I

106TH CONGRESS

1ST SESSION H. R. 1407

To amend the Internal Revenue Code of 1986 to simplify the individual

capital gains tax for all individuals and to provide modest reductions

in the capital gains tax for most individuals.

IN THE HOUSE OF REPRESENTATIVES

APRIL 14, 1999

Mr. COYNE (for himself, Mr. RANGEL, Mr. MATSUI, Mr. MCDERMOTT, Mr.

LEWIS of Georgia, and Mr. NEAL of Massachusetts) 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 simplify

the individual capital gains tax for all individuals and

to provide modest reductions in the capital gains tax

for most 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. SHORT TITLE; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Capital Gains Tax Simplification Act of 1999’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 SEC. 2. REDUCTION AND SIMPLIFICATION OF CAPITAL

5 GAINS TAX.

6 (a) IN GENERAL.—Part I of subchapter P of chapter

7 1 (relating to treatment of capital gains) is amended by

8 adding at the end the following new section:

9 ‘‘SEC. 1203. CAPITAL GAINS DEDUCTION.

10 ‘‘If for any taxable year a taxpayer other than a cor11 poration has a net capital gain, 38 percent of such gain

12 shall be a deduction from gross income.’’

13 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

14 TAXPAYER ITEMIZES OTHER DEDUCTIONS.—

15 (1) Subsection (b) of section 63 is amended by

16 striking ‘‘and’’ at the end of paragraph (1), by strik17 ing the period at the end of paragraph (2) and in18 serting ‘‘, and’’, and by adding at the end the fol19 lowing new paragraph:

20 ‘‘(3) the deduction allowed by section 1203.’’

21 (2) Subsection (d) of section 63 is amended by

22 striking ‘‘and’’ at the end of paragraph (1), by strik23 ing the period at the end of paragraph (2) and in24 serting ‘‘, and’’, and by adding at the end the fol25 lowing new paragraph:
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1 ‘‘(3) the deduction allowed by section 1203.’’

2 (c) MINIMUM TAX TREATMENT.—

3 (1) Paragraph (1) of section 56(b) is amended

4 by adding at the end the following new subpara5 graph:

6 ‘‘(G) CAPITAL GAIN DEDUCTION NOT AP7 PLICABLE.—Section 1203 shall not apply.’’

8 (2) Subsection (b) of section 55 is amended by

9 striking paragraph (3) and inserting the following

10 new paragraphs:

11 ‘‘(3) MAXIMUM TAX ON NET CAPITAL GAIN.—

12 The amount of tax determined under the first sen13 tence of paragraph (1)(A)(i) shall not exceed the

14 sum of—

15 ‘‘(A) the amount determined under such

16 first sentence computed at the rates and in the

17 same manner as if this paragraph had not been

18 enacted on the taxable excess reduced by the

19 net capital gain, plus

20 ‘‘(B) a tax on the net capital gain deter21 mined by using the regular tax capital gains tax

22 rates.

23 ‘‘(4) REGULAR TAX ON NET CAPITAL GAIN.—

24 For purposes of paragraph (3), the tax on the net
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1 capital gain determined by using the regular tax

2 capital gains tax rates is the excess of—

3 ‘‘(A) the tax that would be computed

4 under section 1 if net capital gain were deter5 mined with the adjustments under this part,

6 over

7 ‘‘(B) the tax that would be so computed

8 under section 1 if the taxable income were re9 duced by 62 percent of the net capital gain as

10 so determined.’’

11 (d) REPEAL OF TAX PREFERENCE FOR EXCLUSION

12 ON SMALL BUSINESS STOCK.—

13 (1) Subsection (a) of section 57 is amended by

14 striking paragraph (7).

15 (2) Subclause (II) of section 53(d)(1)(B)(ii) is

16 amended by striking ‘‘, (5), and (7)’’ and inserting

17 ‘‘and (5)’’.

18 (e) TREATMENT OF COLLECTIBLES.—

19 (1) IN GENERAL.—Section 1222 is amended by

20 inserting after paragraph (11) the following new

21 paragraph:

22 ‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—

23 ‘‘(A) IN GENERAL.—Any gain or loss from

24 the sale or exchange of a collectible shall be

25 treated as a short-term capital gain or loss (as
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1 the case may be), without regard to the period

2 such asset was held. The preceding sentence

3 shall apply only to the extent the gain or loss

4 is taken into account in computing taxable in5 come.

