II

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.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Telecommunications

5 Ownership Diversification Act of 1999’’.
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1 SEC. 2. FINDINGS AND PURPOSES.

2 (a) FINDINGS.—The Congress makes the following

3 findings:

4 (1) Current trends in the telecommunications

5 industry show that there is increasing convergence

6 among various media, including broadcasting, cable

7 television, and Internet-based businesses, and that

8 these media are providing competing sources of

9 news, information, and entertainment.

10 (2) This convergence and competitiveness will

11 continue, and therefore it should be recognized in

12 both telecommunications and tax policy.

13 (3) Notwithstanding these trends, diversifying

14 the ownership of telecommunications facilities re15 mains a pre-eminent public interest concern.

16 (4) A market-based, voluntary system of invest17 ment incentives is the most effective, lawful, and

18 economically sound means of facilitating entry into

19 the telecommunications industry.

20 (5) Opportunities for new entrants to partici21 pate in the telecommunications industry have sub22 stantially decreased since the end of the Federal

23 Communications Commission’s tax certificate policy

24 in 1995, particularly in light of the increase in tax25 free like-kind exchanges despite the most robust pe26 riod of transfers of radio and television stations in
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1 history. Small businesses, and businesses owned or

2 controlled by members of minority groups or by

3 women, have been at a particular disadvantage, as

4 indicated by their historic under representation as

5 owners of telecommunications facilities.

6 (6) Access to and cost of capital has been a

7 substantial obstacle to new entry into telecommuni8 cations by small businesses and businesses owned or

9 controlled by members of minority groups and by

10 women who want to be long-term, active participants

11 in the telecommunications industry, because they do

12 not currently own properties that can be utilized in

13 like-kind exchanges, they are either unable to secure

14 financing from lending institutions and equipment

15 manufacturers at all, or else cannot secure financing

16 terms as advantageous as those offered to large in17 dustry participants.

18 (7) Telecommunications facilities owned by new

19 entrants may not be as attractive to investors be20 cause their start-up costs are often high, their rev21 enue streams are uncertain, and their profit margins

22 are unknown.

23 (8) It is consistent with the public interest, and

24 with the pro-competition policies of the Tele25 communications Act of 1996, to provide incentives
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1 that will facilitate the ability of existing owners of

2 converging telecommunications media to transact

3 business so as to improve their ability to compete,

4 while the reinvestment of gains realized from such

5 transactions will also facilitate the acquisition of

6 telecommunications facilities by small businesses, es7 pecially those owned or controlled by members of mi8 nority groups and by women, thereby diversifying

9 the ownership of telecommunications facilities.

10 (9) Permitting sellers of telecommunications fa11 cilities to defer taxation of gains from transactions

12 involving small businesses and businesses owned or

13 controlled by members of minority groups and by

14 women, and resulting from investments in capital

15 funds whose stated purpose is to provide capital for

16 such entities, will further the development of a com17 petitive and diverse United States information dis18 tribution economy without governmental intrusion in

19 private investment decisions.

20 (10) The public interest would not be served by

21 attempts to diversify the ownership of telecommuni22 cations businesses by small businesses or businesses

23 owned or controlled by minorities and women

24 through any approach that would involve the use of

25 mandated set-asides or quotas.
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1 (b) PURPOSE.—The purpose of this Act is to facili2 tate voluntary, pro-competitive transactions involving con3 verging telecommunications media that will promote diver4 sification in, and broaden the participation in, the tele5 communications industry by small businesses, and busi6 nesses owned or controlled by members of minority groups

7 and women.

8 SEC. 3. AMENDMENTS TO INTERNAL REVENUE CODE.

9 (a) NONRECOGNITION OF GAIN FROM SALE OF

10 TELECOMMUNICATIONS BUSINESS.—Part III of sub11 chapter O of chapter 1 of the Internal Revenue Code of

12 1986 is amended by adding at the end thereof the fol13 lowing:

14 ‘‘SEC. 1046. SALE OF TELECOMMUNICATIONS BUSINESS.

15 ‘‘(a) NONRECOGNITION OF GAIN.—

16 ‘‘(1) IN GENERAL.—At the election of a tax17 payer, made at such time and in such manner as the

18 Secretary may prescribe, no gain shall be recognized

19 on the sale of a telecommunications business if—

20 ‘‘(A) the business is sold to an eligible pur21 chaser and the taxpayer purchases 1 or more

22 telecommunications businesses within the re23 placement period; or
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1 ‘‘(B) the taxpayer purchases, within the re2 placement period, 1 or more equity interests in

3 an entity that is an eligible purchaser that—

4 ‘‘(i) derives, directly or indirectly, 50

5 percent or more of its gross income from

6 a telecommunications business; or

7 ‘‘(ii) invests substantially all of the

8 gross proceeds received from the taxpayer

9 in the acquisition of a telecommunications

10 business and the acquisition occurs within

11 180 days after the expiration of the tax12 payer’s replacement period.

