II 

108TH CONGRESS 

1ST SESSION S. 24

To amend the Internal Revenue Code of 1986 to exclude from gross income 

dividends received by individuals. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 7, 2003

Mrs. HUTCHISON 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 exclude 

from gross income dividends received by individuals.

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

3 SECTION 1. EXCLUSION OF DIVIDEND INCOME FROM TAX. 

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to 

6 amounts specifically excluded from gross income) is 

7 amended by inserting after section 115 the following new 

8 section: 
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1 ‘‘SEC. 116. EXCLUSION OF DIVIDENDS RECEIVED BY INDI2 VIDUALS. 

3 ‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in4 come does not include dividends otherwise includible in 

5 gross income which are received during the taxable year 

6 by an individual. 

7 ‘‘(b) CERTAIN DIVIDENDS EXCLUDED.—Subsection 

8 (a) shall not apply to any dividend from a corporation 

9 which, for the taxable year of the corporation in which 

10 the distribution is made, or for the next preceding taxable 

11 year of the corporation, is a corporation exempt from tax 

12 under section 501 (relating to certain charitable, etc., or13 ganization) or section 521 (relating to farmers’ coopera14 tive associations). 

15 ‘‘(c) SPECIAL RULES.—For purposes of this sec16 tion—

17 ‘‘(1) EXCLUSION NOT TO APPLY TO CAPITAL

18 GAIN DIVIDENDS FROM REGULATED INVESTMENT

19 COMPANIES AND REAL ESTATE INVESTMENT

20 TRUSTS.—

‘‘For treatment of capital gain dividends, see sections 854(a) and 857(c).

21 ‘‘(2) CERTAIN NONRESIDENT ALIENS INELI22 GIBLE FOR EXCLUSION.—In the case of a non23 resident alien individual, subsection (a) shall apply 

24 only—
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1 ‘‘(A) in determining the tax imposed for 

2 the taxable year pursuant to section 871(b)(1) 

3 and only in respect of dividends which are effec4 tively connected with the conduct of a trade or 

5 business within the United States, or 

6 ‘‘(B) in determining the tax imposed for 

7 the taxable year pursuant to section 877(b). 

8 ‘‘(3) DIVIDENDS FROM EMPLOYEE STOCK OWN9 ERSHIP PLANS.—Subsection (a) shall not apply to 

10 any dividend described in section 404(k).’’

11 (b) CONFORMING AMENDMENTS.—

12 (1)(A) Subparagraph (A) of section 135(c)(4) 

13 of such Code is amended by inserting ‘‘116,’’ before 

14 ‘‘137’’. 

15 (B) Subsection (d) of section 135 of such Code 

16 is amended by redesignating paragraph (4) as para17 graph (5) and by inserting after paragraph (3) the 

18 following new paragraph:

19 ‘‘(4) COORDINATION WITH SECTION 116.—This 

20 section shall be applied before section 116.’’

21 (2) Subsection (c) of section 584 of such Code 

22 is amended by adding at the end thereof the fol23 lowing new flush sentence: 

24 ‘‘The proportionate share of each participant in the 

25 amount of dividends received by the common trust fund 
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1 and to which section 116 applies shall be considered for 

2 purposes of such section as having been received by such 

3 participant.’’

4 (3) Subsection (a) of section 643 of such Code 

5 is amended by redesignating paragraph (7) as para6 graph (8) and by inserting after paragraph (6) the 

7 following new paragraph: 

8 ‘‘(7) DIVIDENDS.—There shall be included the 

9 amount of any dividends excluded from gross income 

10 pursuant to section 116.’’

11 (4) Section 854(a) of such Code is amended by 

12 inserting ‘‘section 116 (relating to exclusion of divi13 dends received by individuals) and’’ after ‘‘For pur14 poses of’’. 

15 (5) Section 857(c) of such Code is amended to 

16 read as follows: 

17 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE18 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

19 ‘‘(1) TREATMENT FOR SECTION 116.—For pur20 poses of section 116 (relating to exclusion of divi21 dends received by individuals), a capital gain divi22 dend (as defined in subsection (b)(3)(C)) received 

23 from a real estate investment trust which meets the 

24 requirements of this part shall not be considered as 

25 a dividend. 
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1 ‘‘(2) TREATMENT FOR SECTION 243.—For pur2 poses of section 243 (relating to deductions for divi3 dends received by corporations), a dividend received 

4 from a real estate investment trust which meets the 

5 requirements of this part shall not be considered as 

6 a dividend.’’

7 (6) The table of sections for part III of sub8 chapter B of chapter 1 of such Code is amended by 

9 inserting after the item relating to section 115 the 

10 following new item:

‘‘Sec. 116. Exclusion of dividends received by individuals.’’

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2002.

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