I

103D CONGRESS

1ST SESSION H. R. 948

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

dividends paid by domestic corporations, to reduce the tax on capital

gains from assets held for more than 3 years, and to restore the investment tax credit for certain property.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 17, 1993

Mr. REGULA 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,

to reduce the tax on capital gains from assets held for

more than 3 years, and to restore the investment tax

credit for certain property.

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

3 SECTION 1. ALLOWANCE OF DEDUCTION FOR DIVIDENDS

4 PAID BY DOMESTIC CORPORATIONS.

5 (a) IN GENERAL.—Section 243 of the Internal Reve6 nue Code of 1986 (relating to dividends received by cor7 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.—

16 (i) Paragraph (1) of section 245(a) of

17 such Code (relating generally to dividends

18 received from 10-percent owned foreign

19 corporations) is amended by striking ‘‘the

20 percent (specified in section 243 for the

21 taxable year)’’ and inserting ‘‘the applica22 ble percentage determined under para23 graph (12)’’.
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1 (ii) Subsection (a) of section 245 of

2 such Code is amended by adding at the

3 end thereof the following new paragraph:

4 ‘‘(12) APPLICABLE PERCENTAGE.—

5 ‘‘(A) IN GENERAL.—For purposes of para6 graph (1), the applicable percentage is—

7 ‘‘(i) 100 percent in the case of divi8 dends received by a small business invest9 ment company operating under the Small

10 Business Investment Act of 1958 (15

11 U.S.C. 661 and following),

12 ‘‘(ii) 80 percent in the case of divi13 dends not described in clause (i) from a

14 20-percent owned corporation, and

15 ‘‘(iii) 70 percent in the case of any

16 other dividends.

17 ‘‘(B) 20-PERCENT OWNED CORPORATION.—

18 For purposes of subparagraph (A), the term

19 ‘20-percent owned corporation’ means any cor20 poration if 20 percent or more of the stock in

21 such corporation (by vote and value) is owned

22 by the taxpayer. For purposes of the preceding

23 sentence, stock described in section 1504(a)

24 shall not be taken into account.’’
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1 (iii) Subparagraph (B) of section

2 245(c)(1) of such Code is amended by

3 striking ‘‘section 243(c)(2)’’ and inserting

4 ‘‘subsection (a)(12)(B)’’.

5 (B) TRANSFER OF LIMITATION ON AGGRE6 GATE AMOUNT OF DIVIDENDS RECEIVED DE7 DUCTION, EXCLUSION OF CERTAIN DIVIDENDS,

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

9 dividends received from certain foreign corpora10 tions) is amended by adding at the end the fol11 lowing new subsections:

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

13 ‘‘(1) LIMITATION ON AGGREGATE AMOUNT OF

14 DEDUCTION.—

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

16 subparagraph (B), the aggregate amount of the

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

18 shall not exceed the percentage determined

19 under subparagraph (C) of the taxable income

20 computed without regard to—

21 ‘‘(i) the deductions allowed by section

22 172,

23 ‘‘(ii) any adjustment under section

24 1059, and
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1 ‘‘(iii) any capital loss carryback to the

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

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

4 Subparagraph (A) shall not apply for any tax5 able year for which there is a net operating loss

6 (as determined under section 172).

7 ‘‘(c) SPECIAL RULES.—The provisions of

8 subparagraph (A) shall be applied—

9 ‘‘(i) first separately with respect to

10 dividends from 20-percent owned corpora11 tions and the percentage determined under

12 this subparagraph shall be 80 percent, and

13 ‘‘(ii) then separately with respect to

14 dividends not from 20-percent owned cor15 porations and the percentage determined

16 under this subparagraph shall be 70 per17 cent and the taxable income shall be re18 duced by the aggregate amount of divi19 dends from 20-percent owned corporations.

20 ‘‘(2) EXCLUSION OF CERTAIN DIVIDENDS.—

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

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

23 any dividend on any share of stock—
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1 ‘‘(i) which is sold or otherwise dis2 posed of in any case in which the taxpayer

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

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

5 under an obligation (whether pursuant to a

6 short sale or otherwise) to make cor7 responding payments with respect to posi8 tions in substantially similar or related

9 property.

10 ‘‘(B) 90-DAY RULE IN THE CASE OF CER11 TAIN PREFERENCE DIVIDENDS.—In the case of

12 any stock having preference in dividends, the

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

14 shall be 90 days in lieu of 45 days if the tax15 payer receives dividends with respect to such

16 stock which are attributable to a period or peri17 ods aggregating in excess of 366 days.

