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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1766 Introduced in Senate (IS)]

106th CONGRESS
  1st Session
                                S. 1766

To amend the Internal Revenue Code of 1986 to provide for a deferral of 
tax on gain from the sale of telecommunications businesses in specific 
circumstances or a tax credit and other incentives to promote diversity 
             of ownership in telecommunications businesses.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                            October 21, 1999

 Mr. McCain (for himself and Mr. Burns) 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 to provide for a deferral of 
tax on gain from the sale of telecommunications businesses in specific 
circumstances or a tax credit and other incentives to promote diversity 
             of ownership in telecommunications businesses.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Telecommunications Ownership 
Diversification Act of 1999''.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress makes the following findings:
            (1) Current trends in the telecommunications industry show 
        that there is increasing convergence among various media, 
        including broadcasting, cable television, and Internet-based 
        businesses, and that these media are providing competing 
        sources of news, information, and entertainment.
            (2) This convergence and competitiveness will continue, and 
        therefore it should be recognized in both telecommunications 
        and tax policy.
            (3) Notwithstanding these trends, diversifying the 
        ownership of telecommunications facilities remains a pre-
        eminent public interest concern.
            (4) A market-based, voluntary system of investment 
        incentives is the most effective, lawful, and economically 
        sound means of facilitating entry into the telecommunications 
        industry.
            (5) Opportunities for new entrants to participate in the 
        telecommunications industry have substantially decreased since 
        the end of the Federal Communications Commission's tax 
        certificate policy in 1995, particularly in light of the 
        increase in tax-free like-kind exchanges despite the most 
        robust period of transfers of radio and television stations in 
        history. Small businesses, and businesses owned or controlled 
        by members of minority groups or by women, have been at a 
        particular disadvantage, as indicated by their historic under 
        representation as owners of telecommunications facilities.
            (6) Access to and cost of capital has been a substantial 
        obstacle to new entry into telecommunications by small 
        businesses and businesses owned or controlled by members of 
        minority groups and by women who want to be long-term, active 
        participants in the telecommunications industry, because they 
        do not currently own properties that can be utilized in like-
        kind exchanges, they are either unable to secure financing from 
        lending institutions and equipment manufacturers at all, or 
        else cannot secure financing terms as advantageous as those 
        offered to large industry participants.
            (7) Telecommunications facilities owned by new entrants may 
        not be as attractive to investors because their start-up costs 
        are often high, their revenue streams are uncertain, and their 
        profit margins are unknown.
            (8) It is consistent with the public interest, and with the 
        pro-competition policies of the Telecommunications Act of 1996, 
        to provide incentives that will facilitate the ability of 
        existing owners of converging telecommunications media to 
        transact business so as to improve their ability to compete, 
        while the reinvestment of gains realized from such transactions 
        will also facilitate the acquisition of telecommunications 
        facilities by small businesses, especially those owned or 
        controlled by members of minority groups and by women, thereby 
        diversifying the ownership of telecommunications facilities.
            (9) Permitting sellers of telecommunications facilities to 
        defer taxation of gains from transactions involving small 
        businesses and businesses owned or controlled by members of 
        minority groups and by women, and resulting from investments in 
        capital funds whose stated purpose is to provide capital for 
        such entities, will further the development of a competitive 
        and diverse United States information distribution economy 
        without governmental intrusion in private investment decisions.
            (10) The public interest would not be served by attempts to 
        diversify the ownership of telecommunications businesses by 
        small businesses or businesses owned or controlled by 
        minorities and women through any approach that would involve 
        the use of mandated set-asides or quotas.
    (b) Purpose.--The purpose of this Act is to facilitate voluntary, 
pro-competitive transactions involving converging telecommunications 
media that will promote diversification in, and broaden the 
participation in, the telecommunications industry by small businesses, 
and businesses owned or controlled by members of minority groups and 
women.

SEC. 3. AMENDMENTS TO INTERNAL REVENUE CODE.

    (a) Nonrecognition of Gain From Sale of Telecommunications 
Business.--Part III of subchapter O of chapter 1 of the Internal 
Revenue Code of 1986 is amended by adding at the end thereof the 
following:

``SEC. 1046. SALE OF TELECOMMUNICATIONS BUSINESS.