13 ‘‘(2) LIMITATIONS.—

14 ‘‘(A) REINVESTMENT CAP.—Gain is eligi15 ble for nonrecognition treatment under this

16 subsection only to the extent that it equals or

17 exceeds the aggregate amount paid or incurred

18 by the taxpayer for the telecommunications

19 businesses or equity interests purchased.

20 ‘‘(B) TAXABLE YEAR DOLLAR AMOUNT

21 PER TRANSACTION.—The amount of gain eligi22 ble for nonrecognition under paragraph (1)(A),

23 and the amount of gain eligible for nonrecogni24 tion under paragraph (1)(B), respectively, for

25 any taxable year may not exceed $250,000,000
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1 for each transaction to which such paragraph

2 applies. Any gain that would be eligible for non3 recognition under either such paragraph be4 cause of the limitation imposed by the pre5 ceding sentence shall be carried forward to each

6 of the next 2 taxable years, subject to that limi7 tation in each of those taxable years.

8 ‘‘(b) REPLACEMENT PERIOD.—For purposes of this

9 section, the term ‘replacement period’ means the period

10 beginning on the date on which the taxpayer’s sale of a

11 telecommunications business occurs and ending—

12 ‘‘(1) 2 years after the close of the first taxable

13 year of the taxpayer in which any part of the gain

14 from the sale is realized by the taxpayer; or

15 ‘‘(2) such later date as the Secretary may des16 ignate upon application made by the taxpayer, at

17 such time and in such manner as the Secretary may

18 prescribe, and subject to such terms and conditions

19 as the Secretary may require.

20 ‘‘(c) TIME FOR ASSESSMENT OF DEFICIENCY.—If

21 the taxpayer makes the election provided by subsection (a)

22 with respect to gain from the sale of property—

23 ‘‘(1) the period for the assessment of a defi24 ciency with respect to such gain for any taxable year

25 in which any part of the gain is realized does not ex-
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1 pire before the expiration of the third taxable year

2 beginning after the taxable year in which the Sec3 retary is notified by the taxpayer of the taxpayer’s

4 purchase described in paragraph (1) or (2) of sub5 section (a), or of the taxpayer’s intention not to

6 make such a purchase; and

7 ‘‘(2) any such deficiency may be assessed at

8 anytime before the expiration of such third taxable

9 year, notwithstanding section 6212 or any other pro10 vision or rule of law.

11 ‘‘(d) BASIS.—

12 ‘‘(1) IN GENERAL.—In the case of a tele13 communications business purchased by the taxpayer

14 in a transaction described in subsection (a)(1), or an

15 equity interest purchased by the taxpayer in a trans16 action described in subsection (a)(2), the basis shall

17 be the cost of such business or equity interest de18 creased by the amount of the gain not recognized.

19 If the taxpayer purchases more than 1 such business

20 or equity interests, the basis determined under this

21 paragraph shall be allocated to such businesses or

22 equity interests in the same proportion as the

23 amount paid or incurred by the taxpayer for each

24 such business or equity interest bears to the sum of
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1 the amounts paid or incurred by the taxpayer for all

2 such businesses or equity interests.

3 ‘‘(2) PROPERTY HELD BY CORPORATION THE

4 STOCK OF WHICH IS REPLACEMENT PROPERTY.—

5 ‘‘(A) IN GENERAL.—If the basis of stock

6 in a corporation is decreased under paragraph

7 (1), the basis of property held by the corpora8 tion at the time the taxpayer acquired control

9 of the corporation shall be reduced by an

10 amount equal to the amount of that decrease.

11 ‘‘(B) LIMITATION.—Subparagraph (A)

12 does not apply to the extent that it would (but

13 for this subparagraph) require a reduction in

14 the aggregate adjusted bases of the property of

15 the corporation below the taxpayer’s adjusted

16 basis of the stock in the corporation (deter17 mined immediately after that basis is decreased

18 under paragraph (1)).

19 ‘‘(C) ALLOCATION OF BASIS REDUCTION.—

20 The decrease required under subparagraph (A)

21 shall be allocated—

22 ‘‘(i) first to assets of telecommuni23 cations businesses held by the corporation;
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1 ‘‘(ii) second to depreciable property

2 (as defined in section 1017(b)(3)(B)) that

3 is not described in clause (i); and

4 ‘‘(iii) then to other property.

