I
104TH CONGRESS
1ST SESSION
H. R. 232
To amend the Internal Revenue Code of 1986 to allow a deduction for
dividends paid by domestic corporations.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 4, 1995
Mr. DORNAN 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 allow a
deduction for dividends paid by 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 ‘‘Saving and Investment
Act of 1995’’.
SEC. 2. ALLOWANCE OF DEDUCTION FOR DIVIDENDS PAID
BY DOMESTIC CORPORATIONS.
(a) IN GENERAL.—Section 243 of the Internal Reve-
nue Code of 1986 (relating to dividends received by cor-
porations) is amended to read as follows:
‘‘SEC. 243. DIVIDENDS PAID BY DOMESTIC CORPORATIONS.
‘‘(a) GENERAL RULE.—In the case of a domestic cor-
poration which is subject to taxation under this chapter,
there shall be allowed as a deduction for the taxable year
an amount equal to the dividends paid by such corporation
during the taxable year.
‘‘(b) DIVIDENDS.—For purposes of this section, the
term ‘dividend’ means any dividend (as defined in section
316) to which section 301 applies.
‘‘(c) CERTAIN CORPORATIONS NOT ELIGIBLE.—No
deduction shall be allowed under this section with respect
to dividends paid by any corporation which is—
‘‘(1) an S corporation (as defined in section
1361(a)(1));
‘‘(2) a regulated investment company (as de-
fined in section 851(a));
‘‘(3) a real estate investment trust (as defined
in section 856(a)); or
‘‘(4) a personal holding company (as defined in
section 542).
‘‘(d) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS
OF MUTUAL SAVINGS BANKS, ETC.—For purposes of this
section, any amount allowed as a deduction under section
591 (relating to deduction for dividends paid by mutual
savings banks, etc.) shall not be treated as a dividend.’’
(b) REPEAL OF DEDUCTIONS FOR DIVIDENDS RE-
CEIVED FROM DOMESTIC CORPORATIONS AND RULES RE-
LATING THERETO; REPEAL OF DEDUCTION FOR DIVI-
DENDS PAID ON CERTAIN PREFERRED STOCK OF PUBLIC
UTILITIES.—Sections 244 (relating to dividends received
on certain preferred stock), 246 (relating to rules applying
to deductions for dividends received), and 247 (relating
to dividends paid on certain preferred stock of public utili-
ties) of such Code are hereby repealed.
(c) CONFORMING AMENDMENTS.—
(1) DIVIDENDS RECEIVED FROM CERTAIN FOR-
EIGN CORPORATIONS.—
(A) TRANSFER OF PROVISION SPECIFYING
DEDUCTIBLE
PERCENTAGE
OF
DIVIDEND
RE-
CEIVED.—Paragraph (1) of section 245(a) of
such Code (relating generally to dividends re-
ceived from 10-percent owned foreign corpora-
tions) is amended by striking ‘‘the percent
(specified in section 243 for the taxable year)’’
and inserting in lieu thereof ‘‘85 percent (100
percent in the case of a small business invest-
ment company operating under the Small Busi-
ness Investment Act of 1958 (15 U.S.C. 661 et
seq.))’’.
(B) TRANSFER OF LIMITATION ON AGGRE-
GATE
AMOUNT
OF
DIVIDENDS
RECEIVED
DE-
DUCTION, EXCLUSION OF CERTAIN DIVIDENDS,
ETC.—Section 245 of such Code (relating to
dividends received from certain foreign corpora-
tions) is amended by adding at the end the fol-
lowing new subsections:
‘‘(e) LIMITATION AND SPECIAL RULES.—
‘‘(1) LIMITATION ON AGGREGATE AMOUNT OF
DEDUCTION.—
‘‘(A) IN GENERAL.—Except as provided by
subparagraph (B), the aggregate amount of the
deductions allowed by subsections (a) and (b)
shall not exceed 80 percent of the taxable in-
come computed without regard to—
‘‘(i) the deductions allowed by section
172,
‘‘(ii) any adjustment under section
1059, and
‘‘(iii) any capital loss carryback to the
taxable year under section 1212(a)(1).
‘‘(B) EFFECT OF NET OPERATING LOSS.—
Subparagraph (A) shall not apply for any tax-
able year for which there is a net operating loss
(as determined under section 172).