18 ‘‘(C) DETERMINATION OF HOLDING PERI19 ODS.—For purposes of this subsection, in deter20 mining the period for which the taxpayer has

21 held any share of stock—

22 ‘‘(i) the day of disposition, but not the

23 day of acquisition, shall be taken into ac24 count,
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1 ‘‘(ii) there shall not be taken into ac2 count any day which is more than 45 days

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

4 subparagraph (B) applies) after the date

5 on which such share becomes ex-dividend,

6 and

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

8 shall not apply.

9 ‘‘(D) HOLDING PERIOD REDUCED FOR PE10 RIODS WHERE RISK OF LOSS DIMINISHED.—

11 The holding periods determined under the pre12 ceding provisions of this subparagraph shall be

13 appropriately reduced (in the manner provided

14 in regulations prescribed by the Secretary) for

15 any period (during such periods) in which—

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

17 is under a contractual obligation to sell, or

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

19 substantially identical stock or securities,

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

21 option to buy substantially identical stock

22 or securities, or

23 ‘‘(iii) under regulations prescribed by

24 the Secretary, a taxpayer has diminished

25 his risk of loss by holding 1 or more other
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1 positions with respect to substantially simi2 lar or related property.

3 The preceding sentence shall not apply in the case of any

4 qualified covered call (as defined in section 1092(c)(4) but

5 without regard to the requirement that gain or loss with

6 respect to the option not be ordinary income or loss).

7 ‘‘(f) CROSS REFERENCE.—

‘‘For special rule relating to mutual savings banks,

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

8 (2) NET OPERATING LOSS DEDUCTION.—Para9 graph (5) of section 172(d) of such Code is amended

10 to read as follows:

11 ‘‘(5) COMPUTATION OF DEDUCTION FOR DIVI12 DENDS RECEIVED FROM CERTAIN FOREIGN COR13 PORATIONS.—The deduction allowed by section 245

14 (relating to dividends received from certain foreign

15 corporations) shall be computed without regard to

16 section 245(e)(1).’’

17 (3) DIVIDENDS RECEIVED DEDUCTION RE18 DUCED WHERE PORTFOLIO STOCK IS DEBT FI19 NANCED.—

20 (A) Subsections (a) and (e) of section

21 246A of such Code (relating to dividends re22 ceived deduction reduced where portfolio stock

23 is debt financed) are each amended by striking

24 ‘‘243, 244, or’’.
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1 (B) Subsection (b) of section 246A of such

2 Code is amended to read as follows:

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

4 WHICH 100 PERCENT DIVIDENDS RECEIVED DEDUCTION

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

6 received by a small business investment company operat7 ing under the Small Business Investment Act of 1958.’’

8 (4) LIMITATION ON DIVIDENDS RECEIVED DE9 DUCTION FOR MUTUAL SAVINGS BANKS, ETC.—Sec10 tion 596 of such Code (relating to limitation on divi11 dends received deduction) is amended by striking

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

13 thereof ‘‘section 245’’.

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

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

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

17 and 247 and inserting after the item relating to section

18 241 the following:

‘‘Sec. 243. Dividends paid by domestic corporations.’’

19 (e) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to distributions made after June

21 30, 1993 under the following schedule:

22 (1) for the period beginning July 1, 1993,

23 through December 31, 1994, the amount of the de24 duction for the taxable year shall be no more than
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1 50 percent of the permitted deduction calculated

2 under this section;

3 (2) for the period beginning January 1, 1995,

4 through December 31, 1996, the amount of the de5 duction for the taxable year shall be no more than

6 75 percent of the permitted deduction calculated

7 under this section; and

8 (3) for the period beginning January 1, 1997,

9 the amount of the deduction for the taxable year

10 shall be 100% of the permitted deduction calculated

11 under this section.

12 SEC. 2. REDUCTION IN CAPITAL GAINS TAX.

13 (a) GENERAL RULE.—Subsection (h) of section 1 of

14 the Internal Revenue Code of 1986 (relating to maximum

15 capital gains rate is amended to read as follows:

16 ‘‘(j) MAXIMUM CAPITAL GAINS RATE.—

17 ‘‘(1) IN GENERAL.—If a taxpayer has a quali18 fied net capital gain for any taxable year, then the

19 tax imposed by this section shall not exceed the sum

20 of—

21 ‘‘(A) a tax computed at the rates and in

22 the same manner as if this subsection had not

23 been enacted on the taxable income reduced by

24 the qualified net capital gain, plus

25 ‘‘(B) a tax equal to the sum of—
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1 ‘‘(i) 23 percent of the 3-to-6 year net

2 gain,

3 ‘‘(ii) 21 percent of the 6-to-9 year net

4 gain,

5 ‘‘(iii) 19 percent of the 9-to-12 year

6 net gain,

7 ‘‘(iv) 17 percent of the 12-to-15 year

8 net gain, plus

9 ‘‘(v) 15 percent of the over 15-year

10 net gain.

