I

106TH CONGRESS

1ST SESSION H. R. 1928

To simplify certain provisions of the Internal Revenue Code of 1986.

IN THE HOUSE OF REPRESENTATIVES

MAY 25, 1999

Mr. HOUGHTON (for himself, Mrs. JOHNSON of Connecticut, and Mr.

ENGLISH) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To simplify certain provisions of the Internal Revenue Code

of 1986.

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, ETC.

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

5 ‘‘Tax Simplification and Burden Reduction Act’’.

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

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 TITLE I—ALTERNATIVE

4 MINIMUM TAX

5 SEC. 101. NONREFUNDABLE PERSONAL CREDITS ALLOWED

6 AGAINST ALTERNATIVE MINIMUM TAX.

7 (a) IN GENERAL.—Subsection (a) of section 26 (re8 lating to limitation based on tax liability; definition of tax

9 liability) is amended to read as follows:

10 ‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The

11 aggregate amount of credits allowed by this subpart for

12 the taxable year shall not exceed the sum of—

13 ‘‘(1) the taxpayer’s regular tax liability for the

14 taxable year, and

15 ‘‘(2) the tax imposed for the taxable year by

16 section 55(a).’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Subsection (d) of section 24 is amended by

19 striking paragraph (2) and by redesignating para20 graph (3) as paragraph (2).

21 (2) Section 32 is amended by striking sub22 section (h).

23 (3) Section 904 is amended by striking sub24 section (h) and by redesignating subsections (i), (j),

25 and (k) as subsections (h), (i), and (j), respectively.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1999.

4 SEC. 102. EXEMPTION FROM ALTERNATIVE MINIMUM TAX

5 FOR INDIVIDUALS WHOSE MODIFIED AD6 JUSTED GROSS INCOME IS LESS THAN A

7 THRESHOLD AMOUNT.

8 (a) IN GENERAL.—Section 55 (relating to alternative

9 minimum tax imposed) is amended by adding at the end

10 the following new subsection:

11 ‘‘(f) EXEMPTION FOR INDIVIDUALS.—

12 ‘‘(1) IN GENERAL.—The tentative minimum tax

13 of any taxpayer (other than a corporation) shall be

14 zero for any taxable year if the modified adjusted

15 gross income of the taxpayer for such year does not

16 exceed the threshold amount.

17 ‘‘(2) THRESHOLD AMOUNT.—For purposes of

18 paragraph (1), the threshold amount is—

19 ‘‘(A) $120,000 in the case of a joint re20 turn,

21 ‘‘(B) $85,000 in the case of an individual

22 who is not married, and

23 ‘‘(C) one-half of the amount applicable

24 under subparagraph (A) in the case of a mar25 ried individual filing a separate return.
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1 ‘‘(3) MODIFIED ADJUSTED GROSS INCOME.—

2 For purposes of paragraph (1), the term ‘modified

3 adjusted gross income’ means adjusted gross income

4 increased by any amount excluded from gross in5 come under section 911, 931, or 933.

6 ‘‘(4) MARITAL STATUS.—For purposes of para7 graph (2), marital status shall be determined under

8 section 7703.

9 ‘‘(5) ADJUSTMENT FOR INFLATION.—

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

11 taxable year beginning in a calendar year after

12 2000, each dollar amount contained in para13 graph (2) shall be increased by an amount

14 equal to—

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

16 ‘‘(ii) the cost-of-living adjustment de17 termined under section 1(f)(3) for the cal18 endar year in which the taxable year be19 gins by substituting ‘calendar year 1999’

20 for ‘calendar year 1992’ in subparagraph

21 (B) thereof.

22 ‘‘(B) ROUNDING.—If any increase deter23 mined under subparagraph (A) is not a multiple

24 of $50, such increase shall be rounded to the

25 next lowest multiple of $50.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 1999.

4 SEC. 103. INCREASE IN AMOUNT OF GROSS RECEIPTS TEST

5 FOR EXEMPTION FOR SMALL CORPORA6 TIONS.

7 (a) IN GENERAL.—Paragraph (1) of section 55(e)

8 (relating to general rule for exemption for small corpora9 tions) is amended—

10 (1) in subparagraph (A) by striking

11 ‘‘$7,500,000’’ each place it appears in the text and

12 heading and inserting ‘‘$10,000,000’’, and

13 (2) by striking subparagraph (B) and redesig14 nating subparagraphs (C) and (D) as subparagraphs

15 (B) and (C), respectively.

