I 

108TH CONGRESS 

1ST SESSION H. R. 326

To amend the Internal Revenue Code of 1986 to eliminate the double taxation 

of dividends. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 8, 2003

Mr. VITTER 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 eliminate 

the double taxation of dividends.

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 ‘‘Fairness for American 

5 Investors Act of 2003’’. 

6 SEC. 2. ELIMINATION OF DOUBLE TAX ON DIVIDENDS. 

7 (a) DIVIDENDS RECEIVED BY INDIVIDUALS.—

8 (1) CREDIT FOR TAX PAID BY DISTRIBUTING

9 CORPORATION.—Part IV of subchapter A of chapter 

10 1 of the Internal Revenue Code of 1986 is amended 
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1 by adding at the end thereof the following new sub2 part: 

3 ‘‘Subpart H—Individual Shareholder Credit

‘‘Sec. 54. Allowance of shareholder credit. 

‘‘Sec. 54A. Determination of shareholder credit. 

‘‘Sec. 54B. Inclusion of shareholder credit.

4 ‘‘SEC. 54. ALLOWANCE OF SHAREHOLDER CREDIT. 

5 ‘‘(a) GENERAL RULE.—In the case of a taxpayer 

6 other than a corporation, there shall be allowed as a credit 

7 against the tax imposed by this chapter for the taxable 

8 year an amount equal to the shareholder credits deter9 mined with respect to dividends from domestic corpora10 tions received by the taxpayer during the taxable year. 

11 ‘‘(b) LIMITATION.—The amount allowed as a credit 

12 under subsection (a) for any taxable year shall not exceed 

13 the sum of—

14 ‘‘(1) the regular tax liability of the taxpayer for 

15 the taxable year reduced by the sum of the credits 

16 allowable under this part (other than subpart C), 

17 and 

18 ‘‘(2) the minimum tax imposed by section 55. 

19 ‘‘(c) NONRESIDENT ALIENS.—No credit shall be al20 lowed under this section to any nonresident alien with re21 spect to any dividend unless such dividend is taxable under 

22 section 871(b) (relating to income effectively connected 

23 with United States business). 
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1 ‘‘SEC. 54A. DETERMINATION OF SHAREHOLDER CREDIT. 

2 ‘‘(a) GENERAL RULE.—For purposes of this subpart, 

3 the shareholder credit with respect to any dividend paid 

4 by a domestic corporation is an amount which bears the 

5 same ratio to such corporation’s post-2002 Federal income 

6 taxes as—

7 ‘‘(1) the amount of such dividend (determined 

8 without regard to section 54B), bears to 

9 ‘‘(2) such corporation’s post-2002 undistributed 

10 earnings. 

11 ‘‘(b) POST-2002 FEDERAL INCOME TAXES.—For 

12 purposes of this section—

13 ‘‘(1) IN GENERAL.—The term ‘post-2002 Fed14 eral income taxes’ means the sum of—

15 ‘‘(A) the Federal income taxes with respect 

16 to the taxable year of the distributing corpora17 tion in which the dividend is distributed, plus 

18 ‘‘(B) the Federal income taxes with respect 

19 to prior taxable years of such corporation begin20 ning after December 31, 2002, reduced by the 

21 amount of shareholder credits determined with 

22 respect to distributions by such corporation in 

23 such prior taxable years. 

24 ‘‘(2) FEDERAL INCOME TAXES.—The term 

25 ‘Federal income taxes’ means any tax paid by the 

26 corporation under this chapter. Any shareholder 
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1 credit determined under this section with respect to 

2 a dividend received by the corporation during any 

3 taxable year shall be treated as a tax paid by the 

4 corporation under this chapter for such taxable year. 

5 ‘‘(c) POST-2002 UNDISTRIBUTED EARNINGS.—For 

6 purposes of this section, the term ‘post-2002 undistributed 

7 earnings’ means the earnings and profits of the distrib8 uting corporation accumulated in taxable years beginning 

9 after December 31, 2002, determined—

10 ‘‘(1) as of the close of the taxable year in which 

11 the dividend is distributed, and 

12 ‘‘(2) without diminution by reason of dividends 

13 distributed during such taxable year. 

