I 

111TH CONGRESS 

2D SESSION H. R. 5725 

To amend the Internal Revenue Code of 1986 to repeal taxes on the income 

of senior citizens and to improve income security of senior citizens. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 13, 2010 

Mr. POSEY (for himself and Mrs. BLACKBURN) introduced the following bill; 

which was referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of 

such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To amend the Internal Revenue Code of 1986 to repeal 

taxes on the income of senior citizens and to improve 

income security of senior citizens. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Senior Citizens Income 

5 Security Act of 2010’’. 


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1 SEC. 2. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL 

2 SECURITY BENEFITS. 

3 (a) RESTORATION OF PRIOR LAW FORMULA.—Sub4 section (a) of section 86 of the Internal Revenue Code of 

5 1986 is amended to read as follows: 

6 ‘‘(a) IN GENERAL.—Gross income for the taxable 

7 year of any taxpayer described in subsection (b) (notwith8 standing section 207 of the Social Security Act) includes 

9 Social Security benefits in an amount equal to the lesser 

10 of— 

11 ‘‘(1) one-half of the Social Security benefits re12 ceived during the taxable year, or 

13 ‘‘(2) one-half of the excess described in sub14 section (b)(1).’’. 

15 (b) REPEAL OF ADJUSTED BASE AMOUNT.—Sub16 section (c) of section 86 of such Code is amended to read 

17 as follows: 

18 ‘‘(c) BASE AMOUNT.—For purposes of this section, 

19 the term ‘base amount’ means— 

20 ‘‘(1) except as otherwise provided in this sub21 section, $25,000, 

22 ‘‘(2) $32,000 in the case of a joint return, and 

23 ‘‘(3) zero in the case of a taxpayer who— 

24 ‘‘(A) is married as of the close of the tax25 able year (within the meaning of section 7703) 


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1 but does not file a joint return for such year, 

2 and 

3 ‘‘(B) does not live apart from his spouse at 

4 all times during the taxable year.’’. 

5 (c) CONFORMING AMENDMENTS.— 

6 (1) Subparagraph (A) of section 871(a)(3) of 

7 such Code is amended by striking ‘‘85 percent’’ and 

8 inserting ‘‘50 percent’’. 

9 (2)(A) Subparagraph (A) of section 121(e)(1) 

10 of the Social Security Amendments of 1983 (Public 

11 Law 98–21) is amended— 

12 (i) by striking ‘‘(A) There’’ and inserting 

13 ‘‘There’’; 

14 (ii) by striking ‘‘(i)’’ immediately following 

15 ‘‘amounts equivalent to’’; and 

16 (iii) by striking ‘‘, less (ii)’’ and all that 

17 follows and inserting a period. 

18 (B) Paragraph (1) of section 121(e) of such Act 

19 is amended by striking subparagraph (B). 

20 (C) Paragraph (3) of section 121(e) of such Act 

21 is amended by striking subparagraph (B) and by re22 designating subparagraph (C) as subparagraph (B). 

23 (D) Paragraph (2) of section 121(e) of such 

24 Act is amended in the first sentence by striking 

25 ‘‘paragraph (1)(A)’’ and inserting ‘‘paragraph (1)’’. 


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1 (d) MAINTENANCE OF TRANSFERS TO HOSPITAL IN2 SURANCE TRUST FUND.— 

3 (1) IN GENERAL.—There are hereby appro4 priated to the Hospital Insurance Trust Fund estab5 lished under section 1817 of the Social Security Act 

6 amounts equal to the reduction in revenues to the 

7 Treasury by reason of the enactment of this section. 

8 Amounts appropriated by the preceding sentence 

9 shall be transferred from the general fund at such 

10 times and in such manner as to replicate to the ex11 tent possible the transfers which would have oc12 curred to such Trust Fund had this section not been 

13 enacted. 

14 (2) REPORTS.—The Secretary of the Treasury 

15 or the Secretary’s delegate shall annually report to 

16 the Committee on Ways and Means of the House of 

17 Representatives and the Committee on Finance of 

18 the Senate the amounts and timing of the transfers 

19 under this subsection. 

20 (e) EFFECTIVE DATES.— 

21 (1) IN GENERAL.—Except as otherwise pro22 vided in this subsection, the amendments made by 

23 this section shall apply to taxable years beginning 

24 after December 31, 2009. 


