Jobs and Growth Tax Relief Reconciliation Act of 2003
PL 108-27 (H.R.2), enacted 05/28/2003

117 STAT. 752
PUBLIC LAW 108–27—MAY 28, 2003
Public Law 108–27
108th Congress
An Act
To provide for reconciliation pursuant to section 201 of the concurrent resolution
on the budget for fiscal year 2004.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Jobs and
Growth Tax Relief Reconciliation Act of 2003’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed
in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section
or other provision of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents of this Act
is as follows:
Sec. 1. Short title; references; table of contents.
TITLE I—ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX
REDUCTIONS
Sec. 101. Acceleration of increase in child tax credit.
Sec. 102. Acceleration of 15-percent individual income tax rate bracket expansion
for married taxpayers filing joint returns.
Sec. 103. Acceleration of increase in standard deduction for married taxpayers fil-
ing joint returns.
Sec. 104. Acceleration of 10-percent individual income tax rate bracket expansion.
Sec. 105. Acceleration of reduction in individual income tax rates.
Sec. 106. Minimum tax relief to individuals.
Sec. 107. Application of EGTRRA sunset to this title.
TITLE II—GROWTH INCENTIVES FOR BUSINESS
Sec. 201. Increase and extension of bonus depreciation.
Sec. 202. Increased expensing for small business.
TITLE III—REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS
Sec. 301. Reduction in capital gains rates for individuals; repeal of 5-year holding
period requirement.
Sec. 302. Dividends of individuals taxed at capital gain rates.
Sec. 303. Sunset of title.
TITLE IV—TEMPORARY STATE FISCAL RELIEF
Sec. 401. Temporary State fiscal relief.
TITLE V—CORPORATE ESTIMATED TAX PAYMENTS FOR 2003
Sec. 501. Time for payment of corporate estimated taxes.
26 USC 1 note.
Jobs and Growth
Tax Relief
Reconciliation
Act of 2003.
May 28, 2003
[H.R. 2]
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117 STAT. 753
PUBLIC LAW 108–27—MAY 28, 2003
TITLE I—ACCELERATION OF CERTAIN
PREVIOUSLY ENACTED TAX REDUC-
TIONS
SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX CREDIT.
(a) IN GENERAL.—The item relating to calendar years 2001
through 2004 in the table contained in paragraph (2) of section
24(a) (relating to per child amount) is amended to read as follows:
‘‘2003 or 2004 ....................................................................................
$1,000’’.
(b) ADVANCE PAYMENT OF PORTION OF INCREASED CREDIT IN
2003.—
(1) IN GENERAL.—Subchapter B of chapter 65 (relating to
abatements, credits, and refunds) is amended by inserting after
section 6428 the following new section:
‘‘SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD
CREDIT FOR 2003.
‘‘(a) IN GENERAL.—Each taxpayer who was allowed a credit
under section 24 on the return for the taxpayer’s first taxable
year beginning in 2002 shall be treated as having made a payment
against the tax imposed by chapter 1 for such taxable year in
an amount equal to the child tax credit refund amount (if any)
for such taxable year.
‘‘(b) CHILD TAX CREDIT REFUND AMOUNT.—For purposes of
this section, the child tax credit refund amount is the amount
by which the aggregate credits allowed under part IV of subchapter
A of chapter 1 for such first taxable year would have been increased
if—
‘‘(1) the per child amount under section 24(a)(2) for such
year were $1,000,
‘‘(2) only qualifying children (as defined in section 24(c))
of the taxpayer for such year who had not attained age 17
as of December 31, 2003, were taken into account, and
‘‘(3) section 24(d)(1)(B)(ii) did not apply.
‘‘(c) TIMING OF PAYMENTS.—In the case of any overpayment
attributable to this section, the Secretary shall, subject to the
provisions of this title, refund or credit such overpayment as rapidly
as possible and, to the extent practicable, before October 1, 2003.
No refund or credit shall be made or allowed under this section
after December 31, 2003.
‘‘(d) COORDINATION WITH CHILD TAX CREDIT.—
‘‘(1) IN GENERAL.—The amount of credit which would (but
for this subsection and section 26) be allowed under section
24 for the taxpayer’s first taxable year beginning in 2003 shall
be reduced (but not below zero) by the payments made to
the taxpayer under this section. Any failure to so reduce the
credit shall be treated as arising out of a mathematical or
clerical error and assessed according to section 6213(b)(1).
‘‘(2) JOINT RETURNS.—In the case of a payment under this
section with respect to a joint return, half of such payment
shall be treated as having been made to each individual filing
such return.
‘‘(e) NO INTEREST.—No interest shall be allowed on any overpay-
ment attributable to this section.’’.
26 USC 6429.
26 USC 24.
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117 STAT. 754
PUBLIC LAW 108–27—MAY 28, 2003
(2) CLERICAL AMENDMENT.—The table of sections for sub-
chapter B of chapter 65 is amended by adding at the end
the following new item:
‘‘Sec. 6429. Advance payment of portion of increased child credit for 2003.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2002.
(2) SUBSECTION (b).—The amendments made by subsection
(b) shall take effect on the date of the enactment of this Act.
SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX
RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS
FILING JOINT RETURNS.
(a) IN GENERAL.—The table contained in subparagraph (B)
of section 1(f )(8) (relating to applicable percentage) is amended
by inserting before the item relating to 2005 the following new
item:
‘‘2003 and 2004 ...........................................................................
