I
106TH CONGRESS
2D SESSION
H. R. 5569
To amend the Internal Revenue Code of 1986 to tax the net capital gain
of closely held corporations in the same manner as individuals.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 26, 2000
Mr. ENGLISH 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 tax the
net capital gain of closely held corporations in the same
manner as individuals.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. CAPITAL GAINS TAX ON CLOSELY HELD COR-
PORATIONS.
(a) IN GENERAL.—Section 1201 of the Internal Rev-
enue Code of 1986 (relating to alternative tax for corpora-
tions) is amended by striking all that follows subsection
(a) and inserting the following:
‘‘(b) SPECIAL RULE FOR CERTAIN CLOSELY HELD
CORPORATIONS.—
‘‘(1) IN GENERAL.—If for any taxable year a
corporation that meets the stock ownership require-
ment of section 542(a)(2) has a net capital gain and
any rate of tax imposed by section 11 exceeds the
applicable capital gains rate, then, in lieu of the tax
imposed by section 11, there is hereby imposed a tax
(if such tax is less than the tax imposed by section
11) which shall consist of the sum of—
‘‘(A) a tax computed on the taxable in-
come, reduced by an amount equal to the net
capital gain, at the applicable ordinary income
rate,
‘‘(B) a tax at the applicable capital gains
rate on the lesser of—
‘‘(i) the excess (if any) of—
‘‘(I) the net capital gain, over
‘‘(II) the unrecaptured section
1250 gain, or
‘‘(ii) taxable income, plus
‘‘(C) a tax at the applicable recapture rate
on the taxable income in excess of the sum of
the amounts on which a tax is determined
under subparagraphs (A) and (B).
‘‘(2) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) APPLICABLE CAPITAL GAINS RATE.—
The term ‘applicable capital gains rate’ means
the rate described in section 1(h)(1)(C).
‘‘(B) 
APPLICABLE
ORDINARY
INCOME
RATE.—The term ‘applicable ordinary income
rate’ means the highest rate of tax imposed by
section 1 on the taxable income of individuals.
‘‘(C) APPLICABLE RECAPTURE RATE.—The
term ‘applicable recapture rate’ means the rate
described in section 1(h)(1)(D).
‘‘(D) 
UNRECAPTURED
SECTION
1250
GAIN.—
‘‘(i) 
IN
GENERAL.—The 
term
‘unrecaptured section 1250 gain’ means
the excess (if any) of—
‘‘(I) the amount of long-term
capital gain (not otherwise treated as
ordinary income) which would be
treated as ordinary income if section
1250(b)(1) included all depreciation
and the applicable percentage under
section 1250(a) were 100 percent,
over
‘‘(II) the net short-term capital
loss.
‘‘(ii) LIMITATION WITH RESPECT TO
SECTION 1231 PROPERTY.—The amount de-
scribed in clause (i)(I) from sales, ex-
changes, and conversions described in sec-
tion 1231(a)(3)(A) for any taxable year
shall not exceed the net section 1231 gain
(as defined in section 1231(c)(3)) for such
year.
‘‘(c) CROSS REFERENCES.—For computation of the
alternative tax—
‘‘(1) in the case of life insurance companies, see
section 801(a)(2).
‘‘(2) in the case of regulated investment compa-
nies and their shareholders, see section 852(b)(3)(A)
and (D), and
‘‘(3) in the case of real estate investment
trusts, see section 857(b)(3)(A).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 1201(a) of such Code is amended
by inserting ‘‘(other than a corporation described in
subsection (b))’’ after ‘‘a corporation’’.
(2) Section 1374(b)(4) of such Code is amend-
ed to read as follows:
‘‘(4) COORDINATION WITH SECTION 1201.—For
purposes of section 1201—
‘‘(A) the tax imposed by subsection (a)
shall be treated as if it were imposed by section
11, and
‘‘(B) the amount of the net recognized
built-in gain shall be treated as the taxable in-
come.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
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