I 
109TH CONGRESS 
1ST SESSION 
H. R. 196 
To amend the Internal Revenue Code of 1986 to allow individuals to defer 
recognition of reinvested capital gains distributions from regulated invest-
ment companies. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 4, 2005 
Mr. SAXTON 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 indi-
viduals to defer recognition of reinvested capital gains 
distributions from regulated investment companies. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. DEFERRAL OF CERTAIN REINVESTED CAPITAL 
GAIN DIVIDENDS OF REGULATED INVEST-
MENT COMPANIES. 
(a) IN GENERAL.—Part III of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
common nontaxable exchanges) is amended by inserting 
after section 1045 the following new section:
‘‘SEC. 1046. CERTAIN REINVESTED CAPITAL GAIN DIVI-
DENDS OF REGULATED INVESTMENT COMPA-
NIES. 
‘‘(a) NONRECOGNITION OF GAIN.—In the case of an 
individual electing the application of this section, no gain 
shall be recognized on the receipt of a capital gain divi-
dend distributed by a regulated investment company to 
which part I of subchapter M applies if such capital gain 
dividend is automatically reinvested in additional shares 
of the company pursuant to a dividend reinvestment plan. 
‘‘(b) LIMITATION.— 
‘‘(1) IN GENERAL.—The amount of gain that 
may be deferred under subsection (a) for any taxable 
year shall not exceed— 
‘‘(A) $5,000, or 
‘‘(B) in the case of a joint return, twice 
the amount in subparagraph (A). 
‘‘(2) INFLATION ADJUSTMENT OF MAXIMUM EX-
CLUSION.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning in a calendar year after 
2005, the amount in paragraph (1)(A) shall be 
increased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar 
year 2004’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof. 
‘‘(B) ROUNDING RULES.—The amount in 
paragraph (1)(A), after adjustment under para-
graph (2)(A), shall be rounded to the nearest 
multiple of $100. 
‘‘(c) CAPITAL GAIN DIVIDEND.—For purposes of this 
section, the term ‘capital gain dividend’ has the meaning 
given to such term by section 852(b)(3)(C). 
‘‘(d) RECAPTURE OF PREVIOUSLY DEFERRED CAP-
ITAL GAIN DIVIDENDS.—Amounts deferred pursuant to 
subsection (a) (and not previously recognized under this 
subsection) shall be recognized upon the subsequent sale 
or redemption of shares in the distributing company to 
the extent of the taxpayer’s adjusted basis in the shares 
so sold or redeemed. 
‘‘(e) SECTION NOT TO APPLY TO CERTAIN TAX-
PAYERS.—No deduction shall be allowed under this section 
to— 
‘‘(1) an individual with respect to whom a de-
duction under section 151 is allowable to another 
taxpayer for a taxable year beginning in the cal-
endar year in which such individual’s taxable year 
begins, or 
‘‘(2) an estate or trust. 
‘‘(f) ELECTION.—An election under this section shall 
be made at such time and in such manner as the Secretary 
may prescribe.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 852(b)(3)(B) of such Code is 
amended by adding at the end the following new 
sentence: ‘‘For rules regarding nonrecognition of 
gain with respect to certain reinvested capital gain 
dividends received by individuals, see section 1046.’’. 
(2) The table of sections for part III of sub-
chapter O of chapter 1 of such Code is amended by 
inserting after the item relating to section 1045 the 
following new item: 
‘‘Sec. 1046. Certain Reinvested Capital Gain Dividends of Regulated Invest-
ment Companies.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
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