5 ‘‘(D) SPECIAL RULES.—

6 ‘‘(i) REDUCTION NOT TO EXCEED AD7 JUSTED BASIS OF PROPERTY.—No reduc8 tion in the basis of any property under this

9 paragraph shall exceed the adjusted basis

10 of such property (determined without re11 gard to the reduction).

12 ‘‘(ii) ALLOCATION OF REDUCTION

13 AMONG PROPERTIES.—If more than 1

14 property is described in a clause of sub15 paragraph (C), then the reduction under

16 this paragraph shall be allocated among

17 such property in proportion to the adjusted

18 bases of the property (as so determined).

19 ‘‘(e) ACQUISITION FROM UNRELATED PERSON RE20 QUIRED.—

21 ‘‘(1) IN GENERAL.—Subsection (a) does not

22 apply to a taxpayer described in paragraph (2) if the

23 telecommunications business described in subsection

24 (a)(1) is sold to, or the equity interest described in

25 subsection (a)(2), is purchased from, a related per-
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1 son (within the meaning of section 267(b) or (e)).

2 The preceding sentence does not apply to the extent

3 that the related person acquired that telecommuni4 cations business or that equity interest from a per5 son that is not a related person (within the meaning

6 of section 267(b) or (e), or section 707(b)(1)) during

7 the replacement period.

8 ‘‘(2) TAXPAYERS TO WHICH PARAGRAPH (1) AP9 PLIES.—

10 ‘‘(A) IN GENERAL.—Paragraph (1) applies

11 to—

12 ‘‘(i) a C corporation;

13 ‘‘(ii) a partnership in which 1 or more

14 C corporations own, directly or indirectly

15 (determined under section 707(b)(3)),

16 more than 50 percent of the capital inter17 est or profits interest in the partnership at

18 the time of the sale of the telecommuni19 cations business; and

20 ‘‘(iii) any other taxpayer if, with re21 spect to a telecommunications business

22 that is sold during the taxpayer’s taxable

23 year, the aggregate of the amount of gain

24 realized on the sale of the telecommuni25 cations business exceeds $100,000.
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1 ‘‘(B) APPLICATION TO PARTNERSHIPS; S

2 CORPORATIONS.—Subparagraph (A)(iii) shall be

3 applied to—

4 ‘‘(i) a partnership both at the partner5 ship level and to each partner; and

6 ‘‘(ii) an S corporation at both the cor7 porate and shareholder level (under rules

8 prescribed by the Secretary).

9 ‘‘(f) CONSEQUENCES OF SUBSEQUENT DISPOSITION

10 BY ELIGIBLE PURCHASER.—

11 ‘‘(1) IN GENERAL.—If the eligible purchaser

12 disposes of the telecommunications business acquired

13 from the taxpayer (in the case of sale described in

14 subsection (a)(1)), or substantially all of its tele15 communications businesses (in the case of an equity

16 investment described in subsection (a)(2)), within 3

17 years after the date of that acquisition or equity in18 vestment to any person that is not an eligible pur19 chaser, the eligible purchaser shall recognize gain in

20 the year of disposition equal to the amount of gain

21 deferred by the taxpayer under subsection (a).

22 ‘‘(2) CERTAIN DISPOSITIONS.—If the taxpayer

23 or the eligible purchaser is an individual, paragraph

24 (1) does not apply to a disposition after the earlier

25 of—
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1 ‘‘(A) the date of death or bankruptcy of

2 the eligible purchaser (in the case of an indi3 vidual); or

4 ‘‘(B) the date of death or bankruptcy of

5 the taxpayer.

6 ‘‘(g) DEFINITIONS; SPECIAL RULES.—For purposes

7 of this section—

8 ‘‘(1) ELIGIBLE PURCHASER.—The term ‘eligible

9 purchaser’ means—

10 ‘‘(A) the Telecommunications Development

11 Fund established under section 714 of the

12 Communications Act of 1934 (47 U.S.C. 614),

13 or any wholly-owned affiliate of that Fund;

14 ‘‘(B) an entity described in paragraph (2);

15 or

16 ‘‘(C) an individual described in paragraph

17 (3).

18 ‘‘(2) ENTITIES.—An entity is described in this

19 paragraph if it is a corporation or a partnership

20 that—

21 ‘‘(A) is controlled by individuals described

22 in paragraph (3); and

23 ‘‘(B) meets the requirements of paragraph

24 (4) at the time of the sale of the telecommuni-
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1 cations business or the equity investment by the

2 taxpayer described in subsection (a).

