I
105TH CONGRESS
1ST SESSION
H. R. 1033
To amend the Internal Revenue Code of 1986 to provide all taxpayers with
a 50 percent deduction for capital gains, to increase the exclusion for
gain on qualified small business stock, to index the basis of certain
capital assets, to allow the capital loss deduction for losses on the
sale or exchange of an individual’s principal residence, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 12, 1997
Ms. DUNN (for herself, Mr. HERGER, Mr. METCALF, Mr. WATTS of Okla-
homa, Mr. NETHERCUTT, Mr. CHRISTENSEN, Mr. MCCRERY, Mr. EN-
SIGN, Mr. COLLINS, Mr. HASTINGS of Washington, and Mr. BARR of
Georgia) introduced the following bill; which was referred to the Commit-
tee on Ways and Means.
A BILL
To amend the Internal Revenue Code of 1986 to provide
all taxpayers with a 50 percent deduction for capital
gains, to increase the exclusion for gain on qualified
small business stock, to index the basis of certain capital
assets, to allow the capital loss deduction for losses on
the sale or exchange of an individual’s principal resi-
dence, and for other purposes.
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 ‘‘Return Capital To The
American People Act’’.
SEC. 2. 50 PERCENT CAPITAL GAINS DEDUCTION.
(a) GENERAL RULE.—Section 1201 of the Internal
Revenue Code of 1986 is amended to read as follows:
‘‘SEC. 1201. CAPITAL GAINS DEDUCTION.
‘‘(a) GENERAL RULE.—If for any taxable year a tax-
payer has a net capital gain, 50 percent of such gain shall
be a deduction from gross income.
‘‘(b) ESTATES AND TRUSTS.—In the case of an es-
tate or trust, the deduction shall be computed by excluding
the portion (if any) of the gains for the taxable year from
sales or exchanges of capital assets which, under sections
652 and 662 (relating to inclusions of amounts in gross
income of beneficiaries of trusts), is includible by the in-
come beneficiaries as gain derived from the sale or ex-
change of capital assets.
‘‘(c) COORDINATION WITH TREATMENT OF CAPITAL
GAIN UNDER LIMITATION ON INVESTMENT INTEREST.—
For purposes of this section, the net capital gain for any
taxable year shall be reduced (but not below zero) by the
amount which the taxpayer takes into account as invest-
ment income under section 163(d)(4)(B)(iii).
‘‘(d) TRANSITIONAL RULES.—
‘‘(1) IN GENERAL.—In the case of a taxable
year which includes January 1, 1997—
‘‘(A) the amount taken into account as the
net capital gain under subsection (a) shall not
exceed the net capital gain determined by only
taking into account gains and losses properly
taken into account for the portion of the tax-
able year on or after January 1, 1997, and
‘‘(B) the amount of the net capital gain
taken into account in applying section 1(h) for
such year shall be reduced by the amount taken
into account under subparagraph (A) for such
year.
‘‘(2) SPECIAL
RULES
FOR
PASS-THRU
ENTI-
TIES.—
‘‘(A) IN GENERAL.—In applying paragraph
(1) with respect to any pass-thru entity, the de-
termination of when gains and losses are prop-
erly taken into account shall be made at the en-
tity level.
‘‘(B) PASS-THRU ENTITY DEFINED.—For
purposes of subparagraph (A), the term ‘pass-
thru entity’ means—
‘‘(i) a regulated investment company,
‘‘(ii) a real estate investment trust,
‘‘(iii) an S corporation,
‘‘(iv) a partnership,
‘‘(v) an estate or trust, and
‘‘(vi) a common trust fund.’’
(b) DEDUCTION ALLOWABLE
IN COMPUTING AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code is amended by inserting after paragraph (16)
the following new paragraph:
‘‘(17) LONG-TERM
CAPITAL
GAINS.—The de-
duction allowed by section 1201.’’
(c) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 of such Code is amended by strik-
ing subsection (h).
(2) Section 12 of such Code is amended by
striking paragraph (4) and redesignating the follow-
ing paragraphs accordingly.
(3)(A) Subsection (a) of section 57 of such
Code is amended by striking paragraph (7).
(B) Subclause (II) of section 53(d)(1)(B)(ii) of
such Code is amended by striking ‘‘, (5), and (7)’’
and inserting ‘‘and (5)’’.
(4) Paragraph (1) of section 170(e) of such
Code is amended by striking ‘‘the amount of gain’’
in the material following subparagraph (B)(ii) and
inserting ‘‘50 percent of the amount of gain’’.
(5) Paragraph (2) of section 172(d) of such
Code is amended to read as follows:
‘‘(2) CAPITAL GAINS AND LOSSES.—
‘‘(A) LOSSES OF TAXPAYERS OTHER THAN
CORPORATIONS.—In the case of a taxpayer
other than a corporation, the amount deductible
on account of losses from sales or exchanges of
capital assets shall not exceed the amount in-
cludible on account of gains from sales or ex-
changes of capital assets.
‘‘(B) DEDUCTION FOR CAPITAL GAINS.—
The deduction under section 1201 shall not be
allowed.’’
(6) The last sentence of section 453A(c)(3) of
such Code is amended by striking all that follows
‘‘long-term capital gain,’’ and inserting ‘‘the deduc-
tion under section 1201 shall be taken into ac-
count.’’.
(7) Paragraph (2) of section 468B(b) of such
Code is amended by inserting ‘‘the deduction allowed
by section 1201 and by’’ after ‘‘reduced by’’.
(8) Paragraph (2) of section 527(b) of such
Code is hereby repealed.
(9) Subparagraph (A) of section 641(d)(2) of
such Code is amended by striking ‘‘Except as pro-
vided in section 1(h), the’’ and inserting ‘‘The’’.
