I

106TH CONGRESS

2D SESSION H. R. 5569

To amend the Internal Revenue Code of 1986 to tax the net capital gain

of closely held corporations in the same manner as individuals.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 26, 2000

Mr. ENGLISH 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 tax the

net capital gain of closely held corporations in the same

manner as individuals.

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

3 SECTION 1. CAPITAL GAINS TAX ON CLOSELY HELD COR4 PORATIONS.

5 (a) IN GENERAL.—Section 1201 of the Internal Rev6 enue Code of 1986 (relating to alternative tax for corpora7 tions) is amended by striking all that follows subsection

8 (a) and inserting the following:

9 ‘‘(b) SPECIAL RULE FOR CERTAIN CLOSELY HELD

10 CORPORATIONS.—
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1 ‘‘(1) IN GENERAL.—If for any taxable year a

2 corporation that meets the stock ownership require3 ment of section 542(a)(2) has a net capital gain and

4 any rate of tax imposed by section 11 exceeds the

5 applicable capital gains rate, then, in lieu of the tax

6 imposed by section 11, there is hereby imposed a tax

7 (if such tax is less than the tax imposed by section

8 11) which shall consist of the sum of—

9 ‘‘(A) a tax computed on the taxable in10 come, reduced by an amount equal to the net

11 capital gain, at the applicable ordinary income

12 rate,

13 ‘‘(B) a tax at the applicable capital gains

14 rate on the lesser of—

15 ‘‘(i) the excess (if any) of—

16 ‘‘(I) the net capital gain, over

17 ‘‘(II) the unrecaptured section

18 1250 gain, or

19 ‘‘(ii) taxable income, plus

20 ‘‘(C) a tax at the applicable recapture rate

21 on the taxable income in excess of the sum of

22 the amounts on which a tax is determined

23 under subparagraphs (A) and (B).

24 ‘‘(2) DEFINITIONS.—For purposes of this

25 subsection—
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1 ‘‘(A) APPLICABLE CAPITAL GAINS RATE.—

2 The term ‘applicable capital gains rate’ means

3 the rate described in section 1(h)(1)(C).

4 ‘‘(B) APPLICABLE ORDINARY INCOME

5 RATE.—The term ‘applicable ordinary income

6 rate’ means the highest rate of tax imposed by

7 section 1 on the taxable income of individuals.

8 ‘‘(C) APPLICABLE RECAPTURE RATE.—The

9 term ‘applicable recapture rate’ means the rate

10 described in section 1(h)(1)(D).

11 ‘‘(D) UNRECAPTURED SECTION 1250

12 GAIN.—

13 ‘‘(i) IN GENERAL.—The term

14 ‘unrecaptured section 1250 gain’ means

15 the excess (if any) of—

16 ‘‘(I) the amount of long-term

17 capital gain (not otherwise treated as

18 ordinary income) which would be

19 treated as ordinary income if section

20 1250(b)(1) included all depreciation

21 and the applicable percentage under

22 section 1250(a) were 100 percent,

23 over

24 ‘‘(II) the net short-term capital

25 loss.
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1 ‘‘(ii) LIMITATION WITH RESPECT TO

2 SECTION 1231 PROPERTY.—The amount de3 scribed in clause (i)(I) from sales, ex4 changes, and conversions described in sec5 tion 1231(a)(3)(A) for any taxable year

6 shall not exceed the net section 1231 gain

7 (as defined in section 1231(c)(3)) for such

8 year.

9 ‘‘(c) CROSS REFERENCES.—For computation of the

10 alternative tax—

11 ‘‘(1) in the case of life insurance companies, see

12 section 801(a)(2).

13 ‘‘(2) in the case of regulated investment compa14 nies and their shareholders, see section 852(b)(3)(A)

15 and (D), and

16 ‘‘(3) in the case of real estate investment

17 trusts, see section 857(b)(3)(A).’’

18 (b) CONFORMING AMENDMENTS.—

19 (1) Section 1201(a) of such Code is amended

20 by inserting ‘‘(other than a corporation described in

21 subsection (b))’’ after ‘‘a corporation’’.

22 (2) Section 1374(b)(4) of such Code is amend23 ed to read as follows:

24 ‘‘(4) COORDINATION WITH SECTION 1201.—For

25 purposes of section 1201—
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1 ‘‘(A) the tax imposed by subsection (a)

2 shall be treated as if it were imposed by section

3 11, and

4 ‘‘(B) the amount of the net recognized

5 built-in gain shall be treated as the taxable in6 come.’’

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

8 this section shall apply to taxable years beginning after

9 the date of the enactment of this Act.

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