6 ‘‘(B) TREATMENT OF CERTAIN SALES OF

7 INTERESTS IN PARTNERSHIPS, ETC.—For pur8 poses of subparagraph (A), any gain from the

9 sale or exchange of an interest in a partnership,

10 S corporation, or trust which is attributable to

11 unrealized appreciation in the value of collect12 ibles held by such entity shall be treated as gain

13 from the sale or exchange of a collectible. Rules

14 similar to the rules of section 751(f) shall apply

15 for purposes of the preceding sentence.

16 ‘‘(C) COLLECTIBLE.—For purposes of this

17 paragraph, the term ‘collectible’ means any cap18 ital asset which is a collectible (as defined in

19 section 408(m) without regard to paragraph (3)

20 thereof).’’

21 (2) CHARITABLE DEDUCTION NOT AF22 FECTED.—

23 (A) Paragraph (1) of section 170(e) is

24 amended by adding at the end thereof the fol25 lowing new sentence: ‘‘For purposes of this
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1 paragraph, section 1222 shall be applied with2 out regard to paragraph (12) thereof (relating

3 to special rule for collectibles).’’

4 (B) Clause (iv) of section 170(b)(1)(C) is

5 amended by inserting before the period at the

6 end thereof the following: ‘‘and section 1222

7 shall be applied without regard to paragraph

8 (12) thereof (relating to special rule for collect9 ibles)’’.

10 (f) TECHNICAL AND CONFORMING CHANGES.—

11 (1) Section 1 is amended by striking subsection

12 (h).

13 (2) Subparagraph (E) of section 163(d)(4) is

14 amended to read as follows:

15 ‘‘(E) COORDINATION WITH CAPITAL GAINS

16 DEDUCTION.—The net capital gain taken into

17 account under section 1203 for any taxable

18 year shall be reduced (but not below zero) by

19 the amount which the taxpayer takes into ac20 count as investment income under subpara21 graph (B)(iii) for such year.’’

22 (3) Paragraph (1) of section 170(e) is amended

23 by striking ‘‘the amount of gain’’ in the material fol24 lowing subparagraph (B)(ii) and inserting ‘‘62 per-
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1 cent (100 percent in the case of a corporation) of

2 the amount of gain’’.

3 (4) Subparagraph (B) of section 172(d)(2) is

4 amended to read as follows:

5 ‘‘(B) the exclusion under section 1202 and

6 the deduction under section 1203 shall not be

7 allowed.’’

8 (5) The last sentence of section 453A(c)(3) is

9 amended by striking all that follows ‘‘long-term cap10 ital gain,’’ and inserting ‘‘the maximum rate on net

11 capital gain under section 1201 or the deduction

12 under section 1203 (whichever is appropriate) shall

13 be taken into account.’’

14 (6)(A) Section 641(c)(2)(A) is amended by

15 striking ‘‘Except as provided in section 1(h), the’’

16 and inserting ‘‘The’’.

17 (B) Section 641(c)(2)(C) is amended by insert18 ing after clause (iii) the following new clause:

19 ‘‘(iv) The deduction under section

20 1203.’’

21 (7) Paragraph (4) of section 642(c) is amended

22 to read as follows:

23 ‘‘(4) ADJUSTMENTS.—To the extent that the

24 amount otherwise allowable as a deduction under

25 this subsection consists of gain from the sale or ex-
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1 change of capital assets held for more than 1 year,

2 proper adjustment shall be made for any exclusion

3 allowable under section 1202 and any deduction al4 lowable under section 1203 to the estate or trust. In

5 the case of a trust, the deduction allowed by this

6 subsection shall be subject to section 681 (relating

7 to unrelated business income).’’

8 (8) Section 642 is amended by adding at the

9 end the following new subsection:

10 ‘‘(j) CAPITAL GAINS DEDUCTION.—The deduction

11 under section 1203 to an estate or trust shall be computed

12 by excluding the portion (if any) of the gains for the tax13 able year which is includible by the income beneficiaries

14 under sections 652 and 662 (relating to inclusions of

15 amounts in gross income of beneficiaries of trusts) as gain

16 derived from the sale or exchange of capital assets.’’