16 (b) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to taxable years beginning after

18 December 31, 1999.

19 TITLE II—PROVISIONS

20 RELATING TO INDIVIDUALS

21 SEC. 201. SIMPLIFICATION OF CAPITAL GAINS TAX.

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

23 1 (relating to treatment of capital gains) is amended by

24 adding at the end the following new section:
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1 ‘‘SEC. 1203. CAPITAL GAINS DEDUCTION.

2 ‘‘If for any taxable year a taxpayer other than a cor3 poration has a net capital gain, 50 percent of such gain

4 shall be a deduction from gross income.’’.

5 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

6 TAXPAYER ITEMIZES OTHER DEDUCTIONS.—

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

8 striking ‘‘and’’ at the end of paragraph (1), by strik9 ing the period at the end of paragraph (2) and in10 serting ‘‘, and’’, and by adding at the end the fol11 lowing new paragraph:

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

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

14 striking ‘‘and’’ at the end of paragraph (1), by strik15 ing the period at the end of paragraph (2) and in16 serting ‘‘, and’’, and by adding at the end the fol17 lowing new paragraph:

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

19 (c) MINIMUM TAX TREATMENT.—

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

21 by adding at the end the following new subpara22 graph:

23 ‘‘(G) CAPITAL GAIN DEDUCTION NOT AP24 PLICABLE.—Section 1203 shall not apply.’’.
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1 (2) Subsection (b) of section 55 is amended by

2 striking paragraph (3) and inserting the following

3 new paragraphs:

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

5 The amount of tax determined under the first sen6 tence of paragraph (1)(A)(i) shall not exceed the

7 sum of—

8 ‘‘(A) the amount determined under such

9 first sentence computed at the rates and in the

10 same manner as if this paragraph had not been

11 enacted on the taxable excess reduced by the

12 net capital gain, plus

13 ‘‘(B) a tax on the net capital gain deter14 mined by using the regular tax capital gains tax

15 rates.

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

17 For purposes of paragraph (3), the tax on the net

18 capital gain determined by using the regular tax

19 capital gains tax rates is the excess of—

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

21 under section 1 if net capital gain were deter22 mined with the adjustments under this part,

23 over

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

25 under section 1 if the taxable income were re-
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1 duced by 50 percent of the net capital gain as

2 so determined.’’.

3 (d) REPEAL OF TAX PREFERENCE FOR EXCLUSION

4 ON SMALL BUSINESS STOCK.—

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

6 striking paragraph (7).

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

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

9 ‘‘and (5)’’.

10 (e) TREATMENT OF COLLECTIBLES.—

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

12 inserting after paragraph (11) the following new

13 paragraph:

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

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

16 the sale or exchange of a collectible shall be

17 treated as a short-term capital gain or loss (as

18 the case may be), without regard to the period

19 such asset was held. The preceding sentence

20 shall apply only to the extent the gain or loss

21 is taken into account in computing taxable in22 come.

23 ‘‘(B) TREATMENT OF CERTAIN SALES OF

24 INTERESTS IN PARTNERSHIPS, ETC.—For pur25 poses of subparagraph (A), any gain from the
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1 sale or exchange of an interest in a partnership,

2 S corporation, or trust which is attributable to

3 unrealized appreciation in the value of collect4 ibles held by such entity shall be treated as gain

5 from the sale or exchange of a collectible. Rules

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

7 for purposes of the preceding sentence.

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

9 paragraph, the term ‘collectible’ means any cap10 ital asset which is a collectible (as defined in

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

12 thereof).’’.

13 (2) CHARITABLE DEDUCTION NOT AF14 FECTED.—

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

16 amended by adding at the end thereof the fol17 lowing new sentence: ‘‘For purposes of this

18 paragraph, section 1222 shall be applied with19 out regard to paragraph (12) thereof (relating

20 to special rule for collectibles).’’.

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

22 amended by inserting before the period at the

23 end thereof the following: ‘‘and section 1222

24 shall be applied without regard to paragraph
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1 (12) thereof (relating to special rule for collect2 ibles)’’.

