II

104TH CONGRESS

1ST SESSION S. 793

To amend the Internal Revenue Code of 1986 to provide an exemption

from income tax for certain common investment funds.

IN THE SENATE OF THE UNITED STATES

MAY 11 (legislative day, MAY 1), 1995

Mr. SIMPSON (for himself, Mr. MOYNIHAN, and Mr. KYL) 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 provide

an exemption from income tax for certain common investment funds.

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

3 SECTION 1. COOPERATIVE SERVICE ORGANIZATIONS FOR

4 CERTAIN FOUNDATIONS.

5 (a) IN GENERAL.—Section 501 of the Internal Reve6 nue Code of 1986 (relating to exemption from tax on cor7 porations, certain trusts, etc.) is amended by redesignat8 ing subsection (n) as subsection (o) and by inserting after

9 subsection (m) the following new subsection:
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•S 793 IS

1 ‘‘(n) COOPERATIVE SERVICE ORGANIZATIONS FOR

2 CERTAIN FOUNDATIONS.—

3 ‘‘(1) IN GENERAL.—For purposes of this title,

4 if an organization—

5 ‘‘(A) is organized and operated solely for

6 purposes referred to in subsection (f)(1),

7 ‘‘(B) is composed solely of members which

8 are exempt from taxation under subsection (a)

9 and are—

10 ‘‘(i) private foundations, or

11 ‘‘(ii) community foundations as to

12 which section 170(b)(1)(A)(vi) applies,

13 ‘‘(C) has at least 20 members,

14 ‘‘(D) does not at any time after the second

15 taxable year beginning after the date of its or16 ganization or, if later, beginning after the date

17 of the enactment of this subsection, have a

18 member which holds more than 10 percent (by

19 value) of the interests in the organization,

20 ‘‘(E) is organized and controlled by its

21 members but is not controlled by any one mem22 ber and does not have a member which controls

23 another member of the organization, and

24 ‘‘(F) permits members of the organization

25 to require the dismissal of any of the organiza-
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•S 793 IS

1 tion’s investment advisors, following reasonable

2 notice, if members holding a majority of inter3 est in the account managed by such advisor

4 vote to remove such advisor,

5 then such organization shall be treated as an organi6 zation organized and operated exclusively for chari7 table purposes.

8 ‘‘(2) TREATMENT OF INCOME OF MEMBERS.—

9 If any member of an organization described in para10 graph (1) is a private foundation (other than an ex11 empt operating foundation, as defined in section

12 4940(d)), such private foundation’s allocable share

13 of the capital gain net income and gross investment

14 income of the organization for any taxable year of

15 the organization shall be treated, for purposes of

16 section 4940, as capital gain net income and gross

17 investment income of such private foundation

18 (whether or not distributed to such foundation) for

19 the taxable year of such private foundation with or

20 within which the taxable year of the organization de21 scribed in paragraph (1) ends (and such private

22 foundation shall take into account its allocable share

23 of the deductions referred to in section 4940(c)(3) of

24 the organization).
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•S 793 IS

1 ‘‘(3) APPLICABLE EXCISE TAXES.—Subchapter

2 A of chapter 42 (other than sections 4940 and

3 4942) shall apply to any organization described in

4 paragraph (1).’’

5 (b) CONFORMING AMENDMENTS.—

6 (1) Section 4945(d) of such Code is amended

7 by adding at the end the following new flush sen8 tence:

9 ‘‘Paragraph (4)(B) shall not apply to a grant to an organi10 zation described in section 501(n).’’

11 (2) Section 4942(g)(1)(A) of such Code is

12 amended by inserting ‘‘or an organization described

13 in section 501(n)’’ after ‘‘subsection (j)(3))’’.

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

15 subsection (a) shall apply to taxable years ending on or

16 after December 31, 1994.

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