17 (9) The last sentence of section 643(a)(3) is

18 amended to read as follows: ‘‘The exclusion under

19 section 1202 and the deduction under section 1203

20 shall not be taken into account.’’

21 (10) Subparagraph (C) of section 643(a)(6) is

22 amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and

23 by inserting before the period ‘‘, and (ii) the deduc24 tion under section 1203 (relating to capital gains de25 duction) shall not be taken into account’’.
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1 (11) Paragraph (4) of section 691(c) is amend2 ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’

3 after ‘‘1202,’’.

4 (12) The second sentence of paragraph (2) of

5 section 871(a) is amended by striking ‘‘section

6 1202’’ and inserting ‘‘sections 1202 and 1203’’.

7 (13)(A) Paragraph (2) of section 904(b) is

8 amended by striking subparagraphs (A) and (C), by

9 redesignating subparagraph (B) as subparagraph

10 (A), and by inserting after subparagraph (A) (as so

11 redesignated) the following new subparagraph:

12 ‘‘(B) OTHER TAXPAYERS.—In the case of

13 a taxpayer other than a corporation, taxable in14 come from sources outside the United States

15 shall include gain from the sale or exchange of

16 capital assets only to the extent of foreign

17 source capital gain net income.’’

18 (B) Subparagraph (A) of section 904(b)(2), as

19 so redesignated, is amended—

20 (i) by striking all that precedes clause (i)

21 and inserting the following:

22 ‘‘(A) CORPORATIONS.—In the case of a

23 corporation—’’, and

24 (ii) by striking in clause (i) ‘‘in lieu of ap25 plying subparagraph (A),’’.
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1 (C) Paragraph (3) of section 904(b) is amended

2 by striking subparagraphs (D) and (E) and inserting

3 the following new subparagraph:

4 ‘‘(D) RATE DIFFERENTIAL PORTION.—The

5 rate differential portion of foreign source net

6 capital gain, net capital gain, or the excess of

7 net capital gain from sources within the United

8 States over net capital gain, as the case may

9 be, is the same proportion of such amount as

10 the excess of the highest rate of tax specified in

11 section 11(b) over the alternative rate of tax

12 under section 1201(a) bears to the highest rate

13 of tax specified in section 11(b).’’

14 (14) Paragraph (1) of section 1402(i) is amend15 ed by inserting ‘‘, and the deduction provided by sec16 tion 1203 shall not apply’’ before the period at the

17 end thereof.

18 (15) Paragraph (1) of section 1445(e) is

19 amended by striking ‘‘20 percent’’ and inserting

20 ‘‘24.5 percent’’.

21 (16)(A) The second sentence of section

22 7518(g)(6)(A) is amended—

23 (i) by striking ‘‘during a taxable year to

24 which section 1(h) or 1201(a) applies’’, and
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1 (ii) by striking ‘‘20 percent’’ and inserting

2 ‘‘24.5 percent’’.

3 (B) The second sentence of section

4 607(h)(6)(A) of the Merchant Marine Act, 1936, is

5 amended—

6 (i) by striking ‘‘during a taxable year to

7 which section 1(h) or 1201(a) of such Code ap8 plies’’, and

9 (ii) by striking ‘‘20 percent’’ and inserting

10 ‘‘24.5 percent’’.

11 (g) CLERICAL AMENDMENT.—The table of sections

12 for part I of subchapter P of chapter 1 is amended by

13 adding at the end the following new item:

‘‘Sec. 1203. Capital gains deduction.’’

14 (h) EFFECTIVE DATES.—

15 (1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, the amendments made by

17 this section shall apply to taxable years beginning

18 after December 31, 1999.

19 (2) WITHHOLDING.—The amendments made by

20 subsection (f)(15) shall apply only to amounts paid

21 after December 31, 1999.

22 (3) REPEAL OF ELECTION.—Section 311 of the

23 Taxpayer Relief Act of 1997 is amended by striking

24 subsection (e).
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1 (4) COORDINATION WITH PRIOR TRANSITION

2 RULE.—Any amount treated as long-term capital

3 gain by reason of paragraph (3) of section 1122(h)

4 of the Tax Reform Act of 1986 shall not be taken

5 into account for purposes of applying section 1203

6 of the Internal Revenue Code of 1986 (as added by

7 this section).

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