3 (f) TECHNICAL AND CONFORMING AMENDMENTS.—

4 (1) Section 1 is amended by striking subsection

5 (h).

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

7 amended to read as follows:

8 ‘‘(E) COORDINATION WITH CAPITAL GAINS

9 DEDUCTION.—The net capital gain taken into

10 account under section 1203 for any taxable

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

12 the amount which the taxpayer takes into ac13 count as investment income under subpara14 graph (B)(iii) for such year.’’.

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

16 by striking ‘‘the amount of gain’’ in the material fol17 lowing subparagraph (B)(ii) and inserting ‘‘50 per18 cent (100 percent in the case of a corporation) of

19 the amount of gain’’.

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

21 amended to read as follows:

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

23 the deduction under section 1203 shall not be

24 allowed.’’.
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1 (5) The last sentence of section 453A(c)(3) is

2 amended by striking all that follows ‘‘long-term cap3 ital gain,’’ and inserting ‘‘the maximum rate on net

4 capital gain under section 1201 or the deduction

5 under section 1203 (whichever is appropriate) shall

6 be taken into account.’’.

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

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

9 and inserting ‘‘The’’.

10 (B) Section 641(c)(2)(C) is amended by insert11 ing after clause (iii) the following new clause:

12 ‘‘(iv) The deduction under section

13 1203.’’.

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

15 to read as follows:

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

17 amount otherwise allowable as a deduction under

18 this subsection consists of gain from the sale or ex19 change of capital assets held for more than 1 year,

20 proper adjustment shall be made for any exclusion

21 allowable under section 1202 and any deduction al22 lowable under section 1203 to the estate or trust. In

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

24 subsection shall be subject to section 681 (relating

25 to unrelated business income).’’.
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1 (8) Section 642 is amended by adding at the

2 end the following new subsection:

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

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

5 by excluding the portion (if any) of the gains for the tax6 able year which is includible by the income beneficiaries

7 under sections 652 and 662 (relating to inclusions of

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

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

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

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

12 section 1202 and the deduction under section 1203

13 shall not be taken into account.’’.

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

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

16 by inserting before the period ‘‘, and (ii) the deduc17 tion under section 1203 (relating to capital gains de18 duction) shall not be taken into account’’.

19 (11) Paragraph (4) of section 691(c) is amend20 ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’

21 after ‘‘1202,’’.

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

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

24 1202’’ and inserting ‘‘sections 1202 and 1203’’.
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1 (13)(A) Paragraph (2) of section 904(b) is

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

3 redesignating subparagraph (B) as subparagraph

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

5 redesignated) the following new subparagraph:

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

7 a taxpayer other than a corporation, taxable in8 come from sources outside the United States

9 shall include gain from the sale or exchange of

10 capital assets only to the extent of foreign

11 source capital gain net income.’’.

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

13 so redesignated, is amended—

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

15 and inserting the following:

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

17 corporation—’’, and

18 (ii) by striking in clause (i) ‘‘in lieu of ap19 plying subparagraph (A),’’.

20 (C) Paragraph (3) of section 904(b) is amended

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

22 the following new subparagraph:

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

24 rate differential portion of foreign source net

25 capital gain, net capital gain, or the excess of
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1 net capital gain from sources within the United

2 States over net capital gain, as the case may

3 be, is the same proportion of such amount as

4 the excess of the highest rate of tax specified in

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

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

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

8 (14) Paragraph (1) of section 1402(i) is amend9 ed by inserting ‘‘, and the deduction provided by sec10 tion 1203 shall not apply’’ before the period at the

11 end thereof.

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

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

14 ‘‘19.8 percent’’.

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

16 7518(g)(6)(A) is amended—

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

18 which section 1(h) or 1201(a) applies’’, and

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

20 ‘‘19.8 percent’’.

21 (B) The second sentence of section

22 607(h)(6)(A) of the Merchant Marine Act, 1936, is

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

2 which section 1(h) or 1201(a) of such Code ap3 plies’’, and

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

5 ‘‘19.8 percent’’.

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

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

8 adding at the end the following new item:

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

9 (h) EFFECTIVE DATES.—

10 (1) IN GENERAL.—Except as otherwise pro11 vided in this subsection, the amendments made by

12 this section shall apply to taxable years beginning

13 after December 31, 1999.