200’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1(f)(8)(A) is amended by striking ‘‘2004’’ and
inserting ‘‘2002’’.
(2) Section 302(c) of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is amended by striking ‘‘2004’’ and
inserting ‘‘2002’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
SEC. 103. ACCELERATION OF INCREASE IN STANDARD DEDUCTION
FOR MARRIED TAXPAYERS FILING JOINT RETURNS.
(a) IN GENERAL.—The table contained in paragraph (7) of sec-
tion 63(c) (relating to applicable percentage) is amended by inserting
before the item relating to 2005 the following new item:
‘‘2003 and 2004 ...........................................................................
200’’.
(b) CONFORMING AMENDMENT.—Section 301(d) of the Economic
Growth and Tax Relief Reconciliation Act of 2001 is amended by
striking ‘‘2004’’ and inserting ‘‘2002’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX
RATE BRACKET EXPANSION.
(a) IN GENERAL.—Clause (i) of section 1(i)(1)(B) (relating to
the initial bracket amount) is amended by striking ‘‘($12,000 in
the case of taxable years beginning before January 1, 2008)’’ and
inserting ‘‘($12,000 in the case of taxable years beginning after
December 31, 2004, and before January 1, 2008)’’.
(b) INFLATION
ADJUSTMENT.—Subparagraph (C) of section
1(i)(1) is amended to read as follows:
‘‘(C) INFLATION ADJUSTMENT.—In prescribing the tables
under subsection (f) which apply with respect to taxable
years beginning in calendar years after 2000—
‘‘(i) except as provided in clause (ii), the Secretary
shall make no adjustment to the initial bracket
amounts for any taxable year beginning before January
1, 2009,
Applicability.
26 USC 63 note.
26 USC 1 note.
Applicability.
26 USC 1 note.
26 USC 1 note.
26 USC 1.
Applicability.
26 USC 24 note.
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117 STAT. 755
PUBLIC LAW 108–27—MAY 28, 2003
‘‘(ii) there shall be an adjustment under subsection
(f) of such amounts which shall apply only to taxable
years beginning in 2004, and such adjustment shall
be determined under subsection (f)(3) by substituting
‘2002’ for ‘1992’ in subparagraph (B) thereof,
‘‘(iii) the cost-of-living adjustment used in making
adjustments to the initial bracket amounts for any
taxable year beginning after December 31, 2008, shall
be determined under subsection (f)(3) by substituting
‘2007’ for ‘1992’ in subparagraph (B) thereof, and
‘‘(iv) the adjustments under clauses (ii) and (iii)
shall not apply to the amount referred to in subpara-
graph (B)(iii).
If any amount after adjustment under the preceding sen-
tence is not a multiple of $50, such amount shall be rounded
to the next lowest multiple of $50.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
(2) TABLES FOR 2003.—The Secretary of the Treasury shall
modify each table which has been prescribed under section
1(f) of the Internal Revenue Code of 1986 for taxable years
beginning in 2003 and which relates to the amendment made
by subsection (a) to reflect such amendment.
SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX
RATES.
(a) IN GENERAL.—The table contained in paragraph (2) of sec-
tion 1(i) (relating to reductions in rates after June 30, 2001) is
amended to read as follows:
‘‘In the case of taxable years
beginning during calendar year:
The corresponding percentages
shall be substituted for
the following percentages:
28%
31%
36%
39.6%
2001 .........................................................
27.5%
30.5%
35.5%
39.1%
2002 .........................................................
27.0%
30.0%
35.0%
38.6%
2003 and thereafter ...............................
25.0%
28.0%
33.0%
35.0%’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2002.
SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS.
(a) IN GENERAL.—
(1) Subparagraph (A) of section 55(d)(1) is amended by
striking ‘‘$49,000 in the case of taxable years beginning in
2001, 2002, 2003, and 2004’’ and inserting ‘‘$58,000 in the
case of taxable years beginning in 2003 and 2004’’.
(2) Subparagraph (B) of section 55(d)(1) is amended by
striking ‘‘$35,750 in the case of taxable years beginning in
2001, 2002, 2003, and 2004’’ and inserting ‘‘$40,250 in the
case of taxable years beginning in 2003 and 2004’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to taxable years beginning after December 31, 2002.
SEC. 107. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.
Each amendment made by this title shall be subject to title
IX of the Economic Growth and Tax Relief Reconciliation Act of
26 USC 1 note.
Applicability.
26 USC 55 note.
Applicability.
26 USC 1 note.
26 USC 1.
Applicability.
26 USC 1 note.
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117 STAT. 756
PUBLIC LAW 108–27—MAY 28, 2003
2001 to the same extent and in the same manner as the provision
of such Act to which such amendment relates.
TITLE II—GROWTH INCENTIVES FOR
BUSINESS
SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIATION.
(a) IN GENERAL.—Section 168(k) (relating to special allowance
for certain property acquired after September 10, 2001, and before
September 11, 2004) is amended by adding at the end the following
new paragraph:
‘‘(4) 50-PERCENT BONUS DEPRECIATION FOR CERTAIN PROP-
ERTY.—
‘‘(A) IN
GENERAL.—In the case of 50-percent bonus
depreciation property—
‘‘(i) paragraph (1)(A) shall be applied by sub-
stituting ‘50 percent’ for ‘30 percent’, and
‘‘(ii) except as provided in paragraph (2)(C), such
property shall be treated as qualified property for pur-
poses of this subsection.
