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Q: SECTION 1. SHORT TITLE.

This Act may be cited as the ''Dividend Taxation Elimination Act of
2003''.

SEC. 2. EXEMPTION OF 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. EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

''(a) Exclusion From Gross Income.--Gross income does not include
dividends which are otherwise includible in gross income and which are
received during the taxable year by an individual.
''(b) Limitation Before 2007.--In the case of a taxable year
beginning before January 1, 2007, the aggregate amount excluded under
subsection (a) for any taxable year shall not exceed--
''(1) $25,000 in the case of taxable years beginning during
2003,
''(2) $50,000 in the case of taxable years beginning during
2004,
''(3) $75,000 in the case of taxable years beginning during
2005, and
''(4) $100,000 in the case of taxable years beginning
during 2006.
In the case of a joint return, the preceding sentence shall be applied
by doubling each amount contained therein.
''(c) Special Rules.--For purposes of this section--
''(1) Exclusion not to apply to capital gain dividends from
regulated investment companies and real estate investment
trusts.--

''For treatment of capital gain
dividends, see sections 854(a) and 857(c).
''(2) Certain nonresident aliens ineligible for
exclusion.--In the case of a nonresident alien individual,
subsection (a) shall apply only in determining the taxes
imposed for the taxable year pursuant to sections 871(b)(1) and
877(b).
''(3) Dividends from employee stock ownership plans.--
Subsection (a) shall not apply to any dividend described in
section 404(k).
''(4) Certain dividends excluded.--Subsection (a) shall not
apply to any dividend from a corporation which for the taxable
year of the corporation in which the distribution is made is a
corporation exempt from tax under section 521 (relating to
farmers' cooperative associations).''.
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 32(i)(2) of such Code is
amended by inserting ''(determined without regard to section
116)'' before the comma.
(2) Subparagraph (B) of section 86(b)(2) of such Code is
amended to read as follows:
''(B) increased by the sum of--
''(i) the amount of interest received or
accrued by the taxpayer during the taxable year
which is exempt from tax, and
''(ii) the amount of dividends received
during the taxable year which are excluded from
gross income under section 116.''.
(3) Subsection (d) of section 135 of such Code is amended
by redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new paragraph:
''(4) Coordination with section 116.--This section shall be
applied before section 116.''.
(4) 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 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.''.
(5) 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.--There shall be included the amount of any
dividends excluded from gross income pursuant to section
116.''.
(6) Section 854(a) of such Code is amended by inserting
''section 116 (relating to exclusion of dividends received by
individuals) and'' after ''For purposes of''.
(7) Section 857(c) of such Code is amended to read as
follows:
''(c) Restrictions Applicable to Dividends Received From Real
Estate Investment Trusts.--
''(1) Treatment for section 116.--For purposes of section
116 (relating to exclusion of dividends received by
individuals), 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 shall not be considered as
a dividend.
''(2) Treatment for 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 as a dividend.''.
(8) 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. Exclusion of dividends
received by individuals.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
A:
Dividend Taxation Elimination Act of 2003 - Amends the Internal Revenue Code to exclude dividends from gross income, with specified exceptions. Sets forth exclusion limitations prior to 2007.