II

106TH CONGRESS

1ST SESSION S. 1711

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 8, 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) LIMITATION.—Gain is eligible for non14 recognition treatment under this subsection only to

15 the extent that it equals or exceeds the aggregate

16 amount paid or incurred by the taxpayer for the

17 telecommunications businesses or equity interests

18 purchased.

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

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

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

22 telecommunications business occurs and ending—

23 ‘‘(1) 2 years after the close of the first taxable

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

25 from the sale is realized by the taxpayer; or
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1 ‘‘(2) such later date as the Secretary may des2 ignate upon application made by the taxpayer, at

3 such time and in such manner as the Secretary may

4 prescribe, and subject to such terms and conditions

5 as the Secretary may require.

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

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

8 with respect to gain from the sale of property—

9 ‘‘(1) the period for the assessment of a defi10 ciency with respect to such gain for any taxable year

11 in which any part of the gain is realized does not ex12 pire before the expiration of the third taxable year

13 beginning after the taxable year in which the Sec14 retary is notified by the taxpayer of the taxpayer’s

15 purchase described in paragraph (1) or (2) of sub16 section (a), or of the taxpayer’s intention not to

17 make such a purchase; and

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

19 anytime before the expiration of such third taxable

20 year, notwithstanding section 6212 or any other pro21 vision or rule of law.

22 ‘‘(d) BASIS.—

23 ‘‘(1) IN GENERAL.—In the case of a tele24 communications business purchased by the taxpayer

25 in a transaction described in subsection (a)(1), or an
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1 equity interest purchased by the taxpayer in a trans2 action described in subsection (a)(2), the basis shall

3 be the cost of such business or equity interest de4 creased by the amount of the gain not recognized.

5 If the taxpayer purchases more than 1 such business

6 or equity interests, the basis determined under this

7 paragraph shall be allocated to such businesses or

8 equity interests in the same proportion as the

9 amount paid or incurred by the taxpayer for each

10 such business or equity interest bears to the sum of

11 the amounts paid or incurred by the taxpayer for all

12 such businesses or equity interests.

13 ‘‘(2) PROPERTY HELD BY CORPORATION THE

14 STOCK OF WHICH IS REPLACEMENT PROPERTY.—

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

16 in a corporation is decreased under paragraph

17 (1), the basis of property held by the corpora18 tion at the time the taxpayer acquired control

19 of the corporation shall be reduced by an

20 amount equal to the amount of that decrease.

21 ‘‘(B) LIMITATION.—Subparagraph (A)

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

23 for this subparagraph) require a reduction in

24 the aggregate adjusted bases of the property of

25 the corporation below the taxpayer’s adjusted
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1 basis of the stock in the corporation (deter2 mined immediately after that basis is decreased

3 under paragraph (1)).

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

5 The decrease required under subparagraph (A)

6 shall be allocated—

7 ‘‘(i) first to assets of telecommuni8 cations businesses held by the corporation;

9 ‘‘(ii) second to depreciable property

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

11 is not described in clause (i); and

12 ‘‘(iii) then to other property.

13 ‘‘(D) SPECIAL RULES.—

14 ‘‘(i) REDUCTION NOT TO EXCEED AD15 JUSTED BASIS OF PROPERTY.—No reduc16 tion in the basis of any property under this

17 paragraph shall exceed the adjusted basis

18 of such property (determined without re19 gard to the reduction).

20 ‘‘(ii) ALLOCATION OF REDUCTION

21 AMONG PROPERTIES.—If more than 1

22 property is described in a clause of sub23 paragraph (C), then the reduction under

24 this paragraph shall be allocated among
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1 such property in proportion to the adjusted

2 bases of the property (as so determined).

3 ‘‘(e) ACQUISITION FROM UNRELATED PERSON RE4 QUIRED.—

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

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

7 telecommunications business described in subsection

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

9 subsection (a)(2), is purchased from, a related per10 son (within the meaning of section 267(b) or (e)).

11 The preceding sentence does not apply to the extent

12 that the related person acquired that telecommuni13 cations business or that equity interest from a per14 son that is not a related person (within the meaning

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

16 the replacement period.