3 ‘‘(3) INDIVIDUALS.—An individual is described

4 in this paragraph if that individual meets the re5 quirements of paragraph (4) at the time of the sale

6 of the telecommunications business or the equity in7 vestment by the taxpayer described in subsection (a)

8 and is—

9 ‘‘(A) a United States citizen; or

10 ‘‘(B) a United States citizen who is—

11 ‘‘(i) a woman;

12 ‘‘(ii) a Black or African American;

13 ‘‘(iii) a Latino or Hispanic American;

14 ‘‘(iv) an Asian American, Native Ha15 waiian or other Pacific Islander; or

16 ‘‘(v) an American Indian, Alaskan In17 dian, and American Eskimo, or an Aleut.

18 ‘‘(4) NET WORTH AND RELATED REQUIRE19 MENTS.—

20 ‘‘(A) IN GENERAL.—

21 ‘‘(i) SECRETARY OF COMMERCE REC22 OMMENDATIONS.—Within 90 days after

23 the date of enactment of the Telecommuni24 cations Ownership Diversification Act of

25 1999, the Secretary of Commerce shall
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1 transmit to the Secretary of the Treasury

2 the Secretary of Commerce’s recommenda3 tions for requirements with respect to the

4 maximum net worth, gross revenues, or

5 total assets of entities described in para6 graph (2) and the maximum net worth of

7 individuals described in paragraph (3).

8 ‘‘(ii) TREASURY REGULATIONS.—

9 Within 180 days after the date of enact10 ment of the Telecommunications Owner11 ship Diversification Act of 1999, the Sec12 retary of the Treasury shall promulgate

13 regulations establishing limits on the max14 imum net worth, gross revenues, or total

15 assets of entities described in paragraph

16 (2) and maximum net worth of individuals

17 described in paragraph (3), and revise

18 those regulations from time to time as may

19 be appropriate.

20 ‘‘(iii) INDIAN TRIBES AND ALASKA NA21 TIVE CORPORATIONS.—The regulations

22 shall comply with relevant standards of the

23 Small Business Administration and the

24 Federal Communications Commission ap-
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1 plicable to American Indian Tribal entities

2 and Alaska Native Corporations.

3 ‘‘(B) CRITERIA; PROCEDURE.—The Sec4 retary of Commerce, in making recommenda5 tions, and the Secretary of the Treasury, in

6 promulgating regulations, under subparagraph

7 (A)—

8 ‘‘(i) shall ensure that the limits estab9 lished are consistent with market demands

10 by taking into account telecommunications

11 business transactions during the 9 months

12 preceding their establishment, giving great13 er weight to transactions occurring closest

14 in time to their establishment, and by tak15 ing into account changes in the laws and

16 regulations affecting telecommunications

17 businesses occurring within such 9 month

18 period;

19 ‘‘(ii) shall consult with the Attorney

20 General, the Federal Communications

21 Commission, the Administrator of the

22 Small Business Administration, and other

23 officers or agencies of the United States;

24 ‘‘(iii) may establish the limits without

25 regard to the provisions of chapter 5 of
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1 title 5, United States Code, and sections

2 10 and 11 of the Federal Advisory Com3 mittee Act (5 U.S.C. App.); and

4 ‘‘(iv) may, to the extent otherwise

5 consistent with law, take into account such

6 factors as historical inability to access cap7 ital by particular groups, including mem8 bers of minority groups and women, in es9 tablishing limits, but nothing in this clause

10 is intended to prevent the Secretary of

11 Commerce from recommending or the Sec12 retary of the Treasury from establishing,

13 different gross revenue and net worth ceil14 ings for different classes of eligible pur15 chasers, whether individuals described in

16 paragraph (3) or entities described in

17 paragraph (2), to the extent necessary to

18 promote diversity of ownership in tele19 communications.

20 ‘‘(5) EQUITY INTEREST.—The term ‘equity in21 terest’ means stock in a corporation or, in the case

22 of a partnership, an interest in the capital and prof23 its of the partnership.

