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104TH CONGRESS

1ST SESSION H. R. 232

To amend the Internal Revenue Code of 1986 to allow a deduction for

dividends paid by domestic corporations.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

Mr. DORNAN 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 a

deduction for dividends paid by domestic corporations.

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 ‘‘Saving and Investment

5 Act of 1995’’.

6 SEC. 2. ALLOWANCE OF DEDUCTION FOR DIVIDENDS PAID

7 BY DOMESTIC CORPORATIONS.

8 (a) IN GENERAL.—Section 243 of the Internal Reve9 nue Code of 1986 (relating to dividends received by cor10 porations) is amended to read as follows:
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1 ‘‘SEC. 243. DIVIDENDS PAID BY DOMESTIC CORPORATIONS.

2 ‘‘(a) GENERAL RULE.—In the case of a domestic cor3 poration which is subject to taxation under this chapter,

4 there shall be allowed as a deduction for the taxable year

5 an amount equal to the dividends paid by such corporation

6 during the taxable year.

7 ‘‘(b) DIVIDENDS.—For purposes of this section, the

8 term ‘dividend’ means any dividend (as defined in section

9 316) to which section 301 applies.

10 ‘‘(c) CERTAIN CORPORATIONS NOT ELIGIBLE.—No

11 deduction shall be allowed under this section with respect

12 to dividends paid by any corporation which is—

13 ‘‘(1) an S corporation (as defined in section

14 1361(a)(1));

15 ‘‘(2) a regulated investment company (as de16 fined in section 851(a));

17 ‘‘(3) a real estate investment trust (as defined

18 in section 856(a)); or

19 ‘‘(4) a personal holding company (as defined in

20 section 542).

21 ‘‘(d) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS

22 OF MUTUAL SAVINGS BANKS, ETC.—For purposes of this

23 section, any amount allowed as a deduction under section

24 591 (relating to deduction for dividends paid by mutual

25 savings banks, etc.) shall not be treated as a dividend.’’
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1 (b) REPEAL OF DEDUCTIONS FOR DIVIDENDS RE2 CEIVED FROM DOMESTIC CORPORATIONS AND RULES RE3 LATING THERETO; REPEAL OF DEDUCTION FOR DIVI4 DENDS PAID ON CERTAIN PREFERRED STOCK OF PUBLIC

5 UTILITIES.—Sections 244 (relating to dividends received

6 on certain preferred stock), 246 (relating to rules applying

7 to deductions for dividends received), and 247 (relating

8 to dividends paid on certain preferred stock of public utili9 ties) of such Code are hereby repealed.

10 (c) CONFORMING AMENDMENTS.—

11 (1) DIVIDENDS RECEIVED FROM CERTAIN FOR12 EIGN CORPORATIONS.—

13 (A) TRANSFER OF PROVISION SPECIFYING

14 DEDUCTIBLE PERCENTAGE OF DIVIDEND RE15 CEIVED.—Paragraph (1) of section 245(a) of

16 such Code (relating generally to dividends re17 ceived from 10-percent owned foreign corpora18 tions) is amended by striking ‘‘the percent

19 (specified in section 243 for the taxable year)’’

20 and inserting in lieu thereof ‘‘85 percent (100

21 percent in the case of a small business invest22 ment company operating under the Small Busi23 ness Investment Act of 1958 (15 U.S.C. 661 et

24 seq.))’’.
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1 (B) TRANSFER OF LIMITATION ON AGGRE2 GATE AMOUNT OF DIVIDENDS RECEIVED DE3 DUCTION, EXCLUSION OF CERTAIN DIVIDENDS,

4 ETC.—Section 245 of such Code (relating to

5 dividends received from certain foreign corpora6 tions) is amended by adding at the end the fol7 lowing new subsections:

8 ‘‘(e) LIMITATION AND SPECIAL RULES.—

9 ‘‘(1) LIMITATION ON AGGREGATE AMOUNT OF

10 DEDUCTION.—

11 ‘‘(A) IN GENERAL.—Except as provided by

12 subparagraph (B), the aggregate amount of the

13 deductions allowed by subsections (a) and (b)

14 shall not exceed 80 percent of the taxable in15 come computed without regard to—

16 ‘‘(i) the deductions allowed by section

17 172,

18 ‘‘(ii) any adjustment under section

19 1059, and

20 ‘‘(iii) any capital loss carryback to the

21 taxable year under section 1212(a)(1).

