HR 6827
110th CONGRESS
2d Session
H. R. 6827
To amend the Internal Revenue Code of 1986 to provide for rollover
of gain from divesting certain qualified securities of business entities engaged
in Iran or Sudan discouraged activities.
IN THE HOUSE OF REPRESENTATIVES
August 1, 2008
Mr. SHERMAN (for himself, Ms. ROS-LEHTINEN, Mr. BERMAN, Ms. BERKLEY, Mrs.
JONES of Ohio, Mr. DAVIS of Alabama, Mr. KIRK, Mr. PERLMUTTER, Mr. BURTON
of Indiana, Mr. CAMPBELL of California, and Mr. ENGEL) 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 provide for rollover
of gain from divesting certain qualified securities of business entities engaged
in Iran or Sudan discouraged activities.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Enable Divestment from Sudan and Iran Act of
2008'.
SEC. 2. ROLLOVER OF GAIN FROM DIVESTING CERTAIN QUALIFIED SECURITIES OF
BUSINESS ENTITIES ENGAGED IN DISCOURAGED ACTIVITIES IN IRAN OR SUDAN.
(a) In General- Part III of subchapter O of chapter 1 of the Internal Revenue
Code of 1986 (relating to common nontaxable exchanges) is amended by adding
at the end the following new section:
`SEC. 1046. ROLLOVER OF GAIN FROM DIVESTING CERTAIN QUALIFIED SECURITIES
OF BUSINESS ENTITIES ENGAGED IN DISCOURAGED ACTIVITIES IN IRAN OR SUDAN.
`(a) Nonrecognition of Gain-
`(1) IN GENERAL- In the case of any sale of any qualified security held
by a taxpayer with respect to which such taxpayer elects the application
of this section, in any business entity that is engaged in an Iran discouraged
activity or a Sudan discouraged activity, gain from such sale shall be recognized
only to the extent that the amount realized on such sale exceeds--
`(A) the cost of any qualified replacement property purchased by the taxpayer
during the 30-day period beginning on the date of such sale, reduced by
`(B) any portion of such cost previously taken into account under this
section.
`(2) EXCEPTION FOR ORDINARY INCOME GAIN- This section shall not apply to
any gain which is treated as ordinary income for purposes of this title.
`(3) EXCEPTION WHERE TAXPAYER OWNS CONTROLLING INTEREST IN THE BUSINESS
ENTITY-
`(A) IN GENERAL- Paragraph (1) shall not apply to any sale if, immediately
before such sale, the taxpayer owns a controlling interest in the business
entity that is engaged in an Iran discouraged activity or a Sudan discouraged
activity.
`(B) CONTROLLING INTEREST- For purposes of subparagraph (A), the term
`controlling interest' means direct or indirect ownership of at least
50 percent of the total voting power and value of all classes of stock
of a corporation. For purposes of the preceding sentence, the rules of
paragraphs (1) and (5) of section 267(c) shall apply.
`(C) AGGREGATION RULE- For purposes of this paragraph, all members of
the same controlled group of corporations (within the meaning of section
267(f)) and all persons under common control (within the meaning of section
52(b) but determined by treating an interest of more than 50 percent as
a controlling interest) shall be treated as 1 person.
`(b) Definitions and Special Rules Relating to Securities and Replacement
Property- For purposes of this section--
`(A) IN GENERAL- The term `qualified security' means any security held
by a taxpayer in any business entity that is engaged in an Iran discouraged
activity or a Sudan discouraged activity.
`(B) EXCEPTION- Such term shall not include any security purchased or
otherwise acquired after the date of the enactment of this section which,
at the time of such purchase or acquisition, was issued by a business
entity then engaged in an Iran discouraged activity or a Sudan discouraged
activity.
`(C) SECURITY DEFINED- The term `security' has the meaning given such
term by section 165(g)(2).
`(2) QUALIFIED REPLACEMENT PROPERTY-
`(A) IN GENERAL- The term `qualified replacement property' means any security
of a business entity that, on the date of purchase by the taxpayer--
`(i) is not engaged in an Iran discouraged activity or a Sudan discouraged
activity on such date,
`(ii) is not a member of an expanded affiliated group, any member of
which is engaged in an Iran discouraged activity or a Sudan discouraged
activity on such date, and
`(iii) meets the requirements of subparagraph (B).
`(B) REPLACEMENT PROPERTY- Property meets the requirements of this paragraph
if, with respect to the sale of any security--
`(i) except as provided in clause (ii), in the case that the security
is a share of stock in a corporation, the replacement property is a
share of stock in a corporation,
`(ii) in the case that the security is a share of stock of a regulated
investment company, real estate investment trust, hedge fund, investment
partnership, or similar business entity, the replacement property is
a share of stock in a regulated investment company, real estate investment
trust, hedge fund, investment partnership, or similar business entity,
`(iii) in the case that the security is a right to subscribe for, or
to receive, a share of stock in a corporation, the replacement property
is a right to subscribe for, or to receive, a share of stock in a corporation,
and
`(iv) in the case that the security is a bond, debenture, note, or certificate,
or other evidence of indebtedness issued by a corporation, with interest
coupons or in registered form, the replacement property is a bond, debenture,
note, or certificate, or other evidence of indebtedness issued by a
corporation, with interest coupons or in registered form.