14 ‘‘SEC. 54B. INCLUSION OF SHAREHOLDER CREDIT. 

15 ‘‘In the case of a taxpayer other than a corporation, 

16 gross income shall include the amount of the shareholder 

17 credits determined under section 54A with respect to divi18 dends received by such shareholder.’’

19 (2) CLERICAL AMENDMENT.—The table of sub20 parts for part IV of subchapter A of chapter 1 of 

21 such Code is amended by adding at the end thereof 

22 the following new item:

‘‘Subpart H. Individual shareholder credit.’’

23 (3) EFFECTIVE DATE.—The amendments made 

24 by this subsection shall apply to dividends paid out 
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1 of earnings and profits for taxable years beginning 

2 after December 31, 2002. 

3 (b) DIVIDENDS RECEIVED BY CORPORATIONS.—

4 (1) IN GENERAL.—Subsection (a) of section 

5 243 of such Code (relating to dividends received by 

6 corporations) is amended to read as follows: 

7 ‘‘(a) GENERAL RULE.—In the case of a corporation, 

8 there shall be allowed as a deduction an amount equal to 

9 100 percent of the amount received as dividends from a 

10 domestic corporation which is subject to taxation under 

11 this chapter.’’

12 (2) DIVIDENDS ON CERTAIN PREFERRED

13 STOCK.—Section 244 of such Code (relating to divi14 dends received on certain preferred stock) is amend15 ed—

16 (A) by striking ‘‘70 percent’’ in subsection 

17 (a)(3) and inserting ‘‘100 percent’’, 

18 (B) by striking ‘‘(a) IN GENERAL.—’’, and 

19 (C) by striking subsection (b).

20 (3) TECHNICAL, CONFORMING AND CLERICAL

21 AMENDMENTS.—

22 (A) Section 243 of such Code (relating to 

23 dividends received by corporations) is amended 

24 by striking subsections (b) and (c) and by re-
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1 designating subsections (d) and (e) as sub2 sections (b) and (c), respectively. 

3 (B) Subsection (b) of section 246 of such 

4 Code (relating to rules applying to deductions 

5 for dividends received) is amended—

6 (i) in paragraph (1) by striking 

7 ‘‘243(a)(1), 244(a)’’ each time it appears 

8 and inserting ‘‘243, 244’’ and by striking 

9 ‘‘the percentage determined under para10 graph (3) of’’, and 

11 (ii) by striking paragraph (3).

12 (C)(i) Subparagraph (A) of section 

13 805(a)(4) of such Code (relating to dividends 

14 received by life insurance companies) is amend15 ed by striking all that follows ‘‘subparagraph 

16 (B))’’ and inserting a period. 

17 (ii) Subparagraph (B) of section 805(a)(4) 

18 of such Code is amended—

19 (I) by striking ‘‘243(a)(1), 244(a)’’ 

20 each place it appears and inserting ‘‘243, 

21 244’’, 

22 (II) by striking ‘‘the percentage deter23 mined under section 246(b)(3) of’’, and 
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1 (III) by striking ‘‘(and such limitation 

2 shall be applied as provided in section 

3 246(b)(3))’’. 

4 (iii) Paragraph (4) of section 805(a) of 

5 such Code is amended by striking subpara6 graphs (C), (D), (E), and (F) and inserting the 

7 following: 

8 ‘‘(C) DISTRIBUTIONS OUT OF TAX-EXEMPT

9 INTEREST.—No deduction shall be allowed by 

10 reason of this paragraph with respect to any 

11 dividend to the extent the dividend is a distribu12 tion out of tax-exempt interest.’’

13 (D) Subparagraph (C) of section 861(a)(2) 

14 of such Code (relating to income from sources 

15 within the United States) is amended by strik16 ing ‘‘243(e)’’ and inserting ‘‘243(c)’’. 

17 (E) Subparagraph (B) of section 

18 1504(c)(2) of such Code (relating to definition 

19 of includible insurance companies) is amended 

20 by striking clause (i) and by redesignating 

21 clauses (ii) and (iii) as clauses (i) and (ii), re22 spectively. 
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1 (4) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to taxable years end3 ing after the date of the enactment of this Act.

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