17 ‘‘(2) TAXPAYERS TO WHICH PARAGRAPH (1) AP18 PLIES.—

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

20 to—

21 ‘‘(i) a C corporation;

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

23 C corporations own, directly or indirectly

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

25 more than 50 percent of the capital inter-
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1 est or profits interest in the partnership at

2 the time of the sale of the telecommuni3 cations business; and

4 ‘‘(iii) any other taxpayer if, with re5 spect to a telecommunications business

6 that is sold during the taxpayer’s taxable

7 year, the aggregate of the amount of gain

8 realized on the sale of the telecommuni9 cations business exceeds $100,000.

10 ‘‘(B) APPLICATION TO PARTNERSHIPS; S

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

12 applied to—

13 ‘‘(i) a partnership both at the partner14 ship level and to each partner; and

15 ‘‘(ii) an S corporation at both the cor16 porate and shareholder level (under rules

17 prescribed by the Secretary).

18 ‘‘(f) CONSEQUENCES OF SUBSEQUENT DISPOSITION

19 BY ELIGIBLE PURCHASER.—

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

21 disposes of the telecommunications business acquired

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

23 subsection (a)(1)), or substantially all of its tele24 communications businesses (in the case of an equity

25 investment described in subsection (a)(2)), within 3
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1 years after the date of that acquisition or equity in2 vestment to any person that is not an eligible pur3 chaser, the eligible purchaser shall recognize gain in

4 the year of disposition equal to the amount of gain

5 deferred by the taxpayer under subsection (a).

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

7 or the eligible purchaser is an individual, paragraph

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

9 of—

10 ‘‘(A) the date of death or bankruptcy of

11 the eligible purchaser (in the case of an indi12 vidual); or

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

14 the taxpayer.

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

16 of this section—

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

18 purchaser’ means—

19 ‘‘(A) the Telecommunications Development

20 Fund established under section 714 of the

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

22 or any wholly-owned affiliate of that Fund;

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

24 or
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1 ‘‘(C) an individual described in paragraph

2 (3).

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

4 paragraph if it is a corporation or a partnership

5 that—

6 ‘‘(A) is controlled by individuals described

7 in paragraph (3); and

8 ‘‘(B) meets the requirements of paragraph

9 (4) at the time of the sale of the telecommuni10 cations business or the equity investment by the

11 taxpayer described in subsection (a).

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

13 in this paragraph if that individual meets the re14 quirements of paragraph (4) at the time of the sale

15 of the telecommunications business or the equity in16 vestment by the taxpayer described in subsection (a)

17 and is—

18 ‘‘(A) a United States citizen; or

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

20 ‘‘(i) a woman;

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

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

23 ‘‘(iv) an Asian American, Native Ha24 waiian or other Pacific Islander; or
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1 ‘‘(v) an American Indian, Alaskan In2 dian, and American Eskimo, or an Aleut.

3 ‘‘(4) NET WORTH AND RELATED REQUIRE4 MENTS.—

5 ‘‘(A) IN GENERAL.—

6 ‘‘(i) SECRETARY OF COMMERCE REC7 OMMENDATIONS.—Within 90 days after

8 the date of enactment of the Telecommuni9 cations Ownership Diversification Act of

10 1999, the Secretary of Commerce shall

11 transmit to the Secretary of the Treasury

12 the Secretary of Commerce’s recommenda13 tions for requirements with respect to the

14 maximum net worth, gross revenues, or

15 total assets of entities described in para16 graph (2) and the maximum net worth of

17 individuals described in paragraph (3).

18 ‘‘(ii) TREASURY REGULATIONS.—

19 Within 180 days after the date of enact20 ment of the Telecommunications Owner21 ship Diversification Act of 1999, the Sec22 retary of the Treasury shall promulgate

23 regulations establishing limits on the max24 imum net worth, gross revenues, or total

25 assets of entities described in paragraph
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1 (2) and maximum net worth of individuals

2 described in paragraph (3), and revise

3 those regulations from time to time as may

4 be appropriate.

5 ‘‘(iii) INDIAN TRIBES AND ALASKA NA6 TIVE CORPORATIONS.—The regulations

7 shall comply with relevant standards of the

8 Small Business Administration and the

9 Federal Communications Commission ap10 plicable to American Indian Tribal entities

11 and Alaska Native Corporations.

