I
104TH CONGRESS
1ST SESSION
H. R. 2383
To amend the Internal Revenue Code of 1986 to modify certain rules relating
to subchapter S corporations.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 21, 1995
Mr. MCHALE 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 modify
certain rules relating to subchapter S corporations.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the ‘‘S
Corporation Investment Act of 1995’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. S CORPORATIONS PERMITTED TO HAVE 40 SHARE-
HOLDERS.
Subparagraph (A) of section 1361(b)(1) (defining
small business corporation) is amended by striking ‘‘35
shareholders’’ and inserting ‘‘40 shareholders’’.
SEC. 3. MEMBERS OF FAMILY TREATED AS 1 SHARE-
HOLDER.
Paragraph (1) of section 1361(c) (relating to special
rules for applying subsection (b)) is amended to read as
follows:
‘‘(1) MEMBERS
OF
FAMILY
TREATED
AS
SHAREHOLDER.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(1)(A)—
‘‘(i) except as provided in clause (ii),
a husband and wife (and their estates)
shall be treated as 1 shareholder, and
‘‘(ii) in the case of a family with re-
spect to which an election is in effect
under subparagraph (E), all members of
the family shall be treated as 1 share-
holder.
‘‘(4) CONTRIBUTIONS TO RESERVE.—The rein-
vestment reserve shall not accept any payments (or
other amounts) other than payments with respect to
which a deduction is allowable under subsection (a).
‘‘(5) DISTRIBUTIONS
FROM
RESERVE.—There
shall be includible in the gross income of the S cor-
poration for any taxable year any amount distrib-
uted from the reinvestment reserve during such tax-
able year.
‘‘(6) TREATMENT
OF
AMOUNTS
NOT
WITH-
DRAWN WITHIN 3 YEARS.—
‘‘(A) IN GENERAL.—Any amount not with-
drawn from the reinvestment reserve within the
3-year period beginning on the date of its de-
posit shall be treated as distributed as of the
close of such period.
‘‘(B) DEEMED DISTRIBUTIONS TAXED AT
HIGHEST MARGINAL RATE.—If any amount is
treated under subparagraph (A) as distributed
during any taxable year—
‘‘(i) such amount shall be excluded
from the gross income of the corporation,
and
‘‘(ii) there is hereby imposed on such
amount a tax equal to the product of such
amount and the highest rate of tax speci-
fied in section 1.
‘‘(C) CERTAIN
RULES
TO
APPLY.—Rules
similar to the rules of subparagraphs (B) and
(C) of paragraphs (5) and (6) of section
7518(g) shall apply for purposes of this para-
graph.
‘‘(d) TIME WHEN PAYMENTS DEEMED MADE.—For
purposes of this section, a taxpayer shall be deemed to
have made a payment to the reinvestment reserve on the
last day of a taxable year if such payment is made on
account of such taxable year and is made with 21⁄2 months
after the close of such taxable year.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter S of chapter 1 is amended by
adding at the end the following new section:
‘‘Sec. 1376. Reinvestment reserve.’’
SEC. 6. EFFECTIVE DATE.
The amendments made by this Act shall apply to tax-
able years beginning after the date of the enactment of
this Act.
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