14 (2) WITHHOLDING.—The amendments made by

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

16 after December 31, 1999.

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

18 Taxpayer Relief Act of 1997 is amended by striking

19 subsection (e).

20 (4) COORDINATION WITH PRIOR TRANSITION

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

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

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

24 into account for purposes of applying section 1203
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1 of the Internal Revenue Code of 1986 (as added by

2 this section).

3 SEC. 202. SIMPLIFICATION OF DEDUCTION FOR POINTS ON

4 HOME MORTGAGE.

5 (a) IN GENERAL.—Paragraph (2) of section 461(g)

6 (relating to prepaid interest) is amended by adding at the

7 end the following new sentence: ‘‘This subsection also shall

8 not apply to points paid in respect of indebtedness secured

9 by such residence resulting from the refinancing of indebt10 edness meeting the requirements of the preceding sentence

11 (or this sentence), but only to the extent the amount of

12 the indebtedness resulting from such refinancing does not

13 exceed the amount of the refinanced indebtedness.’’.

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

15 this section shall apply to taxable years beginning after

16 December 31, 1999.

17 SEC. 203. INCREASE IN EXCLUSION FOR GROUP-TERM LIFE

18 INSURANCE PURCHASED FOR EMPLOYEES.

19 (a) IN GENERAL.—Paragraph (1) of section 79(a)

20 (relating to group-term life insurance purchased for em21 ployees) is amended by striking ‘‘$50,000’’ and inserting

22 ‘‘$100,000’’.

23 (b) EFFECTIVE DATE.—The amendment made by

24 this section shall apply to taxable years beginning after

25 December 31, 1999.
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1 SEC. 204. REPEAL OF PERCENTAGE LIMITATION ON CON2 TRIBUTIONS TO DEFINED CONTRIBUTION

3 PLANS.

4 (a) IN GENERAL.—Subparagraph (B) of section

5 415(c)(1) (relating to limitation for defined contribution

6 plans) is amended by striking ‘‘25 percent of’’.

7 (b) EFFECTIVE DATE.—The amendment made by

8 this section shall apply to years beginning after December

9 31, 1999.

10 SEC. 205. REPEAL OF REQUIRED USE OF GRADUATED PER11 CENTAGE OF PRECEDING YEAR’S TAX TO DE12 TERMINE INSTALLMENTS OF ESTIMATED IN13 COME TAX DUE FOR CERTAIN TAXPAYERS.

14 (a) IN GENERAL.—Paragraph (1) of section 6654(d)

15 (relating to amount of installments) is amended by strik16 ing subparagraph (C).

17 (b) CONFORMING AMENDMENT.—Subparagraph (C)

18 of section 6654(i)(1) is amended by striking ‘‘and without

19 regard to subparagraph (C) of subsection (d)(1)’’.

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

21 this section shall apply to taxable years beginning after

22 December 31, 1999.
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1 SEC. 206. STUDY ON RATIONALE FOR AND SIMPLIFICATION

2 OF HEAD OF HOUSEHOLD AND SURVIVING

3 SPOUSE FILING STATUSES.

4 (a) IN GENERAL.—The Secretary of the Treasury

5 shall conduct a study on whether the original rationale for

6 providing tax benefits through the filing statuses of head

7 of household and surviving spouse continues to apply, and,

8 if so, whether such benefits can be more simply provided

9 through other mechanisms.

10 (b) REPORT.—Not later than 1 year after the date

11 of the enactment of this Act, the Secretary shall submit

12 a report on the study conducted under subsection (a), to13 gether with recommendations thereon, to the Committee

14 on Ways and Means of the House of Representatives and

15 the Committee on Finance of the Senate.

16 TITLE III—PROVISIONS

17 RELATING TO BUSINESSES

18 Subtitle A—General Provisions

19 SEC. 301. EXPENSING OF CERTAIN DEPRECIABLE BUSINESS

20 ASSETS.

21 (a) CERTAIN COMPUTER SOFTWARE ELIGIBLE FOR

22 EXPENSING.—Paragraph (1) of section 179(d) (relating

23 to section 179 property) is amended to read as follows:

24 ‘‘(1) SECTION 179 PROPERTY.—For purposes of

25 this section, the term ‘section 179 property’ means

26 property—
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1 ‘‘(A) which is—

2 ‘‘(i) tangible property (to which sec3 tion 168 applies), or

4 ‘‘(ii) computer software described in

5 section 197(e)(3)(A)(i),

6 ‘‘(B) which is section 1245 property (as

7 defined in section 1245(a)(3)), and

8 ‘‘(C) which is acquired by purchase for use

9 in the active conduct of a trade or business.

