I 
107TH CONGRESS 
2D SESSION 
H. R. 5413
To amend the Internal Revenue Code of 1986 to give a deduction to 
corporations for dividends paid and to exclude dividends from gross income. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 19, 2002
Mr. BURR of North Carolina (for himself, Mr. PAUL, Mr. CANNON, Mr. 
ROYCE, Mr. ENGLISH, Mr. AKIN, and Mr. PETRI) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to give a 
deduction to corporations for dividends paid and to ex-
clude dividends from gross income.
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 ‘‘Dividend Incentive and 
Tax Simplification Act of 2002’’. 
SEC. 2. DEDUCTION FOR DIVIDENDS PAID. 
(a) IN GENERAL.—Part VIII of subchapter B of 
chapter 1 of the Internal Revenue Code of 1986 (relating
(b) CLERICAL AMENDMENT.—The table of sections 
for part VIII of subchapter B of chapter 1 of such Code 
is amended by adding at the end the following new item:
‘‘Sec. 250. Dividends paid by corporations.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002. 
SEC. 3. DIVIDENDS RECEIVED BY INDIVIDUALS TAXED AT 
CAPITAL GAIN RATES. 
(a) IN GENERAL.—Subsection (h) of section 1 of the 
Internal Revenue Code of 1986 (relating to maximum cap-
ital gains rate) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(13) DIVIDENDS
TAXED
AS
NET
CAPITAL 
GAIN.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘net capital gain’ means 
net capital gain (determined without regard to 
this paragraph) increased by qualified dividend 
income. 
‘‘(B) QUALIFIED DIVIDEND INCOME.—For 
purposes of this paragraph, the term ‘qualified 
dividend income’ means dividends received from 
domestic corporations during the taxable year 
other than—
‘‘(i) any dividend from a corporation 
which for the taxable year of the corpora-
tion in which the distribution is made, or 
the preceding taxable year, is a corporation 
exempt from tax under section 501 or 521, 
‘‘(ii) any dividend from a real estate 
investment trust which, for the taxable 
year in which the dividend is paid, quali-
fied under part II of subchapter M, 
‘‘(iii) any amount allowed as a deduc-
tion under section 591 (relating to deduc-
tion for dividends paid by mutual savings 
banks, etc.), 
‘‘(iv) any dividend described in section 
404(k), 
‘‘(v) any dividend on any share of 
stock with respect to which the holding pe-
riod requirements of section 246(c) are not 
met, and 
‘‘(vi) any dividend which the taxpayer 
takes into account as investment income 
under section 163(d)(4)(B). 
‘‘(C) SPECIAL
RULE
FOR
NONRESIDENT 
ALIENS.—In the case of a nonresident alien in-
dividual, subparagraph (A) shall apply only—
‘‘(i) in determining the tax imposed 
for the taxable year pursuant to section 
871(b) and only in respect of dividends 
which are effectively connected with the 
conduct of a trade or business within the 
United States, and 
‘‘(ii) in determining the tax imposed 
for the taxable year pursuant to section 
877. 
‘‘(D) TREATMENT
OF
DIVIDENDS
FROM 
REGULATED INVESTMENT COMPANIES.—
‘‘For treatment of dividends from regulated in-
vestment companies, see section 854.’’.
(b) TREATMENT OF DIVIDENDS FROM REGULATED 
INVESTMENT COMPANIES.—
(1) Subsection (a) of section 854 of such Code 
is amended by inserting ‘‘section 1(h)(13) (relating 
to maximum rate of tax on dividends) and’’ after 
‘‘For purposes of’’. 
(2) Paragraph (1) of section 854(b) of such 
Code is amended by redesignating subparagraph (B) 
as subparagraph (C) and by inserting after subpara-
graph (A) the following new subparagraph: 
‘‘(B) MAXIMUM
RATE
UNDER
SECTION 
1(H).—
‘‘(i) IN GENERAL.—If the aggregate 
dividends received by a regulated invest-
ment company during any taxable year are 
less than 95 percent of its gross income, 
then, in computing the maximum rate 
under section 1(h)(13), rules similar to the 
rules of subparagraph (A) shall apply. 
‘‘(ii) GROSS
INCOME.—For purposes 
of clause (i), in the case of 1 or more sales 
or other dispositions of stock or securities, 
the term ‘gross income’ includes only the 
excess of—
‘‘(I) the net short-term capital 
gain from such sales or dispositions, 
over 
‘‘(II) the net long-term capital 
loss from such sales or dispositions.’’. 
(3) Subparagraph (C) of section 854(b)(1) of 
such Code, as redesignated by paragraph (2), is 
amended by striking ‘‘subparagraph (A)’’ and insert-
ing ‘‘subparagraph (A) or (B)’’. 
(4) Paragraph (2) of section 854(b) of such 
Code is amended by inserting ‘‘the maximum rate 
under section 1(h)(13) and’’ after ‘‘for purposes of’’.
(c) EXCLUSION OF DIVIDENDS FROM INVESTMENT 
INCOME.—Subparagraph (B) of section 163(d)(4) of such 
Code is amended by adding at the end the following flush 
sentence: 
‘‘Such term shall include qualified dividend in-
come (as defined in section 1(h)(13)(B)) only to 
the extent the taxpayer elects to treat such in-
come as investment income for purposes of this 
subsection.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002.
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