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Q: SECTION 1. SHORT TITLE.

This Act may be cited as the ''Savings Advancement and Enhancement
(SAVE) Act of 1998''.

SEC. 2. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME FROM TAX.

(a) In General.--Part III of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to amounts specifically
excluded from gross income) is amended by inserting after section 115
the following new section:

''SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY
INDIVIDUALS.

''(a) Exclusion From Gross Income.--Gross income does not include
the sum of the amounts received during the taxable year by an
individual as--
''(1) dividends from domestic corporations, or
''(2) interest.
''(b) Limitations.--
''(1) Maximum amount.--The aggregate amount excluded under
subsection (a) for any taxable year shall not exceed $250 ($500
in the case of a joint return).
''(2) Limitation based on taxable income.--No exclusion
from gross income shall be allowed under this section for an
individual for a taxable year if the individual has any amount
of taxable income taxed at the rate of 39.6 percent for the
taxable year.
''(3) Certain dividends excluded.--Subsection (a)(1) shall
not apply to any dividend from a corporation which, for the
taxable year of the corporation in which the distribution is
made, or for the next preceding taxable year of the
corporation, is a corporation exempt from tax under section 501
(relating to certain charitable, etc., organization) or section
521 (relating to farmers' cooperative associations).
''(c) Interest.--For purposes of this section, the term 'interest'
means--
''(1) interest on deposits with a bank (as defined in
section 581),
''(2) amounts (whether or not designated as interest) paid
in respect of deposits, investment certificates, or
withdrawable or repurchasable shares, by--
''(A) a mutual savings bank, cooperative bank,
domestic building and loan association, industrial loan
association or bank, or credit union, or
''(B) any other savings or thrift institution which
is chartered and supervised under Federal or State law,
the deposits or accounts in which are insured under Federal or
State law or which are protected and guaranteed under State
law,
''(3) interest on--
''(A) evidences of indebtedness (including bonds,
debentures, notes, and certificates) issued by a
domestic corporation in registered form, and
''(B) to the extent provided in regulations
prescribed by the Secretary, other evidences of
indebtedness issued by a domestic corporation of a type
offered by corporations to the public,
''(4) interest on obligations of the United States, a
State, or a political subdivision of a State (not excluded from
gross income of the taxpayer under any other provision of law),
and
''(5) interest attributable to participation shares in a
trust established and maintained by a corporation established
pursuant to Federal law.
''(d) Special Rules.--For purposes of this section--
''(1) Distributions from regulated investment companies and
real estate investment trusts.--Subsection (a) shall apply with
respect to distributions by--
''(A) regulated investment companies to the extent
provided in section 854(c), and
''(B) real estate investment trusts to the extent
provided in section 857(c).
''(2) Distributions by a trust.--For purposes of subsection
(a), the amount of dividends and interest properly allocable to
a beneficiary under section 652 or 662 shall be deemed to have been
received by the beneficiary ratably on the same date that the dividends
and interest were received by the estate or trust.
''(3) Certain nonresident aliens ineligible for
exclusion.--In the case of a nonresident alien individual,
subsection (a) shall apply only--
''(A) in determining the tax imposed for the
taxable year pursuant to section 871(b)(1) and only in
respect of dividends and interest which are effectively
connected with the conduct of a trade or business
within the United States, or
''(B) in determining the tax imposed for the
taxable year pursuant to section 877(b).''.
(b) Conforming Amendments.--
(1) The table of sections for part III of subchapter B of
chapter 1 of such Code is amended by inserting after the item
relating to section 115 the following new item:

