To amend the Internal Revenue Code of 1986 to repeal the double taxation of corporate profits.

January 7, 2003

Mr. COLLINS introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to repeal the double taxation of corporate profits.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. REPEAL OF DOUBLE TAXATION OF CORPORATE PROFITS.

(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 otherwise includible in gross income which are received during the taxable year by an individual.

`(b) SPECIAL RULES- For purposes of this section--

`(1) 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).

`(2) EXCLUSION NOT TO APPLY TO CAPITAL GAIN DIVIDENDS FROM REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS-

`(3) 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).

`(4) DIVIDENDS FROM EMPLOYEE STOCK OWNERSHIP PLANS- Subsection (a) shall not apply to any dividend described in section 404(k).'.

(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.

END