, such

24 amount shall be rounded to the next lowest

25 multiple of $50.’’.
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1 (c) EFFECTIVE DATE.—

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

3 this section shall apply to taxable years beginning

4 after December 31, 2002.

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

6 Treasury shall modify each table which has been

7 prescribed under section 1(f) of the Internal Rev8 enue Code of 1986 for taxable years beginning in

9 2003 and which relates to the amendment made by

10 this section to reflect such amendment.

11 SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL

12 INCOME TAX RATES.

13 (a) IN GENERAL.—The table in paragraph (2) of sec14 tion 1(i) (relating to reductions in rates after June 30,

15 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%’’.

16 (b) EFFECTIVE DATE.—The amendment made by

17 this section shall apply to taxable years beginning after

18 December 31, 2002.

19 SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS.

20 (a) IN GENERAL.—

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

22 amended by striking ‘‘$49,000 in the case of taxable
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1 years beginning in 2001, 2002, 2003, and 2004’’

2 and inserting ‘‘$64,000 in the case of taxable years

3 beginning in 2003, 2004, and 2005’’.

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

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

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

7 and inserting ‘‘$43,250 in the case of taxable years

8 beginning in 2003, 2004, and 2005’’.

9 (b) EFFECTIVE DATE.—The amendments made by

10 subsection (a) shall apply to taxable years beginning after

11 December 31, 2002.

12 TITLE II—GROWTH INCENTIVES

13 FOR BUSINESS

14 SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIA15 TION.

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

17 allowance for certain property acquired after September

18 10, 2001, and before September 11, 2004) is amended by

19 adding at the end the following new paragraph:

20 ‘‘(4) 50-PERCENT BONUS DEPRECIATION FOR

21 CERTAIN PROPERTY.—

22 ‘‘(A) IN GENERAL.—In the case of 50-per23 cent bonus depreciation property—
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1 ‘‘(i) paragraph (1)(A) shall be applied

2 by substituting ‘50 percent’ for ‘30 per3 cent’, and

4 ‘‘(ii) except as provided in paragraph

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

6 qualified property for purposes of this sub7 section.

8 ‘‘(B) 50-PERCENT BONUS DEPRECIATION

9 PROPERTY.—For purposes of this subsection,

10 the term ‘50-percent bonus depreciation prop11 erty’ means property described in paragraph

12 (2)(A)(i)—

13 ‘‘(i) the original use of which com14 mences with the taxpayer after May 5,

15 2003,

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

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

18 2006, but only if no written binding con19 tract for the acquisition was in effect be20 fore May 6, 2003, and

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

22 taxpayer before January 1, 2006, or, in

23 the case of property described in para24 graph (2)(B) (as modified by subpara-
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1 graph (C) of this paragraph), before Janu2 ary 1, 2007.

3 ‘‘(C) SPECIAL RULES.—Rules similar to

4 the rules of subparagraphs (B) and (D) of

5 paragraph (2) shall apply for purposes of this

6 paragraph; except that references to September

7 10, 2001, shall be treated as references to May

8 5, 2003.

9 ‘‘(D) AUTOMOBILES.—Paragraph (2)(E)

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

11 ‘$4,600’ in the case of 50-percent bonus depre12 ciation property.

13 ‘‘(E) ELECTION OF 30 PERCENT BONUS.—

14 If a taxpayer makes an election under this sub15 paragraph with respect to any class of property

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

17 not apply to all property in such class placed in

18 service during such taxable year.’’.

19 (b) EXTENSION OF PLACED IN SERVICE DATES,

20 ETC. FOR 30-PERCENT BONUS DEPRECIATION PROP21 ERTY.—

22 (1) IN GENERAL.—Clause (iv) of section

23 168(k)(2)(A) is amended—

24 (A) by striking ‘‘January 1, 2005’’ and in25 serting ‘‘January 1, 2006’’, and
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1 (B) by striking ‘‘January 1, 2006’’ (as in

2 effect before the amendment made by subpara3 graph (A)) and inserting ‘‘January 1, 2007’’.

4 (2) PORTION OF BASIS TAKEN INTO AC5 COUNT.—

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

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

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

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

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

11 amended by striking ‘‘PRE-SEPTEMBER 11,

12 2004’’ in the heading and inserting ‘‘PRE-JANU13 ARY 1, 2006’’.

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

15 168(k)(2)(A) is amended by striking ‘‘September 11,

16 2004’’ each place it appears and inserting ‘‘January

17 1, 2006’’.

