I

103D CONGRESS

1ST SESSION H. R. 1353

To amend the Internal Revenue Code of 1986 to provide a partial exclusion

of dividends and interest received by individuals.

IN THE HOUSE OF REPRESENTATIVES

MARCH 16, 1993

Mr. SAM JOHNSON of Texas (for himself, Mr. DORNAN, Mr. FIELDS of Texas,

Mr. BARTON of Texas, Mr. DOOLITTLE, Mr. ZIMMER, Mr. BONILLA, Mr.

EMERSON, Mr. BURTON of Illinois, Mr. SOLOMON, Mr. BAKER of Louisiana, Mr. GALLEGLY, and Mr. DELAY) 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 provide

a partial exclusion of dividends and interest received

by 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. EXEMPTION OF CERTAIN INTEREST AND DIVI4 DEND INCOME FROM TAX.

5 (a) IN GENERAL.—Part III of subchapter B of chap6 ter 1 of the Internal Revenue Code of 1986 (relating to

7 amounts specifically excluded from gross income) is
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1 amended by inserting after section 115 the following new

2 section:

3 ‘‘SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTER4 EST RECEIVED BY INDIVIDUALS.

5 ‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in6 come does not include the sum of the amounts received

7 during the taxable year by an individual as—

8 ‘‘(1) dividends from domestic corporations, or

9 ‘‘(2) interest.

10 ‘‘(b) LIMITATIONS.—

11 ‘‘(1) MAXIMUM AMOUNT.—The aggregate

12 amount excluded under subsection (a) for any tax13 able year shall not exceed $5,000 ($10,000 in the

14 case of a joint return).

15 ‘‘(2) CERTAIN DIVIDENDS EXCLUDED.—Sub16 section (a)(1) shall not apply to any dividend from

17 a corporation which, for the taxable year of the cor18 poration in which the distribution is made, or for the

19 next preceding taxable year of the corporation, is a

20 corporation exempt from tax under section 501 (re21 lating to certain charitable, etc., organization) or

22 section 521 (relating to farmers’ cooperative associa23 tions).

24 ‘‘(c) SPECIAL RULES.—For purposes of this sec25 tion—
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1 ‘‘(1) DISTRIBUTIONS FROM REGULATED IN2 VESTMENT COMPANIES AND REAL ESTATE INVEST3 MENT TRUSTS.—Subsection (a) shall apply with re4 spect to distributions by—

5 ‘‘(A) regulated investment companies to

6 the extent provided in section 854(c), and

7 ‘‘(B) real estate investment trusts to the

8 extent provided in section 857(c).

9 ‘‘(2) DISTRIBUTIONS BY A TRUST.—For pur10 poses of subsection (a), the amount of dividends and

11 interest properly allocable to a beneficiary under sec12 tion 652 or 662 shall be deemed to have been re13 ceived by the beneficiary ratably on the same date

14 that the dividends and interest were received by the

15 estate or trust.

16 ‘‘(3) CERTAIN NONRESIDENT ALIENS INELI17 GIBLE FOR EXCLUSION.—In the case of a non18 resident alien individual, subsection (a) shall apply

19 only—

20 ‘‘(A) in determining the tax imposed for

21 the taxable year pursuant to section 871(b)(1)

22 and only in respect of dividends and interest

23 which are effectively connected with the conduct

24 of a trade or business within the United States,

25 or
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1 ‘‘(B) in determining the tax imposed for

2 the taxable year pursuant to section 877(b).’’

3 (b) CLERICAL AND CONFORMING AMENDMENTS.—

4 (1) The table of sections for part III of sub5 chapter B of chapter 1 of such Code is amended by

6 inserting after the item relating to section 115 the

7 following new item:

‘‘Sec. 116. Partial exclusion of dividends and interest received by

individuals.’’

8 (2) Paragraph (2) of section 265(a) of such

9 Code is amended by inserting before the period at

10 the end thereof the following: ‘‘, or to purchase or

11 carry obligations or shares, or to make deposits, to

12 the extent the interest thereon is excludable from

13 gross income under section 116’’.

14 (3) Subsection (c) of section 584 of such Code

15 is amended by adding at the end thereof the follow16 ing new sentence:

17 ‘‘The proportionate share of each participant in the

18 amount of dividends or interest received by the common

19 trust fund and to which section 116 applies shall be con20 sidered for purposes of such section as having been re21 ceived by such participant.’’

22 (4) Subsection (a) of section 643 of such Code

23 is amended by inserting after paragraph (6) the fol24 lowing new paragraph:
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1 ‘‘(7) DIVIDENDS OR INTEREST.—There shall be

2 included the amount of any dividends or interest ex3 cluded from gross income pursuant to section 116.’’