12 ‘‘(B) CRITERIA; PROCEDURE.—The Sec13 retary of Commerce, in making recommenda14 tions, and the Secretary of the Treasury, in

15 promulgating regulations, under subparagraph

16 (A)—

17 ‘‘(i) shall ensure that the limits estab18 lished are consistent with market demands

19 by taking into account telecommunications

20 business transactions during the 9 months

21 preceding their establishment, giving great22 er weight to transactions occurring closest

23 in time to their establishment, and by tak24 ing into account changes in the laws and

25 regulations affecting telecommunications
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1 businesses occurring within such 9 month

2 period;

3 ‘‘(ii) shall consult with the Attorney

4 General, the Federal Communications

5 Commission, the Administrator of the

6 Small Business Administration, and other

7 officers or agencies of the United States;

8 ‘‘(iii) may establish the limits without

9 regard to the provisions of chapter 5 of

10 title 5, United States Code, and sections

11 10 and 11 of the Federal Advisory Com12 mittee Act (5 U.S.C. App.); and

13 ‘‘(iv) may, to the extent otherwise

14 consistent with law, take into account such

15 factors as historical inability to access cap16 ital by particular groups, including mem17 bers of minority groups and women, in es18 tablishing limits, but nothing in this clause

19 is intended to prevent the Secretary of

20 Commerce from recommending or the Sec21 retary of the Treasury from establishing,

22 different gross revenue and net worth ceil23 ings for different classes of eligible pur24 chasers, whether individuals described in

25 paragraph (3) or entities described in
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1 paragraph (2), to the extent necessary to

2 promote diversity of ownership in tele3 communications.

4 ‘‘(5) EQUITY INTEREST.—The term ‘equity in5 terest’ means stock in a corporation or, in the case

6 of a partnership, an interest in the capital and prof7 its of the partnership.

8 ‘‘(6) TELECOMMUNICATIONS BUSINESS.—The

9 term ‘telecommunications business’ means—

10 ‘‘(A) substantially all the assets of a facil11 ity engaged in electronic communications, in12 cluding a cable system (as defined in section

13 602(7) of the Communications Act of 1934 (47

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

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

16 a broadcasting station providing television serv17 ice (as defined in section 3(49) of that Act (47

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

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

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

21 video programming (as defined in section

22 602(20) of that Act (47 U.S.C. 602(20)); a

23 provider of commercial mobile services (as de24 fined in section 332(d)(1) of that Act (47

25 U.S.C. 332(d)(1)), a telecommunications carrier
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1 (as defined in section 3(44) of that Act (47

2 U.S.C. 153(44)), a reseller of telecommuni3 cations service or commercial mobile service; a

4 multichannel multipoint distribution service,

5 Internet service provider; Internet content pro6 vider; or a provider of telecommunications or

7 information service equipment or software;

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

9 of the total combined voting power of all classes

10 of stock entitled to vote and at least 80 percent

11 of the total number of shares of all other class12 es of stock of a corporation substantially all of

13 the assets of which consist, directly or indi14 rectly, of assets described in subparagraph (A);

15 and

16 ‘‘(C) 80 percent or more of the total inter17 est in the capital and profits of a partnership

18 substantially all of the assets of which consist,

19 directly or indirectly, of assets described in sub20 paragraph (A).

21 ‘‘(7) PURCHASE.—The taxpayer shall be consid22 ered to have purchased a property if, but for sub23 section (d), the unadjusted basis of the property

24 would be its cost within the meaning of section

25 1012.
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1 ‘‘(8) CONTROL.—

2 ‘‘(A) IN GENERAL.—For purposes of para3 graph (2)(A), an entity is controlled by individ4 uals described in paragraph (3) if the require5 ments of paragraph the requirements of sub6 paragraph (B), (C), or (D) are satisfied.