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1 (2) SUBSECTION (c)(1).—The amendment made 

2 by subsection (c)(1) shall apply to benefits paid after 

3 December 31, 2009. 

4 (3) SUBSECTION (c)(2).—The amendments 

5 made by subsection (c)(2) shall apply to tax liabil6 ities for taxable years beginning after December 31, 

7 2009. 

8 SEC. 3. ELIMINATE MANDATORY WITHDRAWALS ON IRAS. 

9 (a) IN GENERAL.—Subsection (a) of section 401 of 

10 the Internal Revenue Code of 1986 is amended by striking 

11 paragraph (9). 

12 (b) CONFORMING AMENDMENTS.— 

13 (1) Section 403(b)(10) of such Code is amend14 ed by striking ‘‘ sections 401(a)(9)’’ and inserting ‘‘ 

15 section’’. 

16 (2) Subsections (a)(6) and (b)(3) of section 408 

17 of such Code are both amended by striking ‘‘section 

18 401(a)(9) and’’. 

19 (3) Section 408A(c)(5) of such Code is amend20 ed to read as follows: 

21 ‘‘(5) MANDATORY DISTRIBUTION RULES NOT

22 TO APPLY BEFORE DEATH.—Notwithstanding sub23 sections (a)(6) and (b)(3) of section 408 (relating to 

24 required distributions), the incidental death benefit 


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1 requirements of section 401(a) shall not apply to 

2 any Roth IRA.’’. 

3 (4) Section 402(c) of such Code is amended— 

4 (A) in paragraph (4) by striking subpara5 graph (B), by inserting ‘‘and’’ at the end of 

6 subparagraph (A), and by redesignating sub7 paragraph (C) as subparagraph (B), and 

8 (B) in paragraph (11)(A)— 

9 (i) by inserting ‘‘(as in effect on the 

10 day before the date of the enactment of 

11 this phrase)’’ after ‘‘section 401(a)(9)(E)’’, 

12 and 

13 (ii) by inserting ‘‘and’’ at the end of 

14 clause (i), by striking ‘‘, and’’ at the end 

15 of clause (ii) and inserting a period, and 

16 by striking clause (iii). 

17 (5) Section 409(d) of such Code is amended by 

18 striking ‘‘to any distribution required under section 

19 401(a)(9) or’’. 

20 (6) Section 457(d) of such Code is amended— 

21 (A) in paragraph (1) by striking subpara22 graph (B), by inserting ‘‘and’’ at the end of 

23 subparagraph (A), and be redesignating sub24 paragraph (C) as subparagraph (B), and 


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1 (B) by striking paragraph (2) and redesig2 nating paragraph (3) as paragraph (2). 

3 (7) Section 4974(b) of such Code is amended 

4 by striking ‘‘401(a)(9)’’. 

5 SEC. 4. ELIMINATE PAYROLL TAX FOR MEDICARE AND SO6 CIAL SECURITY BENEFICIARIES. 

7 (a) IN GENERAL.—Section 3101 of the Internal Rev8 enue Code of 1986 is amended by adding at the end the 

9 following: 

10 ‘‘(d) EXCEPTION.—Subsections (a) and (b) shall not 

11 apply to any individual who— 

12 ‘‘(1) is entitled to benefits under part A of title 

13 XVIII of the Social Security Act or is enrolled under 

14 part B of such title, or 

15 ‘‘(2) is entitled to a monthly insurance benefit 

16 under title II of the Social Security Act based on 

17 such individual’s wages and self-employment in18 come.’’. 

19 (b) SELF-EMPLOYMENT.—Section 1401 of such Code 

20 is amended by adding at the end the following new sub21 section: 

22 ‘‘(d) EXCEPTION.—In the case of any individual 

23 who— 


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1 ‘‘(1) is entitled to benefits under part A of title 

2 XVIII of the Social Security Act or is enrolled under 

3 part B of such title, or 

4 ‘‘(2) is entitled to a monthly insurance benefit 

5 under title II of the Social Security Act based on 

6 such individual’s wages and self-employment income, 

7 subsections (a) and (b) shall be applied for the taxable 

8 year by substituting one-half of the percent otherwise 

9 specified in such subsections.’’. 

10 (c) EFFECTIVE DATES.— 

11 (1) The amendment made by subsection (a) 

12 shall apply to wages paid after December 31, 2009. 

13 (2) The amendment made by subsection (b) 

14 shall apply to enumeration paid in taxable years 

15 ending after the date of the enactment of this Act. 