`(C) DEEMED INVESTMENT IF INVESTING IN ENTITIES ENGAGED IN DISCOURAGED
ACTIVITIES- Any regulated investment company, real estate investment trust,
hedge fund, investment partnership, or similar business entity, which
invests in the securities--
`(i) issued by a business entity determined to be engaging in Iran discouraged
activities or Sudan discouraged activities, or
`(ii) issued by the government of Sudan or Iran or any agency thereof,
shall be deemed to be a business entity engaging in Iran discouraged activities
or Sudan discouraged activities.
`(D) BUSINESS DECLARATION OF POLICY-
`(i) IN GENERAL- Notwithstanding any other provision of this section,
in the case of a business entity described in clause (iii), a security
in such business entity shall not be treated as qualified replacement
property unless the business entity has made the following declaration:
`It is our policy not to make investments in business entities which
engage in Iran discouraged activities or Sudan discouraged activities
as defined in section 1046 of the Internal Revenue Code of 1986, and
to use due diligence to avoid making such investments. It is our policy
to divest on or before December 31, 2010, from business entities engaged
in either Iran discouraged activities or Sudan discouraged activities.'.
`(ii) NOT QUALIFIED SECURITY- If a business entity described in clause
(iii) has made the declaration specified in clause (i), then from the
time of such declaration an interest in such business entity shall not
be treated as a qualified security.
`(iii) BUSINESS ENTITY DESCRIBED- A business entity described in this
clause is a regulated investment company, real estate investment trust,
hedge fund, investment partnership, or similar business entity.
`(E) EXPANDED AFFILIATED GROUP- The term `expanded affiliated group' means
an affiliated group as defined in section 1504(a), determined--
`(i) by substituting `more than 50 percent' for `at least 80 percent'
each place it appears, and
`(ii) without regard to paragraphs (2) and (4) of section 1504(b).
`(F) BASIS ADJUSTMENTS- If gain from any sale is not recognized by reason
of subsection (a), such gain shall be applied to reduce (in the order
acquired) the basis for determining gain or loss of any qualified replacement
property which is purchased by the taxpayer during the 30-day period described
in subsection (a).
`(G) HOLDING PERIOD- For purposes of determining the period for which
the taxpayer has held qualified replacement property the acquisition of
which resulted in the nonrecognition under subsection (a) of any part
of the gain realized on the sale of a qualified security, there shall
be included the period for which such qualified security had been held
by the taxpayer.
`(3) SPECIAL RULE FOR SECURITIES OF CERTAIN ENTITIES-
`(A) IN GENERAL- For any business entity described in subparagraph (C),
a security in such business entity shall be treated as qualified replacement
property if the business entity has made the following declaration: `It
is our policy not to make investments in any person having an investment
in, or carrying on a trade or business (within the meaning of section
162) in or with, Iran and Sudan. This policy may or may not include investments
concerning the provision of food, medicine, humanitarian services in or
to Iran or Sudan or investments concerning marginalized areas of Sudan
(as defined in section 2 of the Sudan Accountability and Divestment Act
of 2007 (121 Stat. 2518)).'.
`(B) NOT QUALIFIED SECURITY- If a business entity described in subparagraph
(C) has made the declaration specified in subparagraph (A), then from
the time of such declaration an interest in such business entity shall
not be treated as a qualified security.
`(C) BUSINESS ENTITY DESCRIBED- A business entity described in this subparagraph
is a regulated investment company, real estate investment trust, hedge
fund, investment partnership, or similar business entity.
`(D) CERTAIN BUSINESS ENTITIES AS REPLACEMENT PROPERTY- A business entity
described in subparagraph (C) making the declaration described in subparagraph
(A) may qualify as replacement property if it has adopted restrictions
on investment in persons that invest in or carrying on a trade or business
(within the meaning of section 162) in or with countries other than Iran
and Sudan that are designated as state sponsors of terrorism under section
6(j) of the Export Administration Act of 1979, section 40 of the Arms
Export Control Act, or section 620A of the Foreign Assistance Act of 1961.
`(4) BUSINESS ENTITY- The term `business entity' means any corporation,
limited liability partnership, limited liability company, or any other business
entity conducting business activities in which the taxpayer has purchased
or can purchase securities.
`(c) Definitions and Rules Relating to Sudan Discouraged Activity- For purposes
of this section, the term `Sudan discouraged activity' means an investment
in any business operation described in section 3(d) of the Sudan Accountability
and Divestment Act of 2007 (121 Stat. 2518).