7 ‘‘(B) 30-PERCENT TEST.—The require8 ments of this subparagraph are satisfied if—

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

10 is a corporation, individuals who meet the

11 requirements of paragraph (3) own 30 per12 cent or more in value of the outstanding

13 stock of the corporation, and more than 50

14 percent of the total combined voting power

15 of all classes of stock entitled to vote of the

16 corporation; and

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

18 is a partnership, individuals who meet the

19 requirements of paragraph (3) own 30 per20 cent or more of the capital interest and the

21 profits interest in the partnership, and

22 more than 50 percent of the total com23 bined voting power of all classes of part24 nership interests entitled to vote.
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1 ‘‘(C) 15-PERCENT TEST.—The require2 ments of this subparagraph are satisfied if—

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

4 is a corporation—

5 ‘‘(I) individuals who meet the re6 quirements of paragraph (3) own 15

7 percent or more in value of the out8 standing stock of the corporation, and

9 more than 50 percent of the total

10 combined voting power of all classes

11 of stock entitled to vote of the cor12 poration; and

13 ‘‘(II) no other person owns more

14 than 25 percent in value of the out15 standing stock of the corporation; and

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

17 is a partnership—

18 ‘‘(I) individuals who meet the re19 quirements of paragraph (3) own 15

20 percent or more of the capital interest

21 and profits interest of the partner22 ship, and more than 50 percent of the

23 total combined voting power of all

24 classes of partnership interests enti25 tled to vote; and
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1 ‘‘(II) no other person owns more

2 than 25 percent of the capital interest

3 and profits interest of the partner4 ship.

5 ‘‘(D) PUBLICLY-TRADED CORPORATIONS

6 TEST.—The requirements of this subparagraph

7 are satisfied if, with respect to a corporation

8 the securities of which are traded on an estab9 lished securities market—

10 ‘‘(i) individuals who meet the require11 ments of paragraph (3) own 50 percent or

12 more of the total combined voting power of

13 all classes of stock entitled to vote of the

14 corporation; and

15 ‘‘(ii) the stock owned by those individ16 uals is not subject to any agreement, ar17 rangement, or understanding which pro18 vides for, or relates to, the voting of the

19 stock in any manner by, or at the direction

20 of, any person other than an eligible indi21 vidual who meets the requirements of para22 graph (3), or the right of any person other

23 than one of those individuals to acquire the

24 voting power through purchase of shares

25 or otherwise.
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1 ‘‘(E) CONSTRUCTIVE OWNERSHIP.—In ap2 plying subparagraphs (B), (C), and (D), the

3 following rules apply:

4 ‘‘(i) Stock or partnership interests

5 owned, directly or indirectly, by or for a

6 corporation, partnership, estate, or trust

7 shall be considered as being owned propor8 tionately by or for its shareholders, part9 ners, or beneficiaries.

10 ‘‘(ii) An individual shall be considered

11 as owning stock and partnership interests

12 owned, directly or indirectly, by or for his

13 family.

14 ‘‘(iii) An individual owning (otherwise

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

16 stock in corporation shall be considered as

17 owning the stock or partnership interests

18 owned, directly or indirectly, by or for his

19 partner.

20 ‘‘(iv) An individual owning (otherwise

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

22 partnership interest in a partnership shall

23 be considered as owning the stock or part24 nership interests owned, directly or indi25 rectly, by or for his partner.
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1 ‘‘(v) The family of an individual shall

2 include only his brothers and sisters

3 (whether by the whole or half blood),

4 spouse, ancestors, and lineal descendants.

5 ‘‘(vi) Stock or partnership interests

6 constructively owned by a person by reason

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

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

9 (iii), or (iv), be treated as actually owned

10 by that person, but stock constructively

11 owned by an individual by reason of the

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

13 not be treated as owned by that individual

14 for the purpose of again applying any of

15 those clauses in order to make another the

16 constructive owner of the stock or partner17 ship interests.’’.

18 (b) TAX CREDIT.—Subpart E of part IV of sub19 chapter A of chapter 1 of the Internal Revenue Code of

20 1986 (relating to rules for computing investment credit)

21 is amended by inserting after section 48 the following:

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

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

24 credit against the tax imposed by this chapter for any tax25 able year an amount equal to 10 percent of the taxable
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1 income of any taxpayer that at all times during that tax2 able year—

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

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

5 (47 U.S.C. 153(44)));

6 ‘‘(2) is not a Bell operating company (as de7 fined in section 3(4) of that Act (47 U.S.C.

8 153(4))); and

9 ‘‘(3) is headquartered in an area designated as

10 an empowerment zone by the Secretary of Housing

11 and Urban Development.’’.