10 Such term shall not include any property described

11 in section 50(b) and shall not include air condi12 tioning or heating units.’’.

13 (b) PERSONAL PROPERTY USED IN RENTAL PROP14 ERTY.—Paragraph (1) of section 179(d) (relating to sec15 tion 179 property), as amended by subsection (a), is

16 amended by inserting ‘‘(other than paragraph (2) there17 of)’’ after ‘‘section 50(b)’’.

18 (c) ADJUSTMENT FOR INFLATION.—Subsection (b)

19 of section 179 (relating to limitations) is amended by add20 ing at the end the following new paragraph:

21 ‘‘(5) ADJUSTMENT FOR INFLATION.—

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

23 taxable year beginning in a calendar year after

24 2003, the dollar amount contained in the table
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1 in paragraph (1) applicable to such taxable year

2 shall be increased by an amount equal to—

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

4 ‘‘(ii) the cost-of-living adjustment de5 termined under section 1(f)(3) for the cal6 endar year in which the taxable year be7 gins by substituting ‘calendar year 2002’

8 for ‘calendar year 1992’ in subparagraph

9 (B) thereof.

10 ‘‘(B) ROUNDING.—If any increase deter11 mined under subparagraph (A) is not a multiple

12 of $50, such increase shall be rounded to the

13 next lowest multiple of $50.’’.

14 (d) EFFECTIVE DATE.—The amendments made by

15 subsections (a) and (b) shall apply to property placed in

16 service after December 31, 1999.

17 SEC. 302. CASH METHOD OF ACCOUNTING.

18 (a) PERSONAL SERVICE CORPORATIONS.—Sub19 section (b) of section 448 (relating to exception to general

20 rule on limitation on use of cash method of accounting)

21 is amended—

22 (1) by striking paragraph (2), and

23 (2) by redesignating paragraph (3) as para24 graph (2).

25 (b) INCREASE IN GROSS RECEIPTS TEST AMOUNT.—
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1 (1) IN GENERAL.—Paragraph (2) of section

2 448(a) (relating to entities with gross receipts of not

3 more than $5,000,000), as redesignated by sub4 section (a)(2), is amended—

5 (A) by striking ‘‘$5,000,000’’ in the heading

6 and inserting ‘‘$10,000,000’’, and

7 (B) by striking ‘‘$5,000,000’’ in the text.

8 (2) GROSS RECEIPTS TEST DEFINED.—Sub9 section (c) of section 448 (relating to $5,000,000

10 gross receipts test) is amended—

11 (A) by striking ‘‘$5,000,000’’ in the head12 ing and the first place it appears in paragraph

13 (1), and

14 (B) by striking ‘‘$5,000,000’’ the second

15 place it appears in paragraph (1) and inserting

16 ‘‘$10,000,000’’.

17 (c) EFFECTIVE DATES.—

18 (1) PERSONAL SERVICE CORPORATIONS.—The

19 amendments made by subsection (a) shall apply to

20 taxable years beginning after December 31, 1999.

21 (2) GROSS RECEIPTS TEST.—The amendments

22 made by subsection (b) shall apply to determinations

23 of whether the requirement of section 448(b)(2) of

24 the Internal Revenue Code of 1986 (as amended by
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1 this section) is met for any taxable year beginning

2 after December 31, 1999.

3 SEC. 303. GROSS RECEIPTS EXCEPTION TO INVENTORY

4 COST CAPITALIZATION RULES EXTENDED TO

5 PROPERTY PRODUCED BY THE TAXPAYER.

6 (a) IN GENERAL.—Subsection (b) of section 263A

7 (relating to property to which section applies) is amended

8 to read as follows:

9 ‘‘(b) PROPERTY TO WHICH SECTION APPLIES.—

10 ‘‘(1) IN GENERAL.—Except as otherwise pro11 vided in this section—

12 ‘‘(A) PROPERTY PRODUCED BY TAX13 PAYER.—This section shall apply to—

14 ‘‘(i) IN GENERAL.—Real or tangible

15 personal property produced by the tax16 payer.