16 (d) TRUST FUNDS HELD HARMLESS.—There is 

17 hereby appropriated (out of any money in the Treasury 

18 not otherwise appropriated) for each fiscal year to each 

19 fund under the Social Security Act an amount equal to 

20 the reduction in the transfers to such fund for such fiscal 

21 year by reason of the amendments made by this section. 


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1 SEC. 5. AUTHORITY TO ELECT VOUCHER PROGRAM IN2 STEAD OF MEDICARE PART A ENTITLEMENT. 

3 (a) IN GENERAL.—Section 226 of the Social Security 

4 Act (42 U.S.C. 426) is amended by adding at the end the 

5 following new subsections: 

6 ‘‘(k) WAIVER OF ENTITLEMENT AND ELECTION OF

7 VOUCHER PROGRAM.— 

8 ‘‘(1) IN GENERAL.—Notwithstanding the pre9 vious provisions of this section, the Secretary shall 

10 establish a procedure under which an individual oth11 erwise entitled under subsection (a) to benefits 

12 under part A of title XVIII may waive such entitle13 ment and be automatically enrolled in the Medicare 

14 Alternative Voucher Program established under sub15 section (l) if— 

16 ‘‘(A) at the time such waiver is made the 

17 individual— 

18 ‘‘(i) has a health savings account de19 scribed in subsection (d) of section 223 of 

20 the Internal Revenue Code of 1986; and 

21 ‘‘(ii) is enrolled under a high deduct22 ible health plan, as defined in subsection 

23 (c)(1) of such section; and 

24 ‘‘(B) the individual waives such entitlement 

25 during the individual’s initial enrollment period 

26 described in section 1837(d). 


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1 ‘‘(2) TREATMENT UNDER THE INTERNAL REV2 ENUE CODE OF 1986.—An individual who waives en3 titlement under paragraph (1) shall not be treated 

4 as entitled to benefits under title XVIII for purposes 

5 of section 223(b)(7) of the Internal Revenue Code of 

6 1986. 

7 ‘‘(3) INELIGIBILITY FOR PART B OR D BENE8 FITS.—An individual shall not be eligible for benefits 

9 under part B or D of title XVIII during the period 

10 for which the individual waives entitlement under 

11 part A of such title under paragraph (1). 

12 ‘‘(4) TERMINATION OF WAIVER AND REENROLL13 MENT UNDER MEDICARE PROGRAM.—The Secretary 

14 shall establish a procedure under which an individual 

15 who waives entitlement under paragraph (1) may 

16 terminate such waiver during an annual period that 

17 shall be the same as the annual general enrollment 

18 period described in section 1837(e). For purposes of 

19 applying parts B and D of title XVIII, such indi20 vidual shall be treated as if the individual were enti21 tled to benefits under part A of such title as of the 

22 date such individual terminates the waiver under 

23 this paragraph. An individual who has terminated 

24 such a waiver may not subsequently make such a 

25 waiver. 


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1 ‘‘(l) MEDICARE ALTERNATIVE VOUCHER PRO2 GRAM.— 

3 ‘‘(1) ESTABLISHMENT OF PROGRAM.—The Sec4 retary shall establish a program to be known as the 

5 Medicare Alternative Voucher Program (in this sub6 section referred to as the ‘voucher program’) con7 sistent with this subsection. 

8 ‘‘(2) AUTOMATIC ENROLLMENT.—An individual 

9 who waives entitlement under subsection (k)(1) shall 

10 be enrolled in the voucher program for the period 

11 during which such waiver is in effect. 

12 ‘‘(3) AMOUNT OF VOUCHER.— 

13 ‘‘(A) AMOUNT BASED ON AGE COHORT.— 

14 ‘‘(i) IN GENERAL.—Subject to clause 

15 (ii), for each month that an individual 

16 within an age cohort is enrolled in the 

17 voucher program, the Secretary shall pro18 vide a voucher to such individual in an 

19 amount that is equal to the monthly actu20 arial rate for that month computed under 

21 section 1818(d)(1) multiplied by the age 

22 cohort adjustment factor for such age co23 hort under subparagraph (B). 


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1 ‘‘(ii) MONTHLY LIMIT.—The amount 

2 of a voucher provided to an individual for 

3 a month may not exceed $200. 

4 ‘‘(B) AGE COHORT ADJUSTMENT FAC5 TOR.—For each age cohort the Secretary shall 

6 determine an age cohort adjustment factor 

7 equal to the ratio of— 

8 ‘‘(i) the monthly actuarial rate de9 scribed in section 1818(d)(1) as deter10 mined by the Secretary for individuals in 

11 such age cohort, to 

12 ‘‘(ii) the monthly actuarial rate de13 scribed in such section. 

