II 

109TH CONGRESS 

1ST SESSION S. 1740 

To amend the Internal Revenue Code of 1986 to allow individuals to defer 

recognition of reinvested capital gains distributions from regulated investment companies. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 21, 2005 

Mr. CRAPO (for himself, Mr. JOHNSON, and Mr. BUNNING) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to allow individuals to defer recognition of reinvested capital gains 

distributions from regulated investment companies. 

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 ‘‘Generate Retirement 

5 Ownership Through Long-Term Holding Act of 2005’’. 
2 

•S 1740 IS

1 SEC. 2. DEFERRAL OF REINVESTED CAPITAL GAIN DIVI2 DENDS OF REGULATED INVESTMENT COMPA3 NIES. 

4 (a) IN GENERAL.—Part III of subchapter O of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to 

6 common nontaxable exchanges) is amended by inserting 

7 after section 1045 the following new section: 

8 ‘‘SEC. 1046. REINVESTED CAPITAL GAIN DIVIDENDS OF 

9 REGULATED INVESTMENT COMPANIES. 

10 ‘‘(a) NONRECOGNITION OF GAIN.—In the case of an 

11 individual, no gain shall be recognized on the receipt of 

12 a capital gain dividend distributed by a regulated invest13 ment company to which part I of subchapter M applies 

14 if such capital gain dividend is automatically reinvested 

15 in additional shares of the company pursuant to a dividend 

16 reinvestment plan. 

17 ‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur18 poses of this section— 

19 ‘‘(1) CAPITAL GAIN DIVIDEND.—The term ‘cap20 ital gain dividend’ has the meaning given to such 

21 term by section 852(b)(3)(C). 

22 ‘‘(2) RECOGNITION OF DEFERRED CAPITAL

23 GAIN DIVIDENDS.— 

24 ‘‘(A) IN GENERAL.—Gain treated as unrec25 ognized in accordance with subsection (a) shall 
3 

•S 1740 IS

1 be recognized in accordance with subparagraph 

2 (B)— 

3 ‘‘(i) upon a subsequent sale or re4 demption by such individual of stock in the 

5 distributing company, or 

6 ‘‘(ii) upon the death of the individual. 

7 ‘‘(B) GAIN RECOGNITION.— 

8 ‘‘(i) IN GENERAL.—Upon a sale or re9 demption described in subparagraph (A), 

10 the taxpayer shall recognize that portion of 

11 total gain treated as unrecognized in ac12 cordance with subsection (a) (and not pre13 viously recognized pursuant to this sub14 paragraph) that is equivalent to the por15 tion of the taxpayer’s total shares in the 

16 distributing company that are sold or re17 deemed. 

18 ‘‘(ii) DEATH OF INDIVIDUAL.—Except 

19 as provided by regulations, any portion of 

20 such total gain not recognized under clause 

21 (i) prior to the taxpayer’s death shall be 

22 recognized upon the death of the taxpayer 

23 and included in the taxpayer’s gross in24 come for the taxable year ending on the 

25 date of the taxpayer’s death. 
4 

•S 1740 IS

1 ‘‘(3) HOLDING PERIOD.— 

2 ‘‘(A) GENERAL RULE.—The taxpayer’s 

3 holding period in shares acquired through rein4 vestment of a capital gain dividend to which 

5 subsection (a) applies shall be determined by 

6 treating the shareholder as having held such 

7 shares for one year and a day as of the date 

8 such shares are acquired. 

9 ‘‘(B) SPECIAL RULE FOR DISTRIBUTIONS

10 OF QUALIFIED 5-YEAR GAINS.—In the case of a 

11 distribution of a capital gain dividend (or por12 tion thereof) in a taxable year beginning after 

13 December 31, 2008, and properly treated as 

14 qualified 5-year gain (within the meaning of 

15 section 1(h), as in effect after such date), sub16 paragraph (A) shall apply by substituting ‘5 

17 years and a day’ for ‘one year and a day’. 

18 ‘‘(c) SECTION NOT TO APPLY TO CERTAIN TAX19 PAYERS.—This section shall not apply to— 

20 ‘‘(1) an individual with respect to whom a de21 duction under section 151 is allowable to another 

22 taxpayer for a taxable year beginning in the cal23 endar year in which such individual’s taxable year 

24 begins, or 

25 ‘‘(2) an estate or trust. 
5 

•S 1740 IS

1 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

2 such regulations as may be necessary to carry out the pur3 poses of this section.’’. 

4 (b) CONFORMING AMENDMENTS.— 

5 (1) Section 852(b)(3)(B) of such Code is 

6 amended by adding at the end the following new 

7 sentence: ‘‘For rules regarding nonrecognition of 

8 gain with respect to reinvested capital gain dividends 

9 received by individuals, see section 1046.’’. 

10 (2) The table of sections for part III of sub11 chapter O of chapter 1 of such Code is amended by 

12 inserting after the item relating to section 1045 the 

13 following new item: 

‘‘Sec. 1046. Reinvested capital gain dividends of regulated investment companies.’’. 

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

15 this section shall apply to taxable years ending after the 

16 date of the enactment of this Act. 

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