    ``(a) Nonrecognition of Gain.--
            ``(1) In general.--At the election of a taxpayer, made at 
        such time and in such manner as the Secretary may prescribe, no 
        gain shall be recognized on the sale of a telecommunications 
        business if--
                    ``(A) the business is sold to an eligible purchaser 
                and the taxpayer purchases 1 or more telecommunications 
                businesses within the replacement period; or
                    ``(B) the taxpayer purchases, within the 
                replacement period, 1 or more equity interests in an 
                entity that is an eligible purchaser that--
                            ``(i) derives, directly or indirectly, 50 
                        percent or more of its gross income from a 
                        telecommunications business; or
                            ``(ii) invests substantially all of the 
                        gross proceeds received from the taxpayer in 
                        the acquisition of a telecommunications 
                        business and the acquisition occurs within 180 
                        days after the expiration of the taxpayer's 
                        replacement period.
            ``(2) Limitations.--
                    ``(A) Reinvestment cap.--Gain is eligible for 
                nonrecognition treatment under this subsection only to 
                the extent that it equals or exceeds the aggregate 
                amount paid or incurred by the taxpayer for the 
                telecommunications businesses or equity interests 
                purchased.
                    ``(B) Taxable year dollar amount per transaction.--
                The amount of gain eligible for nonrecognition under 
                paragraph (1)(A), and the amount of gain eligible for 
                nonrecognition under paragraph (1)(B), respectively, 
                for any taxable year may not exceed $250,000,000 for 
                each transaction to which such paragraph applies. Any 
                gain that would be eligible for nonrecognition under 
                either such paragraph because of the limitation imposed 
                by the preceding sentence shall be carried forward to 
                each of the next 2 taxable years, subject to that 
                limitation in each of those taxable years.
    ``(b) Replacement Period.--For purposes of this section, the term 
`replacement period' means the period beginning on the date on which 
the taxpayer's sale of a telecommunications business occurs and 
ending--
            ``(1) 2 years after the close of the first taxable year of 
        the taxpayer in which any part of the gain from the sale is 
        realized by the taxpayer; or
            ``(2) such later date as the Secretary may designate upon 
        application made by the taxpayer, at such time and in such 
        manner as the Secretary may prescribe, and subject to such 
        terms and conditions as the Secretary may require.
    ``(c) Time for Assessment of Deficiency.--If the taxpayer makes the 
election provided by subsection (a) with respect to gain from the sale 
of property--
            ``(1) the period for the assessment of a deficiency with 
        respect to such gain for any taxable year in which any part of 
        the gain is realized does not expire before the expiration of 
        the third taxable year beginning after the taxable year in 
        which the Secretary is notified by the taxpayer of the 
        taxpayer's purchase described in paragraph (1) or (2) of 
        subsection (a), or of the taxpayer's intention not to make such 
        a purchase; and
            ``(2) any such deficiency may be assessed at anytime before 
        the expiration of such third taxable year, notwithstanding 
        section 6212 or any other provision or rule of law.
    ``(d) Basis.--
            ``(1) In general.--In the case of a telecommunications 
        business purchased by the taxpayer in a transaction described 
        in subsection (a)(1), or an equity interest purchased by the 
        taxpayer in a transaction described in subsection (a)(2), the 
        basis shall be the cost of such business or equity interest 
        decreased by the amount of the gain not recognized. If the 
        taxpayer purchases more than 1 such business or equity 
        interests, the basis determined under this paragraph shall be 
        allocated to such businesses or equity interests in the same 
        proportion as the amount paid or incurred by the taxpayer for 
        each such business or equity interest bears to the sum of the 
        amounts paid or incurred by the taxpayer for all such 
        businesses or equity interests.
            ``(2) Property held by corporation the stock of which is 
        replacement property.--
                    ``(A) In general.--If the basis of stock in a 
                corporation is decreased under paragraph (1), the basis 
                of property held by the corporation at the time the 
                taxpayer acquired control of the corporation shall be 
                reduced by an amount equal to the amount of that 
                decrease.
                    ``(B) Limitation.--Subparagraph (A) does not apply 
                to the extent that it would (but for this subparagraph) 
                require a reduction in the aggregate adjusted bases of 
                the property of the corporation below the taxpayer's 
                adjusted basis of the stock in the corporation 
                (determined immediately after that basis is decreased 
                under paragraph (1)).
                    ``(C) Allocation of basis reduction.--The decrease 
                required under subparagraph (A) shall be allocated--
                            ``(i) first to assets of telecommunications 
                        businesses held by the corporation;
                            ``(ii) second to depreciable property (as 
                        defined in section 1017(b)(3)(B)) that is not 
                        described in clause (i); and
                            ``(iii) then to other property.
                    ``(D) Special rules.--
                            ``(i) Reduction not to exceed adjusted 
                        basis of property.--No reduction in the basis 
                        of any property under this paragraph shall 
                        exceed the adjusted basis of such property 
                        (determined without regard to the reduction).
                            ``(ii) Allocation of reduction among 