‘‘(2) EXCLUSION OF CERTAIN DIVIDENDS.—
‘‘(A) IN GENERAL.—No deduction shall be
allowed under subsection (a) or (b) in respect of
any dividend on any share of stock—
‘‘(i) which is sold or otherwise dis-
posed of in any case in which the taxpayer
has held such share for 45 days or less, or
‘‘(ii) to the extent that the taxpayer is
under an obligation (whether pursuant to a
short sale or otherwise) to make cor-
responding payments with respect to posi-
tions in substantially similar or related
property.
‘‘(B) 90-DAY RULE IN THE CASE OF CER-
TAIN PREFERENCE DIVIDENDS.—In the case of
any stock having preference in dividends, the
holding period specified in subparagraph (A)(i)
shall be 90 days in lieu of 45 days if the tax-
payer receives dividends with respect to such
stock which are attributable to a period or peri-
ods aggregating in excess of 366 days.
‘‘(C) DETERMINATION OF HOLDING PERI-
ODS.—For purposes of this subsection, in deter-
mining the period for which the taxpayer has
held any share of stock—
‘‘(i) the day of disposition, but not the
day of acquisition, shall be taken into
account,
‘‘(ii) there shall not be taken into ac-
count any day which is more than 45 days
(or 90 days in the case of stock to which
subparagraph (B) applies) after the date
on which such share becomes ex-dividend,
and
‘‘(iii) paragraph (4) of section 1223
shall not apply.
‘‘(D) HOLDING PERIOD REDUCED FOR PE-
RIODS
WHERE
RISK
OF
LOSS
DIMINISHED.—
The holding periods determined under the pre-
ceding provisions of this subparagraph shall be
appropriately reduced (in the manner provided
in regulations prescribed by the Secretary) for
any period (during such periods) in which—
‘‘(i) the taxpayer has an option to sell,
is under a contractual obligation to sell, or
has made (and not closed) a short sale of,
substantially identical stock or securities,
‘‘(ii) the taxpayer is the grantor of an
option to buy substantially identical stock
or securities, or
‘‘(iii) under regulations prescribed by
the Secretary, a taxpayer has diminished
his risk of loss by holding 1 or more other
positions with respect to substantially simi-
lar or related property.
The preceding sentence shall not apply in the
case of any qualified covered call (as defined in
section 1092(c)(4) but without regard to the re-
quirement that gain or loss with respect to the
option not be ordinary income or loss).
‘‘(f) CROSS REFERENCE.—
‘‘For special rule relating to mutual savings banks,
etc., to which section 593 applies, see section 596.’’
(2) NET OPERATING LOSS DEDUCTION.—Para-
graph (6) of section 172(d) of such Code is amended
to read as follows:
‘‘(6) COMPUTATION OF DEDUCTION FOR DIVI-
DENDS
RECEIVED
FROM
CERTAIN
FOREIGN
COR-
PORATIONS.—The deduction allowed by section 245
(relating to dividends received from certain foreign
corporations) shall be computed without regard to
section 245(e)(1).’’
(3) DIVIDENDS
RECEIVED
DEDUCTION
RE-
DUCED
WHERE
PORTFOLIO
STOCK
IS
DEBT
FI-
NANCED.—
(A) Subsections (a) and (e) of section
246A of such Code (relating to dividends re-
ceived deduction reduced where portfolio stock
is debt financed) are each amended by striking
‘‘243, 244, or’’.
(B) Subsection (b) of section 246A of such
Code is amended to read as follows:
‘‘(b) SECTION NOT TO APPLY TO DIVIDENDS FOR
WHICH 100 PERCENT DIVIDENDS RECEIVED DEDUCTION
ALLOWABLE.—Subsection (a) shall not apply to dividends
received by a small business investment company operat-
ing under the Small Business Investment Act of 1958.’’
(4) LIMITATION ON DIVIDENDS RECEIVED DE-
DUCTION FOR MUTUAL SAVINGS BANKS, ETC.—Sec-
tion 596 of such Code (relating to limitation on divi-
dends received deduction) is amended by striking
‘‘sections 243, 244, and 245’’ and inserting in lieu
thereof ‘‘section 245’’.
(d) CLERICAL AMENDMENTS.—The table of sections
for part VIII of subchapter B of chapter 1 is amended
by striking the items relating to sections 243, 244, 246,
and 247 and inserting after the item relating to section
241 the following:
‘‘Sec. 243. Dividends paid by domestic corporations.’’