I
105TH CONGRESS
2D SESSION
H. R. 3623
To amend the Internal Revenue Code of 1986 to simplify the individual
capital gains tax for all individuals and to provide modest reductions
in the capital gains tax for most individuals.
IN THE HOUSE OF REPRESENTATIVES
APRIL 1, 1998
Mr. COYNE (for himself, Mr. RANGEL, Mr. STARK, Mr. MATSUI, Mrs. KEN-
NELLY of Connecticut, Mr. MCDERMOTT, Mr. LEWIS of Georgia, Mr.
NEAL of Massachusetts, and Mr. BECERRA) 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 simplify
the individual capital gains tax for all individuals and
to provide modest reductions in the capital gains tax
for most individuals.
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
‘‘Capital Gains Tax Simplification Act of 1998’’.
(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. 3. REDUCTION AND SIMPLIFICATION OF CAPITAL
GAINS TAX.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 (relating to treatment of capital gains) is amended by
adding at the end the following new section:
‘‘SEC. 1203. CAPITAL GAINS DEDUCTION.
‘‘If for any taxable year a taxpayer other than a cor-
poration has a net capital gain, 40 percent of such gain
shall be a deduction from gross income.’’
(b) DEDUCTION ALLOWABLE WHETHER
OR NOT
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—
(1) Subsection (b) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the follow-
ing new paragraph:
‘‘(3) the deduction allowed by section 1203.’’
(2) Subsection (d) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the follow-
ing new paragraph:
‘‘(3) the deduction allowed by section 1203.’’
(c) REPEAL OF TAX PREFERENCE FOR EXCLUSION
ON SMALL BUSINESS STOCK.—
(1) Subsection (a) of section 57 is amended by
striking paragraph (7).
(2) Subclause (II) of section 53(d)(1)(B)(ii) is
amended by striking ‘‘, (5), and (7)’’ and inserting
‘‘and (5)’’.
(d) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection
(h).
(2) Subsection (b) of section 55 is amended by
striking paragraph (3).
(3) Subparagraph (E) of section 163(d)(4) is
amended to read as follows:
‘‘(E) COORDINATION WITH CAPITAL GAINS
DEDUCTION.—The net capital gain taken into
account under section 1203 for any taxable
year shall be reduced (but not below zero) by
the amount which the taxpayer takes into ac-
count as investment income under subpara-
graph (B)(iii) for such year.’’
(4) Paragraph (1) of section 170(e) is amended
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘60 per-
cent (100 percent in the case of a corporation) of
the amount of gain’’.
(5) Subparagraph (B) of section 172(d)(2) is
amended to read as follows:
‘‘(B) the exclusion under section 1202 and
the deduction under section 1203 shall not be
allowed.’’
(6) The last sentence of section 453A(c)(3) is
amended by striking all that follows ‘‘long-term cap-
ital gain,’’ and inserting ‘‘the maximum rate on net
capital gain under section 1201 or the deduction
under section 1203 (whichever is appropriate) shall
be taken into account.’’
(7)(A) Section 641(d)(2)(A) is amended by
striking ‘‘Except as provided in section 1(h), the’’
and inserting ‘‘The’’.
(B) Section 641(d)(2)(C) is amended by insert-
ing after clause (iii) the following new clause:
‘‘(iv) The deduction under section
1203.’’
(8) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain from the sale or ex-
change of capital assets held for more than 1 year,
proper adjustment shall be made for any exclusion
allowable under section 1202 and any deduction al-
lowable under section 1203 to the estate or trust. In
the case of a trust, the deduction allowed by this
subsection shall be subject to section 681 (relating
to unrelated business income).’’
(9) Section 642 is amended by adding at the
end the following new subsection:
‘‘(j) CAPITAL GAINS DEDUCTION.—The deduction
under section 1203 to an estate or trust shall be computed
by excluding the portion (if any) of the gains for the tax-
able year which is includible by the income beneficiaries
under sections 652 and 662 (relating to inclusions of
amounts in gross income of beneficiaries of trusts) as gain
derived from the sale or exchange of capital assets.’’
(10) The last sentence of section 643(a)(3) is
amended to read as follows: ‘‘The exclusion under
section 1202 and the deduction under section 1203
shall not be taken into account.’’
(11) Subparagraph (C) of section 643(a)(6) is
amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and