‘‘(B) 50-PERCENT BONUS DEPRECIATION PROPERTY.—For
purposes of this subsection, the term ‘50-percent bonus
depreciation property’ means property described in para-
graph (2)(A)(i)—
‘‘(i) the original use of which commences with the
taxpayer after May 5, 2003,
‘‘(ii) which is acquired by the taxpayer after May
5, 2003, and before January 1, 2005, but only if no
written binding contract for the acquisition was in
effect before May 6, 2003, and
‘‘(iii) which is placed in service by the taxpayer
before January 1, 2005, or, in the case of property
described in paragraph (2)(B) (as modified by subpara-
graph (C) of this paragraph), before January 1, 2006.
‘‘(C) SPECIAL RULES.—Rules similar to the rules of sub-
paragraphs (B) and (D) of paragraph (2) shall apply for
purposes of this paragraph; except that references to Sep-
tember 10, 2001, shall be treated as references to May
5, 2003.
‘‘(D) AUTOMOBILES.—Paragraph (2)(E) shall be applied
by substituting ‘$7,650’ for ‘$4,600’ in the case of 50-percent
bonus depreciation property.
‘‘(E) ELECTION OF 30-PERCENT BONUS.—If a taxpayer
makes an election under this subparagraph with respect
to any class of property for any taxable year, subparagraph
(A)(i) shall not apply to all property in such class placed
in service during such taxable year.’’.
(b) EXTENSION
OF CERTAIN DATES
FOR 30-PERCENT BONUS
DEPRECIATION PROPERTY.—
(1) PORTION OF BASIS TAKEN INTO ACCOUNT.—
(A) Subparagraphs (B)(ii) and (D)(i) of section 168(k)(2)
are each amended by striking ‘‘September 11, 2004’’ each
place it appears in the text and inserting ‘‘January 1,
2005’’.
Applicability.
Applicability.
Applicability.
26 USC 168.
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117 STAT. 757
PUBLIC LAW 108–27—MAY 28, 2003
(B) Clause (ii) of section 168(k)(2)(B) is amended by
striking ‘‘PRE-SEPTEMBER
11, 2004’’ in the heading and
inserting ‘‘PRE-JANUARY 1, 2005’’.
(2) ACQUISITION DATE.—Clause (iii) of section 168(k)(2)(A)
is amended by striking ‘‘September 11, 2004’’ each place it
appears and inserting ‘‘January 1, 2005’’.
(3) ELECTION.—Clause (iii) of section 168(k)(2)(C) is
amended by adding at the end the following: ‘‘The preceding
sentence shall be applied separately with respect to property
treated as qualified property by paragraph (4) and other quali-
fied property.’’.
(c) CONFORMING AMENDMENTS.—
(1) The subsection heading for section 168(k) is amended
by striking ‘‘SEPTEMBER 11, 2004’’ and inserting ‘‘JANUARY 1,
2005’’.
(2) The heading for clause (i) of section 1400L(b)(2)(C)
is amended by striking ‘‘30-PERCENT ADDITIONAL ALLOWANCE
PROPERTY’’ and inserting ‘‘BONUS
DEPRECIATION
PROPERTY
UNDER SECTION 168(k)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after May 5, 2003.
SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.
(a) IN GENERAL.—Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost which may
be taken into account under subsection (a) for any taxable
year shall not exceed $25,000 ($100,000 in the case of taxable
years beginning after 2002 and before 2006).’’.
(b) INCREASE IN QUALIFYING INVESTMENT AT WHICH PHASEOUT
BEGINS.—Paragraph (2) of section 179(b) (relating to reduction in
limitation) is amended by inserting ‘‘($400,000 in the case of taxable
years beginning after 2002 and before 2006)’’ after ‘‘$200,000’’.
(c) OFF-THE-SHELF COMPUTER SOFTWARE.—Paragraph (1) of
section 179(d) (defining section 179 property) is amended to read
as follows:
‘‘(1) SECTION 179 PROPERTY.—For purposes of this section,
the term ‘section 179 property’ means property—
‘‘(A) which is—
‘‘(i) tangible property (to which section 168
applies), or
‘‘(ii) computer software (as defined in section
197(e)(3)(B)) 
which 
is 
described 
in 
section
197(e)(3)(A)(i), to which section 167 applies, and which
is placed in service in a taxable year beginning after
2002 and before 2006,
‘‘(B) which is section 1245 property (as defined in sec-
tion 1245(a)(3)), and
‘‘(C) which is acquired by purchase for use in the
active conduct of a trade or business.
Such term shall not include any property described in section
50(b) and shall not include air conditioning or heating units.’’.
(d) ADJUSTMENT OF DOLLAR LIMIT AND PHASEOUT THRESHOLD
FOR INFLATION.—Subsection (b) of section 179 (relating to limita-
tions) is amended by adding at the end the following new paragraph:
‘‘(5) INFLATION ADJUSTMENTS.—
Applicability.
26 USC 168 note.
Applicability.
26 USC 168.
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PUBLIC LAW 108–27—MAY 28, 2003
‘‘(A) IN
GENERAL.—In the case of any taxable year
beginning in a calendar year after 2003 and before 2006,
the $100,000 and $400,000 amounts in paragraphs (1) and
(2) shall each be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, by substituting ‘calendar year
2002’ for ‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(B) ROUNDING.—
‘‘(i) DOLLAR LIMITATION.—If the amount in para-
graph (1) as increased under subparagraph (A) is not
a multiple of $1,000, such amount shall be rounded
to the nearest multiple of $1,000.
