I 

109TH CONGRESS 

1ST SESSION H. R. 196 

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 HOUSE OF REPRESENTATIVES 

JANUARY 4, 2005 

Mr. SAXTON 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 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. DEFERRAL OF CERTAIN REINVESTED CAPITAL 

4 GAIN DIVIDENDS OF REGULATED INVEST5 MENT COMPANIES. 

6 (a) IN GENERAL.—Part III of subchapter O of chap7 ter 1 of the Internal Revenue Code of 1986 (relating to 

8 common nontaxable exchanges) is amended by inserting 

9 after section 1045 the following new section: 
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1 ‘‘SEC. 1046. CERTAIN REINVESTED CAPITAL GAIN DIVI2 DENDS OF REGULATED INVESTMENT COMPA3 NIES. 

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

5 individual electing the application of this section, no gain 

6 shall be recognized on the receipt of a capital gain divi7 dend distributed by a regulated investment company to 

8 which part I of subchapter M applies if such capital gain 

9 dividend is automatically reinvested in additional shares 

10 of the company pursuant to a dividend reinvestment plan. 

11 ‘‘(b) LIMITATION.— 

12 ‘‘(1) IN GENERAL.—The amount of gain that 

13 may be deferred under subsection (a) for any taxable 

14 year shall not exceed— 

15 ‘‘(A) $5,000, or 

16 ‘‘(B) in the case of a joint return, twice 

17 the amount in subparagraph (A). 

18 ‘‘(2) INFLATION ADJUSTMENT OF MAXIMUM EX19 CLUSION.— 

20 ‘‘(A) IN GENERAL.—In the case of any 

21 taxable year beginning in a calendar year after 

22 2005, the amount in paragraph (1)(A) shall be 

23 increased by an amount equal to— 

24 ‘‘(i) such dollar amount, multiplied by 

25 ‘‘(ii) the cost-of-living adjustment de26 termined under section 1(f)(3) for the cal-
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1 endar year in which the taxable year be2 gins, determined by substituting ‘calendar 

3 year 2004’ for ‘calendar year 1992’ in sub4 paragraph (B) thereof. 

5 ‘‘(B) ROUNDING RULES.—The amount in 

6 paragraph (1)(A), after adjustment under para7 graph (2)(A), shall be rounded to the nearest 

8 multiple of $100. 

9 ‘‘(c) CAPITAL GAIN DIVIDEND.—For purposes of this 

10 section, the term ‘capital gain dividend’ has the meaning 

11 given to such term by section 852(b)(3)(C). 

12 ‘‘(d) RECAPTURE OF PREVIOUSLY DEFERRED CAP13 ITAL GAIN DIVIDENDS.—Amounts deferred pursuant to 

14 subsection (a) (and not previously recognized under this 

15 subsection) shall be recognized upon the subsequent sale 

16 or redemption of shares in the distributing company to 

17 the extent of the taxpayer’s adjusted basis in the shares 

18 so sold or redeemed. 

19 ‘‘(e) SECTION NOT TO APPLY TO CERTAIN TAX20 PAYERS.—No deduction shall be allowed under this section 

21 to— 

22 ‘‘(1) an individual with respect to whom a de23 duction under section 151 is allowable to another 

24 taxpayer for a taxable year beginning in the cal-
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1 endar year in which such individual’s taxable year 

2 begins, or 

3 ‘‘(2) an estate or trust. 

4 ‘‘(f) ELECTION.—An election under this section shall 

5 be made at such time and in such manner as the Secretary 

6 may prescribe.’’. 

7 (b) CONFORMING AMENDMENTS.— 

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

9 amended by adding at the end the following new 

10 sentence: ‘‘For rules regarding nonrecognition of 

11 gain with respect to certain reinvested capital gain 

12 dividends received by individuals, see section 1046.’’. 

13 (2) The table of sections for part III of sub14 chapter O of chapter 1 of such Code is amended by 

15 inserting after the item relating to section 1045 the 

16 following new item: 

‘‘Sec. 1046. Certain Reinvested Capital Gain Dividends of Regulated Investment Companies.’’. 

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

18 this section shall apply to taxable years beginning after 

19 December 31, 2004. 

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