I
103D CONGRESS
1ST SESSION
H. R. 253
To amend the Internal Revenue Code of 1986 to index the basis of certain
assets for purposes of determining gain or loss and to exclude from
gross income all dividends from domestic corporations.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 5, 1993
Mr. NEAL of North 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 index
the basis of certain assets for purposes of determining
gain or loss and to exclude from gross income all divi-
dends from domestic 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.
This Act may be cited as the ‘‘Savings and Invest-
ment Incentive Act’’.
SECTION 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
basis rules of general application) is amended by inserting
after section 1021 the following new section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Except as provided in paragraph
(2), if an indexed asset which has been held for
more than 1 year is sold or otherwise disposed of,
for purposes of this title the indexed basis of the
asset shall be substituted for its adjusted basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deduction for depreciation, depletion, and amor-
tization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) stock in a corporation, and
‘‘(B) tangible property (or any interest
therein), which is a capital asset or property
used in the trade or business (as defined in sec-
tion 1231(b)).
‘‘(2) CERTAIN
PROPERTY
EXCLUDED.—For
purposes of this section, the term ‘indexed asset’
does not include—
‘‘(A) CREDITOR’S INTEREST.—Any interest
in property which is in the nature of a credi-
tor’s interest.
‘‘(B) OPTIONS.—Any option or other right
to acquire an interest in property.
‘‘(C) NET LEASE PROPERTY.—In the case
of a lessor, net lease property (within the mean-
ing of subsection (h)(1)).
‘‘(D) CERTAIN PREFERRED STOCK.—Stock
which is fixed and preferred as to dividends and
does not participate in corporate growth to any
significant extent.
‘‘(E) STOCK IN CERTAIN CORPORATIONS.—
Stock in—
‘‘(i) an S corporation (within the
meaning of section 1361),
‘‘(ii) a personal holding company (as
defined in section 542), and
‘‘(iii) a foreign corporation.
‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR-
PORATION WHICH IS REGULARLY TRADED ON NA-
TIONAL OR REGIONAL EXCHANGE.—Clause (iii) of
paragraph (2)(E) shall not apply to stock in a for-
eign corporation the stock of which is listed on the
New York Stock Exchange, the American Stock Ex-
change, or any domestic regional exchange for which
quotations are published on a regular basis other
than—
‘‘(A) stock of a foreign investment com-
pany (within the meaning of section 1246(b)),
and
‘‘(B) stock in a foreign corporation held by
a United States person who meets the require-
ments of section 1248(a)(2).
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion—
‘‘(1) INDEXED BASIS.—The indexed basis for
any asset is—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the applicable inflation ratio.
‘‘(2) APPLICABLE INFLATION RATIO.—The ap-
plicable inflation ratio for any asset is the percent-
age arrived at by dividing—
‘‘(A) the gross national product deflator
for the calendar quarter in which the disposi-
tion takes place, by
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending December 31, 1993).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-tenth of 1 percent.
‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—
The gross national product deflator for any calendar
quarter is the implicit price deflator for the gross
national product for such quarter (as shown in the
first revision thereof).
‘‘(4) SECRETARY
TO
PUBLISH
TABLES.—The
Secretary shall publish tables specifying the applica-
ble inflation ratios for each calendar quarter.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) a substantial improvement to prop-
erty,
‘‘(B) in the case of stock of a corporation,
a substantial contribution to capital, and
‘‘(C) any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—
‘‘(A) IN GENERAL.—The applicable infla-
tion ratio shall be appropriately reduced for cal-
endar months at any time during which the
asset was not an indexed asset.
‘‘(B) CERTAIN
SHORT
SALES.—For pur-
poses of applying subparagraph (A), an asset
shall be treated as not an indexed asset for any
short sale period during which the taxpayer or
the taxpayer’s spouse sells short property sub-
stantially identical to the asset. For purposes of
the preceding sentence, the short sale period be-
gins on the day after the substantially identical
property is sold and ends on the closing date
for the sale.
‘‘(e) CERTAIN CONDUIT ENTITIES.—
‘‘(1) REGULATED
INVESTMENT
COMPANIES;
REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST
FUNDS.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 90 percent or more, such
ratio for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(E) QUALIFIED INVESTMENT ENTITY.—
For purposes of this paragraph, the term
‘qualified investment entity’ means—
‘‘(i) a regulated investment company
(within the meaning of section 851),
‘‘(ii) a real estate investment trust
(within the meaning of section 856), and
‘‘(iii) a common trust fund (within the
meaning of section 584).
‘‘(2) PARTNERSHIPS.—In the case of a partner-
ship, the adjustment made under subsection (a) at
the partnership level shall be passed through to the
partners.
‘‘(3) SUBCHAPTER
S
CORPORATIONS.—In the
case of an electing small business corporation, the
adjustment under subsection (a) at the corporate
level shall be passed through to the shareholders.
‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT OR DEPRECIATION ALLOWANCE.—If any person
transfers cash, debt, or any other property to another per-
son and the principal purpose of such transfer is—
‘‘(1) to secure or increase an adjustment under
subsection (a), or
‘‘(2) to increase (by reason of an adjustment
under subsection (a)) a deduction for depreciation,
depletion, or amortization,
the Secretary may disallow part or all of such adjustment
or increase.
‘‘(h) DEFINITIONS.—For purposes of this section—
‘‘(1) NET
LEASE
PROPERTY
DEFINED.—The
term ‘net lease property’ means leased real property
where—
‘‘(A) the term of the lease (taking into ac-
count options to renew) was 50 percent or more
of the useful life of the property, and
‘‘(B) for the period of the lease, the sum
of the deductions with respect to such property
which are allowable to the lessor solely by rea-
son of section 162 (other than rents and reim-
bursed amounts with respect to such property)
is 15 percent or less of the rental income pro-
duced by such property.
