[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5124 Introduced in House (IH)]
103d CONGRESS
2d Session
H. R. 5124
To amend the Internal Revenue Code of 1986 to limit the interest
deduction allowed corporations and to allow a deduction for dividends
paid by corporations.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 28, 1994
Mr. Reynolds 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 limit the interest
deduction allowed corporations and to allow a deduction for dividends
paid by corporations.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. LIMITATION ON INTEREST DEDUCTION ALLOWED CORPORATIONS.
(a) In General.--Section 163 of the Internal Revenue Code of 1986
(relating to deduction for interest) is amended by redesignating
subsection (k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
``(k) Limitation on Corporate Interest Payments.--
``(1) In general.--Except as provided in paragraph (2), in
the case of a corporation, the amount otherwise allowed as a
deduction under this chapter for interest paid or accrued
during the taxable year by such corporation shall be reduced by
20 percent.
``(2) Exception for certain corporations.--
``(A) In general.--Paragraph (1) shall not apply
for any taxable year to any corporation the earnings
and profits of which for such taxable year (computed as
of the close of the taxable year without diminution by
reason of any dividend distributions made during such
taxable year) do not exceed the lesser of--
``(i) the corporation's tax liability under
this chapter for such taxable year (determined
after the application of paragraph (1)), or
``(ii) $100,000.
``(B) Controlled group.--For purposes of
subparagraph (A), all component members of a controlled
group (as defined in section 179(d)(7)) shall be
treated as 1 corporation.
``(3) Exception for farming businesses.--Paragraph (1)
shall not apply to any corporation substantially all of the
assets of which are used in the active conduct of a farming
business (as defined in section 448(d)(1)).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1993.
SEC. 2. DIVIDEND PAID DEDUCTION.
(a) General Rule.--Part VIII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to special deductions for
corporations) is amended by striking the table of sections and section
241 and inserting the following:
``Subpart A. Dividend paid deduction.
``Subpart B. Dividend received deduction.
``Subpart C. Miscellaneous provisions.
``SEC. 230. ALLOWANCE OF SPECIAL DEDUCTIONS.
``In addition to the deductions provided in part VI (section 161
and following), there shall be allowed as deductions in computing
taxable income the items specified in this part.
``Subpart A--Dividend Paid Deduction
``Sec. 231. Dividend paid deduction.
``Sec. 232. Qualified dividend account.
``Sec. 233. Ineligible corporations.
``Sec. 234. Special rules.
``SEC. 231. DIVIDEND PAID DEDUCTION.
``(a) Allowance of Deduction.--In the case of a corporation, there
shall be allowed as a deduction an amount equal to 50 percent of the
dividends paid by such corporation during the taxable year.
``(b) Limitation Based on Amount in Qualified Dividend Account.--
The amount of the dividends paid during any taxable year which may be
taken into account under subsection (a) shall not exceed the amount in
the corporation's qualified dividend account as of the close of such
taxable year determined after the application of section 232(b)(1) for
the taxable year but before the application of section 232(b)(2) for
such taxable year.
``SEC. 232. QUALIFIED DIVIDEND ACCOUNT.
``(a) Establishment of Account.--Each corporation shall establish a
qualified dividend account. The opening balance of such account shall
be zero.
``(b) Adjustments to Accounts.--As of the close of each taxable
year beginning after January 1, 1993, the qualified dividend account--
``(1) shall be increased by the adjusted taxable income of
the corporation for the taxable year, and
``(2) shall be reduced by the amount of the dividends paid
by the corporation during the taxable year to the extent the
amount so paid does not exceed the limitation of section
231(c).
``(c) Adjusted Taxable Income.--For purposes of this section--
``(1) In general.--The term `adjusted taxable income' means
taxable income adjusted as provided in this subsection.
``(2) Adjustment for certain qualifying dividends.--Taxable
income shall be increased by the deduction allowed under
section 243 with respect to that portion of any qualifying
dividend (as defined in section 243(b)(1)) for which such
deduction is determined at a rate of less than 100 percent.
Similar rules shall apply in the case of dividends for which
deductions are allowable under section 245(b).
``(3) Adjustment for tax credits.--
``(A) In general.--Taxable income shall be reduced
by the deduction equivalent of the tentative
nonrefundable credits for the taxable year.