`(d) Definitions and Rules Relating to Iran Discouraged Activities- For purposes
of this section--
`(1) IRAN DISCOURAGED ACTIVITY- The term `Iran discouraged activity' means--
`(A) the sale of munitions to the Iranian government,
`(B) loans aggregating more than $20 million to the Iranian government,
or
`(C) investments of over $20 million in the Iranian energy sector.
`(2) IRANIAN GOVERNMENT- The term `Iranian government' includes the government
and any agency thereof.
`(3) LOAN TO IRANIAN GOVERNMENT- A loan to the Iranian government includes
any sale in which payment is not due within 45 days of the transfer of the
goods or services sold, and also includes any sale as to which the business
entity does not take all reasonable action to enforce payment when due.
`(4) INVESTMENT IN THE ENERGY SECTOR- Investment in the energy sector includes
any investment with regards to nuclear facilities, gas pipelines, natural
gas, petroleum extraction or refinery facilities, or transportation facilities.
`(e) Doing Business With Terrorists-
`(1) IN GENERAL- For purposes of this section--
`(A) A business entity has engaged in Iran discouraged activities if it
conducts business with or makes any charitable donation to any Iranian
person designated as a terrorist or to any foreign terrorist organization.
`(B) A business entity has engaged in Sudan discouraged activities if
it conducts business with or makes any charitable donation to any Sudanese
person designated as a terrorist or to any foreign terrorist organization.
`(2) TERRORIST- A person is designated as a terrorist for purposes of paragraph
(1) if such person is designated or otherwise individually identified in
or pursuant to an Executive Order which is related to terrorism and issued
under the authority of the International Emergency Economic Powers Act or
section 5 of the United Nations Participation Act of 1945 for the purpose
of imposing on such organization an economic or other sanction.
`(3) FOREIGN TERRORIST ORGANIZATION- For purposes of paragraph (1), the
term `foreign terrorist organization' means an organization designated under
section 219 of the Immigration and Nationality Act (8 U.S.C. 1189) as a
foreign terrorist organization.
`(f) Identification of Business Entities Engaging in Iran Discouraged Activities
or Sudan Discouraged Activities-
`(1) PUBLICATION OF LIST- For purposes of this section, the Secretary shall
publish and update at least every six months a list of business entities
engaging in any Sudan discouraged activities or Iran discouraged activities,
or both.
`(2) REGULATIONS- The Secretary shall issue regulations defining how a business
entity shall not be deemed to be engaged in an Iran discouraged activity
or Sudan discouraged activity, if--
`(A) with regard to activities on the date this section becomes effective,
the business entity limits its activity to continuing existing contracts,
without extension or expansion (except that an investment (as defined
in section 14 of the Iran Sanctions Act of 1996) that would subject a
business entity to sanctions under section 5 of the Iran Sanctions Act
of 1996 shall be considered an Iran discouraged activity, notwithstanding
contracts entered into prior to the effective date of this section), and
`(B) with regard to any Iran discouraged activity or Sudan discouraged
activity carried on under contracts entered into or expanded after the
effective date of this section, the contract was entered into at a time
when the business entity did not own or control the subsidiary business
entity, and after acquiring such ownership or control the business entity
has not extended or expanded or renewed such contract.
`(3) TAXPAYER SELF-HELP- Until such time as the Secretary publishes a list
of those engaging in Iran discouraged activities or Sudan discouraged activities
or if the Secretary fails to update that list as required in paragraph (1),
the taxpayer may determine, using his best knowledge and belief, which business
entities engage in an Iran discouraged activity or a Sudan discouraged activity.
`(g) Improvement in the Actions of the Government of the Sudan- Effective
on the date when the President certifies under a section 12 of the Sudan Accountability
and Divestment Act of 2007 (121 Stat. 2523), subsection (a) shall not apply
to any Sudan discouraged activity after such date.
`(h) Improvement in the Actions of the Government of Iran-
`(1) TERMINATION OF NONRECOGNITION TREATMENT- Effective on the date when
the requirements described in paragraph (2) are met, subsection (a) shall
not apply to any Iran discouraged activity after such date.
`(2) REQUIREMENTS- The requirements described in this paragraph are--
`(A) a declaration by the President which states that, in the opinion
of the President, Iran is no longer engaging in efforts to develop or
retain weapons of mass destruction, and has not developed and is not developing
the capacity to enrich or reprocess uranium or plutonium, and
`(B) a determination by the Secretary of State that Iran should no longer
be listed as a state sponsor of acts of international terrorism pursuant
to section 6(j) of the Export Administration Act of 1979, section 620A
of the Foreign Assistance Act of 1961, section 40 of the Arms Export Control
Act, or any other provision of law.'.
(b) Clerical Amendment- The table of sections for part III of subchapter O
of chapter 1 of such Code is amended by adding at the end the following new
item:
`Sec. 1046. Rollover of gain from divesting certain qualified securities
of business entities engaged in discouraged activities in Iran or Sudan.'.
(c) Effective Date- The amendments made by this section shall apply to with
respect to sales of securities after the date of the enactment of this Act.
END
