S 3446
110th CONGRESS
2d Session
S. 3446
To amend the Internal Revenue Code of 1986 to defer the tax
on the gain on the sale of certain telecommunications and media businesses,
and for other purposes.
IN THE SENATE OF THE UNITED STATES
August 1, 2008
Mr. MENENDEZ (for himself, Mr. SALAZAR, Mr. SMITH, Mr. LAUTENBERG,
Mr. STEVENS, and Ms. STABENOW) introduced the following bill; which
was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to defer the tax
on the gain on the sale of certain telecommunications and media businesses,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. FINDINGS AND PURPOSE.
(a) Findings- Congress finds that:
(1) Localism, competition, and diversity of voices have long been
the stated goals of United States telecommunications and media policy.
(2) In support of these goals, it has been long-standing United States
telecommunications and media policy to facilitate diversity of ownership
in the telecommunications and media industry, to foster ownership
of telecommunications and media by socially disadvantaged businesses,
and to disseminate spectrum licenses among a wide variety of applicants,
including small businesses and businesses owned by members of minority
groups and women.
(3) Diversification of ownership of telecommunications and media properties
remains a preeminent public interest concern that should be reflected
in United States telecommunications, media, and tax policy.
(4) In the years between 1995 and 2008, as broadcast media ownership
rules have been relaxed, ownership opportunities of broadcast properties
for socially disadvantaged individuals have decreased significantly.
Businesses owned or controlled by socially disadvantaged individuals,
including, but not limited to, members of minority groups and women,
have continued to be underrepresented as owners of telecommunications
and media properties. As a result of the convergence and consolidation
taking place in telecommunications and media markets, as of 2008 a
smaller number of firms provide the gateway to news, information,
and entertainment programming.
(5) Fostered by the relaxation of the broadcast media ownership rules,
local broadcast markets are increasingly characterized by consolidated
ownership, with individual entities owning multiple broadcast stations
within a single market that allow them to exploit economies of scale
in the advertising market not available to smaller or individual operators.
This results in individual operators frequently being shut out of
large amounts of advertising revenues.
(6) The cable television industry is increasingly characterized by
firms that cluster their ownership of cable systems in a small number
of markets, with the result that many local markets are dominated
by a single cable company that serves most or all of the jurisdictions
in that market and enjoys a favorable competitive and negotiating
position in that market.
(7) Tax policy has fostered telecommunications and media convergence
and consolidation by providing a favorable tax consequence to telecommunications
and media firms selling their properties to large entities that can
purchase the properties using tax-free like-kind exchanges. This puts
socially disadvantaged businesses at a greater disadvantage because
often they are not able to purchase the properties through an exchange
of stock.
(8) Socially disadvantaged businesses and other small businesses are
less likely to be able to purchase telecommunications and media properties
through a tax-free like-kind exchange than are established businesses.
(9) Prior to 1995, the tax treatment of the sale of appreciated telecommunications
and media properties for transactions not involving like-kind exchanges
was partially offset by the Federal Communications Commission tax
certificate policy, a program that allowed firms that sold telecommunications
and media properties to minority or women-owned firms to defer some
of the taxes imposed on their sale of appreciated properties. This
program was eliminated in 1995.
(10) As a result of the elimination of the tax certificate program,
the changes in telecommunications and media ownership rules, and the
market forces toward convergence and consolidation, opportunities
for socially disadvantaged businesses to participate and grow in telecommunications
and media markets have decreased substantially despite the fact that
this has been an active period for the sale of telecommunications
and media properties.
(11) These recent trends exacerbate the pattern of businesses owned
or controlled by socially disadvantaged individuals, who have historically
been economically disadvantaged within the telecommunications industry,
having greater difficulty obtaining access to capital and facing higher
costs of capital than do other businesses. It is consistent with the
public interest to provide incentives that will increase diversity
in telecommunications and media ownership by facilitating socially
disadvantaged business investment in, and acquisition of, telecommunications
and media properties, and to eliminate obstacles to such ownership.