24 ‘‘(6) TELECOMMUNICATIONS BUSINESS.—The

25 term ‘telecommunications business’ means—
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1 ‘‘(A) substantially all the assets of a facil2 ity engaged in electronic communications, in3 cluding a cable system (as defined in section

4 602(7) of the Communications Act of 1934 (47

5 U.S.C. 532(7)), a radio station (as defined in

6 section 3(35) of that Act (47 U.S.C. 153(35)),

7 a broadcasting station providing television serv8 ice (as defined in section 3(49) of that Act (47

9 U.S.C. 153(49)), a provider of direct broadcast

10 satellite service (as defined in section 335(b)(5)

11 of that Act (47 U.S.C. 335(b)(5)), a provider of

12 video programming (as defined in section

13 602(20) of that Act (47 U.S.C. 602(20)); a

14 provider of commercial mobile services (as de15 fined in section 332(d)(1) of that Act (47

16 U.S.C. 332(d)(1)), a telecommunications carrier

17 (as defined in section 3(44) of that Act (47

18 U.S.C. 153(44)), a reseller of telecommuni19 cations service or commercial mobile service; a

20 multichannel multipoint distribution service,

21 Internet service provider; Internet content pro22 vider; or a provider of telecommunications or

23 information service equipment or software;

24 ‘‘(B) stock possessing at least 80 percent

25 of the total combined voting power of all classes
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1 of stock entitled to vote and at least 80 percent

2 of the total number of shares of all other class3 es of stock of a corporation substantially all of

4 the assets of which consist, directly or indi5 rectly, of assets described in subparagraph (A);

6 and

7 ‘‘(C) 80 percent or more of the total inter8 est in the capital and profits of a partnership

9 substantially all of the assets of which consist,

10 directly or indirectly, of assets described in sub11 paragraph (A).

12 ‘‘(7) PURCHASE.—The taxpayer shall be consid13 ered to have purchased a property if, but for sub14 section (d), the unadjusted basis of the property

15 would be its cost within the meaning of section

16 1012.

17 ‘‘(8) CONTROL.—

18 ‘‘(A) IN GENERAL.—For purposes of para19 graph (2)(A), an entity is controlled by individ20 uals described in paragraph (3) if the require21 ments of paragraph the requirements of sub22 paragraph (B), (C), or (D) are satisfied.

23 ‘‘(B) 30-PERCENT TEST.—The require24 ments of this subparagraph are satisfied if—
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1 ‘‘(i) with respect to any entity which

2 is a corporation, individuals who meet the

3 requirements of paragraph (3) own 30 per4 cent or more in value of the outstanding

5 stock of the corporation, and more than 50

6 percent of the total combined voting power

7 of all classes of stock entitled to vote of the

8 corporation; and

9 ‘‘(ii) with respect to any entity which

10 is a partnership, individuals who meet the

11 requirements of paragraph (3) own 30 per12 cent or more of the capital interest and the

13 profits interest in the partnership, and

14 more than 50 percent of the total com15 bined voting power of all classes of part16 nership interests entitled to vote.

17 ‘‘(C) 15-PERCENT TEST.—The require18 ments of this subparagraph are satisfied if—

19 ‘‘(i) with respect to any entity which

20 is a corporation—

21 ‘‘(I) individuals who meet the re22 quirements of paragraph (3) own 15

23 percent or more in value of the out24 standing stock of the corporation, and

25 more than 50 percent of the total
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1 combined voting power of all classes

2 of stock entitled to vote of the cor3 poration; and

4 ‘‘(II) no other person owns more

5 than 25 percent in value of the out6 standing stock of the corporation; and

7 ‘‘(ii) with respect to any entity which

8 is a partnership—

9 ‘‘(I) individuals who meet the re10 quirements of paragraph (3) own 15

11 percent or more of the capital interest

12 and profits interest of the partner13 ship, and more than 50 percent of the

14 total combined voting power of all

15 classes of partnership interests enti16 tled to vote; and

17 ‘‘(II) no other person owns more

18 than 25 percent of the capital interest

19 and profits interest of the partner20 ship.

21 ‘‘(D) PUBLICLY-TRADED CORPORATIONS

22 TEST.—The requirements of this subparagraph

23 are satisfied if, with respect to a corporation

24 the securities of which are traded on an estab25 lished securities market—
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1 ‘‘(i) individuals who meet the require2 ments of paragraph (3) own 50 percent or

3 more of the total combined voting power of

4 all classes of stock entitled to vote of the

5 corporation; and

6 ‘‘(ii) the stock owned by those individ7 uals is not subject to any agreement, ar8 rangement, or understanding which pro9 vides for, or relates to, the voting of the

10 stock in any manner by, or at the direction

11 of, any person other than an eligible indi12 vidual who meets the requirements of para13 graph (3), or the right of any person other

14 than one of those individuals to acquire the

15 voting power through purchase of shares

16 or otherwise.

