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108TH CONGRESS 

1ST SESSION H. R. 50

To amend the Internal Revenue Code of 1986 to eliminate the double taxation 

of dividends. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 7, 2003

Mr. COX (for himself, Mrs. BIGGERT, Mr. BROWN of South Carolina, Mr. 

CANTOR, Mrs. JO ANN DAVIS of Virginia, Mr. DEMINT, Mr. DUNCAN, 

Mr. ENGLISH, Mr. FLAKE, Mr. GALLEGLY, Mr. HERGER, Mr. HYDE, Mr. 

ISTOOK, Mr. KOLBE, Mr. LATHAM, Mr. NETHERCUTT, Mr. OTTER, Mr. 

PAUL, Mr. PENCE, Mr. PETRI, Mr. PLATTS, Mr. SESSIONS, Mr. SHADEGG, Mr. SHUSTER, Mr. SMITH of Michigan, Mr. SOUDER, Mr. 

SWEENEY, Mr. TIAHRT, Mr. WELDON of Florida, 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 eliminate 

the double taxation of dividends.

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 ‘‘Investor Protection, 

5 Market Stabilization, and Tax Fairness Restoration Act 

6 of 2003’’. 
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1 SEC. 2. FINDINGS. 

2 Congress finds that: 

3 (1) Corporate earnings paid out as dividends 

4 are taxed once at the full corporate rate, and again 

5 at the full individual rate, leading to an effective 

6 rate that can be in excess of 60%. 

7 (2) This confiscatory taxation of dividends has 

8 contributed to a steady diminution of dividend pay9 out ratios and the virtual elimination of dividends as 

10 the primary method of rewarding equity investors 

11 for risk. 

12 (3) When taxation makes dividend distributions 

13 uneconomical, investors are forced to look at sale or 

14 collateralization of stock as essentially the only ways 

15 of achieving an adequate rate of return on invest16 ment. 

17 (4) As a result, even companies with healthy 

18 earnings are unable to protect their investors from 

19 loss during a stock market downturn. 

20 SEC. 3. PURPOSE. 

21 The purpose of this Act is to protect taxpaying inves22 tors in America’s equity markets, promote a greater cor23 relation between earnings and equity prices, and encour24 age economic growth by eliminating the unfair double tax25 ation of dividends. 
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1 SEC. 4. ELIMINATION OF DOUBLE TAX ON DIVIDENDS. 

2 (a) DIVIDENDS RECEIVED BY INDIVIDUALS.—

3 (1) CREDIT FOR TAX PAID BY DISTRIBUTING

4 CORPORATION.—Part IV of subchapter A of chapter 

5 1 of the Internal Revenue Code of 1986 is amended 

6 by adding at the end thereof the following new sub7 part: 

8 ‘‘Subpart H—Individual Shareholder Credit

‘‘Sec. 54. Allowance of shareholder credit. 

‘‘Sec. 54A. Determination of shareholder credit. 

‘‘Sec. 54B. Inclusion of shareholder credit.

9 ‘‘SEC. 54. ALLOWANCE OF SHAREHOLDER CREDIT. 

10 ‘‘(a) GENERAL RULE.—In the case of a taxpayer 

11 other than a corporation, there shall be allowed as a credit 

12 against the tax imposed by this chapter for the taxable 

13 year an amount equal to the shareholder credits deter14 mined with respect to dividends from domestic corpora15 tions received by the taxpayer during the taxable year. 

16 ‘‘(b) LIMITATION.—The amount allowed as a credit 

17 under subsection (a) for any taxable year shall not exceed 

18 the sum of—

19 ‘‘(1) the regular tax liability of the taxpayer for 

20 the taxable year reduced by the sum of the credits 

21 allowable under this part (other than subpart C), 

22 and 

23 ‘‘(2) the minimum tax imposed by section 55. 
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1 ‘‘(c) NONRESIDENT ALIENS.—No credit shall be al2 lowed under this section to any nonresident alien with re3 spect to any dividend unless such dividend is taxable under 

4 section 871(b) (relating to income effectively connected 

5 with United States business). 

6 ‘‘SEC. 54A. DETERMINATION OF SHAREHOLDER CREDIT. 

7 ‘‘(a) GENERAL RULE.—For purposes of this subpart, 

8 the shareholder credit with respect to any dividend paid 

9 by a domestic corporation is an amount which bears the 

10 same ratio to such corporation’s post-2002 Federal income 

11 taxes as—

12 ‘‘(1) the amount of such dividend (determined 

13 without regard to section 54B), bears to 

14 ‘‘(2) such corporation’s post-2002 undistributed 

15 earnings. 

16 ‘‘(b) POST-2002 FEDERAL INCOME TAXES.—For 

17 purposes of this section—

18 ‘‘(1) IN GENERAL.—The term ‘post-2002 Fed19 eral income taxes’ means the sum of—

20 ‘‘(A) the Federal income taxes with respect 

21 to the taxable year of the distributing corpora22 tion in which the dividend is distributed, plus 

23 ‘‘(B) the Federal income taxes with respect 

24 to prior taxable years of such corporation begin25 ning after December 31, 2002, reduced by the 
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1 amount of shareholder credits determined with 

2 respect to distributions by such corporation in 

3 such prior taxable years. 