(12) Facilitating voluntary, pro-competitive transactions that will
promote ownership of telecommunications and media properties by socially
disadvantaged businesses by reducing distortions in tax policy will
aid in providing the investment and capital that are crucial to the
development of diversity of ownership in this sector.
(b) Purpose- The purpose of this Act is to facilitate voluntary, pro-competitive
transactions that will promote socially disadvantaged business ownership
of telecommunications and media properties in order to diversify telecommunications
and media ownership.
SEC. 2. TREATMENT OF GAIN ON QUALIFIED SALES OF TELECOMMUNICATIONS
BUSINESSES.
(a) In General- Subchapter O of chapter 1 of the Internal Revenue Code
of 1986 (relating to gain or loss on disposition of property) is amended
by inserting after part IV the following new part:
`PART V--CERTAIN SALES OF TELECOMMUNICATIONS BUSINESSES
`Sec. 1071. Treatment of gain on certain sales of telecommunications
businesses.
`SEC. 1071. TREATMENT OF GAIN ON CERTAIN SALES OF TELECOMMUNICATIONS
BUSINESSES.
`(a) In General- In the case of an eligible taxpayer, at the election
of the taxpayer--
`(1) the tax imposed by this subtitle on the qualifying gain from
a qualified telecommunications sale may be paid on or before the date
that is 3 years after the date prescribed by section 6151(a) for payment
of such tax, or
`(2) the recognition of such qualifying gain shall be deferred by
reducing the basis of depreciable property (as defined in section
1017(b)(3)) held by the taxpayer immediately after such sale or acquired
within 1 year after such sale by the amount of such qualifying gain.
`(b) Eligible Taxpayer- For purposes of this section, the term `eligible
taxpayer' means the seller in a qualified telecommunications sale if
such seller has received a qualifying gain certificate from the purchaser
in such sale.
`(c) Qualifying Gain- For purposes of this section, the term `qualifying
gain' means the amount that is so much of the gain on any qualified
telecommunications sale as does not exceed the amount of the qualifying
gain certificate received by the seller in such sale from the purchaser.
`(d) Qualified Telecommunications Sale-
`(1) IN GENERAL- For purposes of this section, the term `qualified
telecommunications sale' means any sale to a qualified business of--
`(A) the assets of a telecommunications business,
`(B) stock in a corporation if, immediately after such sale--
`(i) the qualified business owns stock possessing at least the
applicable percentage of the total combined voting power of all
classes of stock entitled to vote and at least the applicable
percentage of the total number of shares of all other classes
of stock of such corporation, and
`(ii) substantially all of the assets of such corporation are
assets of one or more telecommunications businesses, or
`(C) an interest in a partnership if, immediately after such sale--
`(i) the qualified business owns a partnership interest possessing--
`(I) a percentage that is at least equal to the applicable percentage
of the total combined voting power of all classes of partnership
interests entitled to vote,
`(II) control over the management of the partnership,
`(III) a percentage that is at least equal to the applicable
percentage of the capital interests of the partnership, and
`(IV) a distributive share that is at least equal to the applicable
percentage of each item of the partnership's income, gain, loss,
deduction or credit, and
`(ii) substantially all of the assets of such partnership are
assets of one or more telecommunications businesses.
`(2) QUALIFIED BUSINESS- For purposes of this section--
`(A) IN GENERAL- The term `qualified business' means any entity
in which a socially disadvantaged individual or a member of a socially
disadvantaged group has a qualified interest.
`(i) IN GENERAL- A business shall not be a qualified business
under this section unless such business has been certified by
the Federal Communications Commission as meeting the requirements
of subparagraph (A).
`(ii) REPORTING REQUIREMENT-
`(I) IN GENERAL- Any business certified by the Federal Communications
Commission under this subparagraph shall report to such Commission
any event that would lead to a change in the eligibility of
the business for such certification.