17 ‘‘(E) CONSTRUCTIVE OWNERSHIP.—In ap18 plying subparagraphs (B), (C), and (D), the

19 following rules apply:

20 ‘‘(i) Stock or partnership interests

21 owned, directly or indirectly, by or for a

22 corporation, partnership, estate, or trust

23 shall be considered as being owned propor24 tionately by or for its shareholders, part25 ners, or beneficiaries.
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1 ‘‘(ii) An individual shall be considered

2 as owning stock and partnership interests

3 owned, directly or indirectly, by or for his

4 family.

5 ‘‘(iii) An individual owning (otherwise

6 than by the application of clause (ii)) any

7 stock in corporation shall be considered as

8 owning the stock or partnership interests

9 owned, directly or indirectly, by or for his

10 partner.

11 ‘‘(iv) An individual owning (otherwise

12 than by the application of clause (ii)) any

13 partnership interest in a partnership shall

14 be considered as owning the stock or part15 nership interests owned, directly or indi16 rectly, by or for his partner.

17 ‘‘(v) The family of an individual shall

18 include only his brothers and sisters

19 (whether by the whole or half blood),

20 spouse, ancestors, and lineal descendants.

21 ‘‘(vi) Stock or partnership interests

22 constructively owned by a person by reason

23 of the application of clause (i) shall, for

24 the purposes of applying clause (i), (ii),

25 (iii), or (iv), be treated as actually owned
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1 by that person, but stock constructively

2 owned by an individual by reason of the

3 application of clause (ii), (iii), or (iv) shall

4 not be treated as owned by that individual

5 for the purpose of again applying any of

6 those clauses in order to make another the

7 constructive owner of the stock or partner8 ship interests.’’.

9 (b) TAX CREDIT.—Subpart E of part IV of sub10 chapter A of chapter 1 of the Internal Revenue Code of

11 1986 (relating to rules for computing investment credit)

12 is amended by inserting after section 48 the following:

13 ‘‘SEC. 48A. TELECOMMUNICATIONS BUSINESS CREDIT.

14 ‘‘For purposes of section 46, there is allowed as a

15 credit against the tax imposed by this chapter for any tax16 able year an amount equal to 10 percent of the taxable

17 income of any taxpayer that at all times during that tax18 able year—

19 ‘‘(1) is a local exchange carrier (as defined in

20 section 3(44) of the Communications Act of 1934

21 (47 U.S.C. 153(44)));

22 ‘‘(2) is not a Bell operating company (as de23 fined in section 3(4) of that Act (47 U.S.C.

24 153(4))); and
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1 ‘‘(3) is headquartered in an area designated as

2 an empowerment zone by the Secretary of Housing

3 and Urban Development.’’.

4 (b) CONFORMING AMENDMENTS.—

5 (1) AMENDMENT OF SECTION 46.—Section 46

6 of such Code (relating to amount of credit) is

7 amended by—

8 (A) striking ‘‘and’’ in paragraph (2);

9 (B) striking ‘‘credit.’’ in paragraph (3) and

10 inserting ‘‘credit; and’’; and

11 (C) adding at the end the following:

12 ‘‘(4) the telecommunications business credit.’’.

13 (2) CLERICAL AMENDMENTS.—

14 (A) The analysis for part III of subchapter

15 O of chapter 1 of such Code is amended by

16 adding at the end thereof the following:

‘‘1046. Sale of telecommunications business.’’.

17 (B) The table of sections for Subpart E of

18 part IV of subchapter A of chapter 1 of such

19 Code is amended by inserting after the item re20 lating to section 48 the following:

‘‘48A. Telecommunications business credit.’’.

21 (c) TECHNICAL AND CONFORMING CHANGES.—The

22 Secretary of the Treasury shall, within 150 days after the

23 date of enactment of this Act, submit to the Committee

24 on Ways and Means of the House of Representatives and
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1 the Committee on Finance of the Senate, a draft of any

2 technical and conforming changes in the Internal Revenue

3 Code of 1986 which are necessary to reflect throughout

4 the Code the changes in the substantive provisions of the

5 Code made by subsection (a) of this section.

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

7 this section apply with respect to a purchase described in

8 section 1046(a)(1) of the Internal Revenue Code of 1986

9 (as added by this section) of a telecommunications busi10 ness or any equity interest on or after the date of enact11 ment of this Act.