11 ‘‘(2) DEFINITIONS.—For purposes of this sub12 section—

13 ‘‘(A) QUALIFIED NET CAPITAL GAIN.—The

14 term ‘qualified net capital gain’ means the less15 er of—

16 ‘‘(i) the net capital gain determined

17 by taking into account only gains and

18 losses from dispositions of assets held for

19 more than 3 years, or

20 ‘‘(ii) the net capital gain.

21 ‘‘(B) 3-TO-6 YEAR NET GAIN.—The term

22 ‘3-to-6 year net gain’ means the lesser of—

23 ‘‘(i) the net capital gain determined

24 by only taking into account gains and
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1 losses from dispositions of assets held for

2 more than 3 but not more than 6 years, or

3 ‘‘(ii) the qualified net capital gain.

4 ‘‘(C) 6-TO-9 YEAR NET GAIN.—The term

5 ‘6-to-9 year net gain’ means the lesser of—

6 ‘‘(i) the net capital gain determined

7 by only taking into account gains and

8 losses from dispositions of assets held for

9 more than 6 but not more than 9 years, or

10 ‘‘(ii) the qualified net capital gain re11 duced by the 3-to-6 year net gain.

12 ‘‘(D) OTHER DEFINITIONS.—The 9-to-12

13 year net gain, 12-to-15 year net gain, and over

14 15-year net gain shall be determined under

15 principles similar to the principles of subpara16 graph (C).

17 ‘‘(3) SPECIAL RULE.—If the highest rate of tax

18 set forth in subsection (a), (b), (c), (d), or (e)

19 (whichever applies) for any taxable year exceeds 28

20 percent, the amount of the tax determined under

21 such subsection which is attributable to the excess of

22 the net capital gain over the qualified net capital

23 gain shall not exceed 28 percent of such excess.’’.
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1 (b) QUALIFIED NET CAPITAL GAIN NOT TAKEN

2 INTO ACCOUNT IN PHASE-OUT.—Subparagraph (A) of

3 section 1(g)(1) of such Code is amended to read as follows:

4 ‘‘(A) taxable income reduced by the quali5 fied net capital gain (as defined in subsection

6 (j)(2)), over’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 1991.

10 SEC. 3. RESTORATION OF INVESTMENT TAX CREDIT FOR

11 PROPERTY WITH LONG USEFUL LIFE.

12 (a) GENERAL RULE.—Section 46 of the Internal

13 Revenue Code of 1986 (relating to amount of credit) is

14 amended by striking the period in subparagraph (3) and

15 insert in lieu thereof ‘‘, and’’ followed by the following new

16 subparagraph:

17 ‘‘(4) manufacturing equipment credit.’’.

18 (b) MANUFACTURING EQUIPMENT CREDIT.—Section

19 48 of the Internal Revenue Code of 1986 is amended by

20 adding at the end thereof the following new section:

21 ‘‘SEC. 48a. MANUFACTURING EQUIPMENT CREDIT.

22 ‘‘(a) IN GENERAL.—For purposes of section 46, the

23 manufacturing equipment credit for any taxable year is

24 10 percent of the portion of the amortizable basis of any

25 property if—
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1 ‘‘(1) such property is used as an integral part

2 of manufacturing, production, or extraction, by a do3 mestic manufacturing company, situated within the

4 United States, or its territories, wherein over 50

5 percent of the total voting stock of such company is

6 owned and controlled by citizens of the United

7 States;

8 ‘‘(2) the class life of such property (as defined

9 in section 168(i)(1)) exceeds 24 months;

10 ‘‘(3) such property is not public utility property

11 (as defined in section 46(f)(5).

12 ‘‘(b) PHASE OUT OF CREDIT.—For periods after De13 cember 31, 1993, the applicable manufacturing equipment

14 credit for any taxable year shall be 7.5 percent of the por15 tion of the amortizable basis of the property.’’.

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

17 this section shall apply solely to a period beginning Janu18 ary 1, 1993, through December 31, 1996.

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