‘‘SEC. 54A. DETERMINATION OF SHAREHOLDER CREDIT.
‘‘(a) GENERAL RULE.—For purposes of this subpart,
the shareholder credit with respect to any dividend paid
by a domestic corporation is an amount which bears the
same ratio to such corporation’s post-2002 Federal income
taxes as—
‘‘(1) the amount of such dividend (determined
without regard to section 54B), bears to
‘‘(2) such corporation’s post-2002 undistributed
earnings.
‘‘(b) POST-2002 FEDERAL INCOME TAXES.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘post-2002 Fed-
eral income taxes’ means the sum of—
‘‘(A) the Federal income taxes with respect
to the taxable year of the distributing corpora-
tion in which the dividend is distributed, plus
‘‘(B) the Federal income taxes with respect
to prior taxable years of such corporation begin-
ning after December 31, 2002, reduced by the
amount of shareholder credits determined with
respect to distributions by such corporation in
such prior taxable years.
‘‘(2) FEDERAL
INCOME
TAXES.—The term
‘Federal income taxes’ means any tax paid by the
corporation under this chapter. Any shareholder
credit determined under this section with respect to
a dividend received by the corporation during any
taxable year shall be treated as a tax paid by the
corporation under this chapter for such taxable year.
‘‘(c) POST-2002 UNDISTRIBUTED EARNINGS.—For
purposes of this section, the term ‘post-2002 undistributed
earnings’ means the earnings and profits of the distrib-
uting corporation accumulated in taxable years beginning
after December 31, 2002, determined—
‘‘(1) as of the close of the taxable year in which
the dividend is distributed, and
‘‘(2) without diminution by reason of dividends
distributed during such taxable year.
‘‘SEC. 54B. INCLUSION OF SHAREHOLDER CREDIT.
‘‘In the case of a taxpayer other than a corporation,
gross income shall include the amount of the shareholder
credits determined under section 54A with respect to divi-
dends received by such shareholder.’’
(2) CLERICAL AMENDMENT.—The table of sub-
parts for part IV of subchapter A of chapter 1 of
such Code is amended by adding at the end thereof
the following new item:
‘‘Subpart H. Individual shareholder credit.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to dividends paid out
of earnings and profits for taxable years beginning
after December 31, 2002.
(b) DIVIDENDS RECEIVED BY CORPORATIONS.—
(1) IN
GENERAL.—Subsection (a) of section
243 of such Code (relating to dividends received by
corporations) is amended to read as follows:
‘‘(a) GENERAL RULE.—In the case of a corporation,
there shall be allowed as a deduction an amount equal to
100 percent of the amount received as dividends from a
domestic corporation which is subject to taxation under
this chapter.’’
(2) 
DIVIDENDS
ON
CERTAIN
PREFERRED
STOCK.—Section 244 of such Code (relating to divi-
dends received on certain preferred stock) is
amended—
(A) by striking ‘‘70 percent’’ in subsection
(a)(3) and inserting ‘‘100 percent’’,
(B) by striking ‘‘(a) IN GENERAL.—’’, and
(C) by striking subsection (b).
(3) TECHNICAL, CONFORMING
AND
CLERICAL
AMENDMENTS.—
(A) Section 243 of such Code (relating to
dividends received by corporations) is amended
by striking subsections (b) and (c) and by re-
designating subsections (d) and (e) as sub-
sections (b) and (c), respectively.
(B) Subsection (b) of section 246 of such
Code (relating to rules applying to deductions
for dividends received) is amended—
(i) in paragraph (1) by striking
‘‘243(a)(1), 244(a)’’ each time it appears
and inserting ‘‘243, 244’’ and by striking
‘‘the percentage determined under para-
graph (3) of’’, and
(ii) by striking paragraph (3).
(C)(i) 
Subparagraph 
(A) 
of 
section
805(a)(4) of such Code (relating to dividends
received by life insurance companies) is amend-
ed by striking all that follows ‘‘subparagraph
(B))’’ and inserting a period.
(ii) Subparagraph (B) of section 805(a)(4)
of such Code is amended—
(I) by striking ‘‘243(a)(1), 244(a)’’
each place it appears and inserting ‘‘243,
244’’,
(II) by striking ‘‘the percentage deter-
mined under section 246(b)(3) of’’, and
(III) by striking ‘‘(and such limitation
shall be applied as provided in section
246(b)(3))’’.
(iii) Paragraph (4) of section 805(a) of
such Code is amended by striking subpara-
graphs (C), (D), (E), and (F) and inserting the
following:
‘‘(C) DISTRIBUTIONS OUT OF TAX-EXEMPT
INTEREST.—No deduction shall be allowed by
reason of this paragraph with respect to any
dividend to the extent the dividend is a distribu-
tion out of tax-exempt interest.’’
(D) Subparagraph (C) of section 861(a)(2)
of such Code (relating to income from sources
within the United States) is amended by strik-
ing ‘‘243(e)’’ and inserting ‘‘243(c)’’.
(E) 
Subparagraph 
(B) 
of 
section
1504(c)(2) of such Code (relating to definition
of includible insurance companies) is amended
by striking clause (i) and by redesignating
clauses (ii) and (iii) as clauses (i) and (ii), re-
spectively.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years end-
ing after the date of the enactment of this Act.
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