‘‘(ii) PHASEOUT AMOUNT.—If the amount in para-
graph (2) as increased under subparagraph (A) is not
a multiple of $10,000, such amount shall be rounded
to the nearest multiple of $10,000.’’.
(e) REVOCATION OF ELECTION.—Paragraph (2) of section 179(c)
(relating to election irrevocable) is amended by adding at the end
the following new sentence: ‘‘Any such election or specification
with respect to any taxable year beginning after 2002 and before
2006 may be revoked by the taxpayer with respect to any property,
and such revocation, once made, shall be irrevocable.’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
TITLE III—REDUCTION IN TAXES ON
DIVIDENDS AND CAPITAL GAINS
SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS;
REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT.
(a) IN GENERAL.—
(1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended
by striking ‘‘10 percent’’ and inserting ‘‘5 percent (0 percent
in the case of taxable years beginning after 2007)’’.
(2) The following sections are each amended by striking
‘‘20 percent’’ and inserting ‘‘15 percent’’:
(A) Section 1(h)(1)(C).
(B) Section 55(b)(3)(C).
(C) Section 1445(e)(1).
(D) The second sentence of section 7518(g)(6)(A).
(E) The second sentence of section 607(h)(6)(A) of the
Merchant Marine Act, 1936.
(b) CONFORMING AMENDMENTS.—
(1) Section 1(h) is amended—
(A) by striking paragraphs (2) and (9),
(B) by redesignating paragraphs (3) through (8) as
paragraphs (2) through (7), respectively, and
(C) by redesignating paragraphs (10), (11), and (12)
as paragraphs (8), (9), and (10), respectively.
(2) Paragraph (3) of section 55(b) is amended by striking
‘‘In the case of taxable years beginning after December 31,
2000, rules similar to the rules of section 1(h)(2) shall apply
for purposes of subparagraphs (B) and (C).’’.
46 USC
app. 1177.
Applicability.
26 USC 179 note.
26 USC 179.
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PUBLIC LAW 108–27—MAY 28, 2003
(3) Paragraph (7) of section 57(a) is amended—
(A) by striking ‘‘42 percent’’ the first place it appears
and inserting ‘‘7 percent’’, and
(B) by striking the last sentence.
(c) TRANSITIONAL RULES FOR TAXABLE YEARS WHICH INCLUDE
MAY 6, 2003.—For purposes of applying section 1(h) of the Internal
Revenue Code of 1986 in the case of a taxable year which includes
May 6, 2003—
(1) The amount of tax determined under subparagraph
(B) of section 1(h)(1) of such Code shall be the sum of—
(A) 5 percent of the lesser of—
(i) the net capital gain determined by taking into
account only gain or loss properly taken into account
for the portion of the taxable year on or after May
6, 2003 (determined without regard to collectibles gain
or loss, gain described in section 1(h)(6)(A)(i) of such
Code, and section 1202 gain), or
(ii) the amount on which a tax is determined under
such subparagraph (without regard to this subsection),
(B) 8 percent of the lesser of—
(i) the qualified 5-year gain (as defined in section
1(h)(9) of the Internal Revenue Code of 1986, as in
effect on the day before the date of the enactment
of this Act) properly taken into account for the portion
of the taxable year before May 6, 2003, or
(ii) the excess (if any) of—
(I) the amount on which a tax is determined
under such subparagraph (without regard to this
subsection), over
(II) the amount on which a tax is determined
under subparagraph (A), plus
(C) 10 percent of the excess (if any) of—
(i) the amount on which a tax is determined under
such subparagraph (without regard to this subsection),
over
(ii) the sum of the amounts on which a tax is
determined under subparagraphs (A) and (B).
(2) The amount of tax determined under subparagraph
(C) of section (1)(h)(1) of such Code shall be the sum of—
(A) 15 percent of the lesser of—
(i) the excess (if any) of the amount of net capital
gain determined under subparagraph (A)(i) of para-
graph (1) of this subsection over the amount on which
a tax is determined under subparagraph (A) of para-
graph (1) of this subsection, or
(ii) the amount on which a tax is determined under
such subparagraph (C) (without regard to this sub-
section), plus
(B) 20 percent of the excess (if any) of—
(i) the amount on which a tax is determined under
such subparagraph (C) (without regard to this sub-
section), over
(ii) the amount on which a tax is determined under
subparagraph (A) of this paragraph.
(3) For purposes of applying section 55(b)(3) of such Code,
rules similar to the rules of paragraphs (1) and (2) of this
subsection shall apply.
Applicability.
26 USC 1 note.
26 USC 57.
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PUBLIC LAW 108–27—MAY 28, 2003
(4) In applying this subsection with respect to any pass-
thru entity, the determination of when gains and losses are
properly taken into account shall be made at the entity level.
(5) For purposes of applying section 1(h)(11) of such Code,
as added by section 302 of this Act, to this subsection, dividends
which are qualified dividend income shall be treated as gain
properly taken into account for the portion of the taxable year
on or after May 6, 2003.
(6) Terms used in this subsection which are also used
in section 1(h) of such Code shall have the respective meanings
that such terms have in such section.
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise provided by this
subsection, the amendments made by this section shall apply
to taxable years ending on or after May 6, 2003.
(2) WITHHOLDING.—The amendment made by subsection
(a)(2)(C) shall apply to amounts paid after the date of the
enactment of this Act.
(3) SMALL BUSINESS STOCK.—The amendments made by
subsection (b)(3) shall apply to dispositions on or after May
6, 2003.
SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL GAIN RATES.
(a) IN GENERAL.—Section 1(h) (relating to maximum capital
gains rate), as amended by section 301, is amended by adding
at the end the following new paragraph:
‘‘(11) 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—
‘‘(i) IN
GENERAL.—The term ‘qualified dividend
income’ means dividends received during the taxable
year from—
‘‘(I) domestic corporations, and
‘‘(II) qualified foreign corporations.
‘‘(ii) CERTAIN
DIVIDENDS
EXCLUDED.—Such term
shall not include—
‘‘(I) any dividend from a corporation which
for the taxable year of the corporation in which
the distribution is made, or the preceding taxable
year, is a corporation exempt from tax under sec-
tion 501 or 521,
‘‘(II) any amount allowed as a deduction under
section 591 (relating to deduction for dividends
paid by mutual savings banks, etc.), and
‘‘(III) any dividend described in section 404(k).
‘‘(iii) COORDINATION
WITH
SECTION
246(c).—Such
term shall not include any dividend on any share of
stock—
‘‘(I) with respect to which the holding period
requirements of section 246(c) are not met (deter-
mined by substituting in section 246(c)(1) ‘60 days’
for ‘45 days’ each place it appears and by sub-
stituting ‘120-day period’ for ‘90-day period’), or
26 USC 1.
Applicability.
26 USC 1 note.
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PUBLIC LAW 108–27—MAY 28, 2003
‘‘(II) to the extent that the taxpayer is under
an obligation (whether pursuant to a short sale
or otherwise) to make related payments with
respect to positions in substantially similar or
related property.
‘‘(C) QUALIFIED FOREIGN CORPORATIONS.—
‘‘(i) IN
GENERAL.—Except as otherwise provided
in this paragraph, the term ‘qualified foreign corpora-
tion’ means any foreign corporation if—
‘‘(I) such corporation is incorporated in a
possession of the United States, or
‘‘(II) such corporation is eligible for benefits
of a comprehensive income tax treaty with the
United States which the Secretary determines is
satisfactory for purposes of this paragraph and
which includes an exchange of information pro-
gram.
‘‘(ii) DIVIDENDS ON STOCK READILY TRADABLE ON
UNITED
STATES
SECURITIES
MARKET.—A foreign cor-
poration not otherwise treated as a qualified foreign
corporation under clause (i) shall be so treated with
respect to any dividend paid by such corporation if
the stock with respect to which such dividend is paid
is readily tradable on an established securities market
in the United States.
‘‘(iii) EXCLUSION OF DIVIDENDS OF CERTAIN FOREIGN
CORPORATIONS.—Such term shall not include any for-
eign corporation which for the taxable year of the
corporation in which the dividend was paid, or the
preceding taxable year, is a foreign personal holding
company (as defined in section 552), a foreign invest-
ment company (as defined in section 1246(b)), or a
passive foreign investment company (as defined in sec-
tion 1297).
‘‘(iv) COORDINATION
WITH
FOREIGN
TAX
CREDIT
LIMITATION.—Rules similar to the rules of section
904(b)(2)(B) shall apply with respect to the dividend
rate differential under this paragraph.
‘‘(D) SPECIAL RULES.—
‘‘(i) AMOUNTS TAKEN INTO ACCOUNT AS INVESTMENT
INCOME.—Qualified dividend income shall not include
any amount which the taxpayer takes into account
as investment income under section 163(d)(4)(B).
‘‘(ii) EXTRAORDINARY DIVIDENDS.—If an individual
receives, with respect to any share of stock, qualified
dividend income from 1 or more dividends which are
extraordinary dividends (within the meaning of section
1059(c)), any loss on the sale or exchange of such
share shall, to the extent of such dividends, be treated
as long-term capital loss.
‘‘(iii) TREATMENT OF DIVIDENDS FROM REGULATED
INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT
TRUSTS.—A dividend received from a regulated invest-
ment company or a real estate investment trust shall
be subject to the limitations prescribed in sections
854 and 857.’’.
Applicability.
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(b) EXCLUSION
OF DIVIDENDS FROM INVESTMENT INCOME.—
Subparagraph (B) of section 163(d)(4) (defining net investment
income) is amended by adding at the end the following flush sen-
tence:
‘‘Such term shall include qualified dividend income (as
defined in section 1(h)(11)(B)) only to the extent the tax-
payer elects to treat such income as investment income
for purposes of this subsection.’’.
(c) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT
COMPANIES.—
(1) Subsection (a) of section 854 (relating to dividends
received from regulated investment companies) is amended by
inserting ‘‘section 1(h)(11) (relating to maximum rate of tax
on dividends) and’’ after ‘‘For purposes of’’.
(2) Paragraph (1) of section 854(b) (relating to other divi-
dends) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the
following new subparagraph:
‘‘(B) MAXIMUM RATE UNDER SECTION 1(h).—
‘‘(i) IN
GENERAL.—If the aggregate dividends
received by a regulated investment company during
any taxable year are less than 95 percent of its gross
income, then, in computing the maximum rate under
section 1(h)(11), rules similar to the rules of subpara-
graph (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.
‘‘(iii) DIVIDENDS FROM REAL ESTATE INVESTMENT
TRUSTS.—For purposes of clause (i)—
‘‘(I) paragraph (3)(B)(ii) shall not apply, and
‘‘(II) in the case of a distribution from a trust
described in such paragraph, the amount of such
distribution which is a dividend shall be subject
to the limitations under section 857(c).