4 (5) Section 854 of such Code is amended by

5 adding at the end thereof the following new sub6 section:

7 ‘‘(c) TREATMENT UNDER SECTION 116.—

8 ‘‘(1) IN GENERAL.—For purposes of section

9 116, in the case of any dividend (other than a divi10 dend described in subsection (a)) received from a

11 regulated investment company which meets the re12 quirements of section 852 for the taxable year in

13 which it paid the dividend—

14 ‘‘(A) the entire amount of such dividend

15 shall be treated as a dividend if the aggregate

16 dividends and interest received by such com17 pany during the taxable year equal or exceed 75

18 percent of its gross income, or

19 ‘‘(B) if subparagraph (A) does not apply,

20 a portion of such dividend shall be treated as

21 a dividend (and a portion of such dividend shall

22 be treated as interest) based on the portion of

23 the company’s gross income which consists of

24 aggregate dividends or aggregate interest, as

25 the case may be.
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1 For purposes of the preceding sentence, gross in2 come and aggregate interest received shall each be

3 reduced by so much of the deduction allowable by

4 section 163 for the taxable year as does not exceed

5 aggregate interest received for the taxable year.

6 ‘‘(2) NOTICE TO SHAREHOLDERS.—The amount

7 of any distribution by a regulated investment com8 pany which may be taken into account as a dividend

9 for purposes of the exclusion under section 116 shall

10 not exceed the amount so designated by the com11 pany in a written notice to its shareholders mailed

12 not later than 45 days after the close of its taxable

13 year.

14 ‘‘(3) DEFINITIONS.—For purposes of this sub15 section—

16 ‘‘(A) The term ‘gross income’ does not in17 clude gain from the sale or other disposition of

18 stock or securities.

19 ‘‘(B) The term ‘aggregate dividends re20 ceived’ includes only dividends received from do21 mestic corporations other than dividends de22 scribed in section 116(b)(2). In determining the

23 amount of any dividend for purposes of this

24 subparagraph, the rules provided in section
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1 116(c)(1) (relating to certain distributions)

2 shall apply.’’

3 (6) Subsection (c) of section 857 of such Code

4 is amended to read as follows:

5 ‘‘(c) LIMITATIONS APPLICABLE TO DIVIDENDS RE6 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

7 ‘‘(1) IN GENERAL.—For purposes of section

8 116 (relating to an exclusion for dividends and inter9 est received by individuals) and section 243 (relating

10 to deductions for dividends received by corpora11 tions), a dividend received from a real estate invest12 ment trust which meets the requirements of this

13 part shall not be considered as a dividend.

14 ‘‘(2) TREATMENT AS INTEREST.—In the case of

15 a dividend (other than a capital gain dividend, as de16 fined in subsection (b)(3)(C)) received from a real

17 estate investment trust which meets the require18 ments of this part for the taxable year in which it

19 paid the dividend—

20 ‘‘(A) such dividend shall be treated as in21 terest if the aggregate interest received by the

22 real estate investment trust for the taxable year

23 equals or exceeds 75 percent of its gross in24 come, or
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1 ‘‘(B) if subparagraph (A) does not apply,

2 the portion of such dividend which bears the

3 same ratio to the amount of such dividend as

4 the aggregate interest received bears to gross

5 income shall be treated as interest.

6 ‘‘(3) ADJUSTMENTS TO GROSS INCOME AND AG7 GREGATE INTEREST RECEIVED.—For purposes of

8 paragraph (2)—

9 ‘‘(A) gross income does not include the net

10 capital gain,

11 ‘‘(B) gross income and aggregate interest

12 received shall each be reduced by so much of

13 the deduction allowable by section 163 for the

14 taxable year (other than for interest on mort15 gages on real property owned by the real estate

16 investment trust) as does not exceed aggregate

17 interest received by the taxable year, and

18 ‘‘(C) gross income shall be reduced by the

19 sum of the taxes imposed by paragraphs (4),

20 (5), and (6) of section 857(b).

21 ‘‘(4) NOTICE TO SHAREHOLDERS.—The amount

22 of any distribution by a real estate investment trust

23 which may be taken into account as interest for pur24 poses of the exclusion under section 116 shall not

25 exceed the amount so designated by the trust in a
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1 written notice to its shareholders mailed not later

2 than 45 days after the close of its taxable year.’’

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

4 this section shall apply with respect to taxable years begin5 ning after December 31, 1992.

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