I
107TH CONGRESS
2D SESSION
H. R. 5626
To amend the Internal Revenue Code of 1986 to revise the tax treatment
of derivative transactions entered into by a corporation with respect
to its stock.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 10, 2002
Mr. NEAL of Massachusetts 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 revise
the tax treatment of derivative transactions entered into
by a corporation with respect to its stock.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. REVISION OF TAX TREATMENT OF DERIVATIVE
TRANSACTIONS ENTERED INTO BY A COR-
PORATION WITH RESPECT TO ITS STOCK.
(a) IN GENERAL.—Section 1032 of the Internal Rev-
enue Code of 1986 (relating to exchange of stock for prop-
erty) is amended to read as follows:
that such item reflects (or is determined by
reference to) changes in the value of such
stock or distributions thereon.
Such term shall not include any deduction al-
lowable under section 83 or under section 163
and shall not include any deduction for any
item which is in the nature of compensation for
services rendered. For purposes of this subpara-
graph, de minimis relationships shall be dis-
regarded.
‘‘(2) INCOME RECOGNITION ON CERTAIN FOR-
WARD CONTRACTS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a corporation acquires its stock,
and
‘‘(ii) such acquisition is part of a plan
(or series of related transactions) pursuant
to which the corporation enters into a for-
ward contract with respect to its stock,
such corporation shall include amounts in in-
come as if the excess of the amount to be re-
ceived under the forward contract over the fair
market value of the stock as of the date the
corporation entered into the forward contract
were original issue discount on a debt instru-
ment acquired on such date. The preceding sen-
tence shall apply only to the extent that the
amount of stock involved in the forward con-
tract does not exceed the amount acquired as
described in clause (i).
‘‘(B) PLAN
PRESUMED
TO
EXIST.—If a
corporation enters into a forward contract with
respect to its stock within the 60-day period be-
ginning on the date which is 30 days before the
date that the corporation acquires its stock,
such acquisition shall be treated as pursuant to
a plan described in subparagraph (A)(ii) unless
it is established that entering into such contract
and such acquisition are not pursuant to a plan
or series of related transactions.
‘‘(C) FORWARD
CONTRACT.—The term
‘forward contract’ has the meaning given to
such term by section 1259(d)(1); except that
such term shall include any transactions or se-
ries of related transactions having the same ef-
fect as a forward contract (as so defined).
‘‘(c) TREASURY STOCK TREATED AS STOCK.—Any
reference in this section to stock shall be treated as includ-
ing a reference to treasury stock.
‘‘(d) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations which treat
the portion of an instrument which is described in sub-
section (b) separately from the portion of such instrument
which is not so described.
‘‘(e) BASIS.—For basis of property acquired by a cor-
poration in certain exchanges for its stock, see section
362.’’.
(b) CLERICAL AMENDMENT.—The item relating to
section 1032 in the table of sections for part III of sub-
chapter O of chapter 1 of such Code is amended to read
as follows:
‘‘Sec. 1032. Transactions by a corporation with respect to its
stock.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to transactions entered into after
the date of the enactment of this Act.
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