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

19 168(k)(2)(C) is amended by adding at the end the

20 following: ‘‘The preceding sentence shall be applied

21 separately with respect to property treated as quali22 fied property by paragraph (4) and other qualified

23 property.’’.

24 (c) CONFORMING AMENDMENTS.—
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1 (1) The subsection heading for section 168(k) is

2 amended by striking ‘‘SEPTEMBER 11, 2004’’ and

3 inserting ‘‘JANUARY 1, 2006’’.

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

5 1400L(b)(2)(C) is amended by striking ‘‘30-PER6 CENT ADDITIONAL ALLOWABLE PROPERTY’’ and in7 serting ‘‘BONUS DEPRECIATION PROPERTY UNDER

8 SECTION 168(k)’’.

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

10 this section shall apply to taxable years ending after the

11 date of the enactment of this Act.

12 SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.

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

14 (relating to dollar limitation) is amended to read as fol15 lows:

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

17 which may be taken into account under subsection

18 (a) for any taxable year shall not exceed $25,000

19 ($100,000 in the case of taxable years beginning

20 after 2002 and before 2008).’’.

21 (b) INCREASE IN QUALIFYING INVESTMENT AT

22 WHICH PHASEOUT BEGINS.—Paragraph (2) of section

23 179(b) (relating to reduction in limitation) is amended by

24 inserting ‘‘($400,000 in the case of taxable years begin25 ning after 2002 and before 2008)’’ after ‘‘$200,000’’.
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1 (c) OFF-THE-SHELF COMPUTER SOFTWARE.—Para2 graph (1) of section 179(d) (defining section 179 prop3 erty) is amended to read as follows:

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

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

6 property—

7 ‘‘(A) which is—

8 ‘‘(i) tangible property (to which sec9 tion 168 applies), or

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

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

12 section 197(e)(3)(A)(i), to which section

13 167 applies, and which is placed in service

14 in a taxable year beginning after 2002 and

15 before 2008,

16 ‘‘(B) which is section 1245 property (as

17 defined in section 1245(a)(3)), and

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

19 in the active conduct of a trade or business.

20 Such term shall not include any property described

21 in section 50(b) and shall not include air condi22 tioning or heating units.’’.

23 (d) ADJUSTMENT OF DOLLAR LIMIT AND PHASEOUT

24 THRESHOLD FOR INFLATION.—Subsection (b) of section
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1 179 (relating to limitations) is amended by adding at the

2 end the following new paragraph:

3 ‘‘(5) INFLATION ADJUSTMENTS.—

4 ‘‘(A) IN GENERAL.—In the case of any

5 taxable year beginning in a calendar year after

6 2003 and before 2008, the $100,000 and

7 $400,000 amounts in paragraphs (1) and (2)

8 shall each be increased by an amount equal

9 to—

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

11 ‘‘(ii) the cost-of-living adjustment de12 termined under section 1(f)(3) for the cal13 endar year in which the taxable year be14 gins, by substituting ‘calendar year 2002’

15 for ‘calendar year 1992’ in subparagraph

16 (B) thereof.

17 ‘‘(B) ROUNDING.—

18 ‘‘(i) DOLLAR LIMITATION.—If the

19 amount in paragraph (1) as increased

20 under subparagraph (A) is not a multiple

21 of $1,000, such amount shall be rounded

22 to the nearest multiple of $1,000.

23 ‘‘(ii) PHASEOUT AMOUNT.—If the

24 amount in paragraph (2) as increased

25 under subparagraph (A) is not a multiple
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1 of $10,000, such amount shall be rounded

2 to the nearest multiple of $10,000.’’.

3 (e) REVOCATION OF ELECTION.—Paragraph (2) of

4 section 179(c) (relating to election irrevocable) is amended

5 to read as follows:

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

7 under paragraph (1) with respect to any taxable

8 year beginning after 2002 and before 2008, and any

9 specification contained in any such election, may be

10 revoked by the taxpayer with respect to any prop11 erty. Such revocation, once made, shall be irrev12 ocable.’’.

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

14 this section shall apply to taxable years beginning after

15 December 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 ‘‘,

23 2002, 2003, 2004 or 2005’’.
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1 (b) TEMPORARY SUSPENSION OF 90 PERCENT LIMIT

2 ON CERTAIN NOL CARRYBACKS.—Subclause (I) of sec3 tion 56(d)(1)(A)(ii) is amended—

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

5 2002, 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–

13 147) is amended by striking ‘‘before January 1,

14 2003’’ and 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
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1 shall apply to net operating losses for taxable years

2 ending after December 31, 2002.