                        properties.--If more than 1 property is 
                        described in a clause of subparagraph (C), then 
                        the reduction under this paragraph shall be 
                        allocated among such property in proportion to 
                        the adjusted bases of the property (as so 
                        determined).
    ``(e) Acquisition From Unrelated Person Required.--
            ``(1) In general.--Subsection (a) does not apply to a 
        taxpayer described in paragraph (2) if the telecommunications 
        business described in subsection (a)(1) is sold to, or the 
        equity interest described in subsection (a)(2), is purchased 
        from, a related person (within the meaning of section 267(b) or 
        (e)). The preceding sentence does not apply to the extent that 
        the related person acquired that telecommunications business or 
        that equity interest from a person that is not a related person 
        (within the meaning of section 267(b) or (e), or section 
        707(b)(1)) during the replacement period.
            ``(2) Taxpayers to which paragraph (1) applies.--
                    ``(A) In general.--Paragraph (1) applies to--
                            ``(i) a C corporation;
                            ``(ii) a partnership in which 1 or more C 
                        corporations own, directly or indirectly 
                        (determined under section 707(b)(3)), more than 
                        50 percent of the capital interest or profits 
                        interest in the partnership at the time of the 
                        sale of the telecommunications business; and
                            ``(iii) any other taxpayer if, with respect 
                        to a telecommunications business that is sold 
                        during the taxpayer's taxable year, the 
                        aggregate of the amount of gain realized on the 
                        sale of the telecommunications business exceeds 
                        $100,000.
                    ``(B) Application to partnerships; s 
                corporations.--Subparagraph (A)(iii) shall be applied 
                to--
                            ``(i) a partnership both at the partnership 
                        level and to each partner; and
                            ``(ii) an S corporation at both the 
                        corporate and shareholder level (under rules 
                        prescribed by the Secretary).
    ``(f) Consequences of Subsequent Disposition by Eligible 
Purchaser.--
            ``(1) In general.--If the eligible purchaser disposes of 
        the telecommunications business acquired from the taxpayer (in 
        the case of sale described in subsection (a)(1)), or 
        substantially all of its telecommunications businesses (in the 
        case of an equity investment described in subsection (a)(2)), 
        within 3 years after the date of that acquisition or equity 
        investment to any person that is not an eligible purchaser, the 
        eligible purchaser shall recognize gain in the year of 
        disposition equal to the amount of gain deferred by the 
        taxpayer under subsection (a).
            ``(2) Certain dispositions.--If the taxpayer or the 
        eligible purchaser is an individual, paragraph (1) does not 
        apply to a disposition after the earlier of--
                    ``(A) the date of death or bankruptcy of the 
                eligible purchaser (in the case of an individual); or
                    ``(B) the date of death or bankruptcy of the 
                taxpayer.
    ``(g) Definitions; Special Rules.--For purposes of this section--
            ``(1) Eligible purchaser.--The term `eligible purchaser' 
        means--
                    ``(A) the Telecommunications Development Fund 
                established under section 714 of the Communications Act 
                of 1934 (47 U.S.C. 614), or any wholly-owned affiliate 
                of that Fund;
                    ``(B) an entity described in paragraph (2); or
                    ``(C) an individual described in paragraph (3).
            ``(2) Entities.--An entity is described in this paragraph 
        if it is a corporation or a partnership that--
                    ``(A) is controlled by individuals described in 
                paragraph (3); and
                    ``(B) meets the requirements of paragraph (4) at 
                the time of the sale of the telecommunications business 
                or the equity investment by the taxpayer described in 
                subsection (a).
            ``(3) Individuals.--An individual is described in this 
        paragraph if that individual meets the requirements of 
        paragraph (4) at the time of the sale of the telecommunications 
        business or the equity investment by the taxpayer described in 
        subsection (a) and is--
                    ``(A) a United States citizen; or
                    ``(B) a United States citizen who is--
                            ``(i) a woman;
                            ``(ii) a Black or African American;
                            ``(iii) a Latino or Hispanic American;
                            ``(iv) an Asian American, Native Hawaiian 
                        or other Pacific Islander; or
                            ``(v) an American Indian, Alaskan Indian, 
                        and American Eskimo, or an Aleut.
            ``(4) Net worth and related requirements.--
                    ``(A) In general.--
                            ``(i) Secretary of Commerce 
                        recommendations.--Within 90 days after the date 
                        of enactment of the Telecommunications 
                        Ownership Diversification Act of 1999, the 
                        Secretary of Commerce shall transmit to the 
Secretary of the Treasury the Secretary of Commerce's recommendations 
for requirements with respect to the maximum net worth, gross revenues, 
or total assets of entities described in paragraph (2) and the maximum 
net worth of individuals described in paragraph (3).
                            ``(ii) Treasury regulations.--Within 180 
                        days after the date of enactment of the 
                        Telecommunications Ownership Diversification 
                        Act of 1999, the Secretary of the Treasury 
                        shall promulgate regulations establishing 
                        limits on the maximum net worth, gross 