22 ‘‘(B) EFFECT OF NET OPERATING LOSS.—

23 Subparagraph (A) shall not apply for any tax24 able year for which there is a net operating loss

25 (as determined under section 172).
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1 ‘‘(2) EXCLUSION OF CERTAIN DIVIDENDS.—

2 ‘‘(A) IN GENERAL.—No deduction shall be

3 allowed under subsection (a) or (b) in respect of

4 any dividend on any share of stock—

5 ‘‘(i) which is sold or otherwise dis6 posed of in any case in which the taxpayer

7 has held such share for 45 days or less, or

8 ‘‘(ii) to the extent that the taxpayer is

9 under an obligation (whether pursuant to a

10 short sale or otherwise) to make cor11 responding payments with respect to posi12 tions in substantially similar or related

13 property.

14 ‘‘(B) 90-DAY RULE IN THE CASE OF CER15 TAIN PREFERENCE DIVIDENDS.—In the case of

16 any stock having preference in dividends, the

17 holding period specified in subparagraph (A)(i)

18 shall be 90 days in lieu of 45 days if the tax19 payer receives dividends with respect to such

20 stock which are attributable to a period or peri21 ods aggregating in excess of 366 days.

22 ‘‘(C) DETERMINATION OF HOLDING PERI23 ODS.—For purposes of this subsection, in deter24 mining the period for which the taxpayer has

25 held any share of stock—
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1 ‘‘(i) the day of disposition, but not the

2 day of acquisition, shall be taken into

3 account,

4 ‘‘(ii) there shall not be taken into ac5 count any day which is more than 45 days

6 (or 90 days in the case of stock to which

7 subparagraph (B) applies) after the date

8 on which such share becomes ex-dividend,

9 and

10 ‘‘(iii) paragraph (4) of section 1223

11 shall not apply.

12 ‘‘(D) HOLDING PERIOD REDUCED FOR PE13 RIODS WHERE RISK OF LOSS DIMINISHED.—

14 The holding periods determined under the pre15 ceding provisions of this subparagraph shall be

16 appropriately reduced (in the manner provided

17 in regulations prescribed by the Secretary) for

18 any period (during such periods) in which—

19 ‘‘(i) the taxpayer has an option to sell,

20 is under a contractual obligation to sell, or

21 has made (and not closed) a short sale of,

22 substantially identical stock or securities,

23 ‘‘(ii) the taxpayer is the grantor of an

24 option to buy substantially identical stock

25 or securities, or
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1 ‘‘(iii) under regulations prescribed by

2 the Secretary, a taxpayer has diminished

3 his risk of loss by holding 1 or more other

4 positions with respect to substantially simi5 lar or related property.

6 The preceding sentence shall not apply in the

7 case of any qualified covered call (as defined in

8 section 1092(c)(4) but without regard to the re9 quirement that gain or loss with respect to the

10 option not be ordinary income or loss).

11 ‘‘(f) CROSS REFERENCE.—

‘‘For special rule relating to mutual savings banks,

etc., to which section 593 applies, see section 596.’’

12 (2) NET OPERATING LOSS DEDUCTION.—Para13 graph (6) of section 172(d) of such Code is amended

14 to read as follows:

15 ‘‘(6) COMPUTATION OF DEDUCTION FOR DIVI16 DENDS RECEIVED FROM CERTAIN FOREIGN COR17 PORATIONS.—The deduction allowed by section 245

18 (relating to dividends received from certain foreign

19 corporations) shall be computed without regard to

20 section 245(e)(1).’’

21 (3) DIVIDENDS RECEIVED DEDUCTION RE22 DUCED WHERE PORTFOLIO STOCK IS DEBT FI23 NANCED.—
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1 (A) Subsections (a) and (e) of section

2 246A of such Code (relating to dividends re3 ceived deduction reduced where portfolio stock

4 is debt financed) are each amended by striking

5 ‘‘243, 244, or’’.

6 (B) Subsection (b) of section 246A of such

7 Code is amended to read as follows:

8 ‘‘(b) SECTION NOT TO APPLY TO DIVIDENDS FOR

9 WHICH 100 PERCENT DIVIDENDS RECEIVED DEDUCTION

10 ALLOWABLE.—Subsection (a) shall not apply to dividends

11 received by a small business investment company operat12 ing under the Small Business Investment Act of 1958.’’

13 (4) LIMITATION ON DIVIDENDS RECEIVED DE14 DUCTION FOR MUTUAL SAVINGS BANKS, ETC.—Sec15 tion 596 of such Code (relating to limitation on divi16 dends received deduction) is amended by striking

17 ‘‘sections 243, 244, and 245’’ and inserting in lieu

18 thereof ‘‘section 245’’.

19 (d) CLERICAL AMENDMENTS.—The table of sections

20 for part VIII of subchapter B of chapter 1 is amended

21 by striking the items relating to sections 243, 244, 246,

22 and 247 and inserting after the item relating to section

23 241 the following:

‘‘Sec. 243. Dividends paid by domestic corporations.’’
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1 (e) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to distributions made after Decem3 ber 31, 1995.

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