I 

108TH CONGRESS 

1ST SESSION H. R. 496

To amend the Internal Revenue Code of 1986 to allow individuals to defer 

recognition of reinvested capital gains distributions from regulated investment companies. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 29, 2003

Mr. SAXTON (for himself, Mr. ABERCROMBIE, Mr. AKIN, Mr. ANDREWS, Mrs. 

CUBIN, Ms. DUNN, Mr. ENGLISH, Mr. FERGUSON, Mr. FOSSELLA, Mrs. 

JOHNSON of Connecticut, Mr. KOLBE, Mr. LUCAS of Kentucky, Mr. 

PAUL, Mr. ROHRABACHER, Mr. SHAYS, and Mr. WILSON of South Carolina) introduced the following bill; which was referred to the Committee 

on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to allow individuals to defer recognition of reinvested capital gains 

distributions from regulated investment companies.

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

3 SECTION 1. DEFERRAL OF CERTAIN REINVESTED CAPITAL 

4 GAIN DIVIDENDS OF REGULATED INVEST5 MENT COMPANIES. 

6 (a) IN GENERAL.—Part III of subchapter O of chap7 ter 1 of the Internal Revenue Code of 1986 (relating to 
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1 common nontaxable exchanges) is amended by inserting 

2 after section 1045 the following new section: 

3 ‘‘SEC. 1046. CERTAIN REINVESTED CAPITAL GAIN DIVI4 DENDS OF REGULATED INVESTMENT COMPA5 NIES. 

6 ‘‘(a) NONRECOGNITION OF GAIN.—In the case of an 

7 individual electing the application of this section, no gain 

8 shall be recognized on the receipt of a capital gain divi9 dend distributed by a regulated investment company to 

10 which part I of subchapter M applies if such capital gain 

11 dividend is automatically reinvested in additional shares 

12 of the company pursuant to a dividend reinvestment plan. 

13 ‘‘(b) LIMITATION.—

14 ‘‘(1) IN GENERAL.—The amount of gain that 

15 may be deferred under subsection (a) for any taxable 

16 year shall not exceed—

17 ‘‘(A) $3,000, or 

18 ‘‘(B) in the case of a joint return, twice 

19 the amount in subparagraph (A). 

20 ‘‘(2) INFLATION ADJUSTMENT OF MAXIMUM EX21 CLUSION.—

22 ‘‘(A) IN GENERAL.—In the case of any 

23 taxable year beginning in a calendar year after 

24 2003, the amount in paragraph (1)(A) shall be 

25 increased by an amount equal to—
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1 ‘‘(i) such dollar amount, multiplied by 

2 ‘‘(ii) the cost-of-living adjustment de3 termined under section 1(f)(3) for the cal4 endar year in which the taxable year be5 gins, determined by substituting ‘calendar 

6 year 2002’ for ‘calendar year 1992’ in sub7 paragraph (B) thereof. 

8 ‘‘(B) ROUNDING RULES.—The amount in 

9 paragraph (1)(A), after adjustment under para10 graph (2)(A), shall be rounded to the nearest 

11 multiple of $100. 

12 ‘‘(c) CAPITAL GAIN DIVIDEND.—For purposes of this 

13 section, the term ‘capital gain dividend’ has the meaning 

14 given to such term by section 852(b)(3)(C). 

15 ‘‘(d) RECAPTURE OF PREVIOUSLY DEFERRED CAP16 ITAL GAIN DIVIDENDS.—Amounts deferred pursuant to 

17 subsection (a) (and not previously recognized under this 

18 subsection) shall be recognized upon the subsequent sale 

19 or redemption of shares in the distributing company to 

20 the extent of the taxpayer’s adjusted basis in the shares 

21 so sold or redeemed. 

22 ‘‘(e) SECTION NOT TO APPLY TO CERTAIN TAX23 PAYERS.—No deduction shall be allowed under this section 

24 to—
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1 ‘‘(1) an individual with respect to whom a de2 duction under section 151 is allowable to another 

3 taxpayer for a taxable year beginning in the cal4 endar year in which such individual’s taxable year 

5 begins, or 

6 ‘‘(2) an estate or trust. 

7 ‘‘(f) ELECTION.—An election under this section shall 

8 be made at such time and in such manner as the Secretary 

9 may prescribe.’’. 

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 852(b)(3)(B) is amended by adding 

12 at the end the following new sentence: ‘‘For rules re13 garding nonrecognition of gain with respect to cer14 tain reinvested capital gain dividends received by in15 dividuals, see section 1046.’’. 

16 (2) The table of sections for part III of sub17 chapter O of chapter 1 of such Code is amended by 

18 inserting after the item relating to section 1045 the 

19 following new item:

‘‘Sec. 1046. Certain Reinvested Capital Gain Dividends of Regulated Investment 

Companies.’’.

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2002.

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