14 ‘‘(C) AGE COHORT DEFINED.—For pur15 poses of this paragraph, an ‘age cohort’ means 

16 a group of individuals whose age falls within a 

17 span of 5 consecutive years, consistent with the 

18 following: 

19 ‘‘(i) The first such span begins at age 

20 65. 

21 ‘‘(ii) Other spans follow consecutively. 

22 ‘‘(4) PERMISSIBLE USE OF VOUCHER.—A 

23 voucher under paragraph (3) may be used only for 

24 the following purposes: 


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1 ‘‘(A) As a contribution into a health sav2 ings account established by such individual, as 

3 described in subsection (k)(1)(A). 

4 ‘‘(B) For payment of premiums for enroll5 ment of such individual under a high deductible 

6 health plan described in such subsection. 

7 ‘‘(5) EFFECT OF SUBSEQUENT TERMINATION

8 OF WAIVER.—If an individual terminates a waiver 

9 under subsection (k)(3), the enrollment of such indi10 vidual in the voucher program shall be terminated 

11 on the date on which the termination becomes effec12 tive.’’. 

13 (b) AMENDMENT OF INTERNAL REVENUE CODE OF

14 1986.—Paragraph (7) of section 223(b) of the Internal 

15 Revenue Code of 1986 (relating to Medicare eligible indi16 viduals) is amended to read as follows: 

17 ‘‘(7) MEDICARE ELIGIBLE INDIVIDUALS.— 

18 ‘‘(A) IN GENERAL.—The limitation under 

19 this subsection for any month with respect to 

20 an individual shall be zero for any month such 

21 individual is entitled to benefits under title 

22 XVIII of the Social Security Act. 

23 ‘‘(B) MEDICARE ALTERNATIVE VOUCHER

24 PROGRAM.—In the case of an individual who is 

25 enrolled in the Medicare Alternative Voucher 


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1 Program under section 226(l) of the Social Se2 curity Act, the applicable limitation under sub3 paragraphs (A) and (B) of paragraph (2) shall 

4 be increased by the amount of the voucher de5 scribed in paragraph (3) of such section which 

6 is contributed to a health savings account of 

7 such individual.’’. 

8 (c) EFFECTIVE DATE.— 

9 (1) IN GENERAL.—The amendment made by 

10 subsection (a) shall take effect on the date that is 

11 six months after the date of the enactment of this 

12 Act and shall apply to an individual who becomes 

13 entitled to benefits under part A of title XVIII of 

14 the Social Security Act on or after such date of the 

15 enactment. 

16 (2) AMENDMENT OF INTERNAL REVENUE CODE

17 OF 1986.—The amendment made by subsection (b) 

18 shall apply to months ending after the date referred 

19 to in paragraph (1), in taxable years ending after 

20 such date. 

21 SEC. 6. PARTIAL EXCLUSION OF INTEREST, DIVIDENDS, 

22 AND CAPITAL GAINS RECEIVED BY INDIVID23 UALS. 

24 (a) IN GENERAL.—Part III of subchapter B of chap25 ter 1 of the Internal Revenue Code of 1986 (relating to 


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1 amounts specifically excluded from gross income) is 

2 amended by inserting after section 115 the following new 

3 section: 

4 ‘‘SEC. 116. PARTIAL EXCLUSION FOR INTEREST, DIVIDENDS, 

5 AND CAPITAL GAINS RECEIVED BY INDIVID6 UALS. 

7 ‘‘(a) IN GENERAL.—Gross income does not include 

8 the sum of amounts received during the taxable year by 

9 an individual as— 

10 ‘‘(1) dividends from a domestic corporation, 

11 ‘‘(2) interest, and 

12 ‘‘(3) capital gains. 

13 ‘‘(b) LIMITATION.—The aggregate amount excluded 

14 under subsection (a) for any taxable year shall not exceed 

15 $250 ($500 in the case of a joint return), as identified 

16 by the taxpayer on the return of tax for such year. 