3 (2) TECHNICAL CORRECTIONS.—The amend4 ments made by subsection (c) shall take effect as if

5 included in the amendments made by section 102 of

6 the Job Creation and Worker Assistance Act of

7 2002.

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

9 loss for a taxable year ending during 2003—

10 (A) any election made under section

11 172(b)(3) of such Code may (notwithstanding

12 such section) be revoked before November 1,

13 2003, and

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

15 of such Code shall (notwithstanding such sec16 tion) be treated as timely made if made before

17 November 1, 2003.

18 TITLE III—REDUCTION IN TAXES

19 ON DIVIDENDS AND CAPITAL

20 GAINS

21 SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDI22 VIDUALS; REPEAL OF 5-YEAR HOLDING PE23 RIOD REQUIREMENT.

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

2 each amended by striking ‘‘10 percent’’ and insert3 ing ‘‘5 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,

13 1936.

14 (b) CONFORMING AMENDMENTS.—

15 (1) Section 1(h) is amended—

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

17 (B) by redesignating paragraphs (3)

18 through (8) as paragraphs (2) through (7), re19 spectively, and

20 (C) by redesignating paragraphs (10),

21 (11), and (12) as paragraphs (8), (9), and (10),

22 respectively.

23 (2) Paragraph (3) of section 55(b) is amended

24 by striking ‘‘In the case of taxable years beginning

25 after December 31, 2000, rules similar to the rules
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1 of section 1(h)(2) shall apply for purposes of sub2 paragraphs (B) and (C).’’.

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

4 amended—

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

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

7 (B) by striking the last sentence.

8 (c) TRANSITIONAL RULES FOR TAXABLE YEARS

9 WHICH INCLUDE MAY 6, 2003.—For purposes of apply10 ing section 1(h) of the Internal Revenue Code of 1986 in

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

12 (1) The amount of tax determined under sub13 paragraph (B) of section 1(h)(1) of such Code shall

14 be the sum of—

15 (A) 5 percent of the lesser of—

16 (i) the net capital gain determined by

17 taking into account only gain or loss prop18 erly taken into account for the portion of

19 the taxable year on or after May 6, 2003

20 (determined without regard to collectibles

21 gain or loss, gain described in section

22 1(h)(6)(A)(i) of such Code, and section

23 1202 gain), or
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1 (ii) the amount on which a tax is de2 termined under such subparagraph (with3 out regard to this subsection),

4 (B) 8 percent of the lesser of—

5 (i) the qualified 5-year gain (as de6 fined in section 1(h)(9) of the Internal

7 Revenue Code of 1986, as in effect on the

8 day before the date of the enactment of

9 this Act) properly taken into account for

10 the portion of the taxable year before May

11 6, 2003, over

12 (ii) the excess (if any) of—

13 (I) the amount on which a tax is

14 determined under such subparagraph

15 (without regard to this subsection),

16 over

17 (II) the amount on which a tax is

18 determined under subparagraph (A),

19 plus

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

21 (i) the amount on which a tax is de22 termined under such subparagraph (with23 out regard to this subsection), over
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1 (ii) the sum of the amounts on which

2 a tax is determined under subparagraphs

3 (A) and (B).

4 (2) The amount of tax determined under sub5 paragraph (C) of section (1)(h)(1) of such Code

6 shall be the sum of—

7 (A) 15 percent of the lesser of—

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

9 of net capital gain determined under sub10 paragraph (A)(i) of paragraph (1) of this

11 subsection over the amount on which a tax

12 is determined under subparagraph (A) of

13 paragraph (1) of this subsection, or

14 (ii) the amount on which a tax is de15 termined under such subparagraph (C)

16 (without regard to this subsection), plus

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

18 (i) the amount on which a tax is de19 termined under such subparagraph (C)

20 (without regard to this subsection), over

21 (ii) the amount on which a tax is de22 termined under subparagraph (A) of this

23 paragraph.
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1 (3) For purposes of applying section 55(b)(3)

2 of such Code, rules similar to the rules of para3 graphs (1) and (2) of this subsection shall apply.

4 (4) In applying this subsection with respect to

5 any pass-thru entity, the determination of when

6 gains and loss are properly taken into account shall

7 be made at the entity level.