‘‘(iv) DIVIDENDS
FROM
QUALIFIED
FOREIGN
COR-
PORATIONS.—For purposes of clause (i), dividends
received from qualified foreign corporations (as defined
in section 1(h)(11)) shall also be taken into account
in computing aggregate dividends received.’’.
(3) Subparagraph (C) of section 854(b)(1), as redesignated
by paragraph (2), is amended by striking ‘‘subparagraph (A)’’
and inserting ‘‘subparagraph (A) or (B)’’.
(4) Paragraph (2) of section 854(b) is amended by inserting
‘‘the maximum rate under section 1(h)(11) and’’ after ‘‘for pur-
poses of’’.
(5) Subsection (b) of section 854 is amended by adding
at the end the following new paragraph:
‘‘(5) COORDINATION WITH SECTION 1(h)(11).—For purposes
of paragraph (1)(B), an amount shall be treated as a dividend
only if the amount is qualified dividend income (within the
meaning of section 1(h)(11)(B)).’’.
Applicability.
26 USC 163.
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PUBLIC LAW 108–27—MAY 28, 2003
(d) TREATMENT OF DIVIDENDS RECEIVED FROM REAL ESTATE
INVESTMENT
TRUSTS.—Section 857(c) (relating to restrictions
applicable to dividends received from real estate investment trusts)
is amended to read as follows:
‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RECEIVED FROM
REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) SECTION 243.—For purposes of section 243 (relating
to deductions for dividends received by corporations), a dividend
received from a real estate investment trust which meets the
requirements of this part shall not be considered a dividend.
‘‘(2) SECTION
1(h)(11).—For purposes of section 1(h)(11)
(relating to maximum rate of tax on dividends)—
‘‘(A) rules similar to the rules of subparagraphs (B)
and (C) of section 854(b)(1) shall apply to dividends received
from a real estate investment trust which meets the
requirements of this part, and
‘‘(B) for purposes of such rules, such a trust shall
be treated as receiving qualified dividend income during
any taxable year in an amount equal to the sum of—
‘‘(i) the excess of real estate investment trust tax-
able income computed under section 857(b)(2) for the
preceding taxable year over the tax payable by the
trust under section 857(b)(1) for such preceding taxable
year, and
‘‘(ii) the excess of the income subject to tax by
reason of the application of the regulations under sec-
tion 337(d) for the preceding taxable year over the
tax payable by the trust on such income for such
preceding taxable year.’’.
(e) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 1(h), as redesignated by section
301, is amended to read as follows:
‘‘(3) ADJUSTED NET CAPITAL GAIN.—For purposes of this
subsection, the term ‘adjusted net capital gain’ means the sum
of—
‘‘(A) net capital gain (determined without regard to
paragraph (11)) reduced (but not below zero) by the sum
of—
‘‘(i) unrecaptured section 1250 gain, and
‘‘(ii) 28-percent rate gain, plus
‘‘(B) qualified dividend income (as defined in paragraph
(11)).’’.
(2) Subsection (f) of section 301 is amended adding at
the end the following new paragraph:
‘‘(4) For taxation of dividends received by individuals at
capital gain rates, see section 1(h)(11).’’.
(3) Paragraph (1) of section 306(a) is amended by adding
at the end the following new subparagraph:
‘‘(D) TREATMENT AS DIVIDEND.—For purposes of section
1(h)(11) and such other provisions as the Secretary may
specify, any amount treated as ordinary income under this
paragraph shall be treated as a dividend received from
the corporation.’’.
(4)(A) Subpart C of part II of subchapter C of chapter
1 (relating to collapsible corporations) is repealed.
(B)(i) Section 338(h) is amended by striking paragraph
(14).
26 USC 341.
Applicability.
26 USC 857.
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PUBLIC LAW 108–27—MAY 28, 2003
(ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are each
amended by striking ‘‘, 341(e)(12),’’.
(iii) The table of subparts for part II of subchapter C
of chapter 1 is amended by striking the item related to subpart
C.
(5) Section 531 is amended by striking ‘‘equal to’’ and
all that follows and inserting ‘‘equal to 15 percent of the
accumulated taxable income.’’.
(6) Section 541 is amended by striking ‘‘equal to’’ and
all that follows and inserting ‘‘equal to 15 percent of the undis-
tributed personal holding company income.’’.
(7) Section 584(c) is amended by adding at the end the
following new flush sentence:
‘‘The proportionate share of each participant in the amount of
dividends received by the common trust fund and to which section
1(h)(11) applies shall be considered for purposes of such paragraph
as having been received by such participant.’’.
(8) Paragraph (5) of section 702(a) is amended to read
as follows:
‘‘(5) dividends with respect to which section 1(h)(11) or
part VIII of subchapter B applies,’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2002.
(2) REGULATED INVESTMENT COMPANIES AND REAL ESTATE
INVESTMENT TRUSTS.—In the case of a regulated investment
company or a real estate investment trust, the amendments
made by this section shall apply to taxable years ending after
December 31, 2002; except that dividends received by such
a company or trust on or before such date shall not be treated
as qualified dividend income (as defined in section 1(h)(11)(B)
of the Internal Revenue Code of 1986, as added by this Act).
SEC. 303. SUNSET OF TITLE.
All provisions of, and amendments made by, this title shall
not apply to taxable years beginning after December 31, 2008,
and the Internal Revenue Code of 1986 shall be applied and
administered to such years as if such provisions and amendments
had never been enacted.