17 ‘‘(c) INTEREST.—For purposes of this section, the 

18 term ‘interest’ means— 

19 ‘‘(1) interest on deposits with a bank (as de20 fined in section 581), 

21 ‘‘(2) amounts (whether or not designated as in22 terest) paid in respect of deposits, investment certifi23 cates, or withdrawable or repurchasable shares, by— 

24 ‘‘(A) a mutual savings bank, cooperative 

25 bank, domestic building and loan association, 


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1 industrial loan association or bank, or credit 

2 union, or 

3 ‘‘(B) any other savings or thrift institution 

4 which is chartered and supervised under Fed5 eral or State law, the deposits or accounts in 

6 which are insured under Federal or State law 

7 or which are protected and guaranteed under 

8 State law, 

9 ‘‘(3) interest on— 

10 ‘‘(A) evidences of indebtedness (including 

11 bonds, debentures, notes, and certificates) 

12 issued by a domestic corporation in registered 

13 form, and 

14 ‘‘(B) to the extent provided in regulations 

15 prescribed by the Secretary, other evidences of 

16 indebtedness issued by a domestic corporation 

17 of a type offered by corporations to the public, 

18 ‘‘(4) interest on obligations of the United 

19 States, a State, or a political subdivision of a State 

20 (not excluded from gross income of the taxpayer 

21 under any other provision of law), and 

22 ‘‘(5) interest attributable to participation shares 

23 in a trust established and maintained by a corpora24 tion established pursuant to Federal law. 


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1 ‘‘(d) DIVIDENDS.—For purposes of this section, the 

2 term ‘dividend’ means qualified dividend income (as de3 fined in paragraph (11)(B) of section 1(h)) (determined 

4 without regard to paragraph (13) thereof). 

5 ‘‘(e) SPECIAL RULES.—For purposes of this sec6 tion— 

7 ‘‘(1) DISTRIBUTIONS FROM REGULATED IN8 VESTMENT COMPANIES AND REAL ESTATE INVEST9 MENT TRUSTS.—Subsection (a) shall apply with re10 spect to distributions by— 

11 ‘‘(A) regulated investment companies to 

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

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

14 extent provided in section 857(c)(3). 

15 ‘‘(2) DISTRIBUTIONS BY A TRUST.—For pur16 poses of subsection (a), the amount of interest prop17 erly allocable to a beneficiary under section 652 or 

18 662 shall be deemed to have been received by the 

19 beneficiary ratably on the same date that the inter20 est was received by the estate or trust. 

21 ‘‘(3) CERTAIN NONRESIDENT ALIENS INELI22 GIBLE FOR EXCLUSION.—In the case of a non23 resident alien individual, subsection (a) shall apply 

24 only— 


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

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

3 and only in respect of interest which are effec4 tively connected with the conduct of a trade or 

5 business within the United States, or 

6 ‘‘(B) in determining the tax imposed for 

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

8 (b) CONFORMING AMENDMENTS.— 

9 (1) The table of sections for part III of sub10 chapter B of chapter 1 of such Code is amended by 

11 inserting after the item relating to section 115 the 

12 following new item: 

‘‘Sec. 116. Partial exclusion for interest, dividends, and capital gains received 

by individuals.’’. 

13 (2) Subsection (h) of section 1 of such Code is 

14 amended by adding at the end the following: 

15 ‘‘(13) COORDINATION WITH PARTIAL EXCLU16 SION FOR INTEREST, DIVIDENDS, AND CAPITAL

17 GAINS RECEIVED BY INDIVIDUALS.—For purposes of 

18 this section, dividends and capital gains excluded 

19 from gross income by section 116 shall not be taken 

20 into account.’’. 

21 (3) Paragraph (2) of section 265(a) of such 

22 Code is amended by inserting before the period at 

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

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


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1 the extent the interest thereon is excludable from 

2 gross income under section 116’’. 

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

4 is amended by adding at the end thereof the fol5 lowing new sentence: ‘‘The proportionate share of 

6 each participant in the amount of interest received 

7 by the common trust fund and to which section 116 

8 applies shall be considered for purposes of such sec9 tion as having been received by such participant.’’. 

10 (5) Subsection (a) of section 643 of such Code 

11 is amended by redesignating paragraph (7) as para12 graph (8) and by inserting after paragraph (6) the 

13 following new paragraph: 

14 ‘‘(7) INTEREST.—There shall be included the 

15 amount of any interest excluded from gross income 

16 pursuant to section 116.’’. 