''Sec. 116. Partial exclusion of
dividends and interest received
by individuals.''.
(2) Paragraph (2) of section 265(a) of such Code is amended
by inserting before the period at the end the following: '', or
to purchase or carry obligations or shares, or to make
deposits, to the extent the interest thereon is excludable from
gross income under section 116''.
(3) Subsection (c) of section 584 of such Code is amended
by adding at the end the following new flush sentence:
''The proportionate share of each participant in the amount of
dividends or interest received by the common trust fund and to which
section 116 applies shall be considered for purposes of such section as
having been received by such participant.''.
(4) Subsection (a) of section 643 of such Code is amended
by redesignating paragraph (7) as paragraph (8) and by
inserting after paragraph (6) the following new paragraph:
''(7) Dividends or interest.--There shall be included the
amount of any dividends or interest excluded from gross income
pursuant to section 116.''.
(5) Section 854 of such Code is amended by adding at the
end the following new subsection:
''(c) Treatment Under Section 116.--
''(1) In general.--For purposes of section 116, in the case
of any dividend (other than a dividend described in subsection
(a)) received from a regulated investment company which meets
the requirements of section 852 for the taxable year in which
it paid the dividend--
''(A) the entire amount of such dividend shall be
treated as a dividend if the sum of the aggregate
dividends and the aggregate interest received by such
company during the taxable year equals or exceeds 75
percent of its gross income, or
''(B) if subparagraph (A) does not apply, there
shall be taken into account under section 116 only the
portion of such dividend which bears the same ratio to
the amount of such dividend as the sum of the aggregate
dividends received and aggregate interest received
bears to gross income.
For purposes of the preceding sentence, gross income and
aggregate interest received shall each be reduced by so much of
the deduction allowable by section 163 for the taxable year as
does not exceed aggregate interest received for the taxable
year.
''(2) Notice to shareholders.--The amount of any
distribution by a regulated investment company which may be
taken into account as a dividend for purposes of the exclusion
under section 116 shall not exceed the amount so designated by
the company in a written notice to its shareholders mailed not
later than 60 days after the close of its taxable year.
''(3) Definitions.--For purposes of this subsection--
''(A) Gross income.--The term 'gross income' does
not include gain from the sale or other disposition of
stock or securities.
''(B) Aggregate dividends.--The term 'aggregate
dividends' includes only dividends received from
domestic corporations other than dividends described in
section 116(b)(2). In determining the amount of any
dividend for purposes of this subparagraph, the rules
provided in section 116(d)(1) (relating to certain
distributions) shall apply.
''(C) Interest.--The term 'interest' has the
meaning given such term by section 116(c).''.
(6) Subsection (c) of section 857 of such Code is amended
to read as follows:
''(c) Limitations Applicable to Dividends Received From Real Estate
Investment Trusts.--
''(1) In general.--For purposes of section 116 (relating to
an exclusion for dividends and interest received by
individuals) and 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 as a dividend.
''(2) Treatment as interest.--For purposes of section 116,
in the case of a dividend (other than a capital gain dividend,
as defined in subsection (b)(3)(C)) received from a real estate
investment trust which meets the requirements of this part for
the taxable year in which it paid the dividend--
''(A) such dividend shall be treated as interest if
the aggregate interest received by the real estate
investment trust for the taxable year equals or exceeds
75 percent of its gross income, or
''(B) if subparagraph (A) does not apply, the
portion of such dividend which bears the same ratio to
the amount of such dividend as the aggregate interest
received bears to gross income shall be treated as
interest.
''(3) Adjustments to gross income and aggregate interest
received.--For purposes of paragraph (2)--
''(A) gross income does not include the net capital
gain,
''(B) gross income and aggregate interest received
shall each be reduced by so much of the deduction
allowable by section 163 for the taxable year (other
than for interest on mortgages on real property owned
by the real estate investment trust) as does not exceed
aggregate interest received by the taxable year, and
''(C) gross income shall be reduced by the sum of
the taxes imposed by paragraphs (4), (5), and (6) of
section 857(b).
''(4) Interest.--The term 'interest' has the meaning given
such term by section 116(c).
''(5) Notice to shareholders.--The amount of any
distribution by a real estate investment trust which may be
taken into account as interest for purposes of the exclusion
under section 116 shall not exceed the amount so designated by
the trust in a written notice to its shareholders mailed not
later than 60 days after the close of its taxable year.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
A:
Savings Advancement and Enhancement (SAVE) Act of 1998 - Amends the Internal Revenue Code to exclude from individual gross income up to $250 ($500 for joint filers) of the sum of dividends from domestic corporations or interest. Sets forth related provisions with respect to: (1) distributions from regulated investment companies and real estate investment trusts; and (2) nonresident aliens.