17 ‘‘(ii) TANGIBLE PERSONAL PROP18 ERTY.—For purposes of clause (i), the

19 term ‘tangible personal property’ shall in20 clude a film, sound recording, video tape,

21 book, or similar property.

22 ‘‘(B) PROPERTY ACQUIRED FOR RESALE.—

23 This section shall apply to real or personal

24 property described in section 1221(1) which is

25 acquired by the taxpayer for resale.
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1 ‘‘(2) EXCEPTION FOR TAXPAYER WITH GROSS

2 RECEIPTS OF $10,000,000 OR LESS.—

3 ‘‘(A) IN GENERAL.—Paragraph (1) shall

4 not apply to any personal property produced

5 during any taxable year by the taxpayer or ac6 quired during any taxable year by the taxpayer

7 for resale if the average annual gross receipts

8 of the taxpayer (or any predecessor) for the 3-

9 taxable year period ending with the taxable year

10 preceding such taxable year do not exceed

11 $10,000,000.

12 ‘‘(B) AGGREGATION RULES, ETC.—For

13 purposes of subparagraph (A), rules similar to

14 the rules of paragraphs (2) and (3) of section

15 448(c) shall apply.’’.

16 (b) EFFECTIVE DATE.—The amendment made by

17 this section shall apply to taxable years beginning after

18 December 31, 1999.

19 Subtitle B—S Corporations

20 SEC. 311. REPEAL OF LIMITATION ON NUMBER OF SHARE21 HOLDERS OF S CORPORATION SO LONG AS

22 SUCH CORPORATION IS NOT PUBLICLY TRAD23 ED.

24 (a) IN GENERAL.—Paragraph (1) of section 1361(b)

25 (relating to small business corporation) is amended by
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1 striking subparagraph (A) and redesignating subpara2 graphs (B), (C), and (D) as subparagraphs (A), (B), and

3 (C), respectively.

4 (b) NOT PUBLICLY TRADED REQUIREMENT.—

5 (1) IN GENERAL.—Paragraph (2) of section

6 1361(b) (defining ineligible corporation) is amended

7 by striking ‘‘or’’ at the end of subparagraph (C), by

8 striking the period at the end of subparagraph (D)

9 and inserting ‘‘, or’’ and by inserting after subpara10 graph (D) the following new subparagraph:

11 ‘‘(E) a publicly traded corporation.’’.

12 (2) PUBLICLY TRADED CORPORATION DE13 FINED.—Subsection (b) of section 1361 (relating to

14 small business corporation) is amended by adding at

15 the end the following new paragraph:

16 ‘‘(4) PUBLICLY TRADED CORPORATION.—For

17 purposes of paragraph (2)(E), a corporation is a

18 publicly traded corporation if the stock of such cor19 poration is readily tradable on an established securi20 ties market.’’.

21 (c) CONFORMING AMENDMENTS.—

22 (1) Subsection (c) of section 1361 is amended

23 by striking paragraph (1) and redesignating para24 graphs (2) through (6) as paragraphs (1) through

25 (5), respectively.
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1 (2) Paragraphs (1), (2), and (5) of section

2 1361(c) (as so redesignated) are each amended by

3 striking ‘‘subsection (b)(1)(B)’’ each place it appears

4 and inserting ‘‘subsection (b)(1)(A)’’.

5 (3) Paragraphs (3) and (4) of section 1361(c)

6 (as so redesignated) are each amended by striking

7 ‘‘subsection (b)(1)(D)’’ both places it appears and

8 inserting ‘‘subsection (b)(1)(C)’’.

9 (4) Subparagraph (A) of section 1361(d)(1) is

10 amended by striking ‘‘subsection (c)(2)(A)(i)’’ and

11 inserting ‘‘subsection (c)(1)(A)(i)’’.

12 (5) Clause (i) of section 280G(b)(5)(A) is

13 amended by striking ‘‘paragraph (1)(C)’’ and insert14 ing ‘‘paragraph (1)(B)’’.

15 (6) Paragraph (1) of section 512(e) is amended

16 by striking ‘‘section 1361(c)(6)’’ and inserting ‘‘sec17 tion 1361(c)(5)’’.