TITLE IV—TEMPORARY STATE FISCAL
RELIEF
SEC. 401. TEMPORARY STATE FISCAL RELIEF.
(a) $10,000,000,000 FOR A TEMPORARY INCREASE OF THE MED-
ICAID FMAP.—
(1) PERMITTING MAINTENANCE OF FISCAL YEAR 2002 FMAP
FOR LAST 2 CALENDAR QUARTERS OF FISCAL YEAR 2003.—Subject
to paragraph (5), if the FMAP determined without regard to
this subsection for a State for fiscal year 2003 is less than
the FMAP as so determined for fiscal year 2002, the FMAP
for the State for fiscal year 2002 shall be substituted for the
State’s FMAP for the third and fourth calendar quarters of
fiscal year 2003, before the application of this subsection.
42 USC 1396d
note.
26 USC 1 note.
Applicability.
26 USC 1 note.
26 USC 467,
1255, 1257.
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(2) PERMITTING MAINTENANCE OF FISCAL YEAR 2003 FMAP
FOR FIRST 3 QUARTERS OF FISCAL YEAR 2004.—Subject to para-
graph (5), if the FMAP determined without regard to this
subsection for a State for fiscal year 2004 is less than the
FMAP as so determined for fiscal year 2003, the FMAP for
the State for fiscal year 2003 shall be substituted for the
State’s FMAP for the first, second, and third calendar quarters
of fiscal year 2004, before the application of this subsection.
(3) GENERAL 2.95 PERCENTAGE POINTS INCREASE FOR LAST
2 CALENDAR QUARTERS OF FISCAL YEAR 2003 AND FIRST 3 CAL-
ENDAR QUARTERS OF FISCAL YEAR 2004.—Subject to paragraphs
(5), (6), and (7), for each State for the third and fourth calendar
quarters of fiscal year 2003 and for the first, second, and
third calendar quarters of fiscal year 2004, the FMAP (taking
into account the application of paragraphs (1) and (2)) shall
be increased by 2.95 percentage points.
(4) INCREASE
IN
CAP
ON
MEDICAID
PAYMENTS
TO
TERRI-
TORIES.—Subject to paragraphs (6) and (7), with respect to
the third and fourth calendar quarters of fiscal year 2003
and the first, second, and third calendar quarters of fiscal
year 2004, the amounts otherwise determined for Puerto Rico,
the Virgin Islands, Guam, the Northern Mariana Islands, and
American Samoa under subsections (f) and (g) of section 1108
of the Social Security Act (42 U.S.C. 1308) shall each be
increased by an amount equal to 5.90 percent of such amounts.
(5) SCOPE OF APPLICATION.—The increases in the FMAP
for a State under this subsection shall apply only for purposes
of title XIX of the Social Security Act and shall not apply
with respect to—
(A) disproportionate share hospital payments described
in section 1923 of such Act (42 U.S.C. 1396r–4);
(B) payments under title IV or XXI of such Act (42
U.S.C. 601 et seq. and 1397aa et seq.); or
(C) any payments under XIX of such Act that are
based on the enhanced FMAP described in section 2105(b)
of such Act (42 U.S.C. 1397ee(b)).
(6) STATE ELIGIBILITY.—
(A) IN GENERAL.—Subject to subparagraph (B), a State
is eligible for an increase in its FMAP under paragraph
(3) or an increase in a cap amount under paragraph (4)
only if the eligibility under its State plan under title XIX
of the Social Security Act (including any waiver under
such title or under section 1115 of such Act (42 U.S.C.
1315)) is no more restrictive than the eligibility under
such plan (or waiver) as in effect on September 2, 2003.
(B) STATE REINSTATEMENT OF ELIGIBILITY PERMITTED.—
A State that has restricted eligibility under its State plan
under title XIX of the Social Security Act (including any
waiver under such title or under section 1115 of such
Act (42 U.S.C. 1315)) after September 2, 2003, is eligible
for an increase in its FMAP under paragraph (3) or an
increase in a cap amount under paragraph (4) in the first
calendar quarter (and subsequent calendar quarters) in
which the State has reinstated eligibility that is no more
restrictive than the eligibility under such plan (or waiver)
as in effect on September 2, 2003.
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(C) RULE OF CONSTRUCTION.—Nothing in subparagraph
(A) or (B) shall be construed as affecting a State’s flexibility
with respect to benefits offered under the State medicaid
program under title XIX of the Social Security Act (42
U.S.C. 1396 et seq.) (including any waiver under such
title or under section 1115 of such Act (42 U.S.C. 1315)).
(7) REQUIREMENT FOR CERTAIN STATES.—In the case of a
State that requires political subdivisions within the State to
contribute toward the non-Federal share of expenditures under
the State medicaid plan required under section 1902(a)(2) of
the Social Security Act (42 U.S.C. 1396a(a)(2)), the State shall
not require that such political subdivisions pay a greater
percentage of the non-Federal share of such expenditures for
the third and fourth calendar quarters of fiscal year 2003
and the first, second and third calendar quarters of fiscal year
2004, than the percentage that was required by the State
under such plan on April 1, 2003, prior to application of this
subsection.
(8) DEFINITIONS.—In this subsection:
(A) FMAP.—The term ‘‘FMAP’’ means the Federal med-
ical assistance percentage, as defined in section 1905(b)
of the Social Security Act (42 U.S.C. 1396d(b)).