8 (5) For purposes of applying section 1(h)(11)

9 of such Code, as added by section 302 of this Act,

10 to this subsection, dividends which are qualified divi11 dend income shall be treated as gain properly taken

12 into account for the portion of the taxable year on

13 or after May 6, 2003.

14 (6) Terms used in this subsection which are

15 also used in section 1(h) of such Code shall have the

16 respective meanings that such terms have in such

17 section.

18 (d) EFFECTIVE DATES.—

19 (1) IN GENERAL.—Except as otherwise pro20 vided by this subsection, the amendments made by

21 this section shall apply to taxable years ending on or

22 after May 6, 2003.

23 (2) WITHHOLDING.—The amendment made by

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

25 after the date of the enactment of this Act.
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1 (3) SMALL BUSINESS STOCK.—The amend2 ments made by subsection (b)(3) shall apply to dis3 positions on or after May 6, 2003.

4 SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL

5 GAIN RATES.

6 (a) IN GENERAL.—Section 1(h) (relating to max7 imum capital gains rate), as amended by section 301, is

8 amended by adding at the end the following new para9 graph:

10 ‘‘(11) 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—

19 ‘‘(i) IN GENERAL.—The term ‘quali20 fied dividend income’ means dividends re21 ceived during the taxable year from domes22 tic corporations.

23 ‘‘(ii) CERTAIN DIVIDENDS EX24 CLUDED.—Such term shall not include—
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1 ‘‘(I) any dividend from a corpora2 tion which for the taxable year of the

3 corporation in which the distribution

4 is made, or the preceding taxable

5 year, is a corporation exempt from tax

6 under section 501 or 521,

7 ‘‘(II) any amount allowed as a

8 deduction under section 591 (relating

9 to deduction for dividends paid by

10 mutual savings banks, etc.), and

11 ‘‘(III) any dividend described in

12 section 404(k).

13 ‘‘(iii) EXCLUSION OF CERTAIN DIVI14 DENDS.—Such term shall not include any

15 dividend on any share of stock—

16 ‘‘(I) with respect to which the

17 holding period requirements of section

18 246(c) are not met, or

19 ‘‘(II) to the extent that the tax20 payer is under an obligation (whether

21 pursuant to a short sale or otherwise)

22 to make related payments with respect

23 to positions in substantially similar or

24 related property.

25 ‘‘(C) SPECIAL RULES.—
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1 ‘‘(i) AMOUNTS TAKEN INTO ACCOUNT

2 AS INVESTMENT INCOME.—Qualified divi3 dend income shall not include any amount

4 which the taxpayer takes into account as

5 investment income under section

6 163(d)(4)(B).

7 ‘‘(ii) EXTRAORDINARY DIVIDENDS.—

8 If an individual receives, with respect to

9 any share of stock, qualified dividend in10 come from 1 or more dividends which are

11 extraordinary dividends (within the mean12 ing of section 1059(c)), any loss on the

13 sale or exchange of such share shall, to the

14 extent of such dividends, be treated as

15 long-term capital loss.

16 ‘‘(iii) TREATMENT OF DIVIDENDS

17 FROM REGULATED INVESTMENT COMPA18 NIES AND REAL ESTATE INVESTMENT

19 TRUSTS.—A dividend received from a regu20 lated investment company or a real estate

21 investment trust shall be subject to the

22 limitations prescribed in sections 854 and

23 857.’’.

24 (b) EXCLUSION OF DIVIDENDS FROM INVESTMENT

25 INCOME.—Subparagraph (B) of section 163(d)(4) (defin-
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1 ing net investment income) is amended by adding at the

2 end the following flush sentence:

3 ‘‘Such term shall include qualified dividend in4 come (as defined in section 1(h)(11)(B)) only to

5 the extent the taxpayer elects to treat such in6 come as investment income for purposes of this

7 subsection.’’.

8 (c) TREATMENT OF DIVIDENDS FROM REGULATED

9 INVESTMENT COMPANIES.—

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

11 dividends received from regulated investment compa12 nies) is amended by inserting ‘‘section 1(h)(11) (re13 lating to maximum rate of tax on dividends and in14 terest) and’’ after ‘‘For purposes of’’.