18 SEC. 312. ISSUANCE OF PREFERRED STOCK BY S CORPORA19 TIONS PERMITTED.

20 (a) IN GENERAL.—Section 1361 (defining S corpora21 tion) is amended by adding at the end the following new

22 subsection:

23 ‘‘(f) TREATMENT OF QUALIFIED PREFERRED

24 STOCK.—
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1 ‘‘(1) IN GENERAL.—For purposes of this

2 subchapter—

3 ‘‘(A) qualified preferred stock shall not be

4 treated as a second class of stock, and

5 ‘‘(B) no person shall be treated as a share6 holder of the corporation by reason of holding

7 qualified preferred stock.

8 ‘‘(2) QUALIFIED PREFERRED STOCK DE9 FINED.—For purposes of this subsection, the term

10 ‘qualified preferred stock’ means stock which meets

11 the requirements of subparagraphs (A), (B), and (C)

12 of section 1504(a)(4). Stock shall not fail to be

13 treated as qualified preferred stock merely because

14 it is convertible into other stock.

15 ‘‘(3) DISTRIBUTIONS.—A distribution (not in

16 part or full payment in exchange for stock) made by

17 the corporation with respect to qualified preferred

18 stock shall be includible as ordinary income of the

19 holder and deductible to the corporation as an ex20 pense in computing taxable income under section

21 1363(b) in the year such distribution is received.’’.

22 (b) CONFORMING AMENDMENTS.—

23 (1) Paragraph (1) of section 1361(b) is amend24 ed by inserting ’’, except as provided in subsection

25 (f),’’ before ‘‘which does not’’.
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1 (2) Subsection (a) of section 1366 is amended

2 by adding at the end the following new paragraph:

3 ‘‘(3) ALLOCATION WITH RESPECT TO QUALI4 FIED PREFERRED STOCK.—The holders of qualified

5 preferred stock (as defined in section 1361(f)) shall

6 not, with respect to such stock, be allocated any of

7 the items described in paragraph (1).’’.

8 (3) So much of clause (ii) of section

9 354(a)(2)(C) as precedes subclause (II) is amended

10 to read as follows:

11 ‘‘(ii) RECAPITALIZATION OF FAMILY12 OWNED CORPORATIONS AND S CORPORA13 TIONS.—

14 ‘‘(I) IN GENERAL.—Clause (i)

15 shall not apply in the case of a recapi16 talization under section 368(a)(I)(E)

17 of a family-owned corporation or S

18 corporation.’’.

19 (4) Subsection (a) of section 1373 is amended

20 by striking ‘‘and’’ at the end of paragraph (1), by

21 striking the period at the end of paragraph (2) and

22 inserting ‘‘, and’’, and by adding at the end the fol23 lowing new paragraph:
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1 ‘‘(3) no amount of an expense deductible under

2 this subchapter by reason of section 1361(f)(3) shall

3 be apportioned or allocated to such income.’’.

4 SEC. 313. ELECTION TO BECOME S CORPORATION EX5 TENDED TO DATE RETURN IS FILED.

6 (a) IN GENERAL.—Subsection (b) of section 1362

7 (relating to when election made) is amended to read as

8 follows:

9 ‘‘(b) WHEN MADE.—An election under subsection (a)

10 may be made by a small business corporation for any tax11 able year on or before the due date (including extensions)

12 for filing the return of tax for such taxable year.’’.

13 (b) CONFORMING AMENDMENT.—Subparagraph (A)

14 of section 1362(f)(1) is amended by striking ‘‘(determined

15 without regard to subsection (b)(2))’’.

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

17 this section shall apply with respect to elections for taxable

18 years beginning after December 31, 1999.

19 TITLE IV—PROVISIONS RELAT20 ING TO INFORMATION RE21 PORTING AND FILING

22 SEC. 401. INCREASE IN REPORTING THRESHOLD FOR DIVI23 DEND AND INTEREST PAYMENTS.

24 (a) DIVIDEND PAYMENTS.—Subsection (a) of section

25 6042 (relating to requirements for reporting) is amended
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1 by striking ‘‘$10’’ each place it appears and inserting

2 ‘‘$25’’.