                        revenues, or total assets of entities described 
                        in paragraph (2) and maximum net worth of 
                        individuals described in paragraph (3), and 
                        revise those regulations from time to time as 
                        may be appropriate.
                            ``(iii) Indian tribes and alaska native 
                        corporations.--The regulations shall comply 
                        with relevant standards of the Small Business 
                        Administration and the Federal Communications 
                        Commission applicable to American Indian Tribal 
                        entities and Alaska Native Corporations.
                    ``(B) Criteria; procedure.--The Secretary of 
                Commerce, in making recommendations, and the Secretary 
                of the Treasury, in promulgating regulations, under 
                subparagraph (A)--
                            ``(i) shall ensure that the limits 
                        established are consistent with market demands 
                        by taking into account telecommunications 
                        business transactions during the 9 months 
                        preceding their establishment, giving greater 
                        weight to transactions occurring closest in 
                        time to their establishment, and by taking into 
                        account changes in the laws and regulations 
                        affecting telecommunications businesses 
                        occurring within such 9 month period;
                            ``(ii) shall consult with the Attorney 
                        General, the Federal Communications Commission, 
                        the Administrator of the Small Business 
                        Administration, and other officers or agencies 
                        of the United States;
                            ``(iii) may establish the limits without 
                        regard to the provisions of chapter 5 of title 
                        5, United States Code, and sections 10 and 11 
                        of the Federal Advisory Committee Act (5 U.S.C. 
                        App.); and
                            ``(iv) may, to the extent otherwise 
                        consistent with law, take into account such 
                        factors as historical inability to access 
                        capital by particular groups, including members 
                        of minority groups and women, in establishing 
                        limits, but nothing in this clause is intended 
                        to prevent the Secretary of Commerce from 
                        recommending or the Secretary of the Treasury 
                        from establishing, different gross revenue and 
                        net worth ceilings for different classes of 
                        eligible purchasers, whether individuals 
                        described in paragraph (3) or entities 
                        described in paragraph (2), to the extent 
                        necessary to promote diversity of ownership in 
                        telecommunications.
            ``(5) Equity interest.--The term `equity interest' means 
        stock in a corporation or, in the case of a partnership, an 
        interest in the capital and profits of the partnership.
            ``(6) Telecommunications business.--The term 
        `telecommunications business' means--
                    ``(A) substantially all the assets of a facility 
                engaged in electronic communications, including a cable 
                system (as defined in section 602(7) of the 
                Communications Act of 1934 (47 U.S.C. 532(7)), a radio 
                station (as defined in section 3(35) of that Act (47 
                U.S.C. 153(35)), a broadcasting station providing 
                television service (as defined in section 3(49) of that 
                Act (47 U.S.C. 153(49)), a provider of direct broadcast 
                satellite service (as defined in section 335(b)(5) of 
                that Act (47 U.S.C. 335(b)(5)), a provider of video 
                programming (as defined in section 602(20) of that Act 
                (47 U.S.C. 602(20)); a provider of commercial mobile 
                services (as defined in section 332(d)(1) of that Act 
                (47 U.S.C. 332(d)(1)), a telecommunications carrier (as 
                defined in section 3(44) of that Act (47 U.S.C. 
                153(44)), a reseller of telecommunications service or 
                commercial mobile service; a multichannel multipoint 
                distribution service, Internet service provider; 
                Internet content provider; or a provider of 
                telecommunications or information service equipment or 
                software;
                    ``(B) stock possessing at least 80 percent of the 
                total combined voting power of all classes of stock 
                entitled to vote and at least 80 percent of the total 
                number of shares of all other classes of stock of a 
                corporation substantially all of the assets of which 
                consist, directly or indirectly, of assets described in 
                subparagraph (A); and
                    ``(C) 80 percent or more of the total interest in 
                the capital and profits of a partnership substantially 
                all of the assets of which consist, directly or 
                indirectly, of assets described in subparagraph (A).
            ``(7) Purchase.--The taxpayer shall be considered to have 
        purchased a property if, but for subsection (d), the unadjusted 
        basis of the property would be its cost within the meaning of 
        section 1012.
            ``(8) Control.--
                    ``(A) In general.--For purposes of paragraph 
                (2)(A), an entity is controlled by individuals 
                described in paragraph (3) if the requirements of 
                paragraph the requirements of subparagraph (B), (C), or 
                (D) are satisfied.
                    ``(B) 30-percent test.--The requirements of this 
                subparagraph are satisfied if--
                            ``(i) with respect to any entity which is a 
                        corporation, individuals who meet the 
                        requirements of paragraph (3) own 30 percent or 
                        more in value of the outstanding stock of the 