`(II) REVISION OF STRUCTURE OR REVOCATION OF CERTIFICATION-
If the Federal Communications Commission determines that such
business no longer meets the requirements of subparagraph (A)
as a result of a reportable event under subclause (I), such
business may revise its ownership structure in order to meet
such requirements. If such business fails to revise its ownership
structure in a manner sufficient to meet such requirements,
the certification of such business under this subparagraph shall
be revoked.
`(iii) QUALIFYING GAIN CERTIFICATES-
`(I) IN GENERAL- Upon certification of any business under this
subparagraph, the Federal Communications Commission shall issue
qualifying gain certificates to such business for use in the
purchase of telecommunications businesses through qualified
telecommunications sales.
`(II) LIMITATION- The aggregate amount of the qualifying gain
certificates issued to a business under this clause for any
calendar year shall not exceed $350,000,000 reduced by the aggregate
amount of qualifying gain certificates issued to such business
during the preceding 5 calendar years.
`(iv) REGULATIONS- The Federal Communications Commission shall
issue regulations to establish a process for granting certification
to qualified businesses and for requiring reporting and review
under this subparagraph.
`(v) FCC REPORTING- The Federal Communications Commission shall
submit to the Secretary on or before January 31 of each year a
list of all businesses certified as qualified businesses in the
previous calendar year.
`(C) QUALIFIED INTEREST- An interest in an entity shall be treated
as qualified if such interest represents a percentage that is at
least equal to the applicable percentage of--
`(i) the total assets of the entity, and
`(ii) the total combined voting power in such entity of all classes
of interests entitled to vote.
`(D) SOCIALLY DISADVANTAGED INDIVIDUAL- The term `socially disadvantaged
individual' means an individual that is--
`(i) a United States citizen, and
`(ii) socially and economically disadvantaged, as determined by
the Federal Communications Commission using the following criteria:
`(I) SOCIALLY DISADVANTAGED- An individual may be considered
socially disadvantaged if such individual has been subjected
to racial or ethnic prejudice or cultural bias within United
States society because of the individual's identity as a member
of a group and without regard to individual qualities. The social
disadvantage must stem from circumstances beyond the individual's
control.
`(II) MEMBERS OF DESIGNATED GROUPS-
`(aa) There shall be a rebuttable presumption that--
`(AA) those individuals asserting membership in a group previously
designated as socially disadvantaged by the Small Business Administration
according to procedures set forth under section 124.103 of title 13,
Code of Federal Regulations (or a successor regulation), including Black
Americans, Hispanic Americans, Native Americans, Asian Pacific Americans,
and members of other groups that have been so designated, and
`(BB) those entities that are deemed socially disadvantaged under
section 124.109 of title 13, Code of Federal Regulations (or a successor
regulation),
shall be considered socially disadvantaged for purposes of
this section.
`(bb) In order to be considered a member of a socially disadvantaged
group, the Federal Communications Commission may require that an individual
has held himself or herself out, and has been identified by others,
as a member of such group.
`(cc) The presumption of membership in a socially disadvantaged
group may be overcome with the presentation of credible evidence to
the contrary. Individuals in possession or knowledge of such evidence
shall submit such information in writing to the Federal Communications
Commission at such time and in such manner as such Commission shall
require.
`(III) INDIVIDUALS NOT MEMBERS OF A DESIGNATED GROUP- An individual
who is not a member of a group described in subclause (II)(aa)
must establish individual social disadvantage by a preponderance
of the evidence, which must include the following elements:
`(aa) At least one objective distinguishing feature that has
contributed to the social disadvantage of the individual, such as race,
ethnic origin, gender, physical handicap, long-term residence in an
environment isolated from the mainstream of United States society, or
other similar features not common to individuals who are not socially
disadvantaged.
`(bb) Personal experiences of substantial and chronic social
disadvantage in United States society.