12 (b) CONFORMING AMENDMENTS.—

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

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

15 amended by—

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

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

18 inserting ‘‘credit; and’’; and

19 (C) adding at the end the following:

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

21 (2) CLERICAL AMENDMENTS.—

22 (A) The analysis for part III of subchapter

23 O of chapter 1 of such Code is amended by

24 adding at the end thereof the following:

‘‘1046. Sale of telecommunications business.’’.
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1 (B) The table of sections for Subpart E of

2 part IV of subchapter A of chapter 1 of such

3 Code is amended by inserting after the item re4 lating to section 48 the following:

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

5 (c) TECHNICAL AND CONFORMING CHANGES.—The

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

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

8 on Ways and Means of the House of Representatives and

9 the Committee on Finance of the Senate, a draft of any

10 technical and conforming changes in the Internal Revenue

11 Code of 1986 which are necessary to reflect throughout

12 the Code the changes in the substantive provisions of the

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

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

15 this section apply with respect to a purchase described in

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

17 (as added by this section) of a telecommunications busi18 ness or any equity interest on or after the date of enact19 ment of this Act.

20 SEC. 4. ADDITIONAL SPECIAL TAX RULES FOR CERTAIN

21 TELECOMMUNICATIONS INVESTMENTS.

22 (a) DEPRECIATION-RELATED PROVISIONS.—

23 (1) DEPRECIATION OF CERTAIN TELECOMMUNI24 CATIONS INTANGIBLES.—Section 167(f) of the Inter25 nal Revenue Code of 1986 (relating to treatment of
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1 certain property excluded from section 197) is

2 amended by adding at the end thereof the following:

3 ‘‘(4) CERTAIN INTANGIBLE ASSETS.—If a de4 preciation deduction is allowable under subsection

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

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

7 by using the method described in section

8 168(b)(1).’’.

9 (2) TREATMENT AS INTANGIBLE ASSET.—Sec10 tion 197 of such Code (relating to amortization of

11 goodwill and certain other intangibles) is amended—

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

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

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

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

16 (C) by adding at the end of subsection

17 (d)(1) the following:

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

19 eligible purchaser (as defined in section

20 1046(g)(1)) engaged in a telecommunications

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

22 the extent that the cost of such stock does not

23 exceed $5,000,000.’’; and

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

25 the following:
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1 ‘‘(9) TELECOMMUNICATIONS INTANGIBLES NOT

2 A SECTION 197 INTANGIBLE ASSET.—Any item de3 scribed in subsection (d) which is owned by an eligi4 ble purchaser (as defined in section 1046(g)(1)) en5 gaged in a telecommunications business (as defined

6 in section 1046(g)(6)).’’.

7 (b) ORDINARY LOSS TREATMENT FOR CERTAIN

8 TELECOMMUNICATIONS LOSSES.—

9 (1) IN GENERAL.—Part IV of subchapter P of

10 chapter 1 of the Internal Revenue Code of 1986 is

11 amended by inserting after section 1244 the fol12 lowing:

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

14 CORPORATIONS.

15 ‘‘(a) GENERAL RULE.—A loss on stock in a corpora16 tion which is an eligible purchaser (as defined in section

17 1046(g)(1)) engaged in a telecommunications business (as

18 defined in section 1046(g)(6)) that would (but for this sec19 tion) be treated as a loss from the sale or exchange of

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

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

22 For any taxable year, the aggregate amount treated by

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

24 may not exceed $5,000,000.’’.
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1 (2) CONFORMING AMENDMENT.—The analysis

2 for such part is amended by inserting after the item

3 relating to section 1244 the following:

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

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

5 1202 of the Internal Revenue Code of 1986 (relating to

6 50-percent exclusion for gain from certain small business

7 stock) is amended—

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

9 following:

10 ‘‘(a) 50-PERCENT EXCLUSION.—

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

12 case of a taxpayer other than a corporation, gross

13 income does not include 50 percent of any gain from

14 the sale or exchange of qualified small business

15 stock held for more than 5 years.