12 SEC. 4. ADDITIONAL SPECIAL TAX RULES FOR CERTAIN

13 TELECOMMUNICATIONS INVESTMENTS.

14 (a) DEPRECIATION-RELATED PROVISIONS.—

15 (1) DEPRECIATION OF CERTAIN TELECOMMUNI16 CATIONS INTANGIBLES.—Section 167(f) of the Inter17 nal Revenue Code of 1986 (relating to treatment of

18 certain property excluded from section 197) is

19 amended by adding at the end thereof the following:

20 ‘‘(4) CERTAIN INTANGIBLE ASSETS.—If a de21 preciation deduction is allowable under subsection

22 (a) with respect to an intangible asset described in

23 section 197(e)(9), the deduction shall be computed

24 by using the method described in section

25 168(b)(1).’’.
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1 (2) TREATMENT AS INTANGIBLE ASSET.—Sec2 tion 197 of such Code (relating to amortization of

3 goodwill and certain other intangibles) is amended—

4 (A) by striking ‘‘and’’ after the semicolon

5 in subsection (d)(1)(E);

6 (B) by striking ‘‘tradename.’’ in subsection

7 (d)(1)(F) and inserting ‘‘tradename; and’’;

8 (C) by adding at the end of subsection

9 (d)(1) the following:

10 ‘‘(G) stock in a C corporation which is an

11 eligible purchaser (as defined in section

12 1046(g)(1)) engaged in a telecommunications

13 business (as defined in section 1046(g)(6)) to

14 the extent that the cost of such stock does not

15 exceed $5,000,000.’’; and

16 (D) by adding at the end of subsection (e)

17 the following:

18 ‘‘(9) TELECOMMUNICATIONS INTANGIBLES NOT

19 A SECTION 197 INTANGIBLE ASSET.—Any item de20 scribed in subsection (d) which is owned by an eligi21 ble purchaser (as defined in section 1046(g)(1)) en22 gaged in a telecommunications business (as defined

23 in section 1046(g)(6)).’’.

24 (b) ORDINARY LOSS TREATMENT FOR CERTAIN

25 TELECOMMUNICATIONS LOSSES.—
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1 (1) IN GENERAL.—Part IV of subchapter P of

2 chapter 1 of the Internal Revenue Code of 1986 is

3 amended by inserting after section 1244 the fol4 lowing:

5 ‘‘SEC. 1244A. LOSSES ON STOCK IN TELECOMMUNICATIONS

6 CORPORATIONS.

7 ‘‘(a) GENERAL RULE.—A loss on stock in a corpora8 tion which is an eligible purchaser (as defined in section

9 1046(g)(1)) engaged in a telecommunications business (as

10 defined in section 1046(g)(6)) that would (but for this sec11 tion) be treated as a loss from the sale or exchange of

12 a capital asset, shall be treated as an ordinary loss.

13 ‘‘(b) MAXIMUM AMOUNT FOR ANY TAXABLE YEAR.—

14 For any taxable year, the aggregate amount treated by

15 the taxpayer by reason of this section as an ordinary loss

16 may not exceed $5,000,000.’’.

17 (2) CONFORMING AMENDMENT.—The analysis

18 for such part is amended by inserting after the item

19 relating to section 1244 the following:

‘‘1244A. Losses on stock in telecommunications corporations.’’.

20 (c) EXCLUSION OF 50 PERCENT OF GAIN.—Section

21 1202 of the Internal Revenue Code of 1986 (relating to

22 50-percent exclusion for gain from certain small business

23 stock) is amended—

24 (1) by striking subsection (a) and inserting the

25 following:
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1 ‘‘(a) 50-PERCENT EXCLUSION.—

2 ‘‘(1) TAXPAYERS NOT CORPORATIONS.—In the

3 case of a taxpayer other than a corporation, gross

4 income does not include 50 percent of any gain from

5 the sale or exchange of qualified small business

6 stock held for more than 5 years.

7 ‘‘(2) CERTAIN TELECOMMUNICATIONS INVEST8 MENTS BY CORPORATIONS AND INVESTMENT COMPA9 NIES.—Gross income does not include 50 percent of

10 any gain from the sale or exchange of stock in an

11 eligible purchaser (as defined in section 1046(g)(1))

12 engaged in a telecommunications business (as de13 fined in section 1046(g)(6)) held for more than 5

14 years.’’;

15 (2) by striking subparagraphs (A) and (B) of

16 subsection (b)(1) and inserting the following:

17 ‘‘(A) in the case of gain from the sale or

18 exchange of qualified small business stock held

19 for more than 5 years—

20 ‘‘(i) $10,000,000 reduced by the ag21 gregate amount of eligible gain taken into