`(cc) Negative impact of social disadvantage on entry into
or advancement in the business world. This impact may be proven by any
relevant evidence showing that the totality of circumstances reflects
disadvantage in entering into or advancing in the business world, but
such evidence must include information concerning the education, employment,
and business history of the individual as follows:
`(AA) Evidence relating to education may include such factors as denial
of equal access to institutions of higher education, exclusion from
social and professional association with students or teachers, denial
of educational honors rightfully earned, and social patterns or pressures
which discouraged the individual from pursuing a professional or business
education.
`(BB) Evidence relating to employment may include such factors as
unequal treatment in hiring, promotions, or other aspects of professional
advancement, pay and fringe benefits, and other terms and conditions
of employment, retaliatory or discriminatory behavior by an employer,
and social patterns or pressures which have channeled the individual
into nonprofessional or nonbusiness fields.
`(CC) Evidence relating to business history may include such factors
as unequal access to credit or capital, acquisition of credit or capital
under commercially unfavorable circumstances, unequal treatment in opportunities
for government contracts or other work, unequal treatment by potential
customers and business associates, and exclusion from business or professional
organizations.
`(IV) ECONOMICALLY DISADVANTAGED-
`(aa) IN GENERAL- An individual may be considered economically
disadvantaged if such individual is socially disadvantaged, as determined
under subclauses (I) through (III), and if the individual's ability
to compete in the free enterprise system has been impaired due to diminished
capital and credit opportunities as compared to others in the same or
similar line of business who are not socially disadvantaged.
`(bb) DIMINISHED OPPORTUNITIES- In considering whether an
individual has been impaired by diminished capital and credit opportunities,
the Federal Communications Commission shall examine factors relating
to the financial conditions of any persons claiming disadvantaged status,
including the personal financial condition of the individual and the
fair market value of the stock and assets, whether encumbered or not,
of any business under the control of the individual, and the financial
condition of the individual compared to the financial profiles of other
businesses in the same or similar line of business which are not owned
and controlled by socially and economically disadvantaged individuals.
The financial profiles so compared shall include total assets, net sales,
pre-tax profit, and sales to working capital ratio.
`(cc) INCLUSION- There shall be a rebuttable presumption that
entities that are deemed economically disadvantaged under section 124.109
of title 13, Code of Federal Regulations (or a successor regulation)
shall be considered economically disadvantaged for purposes of this
section.
`(E) SOCIALLY DISADVANTAGED GROUP-
`(i) IN GENERAL- The term `socially disadvantaged group' means
a group that--
`(I) is described in subparagraph (D)(ii)(II)(aa), or has been
subjected to racial or ethnic prejudice or cultural bias within
United States society because of circumstances or qualities
beyond the individual control of the members of such group,
and
`(II) is economically disadvantaged, as determined under subparagraph
(D)(ii)(IV) by applying the rules of such subparagraph to the
group as a whole.
`(ii) REBUTTABLE PRESUMPTION OF DISADVANTAGE; EVIDENCE; ETC- For
purposes of this subparagraph, rules similar to the rules of subclauses
(II) and (III) of subparagraph (D)(ii) shall apply by applying
such rules to the group as a whole.
`(F) AGGREGATION RULES- For purposes of this subsection, all persons
treated as a single employer under subsection (a) or (b) of section
52 or subsection (m) or (o) of section 414 shall be treated as one
person.
`(3) APPLICABLE PERCENTAGE- For purposes of this subsection--
`(A) IN GENERAL- Except as provided in subparagraph (B), the term
`applicable percentage' means the percentage prescribed by the Federal
Communications Commission in regulations implementing this section.
Such percentage shall not be less than--
`(i) in the case of interest in the total assets of an entity,
20 percent, and
`(ii) in the case of interest in the total combined voting power
in an entity of all classes of interests entitled to vote, 51
percent.
`(B) PUBLICLY TRADED CORPORATIONS- In the case of a corporation
the shares of which are regularly traded on an established securities
market, the applicable percentage is 51 percent.