                        corporation, and more than 50 percent of the 
                        total combined voting power of all classes of 
                        stock entitled to vote of the corporation; and
                            ``(ii) with respect to any entity which is 
                        a partnership, individuals who meet the 
                        requirements of paragraph (3) own 30 percent or 
                        more of the capital interest and the profits 
                        interest in the partnership, and more than 50 
                        percent of the total combined voting power of 
                        all classes of partnership interests entitled 
                        to vote.
                    ``(C) 15-percent test.--The requirements of this 
                subparagraph are satisfied if--
                            ``(i) with respect to any entity which is a 
                        corporation--
                                    ``(I) individuals who meet the 
                                requirements of paragraph (3) own 15 
                                percent or more in value of the 
                                outstanding stock of the corporation, 
                                and more than 50 percent of the total 
                                combined voting power of all classes of 
                                stock entitled to vote of the 
                                corporation; and
                                    ``(II) no other person owns more 
                                than 25 percent in value of the 
                                outstanding stock of the corporation; 
                                and
                            ``(ii) with respect to any entity which is 
                        a partnership--
                                    ``(I) individuals who meet the 
                                requirements of paragraph (3) own 15 
                                percent or more of the capital interest 
                                and profits interest of the 
                                partnership, and more than 50 percent 
                                of the total combined voting power of 
                                all classes of partnership interests 
                                entitled to vote; and
                                    ``(II) no other person owns more 
                                than 25 percent of the capital interest 
                                and profits interest of the 
                                partnership.
                    ``(D) Publicly-traded corporations test.--The 
                requirements of this subparagraph are satisfied if, 
                with respect to a corporation the securities of which 
                are traded on an established securities market--
                            ``(i) individuals who meet the requirements 
                        of paragraph (3) own 50 percent or more of the 
                        total combined voting power of all classes of 
                        stock entitled to vote of the corporation; and
                            ``(ii) the stock owned by those individuals 
                        is not subject to any agreement, arrangement, 
                        or understanding which provides for, or relates 
                        to, the voting of the stock in any manner by, 
                        or at the direction of, any person other than 
                        an eligible individual who meets the 
                        requirements of paragraph (3), or the right of 
                        any person other than one of those individuals 
                        to acquire the voting power through purchase of 
                        shares or otherwise.
                    ``(E) Constructive ownership.--In applying 
                subparagraphs (B), (C), and (D), the following rules 
                apply:
                            ``(i) Stock or partnership interests owned, 
                        directly or indirectly, by or for a 
                        corporation, partnership, estate, or trust 
                        shall be considered as being owned 
                        proportionately by or for its shareholders, 
                        partners, or beneficiaries.
                            ``(ii) An individual shall be considered as 
                        owning stock and partnership interests owned, 
                        directly or indirectly, by or for his family.
                            ``(iii) An individual owning (otherwise 
                        than by the application of clause (ii)) any 
                        stock in corporation shall be considered as 
                        owning the stock or partnership interests 
                        owned, directly or indirectly, by or for his 
                        partner.
                            ``(iv) An individual owning (otherwise than 
                        by the application of clause (ii)) any 
                        partnership interest in a partnership shall be 
                        considered as owning the stock or partnership 
                        interests owned, directly or indirectly, by or 
                        for his partner.
                            ``(v) The family of an individual shall 
                        include only his brothers and sisters (whether 
                        by the whole or half blood), spouse, ancestors, 
                        and lineal descendants.
                            ``(vi) Stock or partnership interests 
                        constructively owned by a person by reason of 
                        the application of clause (i) shall, for the 
                        purposes of applying clause (i), (ii), (iii), 
                        or (iv), be treated as actually owned by that 
                        person, but stock constructively owned by an 
                        individual by reason of the application of 
                        clause (ii), (iii), or (iv) shall not be 
                        treated as owned by that individual for the 
                        purpose of again applying any of those clauses 
                        in order to make another the constructive owner 
                        of the stock or partnership interests.''.
    (b) Tax Credit.--Subpart E of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to rules for computing 
investment credit) is amended by inserting after section 48 the 
following:

``SEC. 48A. TELECOMMUNICATIONS BUSINESS CREDIT.

    ``For purposes of section 46, there is allowed as a credit against 
the tax imposed by this chapter for any taxable year an amount equal to 
10 percent of the taxable income of any taxpayer that at all times 
during that taxable year--
            ``(1) is a local exchange carrier (as defined in section 
        3(44) of the Communications Act of 1934 (47 U.S.C. 153(44)));
            ``(2) is not a Bell operating company (as defined in 
        section 3(4) of that Act (47 U.S.C. 153(4))); and
            ``(3) is headquartered in an area designated as an 
        empowerment zone by the Secretary of Housing and Urban 
        Development.''.
    (b) Conforming Amendments.--
            (1) Amendment of section 46.--Section 46 of such Code 
        (relating to amount of credit) is amended by--
                    (A) striking ``and'' in paragraph (2);
                    (B) striking ``credit.'' in paragraph (3) and 
                inserting ``credit; and''; and
                    (C) adding at the end the following:
            ``(4) the telecommunications business credit.''.
            (2) Clerical amendments.--
                    (A) The analysis for part III of subchapter O of 
                chapter 1 of such Code is amended by adding at the end 
                thereof the following:

``1046. Sale of telecommunications business.''.
                    (B) The table of sections for Subpart E of part IV 
                of subchapter A of chapter 1 of such Code is amended by 
                inserting after the item relating to section 48 the 
                following:

``48A. Telecommunications business credit.''.
    (c) Technical and Conforming Changes.--The Secretary of the 
Treasury shall, within 150 days after the date of enactment of this 
Act, submit to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate, a draft of 
any technical and conforming changes in the Internal Revenue Code of 
1986 which are necessary to reflect throughout the Code the changes in 
the substantive provisions of the Code made by subsection (a) of this 
section.
    (d) Effective Date.--The amendments made by this section apply with 
respect to a purchase described in section 1046(a)(1) of the Internal 
Revenue Code of 1986 (as added by this section) of a telecommunications 
business or any equity interest on or after the date of enactment of 
this Act.

SEC. 4. ADDITIONAL SPECIAL TAX RULES FOR CERTAIN TELECOMMUNICATIONS 
              INVESTMENTS.

    (a) Depreciation-related Provisions.--
            (1) Depreciation of certain telecommunications 
        intangibles.--Section 167(f) of the Internal Revenue Code of 
        1986 (relating to treatment of certain property excluded from 
        section 197) is amended by adding at the end thereof the 
        following:
            ``(4) Certain intangible assets.--If a depreciation 
        deduction is allowable under subsection (a) with respect to an 
        intangible asset described in section 197(e)(9), the deduction 
        shall be computed by using the method described in section 
        168(b)(1).''.
            (2) Treatment as intangible asset.--Section 197 of such 
        Code (relating to amortization of goodwill and certain other 
        intangibles) is amended--
                    (A) by striking ``and'' after the semicolon in 
                subsection (d)(1)(E);
                    (B) by striking ``tradename.'' in subsection 
                (d)(1)(F) and inserting ``tradename; and'';
                    (C) by adding at the end of subsection (d)(1) the 
                following:
                    ``(G) stock in a C corporation which is an eligible 
                purchaser (as defined in section 1046(g)(1)) engaged in 
                a telecommunications business (as defined in section 
                1046(g)(6)) to the extent that the cost of such stock 
                does not exceed $5,000,000.''; and
                    (D) by adding at the end of subsection (e) the 
                following:
            ``(9) Telecommunications intangibles not a section 197 
        intangible asset.--Any item described in subsection (d) which 
        is owned by an eligible purchaser (as defined in section 
        1046(g)(1)) engaged in a telecommunications business (as 
        defined in section 1046(g)(6)).''.
    (b) Ordinary Loss Treatment for Certain Telecommunications 
Losses.--
            (1) In general.--Part IV of subchapter P of chapter 1 of 
        the Internal Revenue Code of 1986 is amended by inserting after 
        section 1244 the following:

``SEC. 1244A. LOSSES ON STOCK IN TELECOMMUNICATIONS CORPORATIONS.

    ``(a) General Rule.--A loss on stock in a corporation which is an 
eligible purchaser (as defined in section 1046(g)(1)) engaged in a 
telecommunications business (as defined in section 1046(g)(6)) that 
would (but for this section) be treated as a loss from the sale or 
exchange of a capital asset, shall be treated as an ordinary loss.
    ``(b) Maximum Amount for Any Taxable Year.--For any taxable year, 
the aggregate amount treated by the taxpayer by reason of this section 
as an ordinary loss may not exceed $5,000,000.''.
            (2) Conforming amendment.--The analysis for such part is 
        amended by inserting after the item relating to section 1244 
        the following:

``1244A. Losses on stock in telecommunications corporations.''.
    (c) Exclusion of 50 Percent of Gain.--Section 1202 of the Internal 
Revenue Code of 1986 (relating to 50-percent exclusion for gain from 
certain small business stock) is amended--
            (1) by striking subsection (a) and inserting the following:
    ``(a) 50-Percent Exclusion.--
            ``(1) Taxpayers not corporations.--In the case of a 
        taxpayer other than a corporation, gross income does not 
        include 50 percent of any gain from the sale or exchange of 
        qualified small business stock held for more than 5 years.
            ``(2) Certain telecommunications investments by 
        corporations and investment companies.--Gross income does not 
        include 50 percent of any gain from the sale or exchange of 
        stock in an eligible purchaser (as defined in section 
        1046(g)(1)) engaged in a telecommunications business (as 
        defined in section 1046(g)(6)) held for more than 5 years.'';
            (2) by striking subparagraphs (A) and (B) of subsection 
        (b)(1) and inserting the following:
                    ``(A) in the case of gain from the sale or exchange 
                of qualified small business stock held for more than 5 
                years--
                            ``(i) $10,000,000 reduced by the aggregate 
                        amount of eligible gain taken into account by 
                        the taxpayer under subsection (a) for prior 
                        taxable years and attributable to dispositions 
                        of stock issued by such corporations; or
                            ``(ii) 10 times the aggregate adjusted 
                        bases of qualified small business stock issued 
                        by such corporations and disposed of by the 
                        taxpayer during the taxable year;
                    ``(B) in the case of gain from the sale or exchange 
                of stock in an eligible purchaser engaged in a 
                telecommunications business for more than 5 years--
                            ``(i) $20,000,000 reduced by the aggregate 
                        amount of eligible gain taken into account by 
                        the taxpayer under subsection (a) for prior 
                        taxable years and attributable to dispositions 
                        of stock issued by an eligible purchaser 
                        engaged in a telecommunications business; or
                            ``(ii) 15 times the aggregate adjusted 
                        bases of stock of an eligible purchaser engaged 
                        in a telecommunications business issued by such 
                        eligible purchaser and disposed of by the 
                        taxpayer during the taxable year.'';
            (2) by striking ``years.'' in subsection (b)(2) and 
        inserting ``years or any gain from the sale or exchange of 
        stock in an eligible purchaser engaged in a telecommunications 
        business held for more than 5 years.''; and
            (3) by striking `` `$10,000,000'.'' in subsection (b)(3)(A) 
        and inserting `` `$10,000,000', and paragraph (1)(B) shall be 
        applied by substituting `$10,000,000' for `$20,000,000'.''.
    (d) Deferral of Certain Telecommunications Capital Gains by 
Corporations and Investment Companies.--Section 1044 of the Internal 
Revenue Code of 1986 (relating to rollover of publicly-traded 
securities gains into specialized small business investment companies) 
is amended--
            (1) by striking subsection (a)(1) and inserting the 
        following:
            ``(1) the cost of any common stock or partnership interest 
        in--
                    ``(A) a specialized small business investment 
                company purchased by the taxpayer during the 60-day 
                period beginning on the date of such sale; or
                    ``(B) an eligible purchaser (as defined in section 
                1046(g)(1)) engaged in a telecommunications business 
                (as defined in section 1046(g)(6)) purchased by the 
                taxpayer during the 60-day period beginning on the date 
                of such sale,
        reduced by--''; and
            (2) by redesignating paragraph (4) of subsection (b) as 
        paragraph (5) and inserting after paragraph (3) the following:
            ``(4) Limitation on certain c corporations and investment 
        companies.--In the case of a C corporation or an investment 
        company acquiring common stock or a partnership interest 
        described in subsection (a)(1)(B), the amount of gain that may 
        be excluded under subsection (a) for any taxable year shall not 
        exceed the lesser of--
                    ``(A) $750,000; or
                    ``(B) $4,500,000, reduced by the amount of gain 
                excluded under subsection (a) for all preceding taxable 
                years.''.
    (e) Effective Date.--
            (1) The amendments made by subsection (a) shall apply to 
        property placed in service after June 30, 1999.
            (2) The amendments made by subsections (b) and (c) shall 
        apply to stock acquired after June 30, 1999.
            (3) The amendments made by subsection (d) shall apply to 
        sales after June 30, 1999.

SEC. 5. BIENNIAL PROGRAM AUDITS BY GAO.

    No later than January 1, 2003, and no less frequently than every 2 
years thereafter, the Comptroller General shall audit the 
administration of sections of the Internal Revenue Code of 1986 added 
or amended by sections 3 and 4 of this Act, and issue a report on the 
results of that audit. The Comptroller General shall include in the 
report, notwithstanding any provision of section 6103 of the Internal 
Revenue Code of 1986 to the contrary--
            (1) a list of eligible purchasers (as defined in section 
        1046(g)(1) of such Code) and any other taxpayer receiving a 
        benefit from the operation of section 48A, 167, 197, 1044, 
        1046, 1202, or 1244A of such Code as that section was added or 
        amended by section 3 of this Act; and
            (2) an assessment of the effect the amendments made by 
        sections 3 and 4 of this Act have had with respect to 
        increasing new entry into the telecommunications industry by 
        small businesses and businesses owned or controlled by members 
        of minority groups and women.
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