22 account by the taxpayer under subsection

23 (a) for prior taxable years and attributable

24 to dispositions of stock issued by such cor25 porations; or
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1 ‘‘(ii) 10 times the aggregate adjusted

2 bases of qualified small business stock

3 issued by such corporations and disposed

4 of by the taxpayer during the taxable year;

5 ‘‘(B) in the case of gain from the sale or

6 exchange of stock in an eligible purchaser en7 gaged in a telecommunications business for

8 more than 5 years—

9 ‘‘(i) $20,000,000 reduced by the ag10 gregate amount of eligible gain taken into

11 account by the taxpayer under subsection

12 (a) for prior taxable years and attributable

13 to dispositions of stock issued by an eligi14 ble purchaser engaged in a telecommuni15 cations business; or

16 ‘‘(ii) 15 times the aggregate adjusted

17 bases of stock of an eligible purchaser en18 gaged in a telecommunications business

19 issued by such eligible purchaser and dis20 posed of by the taxpayer during the tax21 able year.’’;

22 (2) by striking ‘‘years.’’ in subsection (b)(2)

23 and inserting ‘‘years or any gain from the sale or ex24 change of stock in an eligible purchaser engaged in
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1 a telecommunications business held for more than 5

2 years.’’; and

3 (3) by striking ‘‘ ‘$10,000,000’.’’ in subsection

4 (b)(3)(A) and inserting ‘‘ ‘$10,000,000’, and para5 graph (1)(B) shall be applied by substituting

6 ‘$10,000,000’ for ‘$20,000,000’.’’.

7 (d) DEFERRAL OF CERTAIN TELECOMMUNICATIONS

8 CAPITAL GAINS BY CORPORATIONS AND INVESTMENT

9 COMPANIES.—Section 1044 of the Internal Revenue Code

10 of 1986 (relating to rollover of publicly-traded securities

11 gains into specialized small business investment compa12 nies) is amended—

13 (1) by striking subsection (a)(1) and inserting

14 the following:

15 ‘‘(1) the cost of any common stock or partner16 ship interest in—

17 ‘‘(A) a specialized small business invest18 ment company purchased by the taxpayer dur19 ing the 60-day period beginning on the date of

20 such sale; or

21 ‘‘(B) an eligible purchaser (as defined in

22 section 1046(g)(1)) engaged in a telecommuni23 cations business (as defined in section

24 1046(g)(6)) purchased by the taxpayer during
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1 the 60-day period beginning on the date of such

2 sale,

3 reduced by—’’; and

4 (2) by redesignating paragraph (4) of sub5 section (b) as paragraph (5) and inserting after

6 paragraph (3) the following:

7 ‘‘(4) LIMITATION ON CERTAIN C CORPORATIONS

8 AND INVESTMENT COMPANIES.—In the case of a C

9 corporation or an investment company acquiring

10 common stock or a partnership interest described in

11 subsection (a)(1)(B), the amount of gain that may

12 be excluded under subsection (a) for any taxable

13 year shall not exceed the lesser of—

14 ‘‘(A) $750,000; or

15 ‘‘(B) $4,500,000, reduced by the amount

16 of gain excluded under subsection (a) for all

17 preceding taxable years.’’.

18 (e) EFFECTIVE DATE.—

19 (1) The amendments made by subsection (a)

20 shall apply to property placed in service after June

21 30, 1999.

22 (2) The amendments made by subsections (b)

23 and (c) shall apply to stock acquired after June 30,

24 1999.
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1 (3) The amendments made by subsection (d)

2 shall apply to sales after June 30, 1999.

3 SEC. 5. BIENNIAL PROGRAM AUDITS BY GAO.

4 No later than January 1, 2003, and no less fre5 quently than every 2 years thereafter, the Comptroller

6 General shall audit the administration of sections of the

7 Internal Revenue Code of 1986 added or amended by sec8 tions 3 and 4 of this Act, and issue a report on the results

9 of that audit. The Comptroller General shall include in

10 the report, notwithstanding any provision of section 6103

11 of the Internal Revenue Code of 1986 to the contrary—

12 (1) a list of eligible purchasers (as defined in

13 section 1046(g)(1) of such Code) and any other tax14 payer receiving a benefit from the operation of sec15 tion 48A, 167, 197, 1044, 1046, 1202, or 1244A of

16 such Code as that section was added or amended by

17 section 3 of this Act; and

18 (2) an assessment of the effect the amendments

19 made by sections 3 and 4 of this Act have had with

20 respect to increasing new entry into the tele21 communications industry by small businesses and

22 businesses owned or controlled by members of mi23 nority groups and women.

Æ