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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1952 Introduced in Senate (IS)]

106th CONGRESS
  1st Session
                                S. 1952

  To amend the Internal Revenue Code of 1986 to provide a simplified 
  method for determining a partner's share of items of a partnership 
                 which is a qualified investment club.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                           November 17, 1999

  Mr. Abraham 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 a simplified 
  method for determining a partner's share of items of a partnership 
                 which is a qualified investment club.

    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 ``Small Investors Tax Simplification 
Act of 1999''.

SEC. 2. ELECTION TO USE SIMPLIFIED METHOD FOR QUALIFIED INVESTMENT 
              CLUBS.

    (a) In General.--Part I of subchapter K of chapter 1 of the 
Internal Revenue Code of 1986 (relating to determination of tax 
liability of partners and partnerships) is amended by inserting after 
section 704 the following new section:

``SEC. 704A. ELECTION TO USE SIMPLIFIED METHOD FOR QUALIFIED INVESTMENT 
              CLUBS.

    ``(a) In General.--Notwithstanding any other provision of this 
subchapter, a partner's distributive share of all items of income, 
gain, loss, deduction, or credit of a qualified investment club shall 
be determined under the simplified method.
    ``(b) Simplified Method.--For purposes of this section--
            ``(1) In general.--The term `simplified method' means a 
        method pursuant to which a partnership allocates each of the 
        items of income, gain, loss, deduction, and credit for its 
        taxable year to its partners based on their proportionate 
        interests on the last day of such taxable year in partnership 
        profits.
            ``(2) Exception for distributions during year.--The 
        partnership may take into account the partners' varying 
        interests in partnership profits resulting from distributions 
        during the taxable year in determining the partners' interests 
        in partnership profits for purposes of paragraph (1).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified investment club.--The term `qualified 
        investment club' means, with respect to any taxable year, any 
        partnership--
                    ``(A) which is not required to be registered under 
                the Investment Company Act of 1940,
                    ``(B) for which no person who is registered as an 
                investment adviser under the Investment Advisers Act of 
                1940 substantially participates in the management or 
                investment decisions thereof,
                    ``(C) all of the partners of which are qualified 
                partners for the calendar year in which the taxable 
                year of the partnership ends,
                    ``(D) at least 90 percent of the gross income of 
                which is derived from items described in section 
                851(b)(2),
                    ``(E) at least 90 percent of the value of the total 
                assets of which, at the end of each quarter of such 
                year, consists of cash, cash items (including 
                receivables), and securities,
                    ``(F) the taxable year of which is the calendar 
                year, and
                    ``(G) for which an election under subsection (e) is 
                in effect.
            ``(2) Qualified partner.--
                    ``(A) In general.--The term `qualified partner' 
                means--
                            ``(i) any individual other than a 
                        nonresident alien,
                            ``(ii) any individual retirement plan, and
                            ``(iii) any education individual retirement 
                        account (as defined in section 530).
                    ``(B) Limitation on contributions by individuals.--
                An individual shall not be a qualified partner for any 
                calendar year if the aggregate contributions by such 
                individual to qualified investment clubs (determined 
                without regard to paragraph (1)(C)) during such 
                calendar year exceeds $3,000 or exceeds $3,000 during 
                any of the 5 preceding calendar years.
                    ``(C) Limitation on contributions by trusts.--
                            ``(i) In general.--A plan or account 
                        referred to in subparagraph (A) (hereafter in 
                        this subparagraph referred to as a `trust') 
                        shall not be a qualified partner for any 
calendar year if the aggregate contributions to qualified investment 
clubs (determined without regard to paragraph (1)(C)) during such 
calendar year by such trust exceeds the excess of--
                                    ``(I) the product of $3,000 and the 
                                number of years before such calendar 
                                year that such trust held any asset, 
                                over
                                    ``(II) the aggregate contributions 
                                made to qualified investment clubs (as 
                                so determined) by such trust during all 
                                prior calendar years.
                            ``(ii) Aggregation of related trusts.--For 
                        purposes of this subparagraph--
                                    ``(I) all trusts having the same 
                                beneficiary shall be treated as 1 
                                trust, and
                                    ``(II) only the trust having the 
                                longest period described in clause 
                                (i)(I) shall be taken into account 
                                thereunder.
                            ``(iii) Fractions of a year.--For purposes 
                        of clause (i)(I), a fraction of a year shall be 
                        counted as a whole year.
                    ``(D) No attribution between individuals and 
                trusts.--Notwithstanding any other provision of this 
                title, there shall be no attribution of contributions 
                between a trust and an individual.
            ``(3) Securities.--
                    ``(A) Definition.--The term `security' has the 
                meaning given to such term by section 475(c)(2) 
                (determined without regard to subparagraph (F) 
                thereof).
                    ``(B) Certain rules to apply.--For purposes of 
                paragraph (1)(E), rules similar to the rules of 
                paragraphs (4) and (5) of section 851(c), shall apply.
    ``(d) Inflation Adjustment.--In the case of calendar years after 
1999, the $3,000 amounts contained in subsection (c)(2) shall each be 
increased for any calendar year after 2000 by an amount equal to--
            ``(1) $3,000, multiplied by
            ``(2) the cost-of-living adjustment under section 1(f)(3) 
        for such calendar year, determined by substituting `calendar 
        year 1999' for `calendar year 1992' in subparagraph (B) 
        thereof.
Any increase under this subsection which is not a multiple of $50 shall 
be rounded to the nearest multiple of $50.
    ``(e) Election.--An election under this subsection shall be made on 
the return for the taxable year for which it is made and shall apply to 
such taxable year and all subsequent taxable years for which the 
partnership is a qualified investment club, unless the election is 
revoked with the consent of the Secretary.
    ``(f) Termination of Qualified Investment Club Status.--An election 
under subsection (e) shall terminate as of the 1st day of any taxable 
year during which the partnership ceases to be a qualified investment 
club and, solely for purposes of section 704(c), each partner shall be 
treated as contributing on such first day such partner's pro rata share 
of the partnership's assets and liabilities on such first day to a new 
partnership.
    ``(g) Inadvertent Invalid Elections or Terminations.--The Secretary 
shall provide a relief mechanism for treating a partnership as a 
qualified investment club in circumstances where--
            ``(1) an election under subsection (e) was not effective 
        for the taxable year for which made by reason of an inadvertent 
        failure to satisfy any requirement of subsection (c), or
            ``(2) there is an inadvertent termination under subsection 
        (f) of such an election.
    ``(h) Election After Termination.--If an election under subsection 
(e) by a partnership is terminated or revoked, such partnership shall 
not be eligible to make an election under subsection (e) for any 
taxable year before its 5th taxable year which begins after the 1st 
taxable year for which such termination or revocation is effective, 
unless the Secretary consents to such election.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section, 
including regulations regarding the status of an individual or trust as 
a qualified partner.''.
    (b) Clerical Amendment.--The table of sections for part I of 
subchapter K of chapter 1 of such Code is amended by inserting after 
the item relating to section 704 the following new item:

                              ``Sec. 704A. Election to use simplified 
                                        method for qualified investment 
                                        clubs.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.
                                 <all>
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