17 (6) Section 854 of such Code is amended by 

18 adding at the end thereof the following new sub19 section: 

20 ‘‘(c) TREATMENT UNDER SECTION 116 FOR OTHER

21 DIVIDENDS AND TAXABLE INTEREST.— 

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

23 116, in the case of any dividend (other than a divi24 dend described in subsection (a)) received from a 

25 regulated investment company which meets the reVerDate Mar 15 2010 03:51 Jul 14, 2010 Jkt 089200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\H5725.IH H5725

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1 quirements of section 852 for the taxable year in 

2 which it paid the dividend— 

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

4 shall be treated as interest if the aggregate in5 terest received by such company during the tax6 able year equals or exceeds 75 percent of its 

7 gross income, 

8 ‘‘(B) the entire amount of such dividend 

9 shall be treated as interest if the aggregate in10 terest received by such company during the tax11 able year equals or exceeds 75 percent of its 

12 gross income, or 

13 ‘‘(C) if subparagraphs (A) and (B) do not 

14 apply, a portion of such dividend shall be treat15 ed as a dividend (and a portion of such divi16 dend shall be treated as interest) based on the 

17 portion of the company’s gross income which 

18 consists of aggregate dividends or aggregate in19 terest, as the case may be. 

20 For purposes of the preceding sentence, gross in21 come and aggregate interest received shall each be 

22 reduced by so much of the deduction allowable by 

23 section 163 for the taxable year as does not exceed 

24 aggregate interest received for the taxable year. 


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

2 of any distribution by a regulated investment com3 pany which may be taken into account as a dividend 

4 and as interest for purposes of the exclusion under 

5 section 116 shall not exceed the amount so des6 ignated by the company in a written notice to its 

7 shareholders mailed not later than 45 days after the 

8 close of its taxable year. 

9 ‘‘(3) DEFINITIONS.—For purposes of this sub10 section— 

11 ‘‘(A) The term ‘gross income’ does not in12 clude gain from the sale or other disposition of 

13 stock or securities. 

14 ‘‘(B) The term ‘aggregate dividends re15 ceived’ includes only dividends described in sec16 tion 116(d). 

17 ‘‘(C) The term ‘aggregate interest received’ 

18 includes only interest described in section 

19 116(c).’’. 

20 (7) Subsection (c) of section 857 of such Code 

21 is amended by adding at the end the following new 

22 paragraph: 

23 ‘‘(3) TREATMENT AS INTEREST.— 

24 ‘‘(A) IN GENERAL.—For purposes of sec25 tion 116, in the case of a dividend (other than 


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1 a capital gain dividend, as defined in subsection 

2 (b)(3)(C)) received from a real estate invest3 ment trust which meets the requirements of 

4 this part for the taxable year in which it paid 

5 the dividend— 

6 ‘‘(i) such dividend shall be treated as 

7 interest if the aggregate interest received 

8 by the real estate investment trust for the 

9 taxable year equals or exceeds 75 percent 

10 of its gross income, or 

11 ‘‘(ii) if clause (i) does not apply, the 

12 portion of such dividend which bears the 

13 same ratio to the amount of such dividend 

14 as the aggregate interest received bears to 

15 gross income shall be treated as interest. 

16 ‘‘(B) ADJUSTMENTS TO GROSS INCOME

17 AND AGGREGATE INTEREST RECEIVED.—For 

18 purposes of paragraph (2)— 

19 ‘‘(i) gross income does not include the 

20 net capital gain, 

21 ‘‘(ii) gross income and aggregate in22 terest received shall each be reduced by so 

23 much of the deduction allowable by section 

24 163 for the taxable year (other than for in25 terest on mortgages on real property 


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1 owned by the real estate investment trust) 

2 as does not exceed aggregate interest re3 ceived by the taxable year, and 

4 ‘‘(iii) gross income shall be reduced by 

5 the sum of the taxes imposed by para6 graphs (4), (5), and (6) of section 857(b). 

7 ‘‘(C) AGGREGATE INTEREST RECEIVED.— 

8 The term ‘aggregate interest received’ includes 

9 only interest described in section 116(c). 

10 ‘‘(D) NOTICE TO SHAREHOLDERS.—The 

11 amount of any distribution by a real estate in12 vestment trust which may be taken into account 

13 as interest for purposes of the exclusion under 

14 section 116 shall not exceed the amount so des15 ignated by the trust in a written notice to its 

16 shareholders mailed not later than 45 days 

17 after the close of its taxable year.’’. 

18 (8) The heading for subsection (c) of section 

19 857 of such Code is amended by inserting ‘‘AND IN20 TEREST’’ after ‘‘DIVIDENDS’’. 

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

22 this section shall apply to taxable years beginning after 

23 December 31, 2009. 

Æ 


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