(B) STATE.—The term ‘‘State’’ has the meaning given
such term for purposes of title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.).
(9) REPEAL.—Effective as of October 1, 2004, this subsection
is repealed.
(b) $10,000,000,000 TO ASSIST STATES IN PROVIDING GOVERN-
MENT SERVICES.—The Social Security Act (42 U.S.C. 301 et seq.)
is amended by inserting after title V the following:
‘‘TITLE VI—TEMPORARY STATE FISCAL
RELIEF
‘‘SEC. 601. TEMPORARY STATE FISCAL RELIEF.
‘‘(a) APPROPRIATION.—There is authorized to be appropriated
and is appropriated for making payments to States under this
section, $5,000,000,000 for each of fiscal years 2003 and 2004.
‘‘(b) PAYMENTS.—
‘‘(1) FISCAL
YEAR
2003.—From the amount appropriated
under subsection (a) for fiscal year 2003, the Secretary of the
Treasury shall, not later than the later of the date that is
45 days after the date of enactment of this Act or the date
that a State provides the certification required by subsection
(e) for fiscal year 2003, pay each State the amount determined
for the State for fiscal year 2003 under subsection (c).
‘‘(2) FISCAL
YEAR
2004.—From the amount appropriated
under subsection (a) for fiscal year 2004, the Secretary of the
Treasury shall, not later than the later of October 1, 2003,
or the date that a State provides the certification required
by subsection (e) for fiscal year 2004, pay each State the amount
determined for the State for fiscal year 2004 under subsection
(c).
‘‘(c) PAYMENTS BASED ON POPULATION.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), the amount
appropriated under subsection (a) for each of fiscal years 2003
Deadlines.
42 USC 801.
Effective date.
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PUBLIC LAW 108–27—MAY 28, 2003
and 2004 shall be used to pay each State an amount equal
to the relative population proportion amount described in para-
graph (3) for such fiscal year.
‘‘(2) MINIMUM PAYMENT.—
‘‘(A) IN GENERAL.—No State shall receive a payment
under this section for a fiscal year that is less than—
‘‘(i) in the case of 1 of the 50 States or the District
of Columbia, 1⁄2 of 1 percent of the amount appro-
priated for such fiscal year under subsection (a); and
‘‘(ii) in the case of the Commonwealth of Puerto
Rico, the United States Virgin Islands, Guam, the
Commonwealth of the Northern Mariana Islands, or
American Samoa, 1⁄10 of 1 percent of the amount appro-
priated for such fiscal year under subsection (a).
‘‘(B) PRO RATA ADJUSTMENTS.—The Secretary of the
Treasury shall adjust on a pro rata basis the amount
of the payments to States determined under this section
without regard to this subparagraph to the extent nec-
essary to comply with the requirements of subparagraph
(A).
‘‘(3) RELATIVE POPULATION PROPORTION AMOUNT.—The rel-
ative population proportion amount described in this paragraph
is the product of—
‘‘(A) the amount described in subsection (a) for a fiscal
year; and
‘‘(B) the relative State population proportion (as defined
in paragraph (4)).
‘‘(4) RELATIVE STATE POPULATION PROPORTION DEFINED.—
For purposes of paragraph (3)(B), the term ‘relative State popu-
lation proportion’ means, with respect to a State, the amount
equal to the quotient of—
‘‘(A) the population of the State (as reported in the
most recent decennial census); and
‘‘(B) the total population of all States (as reported
in the most recent decennial census).
‘‘(d) USE OF PAYMENT.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a State shall
use the funds provided under a payment made under this
section for a fiscal year to—
‘‘(A) provide essential government services; or
‘‘(B) cover the costs to the State of complying with
any Federal intergovernmental mandate (as defined in sec-
tion 421(5) of the Congressional Budget Act of 1974) to
the extent that the mandate applies to the State, and
the Federal Government has not provided funds to cover
the costs.
‘‘(2) LIMITATION.—A State may only use funds provided
under a payment made under this section for types of expendi-
tures permitted under the most recently approved budget for
the State.
‘‘(e) CERTIFICATION.—In order to receive a payment under this
section for a fiscal year, the State shall provide the Secretary
of the Treasury with a certification that the State’s proposed uses
of the funds are consistent with subsection (d).
‘‘(f) DEFINITION OF STATE.—In this section, the term ‘State’
means the 50 States, the District of Columbia, the Commonwealth
of Puerto Rico, the United States Virgin Islands, Guam, the
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PUBLIC LAW 108–27—MAY 28, 2003
LEGISLATIVE HISTORY—H.R. 2 (S. 2) (S. 1054):
HOUSE REPORTS: Nos. 108–94 (Comm. on Ways and Means) and 108–126
(Comm. of Conference).
CONGRESSIONAL RECORD, Vol. 149 (2003):
May 9, considered and passed House.
May 14, 15, considered and passed Senate, amended, in lieu of S. 1054.
May 22, House agreed to conference report.
May 23, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
May 28, Presidential remarks.
Commonwealth of the Northern Mariana Islands, and American
Samoa.
‘‘(g) REPEAL.—Effective as of October 1, 2004, this title is
repealed.’’.
TITLE V—CORPORATE ESTIMATED TAX
PAYMENTS FOR 2003
SEC. 501. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.
Notwithstanding section 6655 of the Internal Revenue Code
of 1986, 25 percent of the amount of any required installment
of corporate estimated tax which is otherwise due in September
2003 shall not be due until October 1, 2003.
Approved May 28, 2003.
Effective date.
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