3 (b) INTEREST PAYMENTS.—Subsections (a) and

4 (d)(5)(C) of section 6049 (relating to requirements for re5 porting) are each amended by striking ‘‘$10’’ each place

6 it appears in the text and headings and inserting ‘‘$25’’.

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

8 this section shall apply to payments made after December

9 31, 1999.

10 SEC. 402. POSTMARK DATE TREATED AS FILING DATE FOR

11 PURPOSES OF ALL FILINGS.

12 (a) IN GENERAL.—Paragraph (2) of section 7502(a)

13 (relating to mailing requirements with respect to date of

14 delivery) is amended to read as follows:

15 ‘‘(2) MAILING REQUIREMENTS.—This sub16 section shall apply only if the return, claim, state17 ment, or other document, or payment was deposited

18 in the mail in the United States in an envelope or

19 other appropriate wrapper, postage prepaid, properly

20 addressed to the agency, officer, or office with which

21 the return, claim, statement, or other document is

22 required to be filed, or to which such payment is re23 quired to be made.’’.
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1 (b) MAILING OF DEPOSITS.—Paragraph (2) of sec2 tion 7502(e) (relating to mailing requirements with re3 spect to mailing of deposits) is amended to read as follows:

4 ‘‘(2) MAILING REQUIREMENTS.—Paragraph (1)

5 shall apply only if the person required to make the

6 deposit establishes that the deposit was mailed in

7 the United States in an envelope or other appro8 priate wrapper, postage prepaid, properly addressed

9 to the bank, trust company, domestic building and

10 loan association, or credit union authorized to re11 ceive such deposit. In applying subsection (c) for

12 purposes of this subsection, the term ‘payment’ in13 cludes ‘deposit’, and the reference to the postmark

14 date refers to the date of mailing.’’.

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

16 this section shall apply to returns, claims, statements, and

17 other documents required to be filed and payments and

18 deposits required to be made after the date of the enact19 ment of this Act.

20 SEC. 403. REDUCTION OF RECORDKEEPING BURDEN.

21 (a) IN GENERAL.—Section 6001 (relating to notice

22 or regulations requiring records, statements, and special

23 returns) is amended—

24 (1) by striking ‘‘Every’’ and inserting ‘‘(a) IN

25 GENERAL.—Every’’, and
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1 (2) by adding at the end the following new sub2 section:

3 ‘‘(b) PERIOD FOR WHICH RECORDS MUST BE

4 KEPT.—

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graphs (2) and (3), in the case of a trade or busi7 ness, records required to be kept under subsection

8 (a) for a taxable year need not be kept after the 6th

9 year after the return of tax is filed for such taxable

10 year.

11 ‘‘(2) EXCEPTION FOR TYPES OF RECORDS.—

12 Paragraph (1) shall not apply to—

13 ‘‘(A) records which are general ledgers,

14 journals or books of original entry, financial

15 statements, and year-end adjustments to gen16 eral ledgers, whether in paper or electronic

17 form,

18 ‘‘(B) records from which the records de19 scribed in subparagraph (A) are derived if the

20 records described in subparagraph (A) are not

21 prepared in accordance with generally accepted

22 accounting principles, and

23 ‘‘(C) records which are unique to the in24 dustry in which the taxpayer is engaged.
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1 ‘‘(3) OTHER EXCEPTIONS.—Paragraph (1) shall

2 not apply to—

3 ‘‘(A) records relating to a taxable year

4 with respect to which section 6501(c) applies,

5 ‘‘(B) records relating to a taxable year

6 with respect to which the period of limitations

7 is suspended for as long as such period is sus8 pended,

9 ‘‘(C) records relating to a taxable year of

10 a taxpayer with respect to which the Secretary

11 is conducting an audit or other investigation,

12 and

13 ‘‘(D) records relating to a taxable year

14 with respect to which a case is pending in Fed15 eral or State court.

16 ‘‘(4) FAILURE TO KEEP RECORDS NOT A DE17 FENSE IN CERTAIN CASES.—Paragraph (1) shall not

18 be a defense in the case of failure to keep records

19 for a year in connection with—

20 ‘‘(A) a false or fraudulent return with the

21 intent to evade tax,

22 ‘‘(B) a willful attempt in any manner to

23 defeat or evade tax imposed by this title, or

24 ‘‘(C) failure to file a return.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall take effect on the date of the enactment

3 of this Act.

Æ