(10) Paragraph (4) of section 642(c) of such
Code 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 deduction
allowable to the estate or trust under section 1201
(relating to capital gains deduction). In the case of
a trust, the deduction allowed by this subsection
shall be subject to section 681 (relating to unrelated
business income).’’
(11) The last sentence of section 643(a)(3) of
such Code is amended to read as follows: ‘‘The de-
duction under section 1201 (relating to capital gains
deduction) shall not be taken into account.’’
(12) Subparagraph (C) of section 643(a)(6) of
such Code is amended by inserting ‘‘(i)’’ before
‘‘there shall’’ and by inserting before the period ‘‘,
and (ii) the deduction under section 1201 (relating
to capital gains deduction) shall not be taken into
account’’.
(13) Paragraph (4) of section 691(c) of such
Code is amended by striking ‘‘1(h),’’.
(14) Paragraph (2) of section 801(a) of such
Code is hereby repealed.
(15) Subsection (c) of section 831 of such Code
is amended by striking paragraph (1) and redesig-
nating the following paragraphs accordingly.
(16)(A) Subparagraph (A) of section 852(b)(3)
of such Code is amended by striking ‘‘, determined
as provided in section 1201(a), on’’ and inserting
‘‘of 17.5 percent of’’.
(B) Clause (iii) of section 852(b)(3)(D) of such
Code is amended—
(i) by striking ‘‘65 percent’’ and inserting
‘‘82.5 percent’’, and
(ii) by striking ‘‘section 1201(a)’’ and in-
serting ‘‘subparagraph (A)’’.
(17) Clause (ii) of section 857(b)(3)(A) of such
Code is amended by striking ‘‘determined at the rate
provided in section 1201(a) on’’ and inserting ‘‘of
17.5 percent of’’.
(18) The second sentence of section 871(a)(2)
of such Code is amended by striking ‘‘1202’’ and in-
serting ‘‘1201’’.
(19) Paragraph (1) of section 882(a) of such
Code is amended by striking ‘‘section 11, 55, 59A,
or 1201(a)’’ and inserting ‘‘section 11, 55, or 59A’’.
(20)(A) Paragraph (2) of section 904(b) of
such Code is amended to read as follows:
‘‘(2) CAPITAL
GAINS.—Taxable income from
sources outside the United States shall include gain
from the sale or exchange of capital assets only to
the extent of foreign source capital gain net in-
come.’’
(B) Paragraph (3) of section 904(b) of such
Code is amended by striking subparagraphs (B),
(D), and (E) and by redesignating subparagraph (C)
as subparagraph (B).
(21)(A) Paragraph (2) of section 1211(b) of
such Code is amended to read as follows:
‘‘(2) the sum of—
‘‘(A) the excess of the net short-term cap-
ital loss over the net long-term capital gain, and
‘‘(B) one-half of the excess of the net long-
term capital loss over the net short-term capital
gain.’’
(B) So much of paragraph (2) of section
1212(b) of such Code as precedes subparagraph (B)
thereof is amended to read as follows:
‘‘(2) SPECIAL RULES.—
‘‘(A) ADJUSTMENTS.—
‘‘(i) For purposes of determining the
excess referred to in paragraph (1)(A),
there shall be treated as short-term capital
gain in the taxable year an amount equal
to the lesser of—
‘‘(I) the amount allowed for the
taxable year under paragraph (1) or
(2) of section 1211(b), or
‘‘(II) the adjusted taxable income
for such taxable year.
‘‘(ii) For purposes of determining the
excess referred to in paragraph (1)(B),
there shall be treated as short-term capital
gain in the taxable year an amount equal
to the sum of—
‘‘(I) the amount allowed for the
taxable year under paragraph (1) or
(2) of section 1211(b) or the adjusted
taxable income for such taxable year,
whichever is the least, plus
‘‘(II) the excess of the amount
described in subclause (I) over the net
short-term capital loss (determined
without regard to this subsection) for
such year.’’
(C) Subsection (b) of section 1212 is amended
by adding at the end the following new paragraph:
‘‘(3) TRANSITIONAL RULE.—
‘‘(A) IN
GENERAL.—The amount deter-
mined under subclause (II) of paragraph
(2)(A)(ii) for any taxable year shall be reduced
(but not below zero) by the excess of—
‘‘(i) the amount of the unused pre-
1998 long-term capital loss for such year,
over
‘‘(ii) the sum of the long-term capital
gain and the net short-term capital gain
for such taxable year.
Section 1211(b)(2)(B) shall be applied without
regard to ‘one-half of’ with respect to such ex-
cess for such taxable year.
‘‘(B) UNUSED PRE-1998 LONG-TERM CAP-
ITAL LOSS.—For purposes of this paragraph,
the term ‘unused pre-1998 long-term capital
loss’ means, with respect to a taxable year, the
excess of—
‘‘(i) the amount which under para-
graph (1)(B) (as in effect for taxable years
(i) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
apply to stock issued after the date of enactment of
this Act.
(2) SPECIAL RULE.—The amendments made by
subsections (a), (c), (e), and (f) apply to stock is-
sued after August 10, 1993.
SEC. 4. ROLLOVER OF GAIN FROM SALE OF QUALIFIED
STOCK.
(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 adding at
the end the following:
‘‘SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL
BUSINESS STOCK TO ANOTHER QUALIFIED
SMALL BUSINESS STOCK.
‘‘(a) NONRECOGNITION OF GAIN.—In the case of any
sale of qualified small business stock with respect to which
the taxpayer elects the application of this section, eligible
gain from such sale shall be recognized only to the extent
that the amount realized on such sale exceeds—
‘‘(1) the cost of any qualified small business
stock purchased by the taxpayer during the 60-day