`(C) RESTRICTION ON AGREEMENTS CONCERNING VOTING OF STOCK OR PARTNERSHIP
INTERESTS- Any interest relied upon to meet the applicable percentage
shall not be subject to any agreement, arrangement, or understanding
which provides for, or relates to--
`(i) the voting of such interest in any manner by, or at the direction
of, any person other than a socially disadvantaged individual
or a member of a socially disadvantaged group, or
`(ii) the right of any person other than a socially disadvantaged
individual or a member of a socially disadvantaged group to acquire
such interest through purchase of shares, partnership interests,
or otherwise.
`(e) Qualifying Gain Certificate- For purposes of this section, the
term `qualifying gain certificate' means a certificate that is issued
to a qualified business by the Federal Communications Commission under
subsection (d)(2)(B)(iii).
`(f) Telecommunications Business- The term `telecommunications business'
means any business providing communication services by wire, cable,
radio, satellite, or other technology if the providing of such services
is governed by the Communications Act of 1934 or the Telecommunications
Act of 1996.
`(g) Recapture of Tax Benefit if Telecommunications Business Resold
Within 3 Years, etc-
`(1) IN GENERAL- If, within 3 years after the date of any qualified
telecommunications sale, there is a recapture event with respect to
the property involved in such sale, then the qualified business's
tax imposed by this chapter for the taxable year in which such event
occurs shall be increased by 20 percent of the consideration furnished
by such business in such sale.
`(2) EXCEPTION FOR REINVESTED AMOUNTS- Paragraph (1) shall not apply
to any recapture event which is a sale if--
`(A) the sale is a qualified telecommunications sale, or
`(B) during the 60-day period beginning on the date of such sale,
the qualified business is the purchaser in another qualified telecommunications
sale in which the consideration furnished by such business is not
less than the amount realized on the recapture event sale.
`(3) RECAPTURE EVENT- For purposes of this subsection, the term `recapture
event' means, with respect to any qualified telecommunications sale--
`(A) any sale or other disposition of the assets, stock, or interest
referred to in subsection (d)(1) which were acquired by the qualified
business in such sale,
`(B) in the case of a qualified telecommunications sale described
in subsection (d)(1)(B)--
`(i) any sale or other disposition of a telecommunications business
by the corporation referred to in such subsection, or
`(ii) any other transaction which results in the qualified business
not having control (as defined in subsection (d)(1)(B)(i)) of
such corporation, and
`(C) in the case of a qualified telecommunications sale described
in subsection (d)(1)(C)--
`(i) any sale or other disposition of a telecommunications business
by the partnership referred to in such subsection, or
`(ii) any other transaction which results in the qualified business
not having control (as defined in subsection (d)(1)(C)(i)) of
such partnership.
Such term shall not include any sale or other disposition resulting
from the default, or imminent default, of any indebtedness of the
taxpayer.
`(1) SECURITY- For authority of the Secretary to require security
in the case of an extension under subsection (a)(1), see section 6165.
`(2) PERIOD OF LIMITATION- For extension of the period of limitation
in the case of an extension under subsection (a)(1), see section 6503(k).'.
(b) Clerical Amendment- The table of parts for subchapter O of chapter
1 of the Internal Revenue Code of 1986 is amended by inserting after
the item relating to part IV the following new item:
`Part V. Certain Sales of Telecommunications Businesses.'.
(c) Conforming Amendments-
(1) EXTENSION OF PERIOD OF LIMITATION- Section 6503 of the Internal
Revenue Code of 1986 (relating to suspension of running of period
of limitation) is amended--
(A) by redesignating subsection (k) as subsection (l), and
(B) by inserting after subsection (j) the following new subsection:
`(k) Extension of Time for Payment of Certain Telecommunications Gain
Tax Liability- The running of any period of limitations for collection
of any amount of tax liability on gain from qualified telecommunications
sales (as defined in section 1071(d)(1)) shall be suspended for the
period of any extension of time under section 1071(a)(1) for payment
of such amount.'.
(2) REDUCTION IN BASIS- Subsection (a) of section 1016 of such Code
(relating to general rule) is amended--
(A) by striking `and' at the end of paragraph (36),
(B) by striking the period at the end of paragraph (37) and inserting
`, and', and
(C) by adding at the end the following new paragraph:
`(38) to the extent provided in section 1071(a)(2).'.