4 ‘‘(2) FEDERAL INCOME TAXES.—The term 

5 ‘Federal income taxes’ means any tax paid by the 

6 corporation under this chapter. Any shareholder 

7 credit determined under this section with respect to 

8 a dividend received by the corporation during any 

9 taxable year shall be treated as a tax paid by the 

10 corporation under this chapter for such taxable year. 

11 ‘‘(c) POST-2002 UNDISTRIBUTED EARNINGS.—For 

12 purposes of this section, the term ‘post-2002 undistributed 

13 earnings’ means the earnings and profits of the distrib14 uting corporation accumulated in taxable years beginning 

15 after December 31, 2002, determined—

16 ‘‘(1) as of the close of the taxable year in which 

17 the dividend is distributed, and 

18 ‘‘(2) without diminution by reason of dividends 

19 distributed during such taxable year. 

20 ‘‘SEC. 54B. INCLUSION OF SHAREHOLDER CREDIT. 

21 ‘‘In the case of a taxpayer other than a corporation, 

22 gross income shall include the amount of the shareholder 

23 credits determined under section 54A with respect to divi24 dends received by such shareholder.’’
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1 (2) CLERICAL AMENDMENT.—The table of sub2 parts for part IV of subchapter A of chapter 1 of 

3 such Code is amended by adding at the end thereof 

4 the following new item:

‘‘Subpart H. Individual shareholder credit.’’

5 (3) EFFECTIVE DATE.—The amendments made 

6 by this subsection shall apply to dividends paid out 

7 of earnings and profits for taxable years beginning 

8 after December 31, 2002. 

9 (b) DIVIDENDS RECEIVED BY CORPORATIONS.—

10 (1) IN GENERAL.—Subsection (a) of section 

11 243 of such Code (relating to dividends received by 

12 corporations) is amended to read as follows: 

13 ‘‘(a) GENERAL RULE.—In the case of a corporation, 

14 there shall be allowed as a deduction an amount equal to 

15 100 percent of the amount received as dividends from a 

16 domestic corporation which is subject to taxation under 

17 this chapter.’’

18 (2) DIVIDENDS ON CERTAIN PREFERRED

19 STOCK.—Section 244 of such Code (relating to divi20 dends received on certain preferred stock) is amend21 ed—

22 (A) by striking ‘‘70 percent’’ in subsection 

23 (a)(3) and inserting ‘‘100 percent’’, 

24 (B) by striking ‘‘(a) IN GENERAL.—’’, and 

25 (C) by striking subsection (b).
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1 (3) TECHNICAL, CONFORMING AND CLERICAL

2 AMENDMENTS.—

3 (A) Section 243 of such Code (relating to 

4 dividends received by corporations) is amended 

5 by striking subsections (b) and (c) and by re6 designating subsections (d) and (e) as sub7 sections (b) and (c), respectively. 

8 (B) Subsection (b) of section 246 of such 

9 Code (relating to rules applying to deductions 

10 for dividends received) is amended—

11 (i) in paragraph (1) by striking 

12 ‘‘243(a)(1), 244(a)’’ each time it appears 

13 and inserting ‘‘243, 244’’ and by striking 

14 ‘‘the percentage determined under para15 graph (3) of’’, and 

16 (ii) by striking paragraph (3).

17 (C)(i) Subparagraph (A) of section 

18 805(a)(4) of such Code (relating to dividends 

19 received by life insurance companies) is amend20 ed by striking all that follows ‘‘subparagraph 

21 (B))’’ and inserting a period. 

22 (ii) Subparagraph (B) of section 805(a)(4) 

23 of such Code is amended—
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1 (I) by striking ‘‘243(a)(1), 244(a)’’ 

2 each place it appears and inserting ‘‘243, 

3 244’’, 

4 (II) by striking ‘‘the percentage deter5 mined under section 246(b)(3) of’’, and 

6 (III) by striking ‘‘(and such limitation 

7 shall be applied as provided in section 

8 246(b)(3))’’. 

9 (iii) Paragraph (4) of section 805(a) of 

10 such Code is amended by striking subpara11 graphs (C), (D), (E), and (F) and inserting the 

12 following: 

13 ‘‘(C) DISTRIBUTIONS OUT OF TAX-EXEMPT

14 INTEREST.—No deduction shall be allowed by 

15 reason of this paragraph with respect to any 

16 dividend to the extent the dividend is a distribu17 tion out of tax-exempt interest.’’

18 (D) Subparagraph (C) of section 861(a)(2) 

19 of such Code (relating to income from sources 

20 within the United States) is amended by strik21 ing ‘‘243(e)’’ and inserting ‘‘243(c)’’. 

22 (E) Subparagraph (B) of section 

23 1504(c)(2) of such Code (relating to definition 

24 of includible insurance companies) is amended 

25 by striking clause (i) and by redesignating 
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1 clauses (ii) and (iii) as clauses (i) and (ii), re2 spectively. 

3 (4) EFFECTIVE DATE.—The amendments made 

4 by this subsection shall apply to taxable years end5 ing after the date of the enactment of this Act.

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