II

103D CONGRESS

1ST SESSION S. 155

To amend the Internal Revenue Code of 1986 with respect to the treatment

of certain amounts received by a cooperative telephone company.

IN THE SENATE OF THE UNITED STATES

JANUARY 21 (legislative day, JANUARY 5), 1993

Mr. DASCHLE (for himself, Mr. CONRAD, Mr. GRASSLEY, Mr. PACKWOOD, Mr.

HARKIN, and Mr. BAUCUS) 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 with respect

to the treatment of certain amounts received by a cooperative telephone company.

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

3 SECTION 1. TREATMENT OF CERTAIN AMOUNTS RECEIVED

4 BY A COOPERATIVE TELEPHONE COMPANY.

5 (a) NONMEMBER INCOME.—

6 (1) IN GENERAL.—Paragraph (12) of section

7 501(c) of the Internal Revenue Code of 1986 (relat8 ing to list of exempt organizations) is amended by
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1 adding at the end thereof the following new subpara2 graph:

3 ‘‘(E) In the case of a mutual or coopera4 tive telephone company (hereafter in this sub5 paragraph referred to as the ‘cooperative’), 50

6 percent of the income received or accrued di7 rectly or indirectly from a nonmember telephone

8 company for the performance of communication

9 services by the cooperative shall be treated for

10 purposes of subparagraph (A) as collected from

11 members of the cooperative for the sole purpose

12 of meeting the losses and expenses of the coop13 erative.’’

14 (2) CERTAIN BILLING AND COLLECTION SERV15 ICE FEES NOT TAKEN INTO ACCOUNT.—Subpara16 graph (B) of section 501(c)(12) of such Code is

17 amended by striking ‘‘or’’ at the end of clause (iii),

18 by striking the period at the end of clause (iv) and

19 inserting ‘‘, or’’, and by adding at the end thereof

20 the following new clause:

21 ‘‘(v) from billing and collection serv22 ices performed for a nonmember telephone

23 company.’’.

24 (3) CONFORMING AMENDMENT.—Clause (i) of

25 section 501(c)(12)(B) of such Code is amended by
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1 inserting before the comma at the end thereof ‘‘,

2 other than income described in subparagraph (E)’’.

3 (4) EFFECTIVE DATE.—The amendments made

4 by this subsection shall apply to amounts received or

5 accrued after December 31, 1992.

6 (5) NO INFERENCE AS TO UNRELATED BUSI7 NESS INCOME TREATMENT OF BILLING AND COL8 LECTION SERVICE FEES.—Nothing in the amend9 ments made by this subsection shall be construed to

10 indicate the proper treatment of billing and collec11 tion service fees under part III of subchapter F of

12 chapter 1 of the Internal Revenue Code of 1986 (re13 lating to taxation of business income of certain ex14 empt organizations).

15 (b) TREATMENT OF CERTAIN INVESTMENT INCOME

16 OF MUTUAL OR COOPERATIVE TELEPHONE COMPA17 NIES.—

18 (1) IN GENERAL.—Paragraph (12) of section

19 501(c) of such Code (relating to list of exempt orga20 nizations) is amended by adding at the end thereof

21 the following new subparagraph:

22 ‘‘(F) In the case of a mutual or coopera23 tive telephone company, subparagraph (A) shall

24 be applied without taking into account reserve

25 income (as defined in section 512(d)(2)) if such
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1 income, when added to other income not col2 lected from members for the sole purpose of

3 meeting losses and expenses, does not exceed 35

4 percent of the company’s total income. For the

5 purposes of the preceding sentence, income re6 ferred to in subparagraph (B) shall not be

7 taken into account.’’

8 (2) PORTION OF INVESTMENT INCOME SUBJECT

9 TO UNRELATED BUSINESS INCOME TAX.—Section

10 512 of such Code is amended by adding at the end

11 thereof the following new subsection:

12 ‘‘(d) INVESTMENT INCOME OF CERTAIN MUTUAL OR

13 COOPERATIVE TELEPHONE COMPANIES.—

14 ‘‘(1) IN GENERAL.—In determining the unre15 lated business taxable income of a mutual or cooper16 ative telephone company described in section

17 501(c)(12)—

18 ‘‘(A) there shall be included, as an item of

19 gross income derived from an unrelated trade

20 or business, reserve income to the extent such

21 reserve income, when added to other income not

22 collected from members for the sole purpose of

23 meeting losses and expenses, exceeds 15 percent

24 of the company’s total income, and
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1 ‘‘(B) there shall be allowed all deductions

2 directly connected with the portion of the re3 serve income which is so included.

4 For purposes of the preceding sentence, income re5 ferred to in section 501(c)(12)(B) shall not be taken

6 into account.

7 ‘‘(2) RESERVE INCOME.—For purposes of para8 graph (1), the term ‘reserve income’ means in9 come—

10 ‘‘(A) which would (but for this subsection)

11 be excluded under subsection (b), and

12 ‘‘(B) which is derived from assets set aside

13 for the repair or replacement of telephone sys14 tem facilities of such company.’’

15 (3) EFFECTIVE DATE.—The amendments made

16 by this subsection shall apply to amounts received or

17 accrued after December 31, 1992.

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