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

16 other dividends) is amended by redesignating sub17 paragraph (B) as subparagraph (C) and by inserting

18 after subparagraph (A) the following new subpara19 graph:

20 ‘‘(B) MAXIMUM RATE UNDER SECTION

21 1(h).—

22 ‘‘(i) IN GENERAL.—If the aggregate

23 dividends received by a regulated invest24 ment company during any taxable year are

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

2 under section 1(h)(11), 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), as

15 redesignated by paragraph (2), is amended by strik16 ing ‘‘subparagraph (A)’’ and inserting ‘‘subpara17 graph (A) or (B)’’.

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

19 by inserting ‘‘the maximum rate under section

20 1(h)(11) and’’ after ‘‘for purposes of’’.

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

22 adding at the end the following new paragraph:

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

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

25 be treated as a dividend only if the amount is quali-
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1 fied dividend income (within the meaning of section

2 1(h)(11)(B)).’’.

3 (d) TREATMENT OF DIVIDENDS RECEIVED FROM

4 REAL ESTATE INVESTMENT TRUSTS.—Section 857(c)

5 (relating to restrictions applicable to dividends received

6 from real estate investment trusts) is amended to read as

7 follows:

8 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE9 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

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

11 243 (relating to deductions for dividends received by

12 corporations), a dividend received from a real estate

13 investment trust which meets the requirements of

14 this part shall not be considered a dividend.

15 ‘‘(2) SECTION 1(h)(11).—For purposes of sec16 tion 1(h)(11) (relating to maximum rate of tax on

17 dividends), rules similar to the rules of section

18 854(b)(1)(B) shall apply to dividends received from

19 a real estate trust which meets the requirements of

20 this part.’’.

21 (e) CONFORMING AMENDMENTS.—

22 (1) Paragraph (3) of section 1(h), as redesig23 nated by section 301, is amended to read as follows:
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1 ‘‘(3) ADJUSTED NET CAPITAL GAIN.—For pur2 poses of this subsection, the term ‘adjusted net cap3 ital gain’ means the sum of—

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

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

6 below zero) by the sum of—

7 ‘‘(i) unrecaptured section 1250 gain,

8 and

9 ‘‘(ii) 28-percent rate gain, plus

10 ‘‘(B) qualified dividend income (as defined

11 in paragraph (11)).’’.

12 (2) Subsection (f) of section 301 is amended

13 adding at the end the following new paragraph:

14 ‘‘(4) For taxation of dividends received by indi15 viduals at capital gain rates, see section 1(h)(11).’’.

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

17 by adding at the end the following new subpara18 graph:

19 ‘‘(D) TREATMENT AS DIVIDEND.—For

20 purposes of section l(h)(11), any amount treat21 ed as ordinary income under this paragraph

22 shall be treated as a dividend received from the

23 corporation.’’.
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1 (4)(A) Subpart C of part II of subchapter C of

2 chapter 1 (relating to collapsible corporations) is re3 pealed.

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

5 paragraph (14).

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

7 1257(d) are each amended by striking ‘‘,

8 341(e)(12),’’.

9 (iii) The table of subparts for part II of sub10 chapter C of chapter 1 is amended by striking the

11 item related to subpart C.

12 (5) Section 531 is amended by striking ‘‘equal

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

14 percent of the accumulated taxable income.’’.

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

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

17 percent of the undistributed personal holding com18 pany income.’’.

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

20 end the following new flush sentence:

21 ‘‘The proportionate share of each participant in the

22 amount of dividends received by the common trust fund

23 and to which section 1(h)(11) applies shall be considered

24 for purposes of such paragraph as having been received

25 by such participant.’’.
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1 (8) Paragraph (5) of section 702(a) is amended

2 to read as follows:

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

4 1(h)(11) or part VII of subchapter B applies,’’.

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

6 this section shall apply to taxable years beginning after

7 December 31, 2002.

8 SEC. 303. SUNSET OF TITLE.

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

10 shall not apply to taxable years beginning after December

11 31, 2012, and the Internal Revenue Code of 1986 shall

12 be applied and administered to such years as if such provi13 sions and amendments had never been enacted.

14 TITLE IV—CORPORATE ESTI15 MATED TAX PAYMENTS FOR

16 2003

17 SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED

18 TAXES.

19 Notwithstanding section 6655 of the Internal Rev20 enue Code of 1986, 52 percent of the amount of any re21 quired installment of corporate estimated tax which is oth-
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1 erwise due in September 2003 shall not be due until Octo2 ber 1, 2003.

Passed the House of Representatives May 9, 2003.

Attest:

Clerk.