‘‘(2) STOCK INCLUDES INTEREST IN COMMON
TRUST FUND.—The term ‘stock in a corporation’ in-
cludes any interest in a common trust fund (as de-
fined in section 584(a)).
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part II of subchapter O of such chapter 1 of such Code
is amended by inserting after the item relating to section
1021 the following new item:
‘‘Sec. 1022. Indexing of certain assets for purposes of determining
gain or loss.’’
(c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE-
TERMINING EARNINGS AND PROFITS.—Subsection (f) of
section 312 of such Code (relating to effect on earnings
and profits of gain or loss and of receipt of tax-free dis-
tributions) is amended by adding at the end thereof the
following new paragraph:
‘‘(3) EFFECT ON EARNINGS AND PROFITS OF
INDEXED BASIS.—
‘‘For substitution of indexed basis for adjusted
basis in the case of the disposition of certain assets
after December 31, 1993, see section 1022(a)(1).’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales or exchanges occurring
after December 31, 1993, in taxable years ending after
such date.
SEC. 3. EXCLUSION FROM GROSS INCOME FOR DIVIDENDS
FROM DOMESTIC CORPORATIONS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by inserting after section 115 the following new
section:
‘‘SEC. 116. EXCLUSION OF DIVIDENDS RECEIVED BY INDI-
VIDUALS.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come does not include amounts received during the taxable
year by an individual as dividends from domestic corpora-
tions.
‘‘(b) CERTAIN DIVIDENDS EXCLUDED.—Subsection
(a) shall not apply to any dividend from a corporation
which, for the taxable year of the corporation in which
the distribution is made, or for the next preceding taxable
year of the corporation, is a corporation exempt from tax
under section 501 (relating to certain charitable, etc., or-
ganization) or section 521 (relating to farmers’ coopera-
tive associations).
‘‘(c) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) DISTRIBUTIONS
FROM
REGULATED
IN-
VESTMENT COMPANIES AND REAL ESTATE INVEST-
MENT TRUSTS.—Subsection (a) shall apply with re-
spect to distributions by—
‘‘(A) regulated investment companies to
the extent provided in section 854(c), and
‘‘(B) real estate investment trusts to the
extent provided in section 857(c).
‘‘(2) DISTRIBUTIONS BY A TRUST.—For pur-
poses of subsection (a), the amount of dividends
properly allocable to a beneficiary under section 652
or 662 shall be deemed to have been received by the
beneficiary ratably on the same date that the divi-
dends were received by the estate or trust.
‘‘(3) CERTAIN
NONRESIDENT
ALIENS
INELI-
GIBLE
FOR
EXCLUSION.—In the case of a non-
resident alien individual, subsection (a) shall apply
only—
‘‘(A) in determining the tax imposed for
the taxable year pursuant to section 871(b)(1)
and only in respect of dividends and interest
which are effectively connected with the conduct
of a trade or business within the United States,
or
‘‘(B) in determining the tax imposed for
the taxable year pursuant to section 877(b).’’
(b) CLERICAL AND CONFORMING AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
inserting after the item relating to section 115 the
following new item:
‘‘Sec. 116. Exclusion of dividends received by individuals.’’
(2) Subsection (c) of section 584 of such Code
is amended by adding at the end thereof the follow-
ing new sentence:
‘‘The proportionate share of each participant in the
amount of dividends received by the common trust fund
and to which section 116 applies shall be considered for
purposes of such section as having been received by such
participant.’’
(3) Subsection (a) of section 643(a) of such
Code is amended by inserting after paragraph (6)
the following new paragraph:
‘‘(7) DIVIDENDS.—There shall be included the
amount of any dividends excluded from gross income
pursuant to section 116.’’
(4) Section 854 of such Code is amended by
adding at the end thereof the following new sub-
section:
‘‘(c) TREATMENT UNDER SECTION 116.—
‘‘(1) IN
GENERAL.—For purposes of section
116, in the case of any dividend (other than a divi-
dend described in subsection (a)) received from a
regulated investment company which meets the re-
quirements of section 852 for the taxable year in
which it paid the dividend—
‘‘(A) the entire amount of such dividend
shall be treated as a dividend if the aggregate
dividends received by such company during the
taxable year equal or exceed 75 percent of its
gross income, or
‘‘(B) if subparagraph (A) does not apply,
a portion of such dividend shall be treated as
a dividend based on the portion of the compa-
ny’s gross income which consists of aggregate
dividends, as the case may be.
‘‘(2) NOTICE TO SHAREHOLDERS.—The amount
of any distribution by a regulated investment com-
pany which may be taken into account as a dividend
for purposes of the exclusion under section 116 shall
not exceed the amount so designated by the com-
pany in a written notice to its shareholders mailed
not later than 45 days after the close of its taxable
year.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) The term ‘gross income’ does not in-
clude gain from the sale or other disposition of
stock or securities.
‘‘(B) The term ‘aggregate dividends re-
ceived’ includes only dividends received from do-
mestic corporations other than dividends de-
scribed in section 116(b). In determining the
amount of any dividend for purposes of this
subparagraph, the rules provided in section
116(c)(1) (relating to certain distributions)
shall apply.’’
(6) Subsection (c) of section 857 of such Code
is amended to read as follows:
‘‘(c) LIMITATIONS APPLICABLE TO DIVIDENDS RE-
CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—For
purposes of section 116 (relating to an exclusion for divi-
dends received by individuals) and section 243 (relating
to deductions for dividends received by corporations), a
dividend received from a real estate investment trust
which meets the requirements of this part shall not be con-
sidered as a dividend.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to taxable years begin-
ning after December 31, 1993.
Æ
HR 253 IH——2