16 ‘‘(2) CERTAIN TELECOMMUNICATIONS INVEST17 MENTS BY CORPORATIONS AND INVESTMENT COMPA18 NIES.—Gross income does not include 50 percent of

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

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

21 engaged in a telecommunications business (as de22 fined in section 1046(g)(6)) held for more than 5

23 years.’’;

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

25 subsection (b)(1) and inserting the following:
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1 ‘‘(A) in the case of gain from the sale or

2 exchange of qualified small business stock held

3 for more than 5 years—

4 ‘‘(i) $10,000,000 reduced by the ag5 gregate amount of eligible gain taken into

6 account by the taxpayer under subsection

7 (a) for prior taxable years and attributable

8 to dispositions of stock issued by such cor9 porations; or

10 ‘‘(ii) 10 times the aggregate adjusted

11 bases of qualified small business stock

12 issued by such corporations and disposed

13 of by the taxpayer during the taxable year;

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

15 exchange of stock in an eligible purchaser en16 gaged in a telecommunications business for

17 more than 5 years—

18 ‘‘(i) $20,000,000 reduced by the ag19 gregate amount of eligible gain taken into

20 account by the taxpayer under subsection

21 (a) for prior taxable years and attributable

22 to dispositions of stock issued by an eligi23 ble purchaser engaged in a telecommuni24 cations business; or
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1 ‘‘(ii) 15 times the aggregate adjusted

2 bases of stock of an eligible purchaser en3 gaged in a telecommunications business

4 issued by such eligible purchaser and dis5 posed of by the taxpayer during the tax6 able year.’’;

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

8 and inserting ‘‘years or any gain from the sale or ex9 change of stock in an eligible purchaser engaged in

10 a telecommunications business held for more than 5

11 years.’’; and

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

13 (b)(3)(A) and inserting ‘‘ ‘$10,000,000’, and para14 graph (1)(B) shall be applied by substituting

15 ‘$10,000,000’ for ‘$20,000,000’.’’.

16 (d) DEFERRAL OF CERTAIN TELECOMMUNICATIONS

17 CAPITAL GAINS BY CORPORATIONS AND INVESTMENT

18 COMPANIES.—Section 1044 of the Internal Revenue Code

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

20 gains into specialized small business investment compa21 nies) is amended—

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

23 the following:

24 ‘‘(1) the cost of any common stock or partner25 ship interest in—
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1 ‘‘(A) a specialized small business invest2 ment company purchased by the taxpayer dur3 ing the 60-day period beginning on the date of

4 such sale; or

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

6 section 1046(g)(1)) engaged in a telecommuni7 cations business (as defined in section

8 1046(g)(6)) purchased by the taxpayer during

9 the 60-day period beginning on the date of such

10 sale,

11 reduced by—’’; and

12 (2) by redesignating paragraph (4) of sub13 section (b) as paragraph (5) and inserting after

14 paragraph (3) the following:

15 ‘‘(4) LIMITATION ON CERTAIN C CORPORATIONS

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

17 corporation or an investment company acquiring

18 common stock or a partnership interest described in

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

20 be excluded under subsection (a) for any taxable

21 year shall not exceed the lesser of—

22 ‘‘(A) $750,000; or

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

24 of gain excluded under subsection (a) for all

25 preceding taxable years.’’.
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1 (e) EFFECTIVE DATE.—

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

3 shall apply to property placed in service after June

4 30, 1999.

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

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

7 1999.

8 (3) The amendments made by subsection (d)

9 shall apply to sales after June 30, 1999.

10 SEC. 5. BIENNIAL PROGRAM AUDITS BY GAO.

11 No later than January 1, 2003, and no less fre12 quently than every 2 years thereafter, the Comptroller

13 General shall audit the administration of sections of the

14 Internal Revenue Code of 1986 added or amended by sec15 tions 3 and 4 of this Act, and issue a report on the results

16 of that audit. The Comptroller General shall include in

17 the report, notwithstanding any provision of section 6103

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

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

20 section 1046(g)(1) of such Code) and any other tax21 payer receiving a benefit from the operation of sec22 tion 48A, 167, 197, 1044, 1046, 1202, or 1244A of

23 such Code as that section was added or amended by

24 section 3 of this Act; and
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1 (2) an assessment of the effect the amendments

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

3 respect to increasing new entry into the tele4 communications industry by small businesses and

5 businesses owned or controlled by members of mi6 nority groups and women.

Æ