(d) Effective Date- The amendments made by this section shall apply
to sales in taxable years beginning after the date of the enactment
of this Act.
SEC. 3. LOAN GUARANTEE PROGRAM TO ENCOURAGE DIVERSITY OF OWNERSHIP
OF TELECOMMUNICATIONS BUSINESSES.
(a) In General- The Administrator of the Small Business Administration
may guarantee any loan made to a qualified business for the purchase
of assets, stock, or interests described in section 1071(d)(1) of the
Internal Revenue Code of 1986 (relating to qualified telecommunications
sale), as added by this Act.
(1) SECURITY- The Administrator shall not guarantee any loan under
subsection (a) unless the guaranteed portion of such loan is secured
by a first lien position or first mortgage on the stock, assets, or
interests financed by the loan.
(2) GUARANTEE PERCENTAGE; CAP- The amount of any loan guaranteed by
the Administrator under subsection (a)--
(A) shall not exceed 95 percent of the balance of the financing
outstanding at the time of disbursement of the loan, and
(B) shall not exceed $8,000,000.
(3) FEES- With respect to each loan guaranteed under subsection (a)
(other than a loan that is repayable in 1 year or less), the Administrator
may collect a guarantee fee, which shall be payable by the participating
lender, and may be charged to the borrower.
(c) General Authority- For purposes of carrying out this section, the
Administrator may--
(1) enter into contracts with private and Federal entities for professional
and other services;
(2) enter into memorandums of understanding with other Federal agencies;
and
(3) issue regulations, including regulations regarding--
(A) notice of and opportunity to cure a default;
(B) procedures related to foreclosure; and
(C) such other matters as the Administrator considers appropriate.
(d) Definitions- For purposes of this section:
(1) ADMINISTRATOR- The term `Administrator' means the Administrator
of the Small Business Administration.
(2) QUALIFIED BUSINESS- The term `qualified business' has the meaning
given such term in section 1071(d)(2) of the Internal Revenue Code
of 1986, as added by this Act.
(e) Authorization of Appropriations- There are authorized to be appropriated
such sums as may be necessary to carry out the purposes of this section.
SEC. 4. PROGRAM AUDITS BY GAO.
(a) Treatment of Gain on Qualifying Telecommunications Sales- Not later
than 5 years after the date of the enactment of this Act, and every
5 years thereafter, the Comptroller General of the United States shall
audit the administration of section 1071 of the Internal Revenue Code
of 1986, as added by this Act, and issue a report on the results of
that audit. The Comptroller General shall include in the report, notwithstanding
any provision of section 6103 of the Internal Revenue Code of 1986 to
the contrary--
(1) a list of qualified businesses (as defined in section 1071(d)(2)
of such Code) and any other taxpayer receiving a benefit from the
operation of section 1071 as such section was added by this Act,
(2) an assessment of the effect the amendments made by this Act have
on increasing new entry and growth in the telecommunications industry
by qualified businesses, and
(3) an assessment of whether the $350,000,000 limitation amount under
section 1071(d)(2)(B)(iii)(II) of such Code should be adjusted for
inflation in order to respond to the telecommunications market, and
in what year such adjustment should begin.
(b) Assessment of Loan Guarantee Program- The report required under
subsection (a) shall include an assessment of the loan guarantee program
under section 3 of this Act, including an assessment of whether the
$8,000,000 limitation amount under section 3(b)(2)(B) of this Act should
be adjusted for inflation in order to respond to the telecommunications
market, and in what year such adjustment should begin.
SEC. 5. SEVERABILITY.
If any provision of this Act or any amendment made by this Act, or the
application of a provision or amendment to any person or circumstance,
is held to be unconstitutional, the remainder of this Act and the amendments
made by this Act, and the application of the provisions and amendments
of this Act to any person or circumstance, shall not be affected thereby.
END