``(B) Deduction equivalent.--For purposes of
subparagraph (A), the deduction equivalent of the
tentative nonrefundable credits for any taxable year is
the amount which (if allowed as a deduction for the
taxable year) would reduce the tax liability (as
defined in section 26(b)) for the taxable year by an
amount equal to the tentative nonrefundable credits.
``(C) Tentative nonrefundable credits.--For
purposes of this paragraph, the term `tentative
nonrefundable credits' means the amount of the credits
which would have been allowable under part IV of
subchapter A of this chapter for the taxable year
(other than the credit allowable under section 34) if
no deduction were allowable under section 231.
``(4) Adjustment for corporate minimum tax.--If tax is
imposed by section 55 on the corporation for any taxable year,
taxable income for the succeeding taxable year shall be
increased by an amount equal to \35/100\ of the amount of tax
so imposed.
``(5) Dividend paid deduction not taken into account.--
Taxable income shall be determined without regard to the
deduction allowed under section 231.
``SEC. 233. INELIGIBLE CORPORATIONS.
``(a) General Rule.--No deduction shall be allowed under section
231 with respect to any dividend paid by--
``(1) a regulated investment company,
``(2) a real estate investment trust,
``(3) an S corporation,
``(4) any organization taxable under subchapter T of this
chapter (relating to cooperative organizations), or
``(5) a FSC or DISC.
``(b) Foreign Corporations.--In the case of a foreign corporation--
``(1) no deduction shall be allowed under section 231 for
dividends paid by such corporation during any taxable year
unless the corporation meets the requirements of section 245(a)
for such taxable year,
``(2) only adjusted taxable income effectively connected
with the conduct of a trade or business in the United States
and attributable to the uninterrupted period referred to in
section 245(a) shall be added to the qualified dividend
account, and
``(3) any distribution shall be treated as made ratably out
of income effectively connected with the conduct of a trade or
business in the United States and other income.
``SEC. 234. SPECIAL RULES.
``(a) Certain Distributions Not Treated as Dividends.--For purposes
of this subpart, the term `dividend' does not include--
``(1) any distribution in redemption of stock, in
liquidation, or in a reorganization (whether or not such
distribution is treated as a distribution to which section 301
applies), and
``(2) any dividend described in section 244 (relating to
dividends received on certain preferred stock).
``(b) Deduction Not Taken Into Account for Purposes of Certain
Limitations Based on Taxable Income.--For purposes of sections 246(c),
613, 613A, and 593, taxable income shall be determined without regard
to the deduction allowed under section 231.
``(c) Treatment of Dividends Received by 5-Percent Tax-Exempt
Shareholders.--
``(1) In general.--For purposes of part III of subchapter F
(relating to taxation of unrelated business income of certain
exempt organizations), any dividend received by a tax-exempt
organization from a corporation in which such organization is a
5-percent shareholder shall be treated as unrelated business
taxable income to the extent of the amount of the deduction
allowable under section 231 to such corporation with respect to
such dividend. Except as provided in regulations, the amount of
such deduction shall be determined on the basis of the return
filed by the corporation for the taxable year.
``(2) Definitions.--For purposes of this subsection--
``(A) 5-percent shareholder.--The term `5-percent
shareholder' means any tax-exempt organization which
owns (or is considered as owning within the meaning of
section 318)--
``(i) 5 percent or more (by value) of the
outstanding stock of the corporation, or
``(ii) stock possessing 5 percent or more
of the total combined voting power of all stock
of the corporation.
``(B) Tax-exempt organization.--The term `tax-
exempt organization' means any organization which is
exempt from the tax imposed by this chapter.
``(C) Related entities.--A tax-exempt organization
and 1 or more other tax-exempt organizations which
have--
``(i) significant common purposes and
substantial common membership, or
``(ii) directly or indirectly substantial
common direction or control, shall be treated
as 1 tax-exempt organization for purposes of
this paragraph.
``(d) Treatment of Subsequent Adjustments.--If there is any
adjustment which affects the amount of the adjusted taxable income of a
corporation for any taxable year (whether by reason of any carryback to
such taxable year or otherwise) for purposes of this subpart and
subpart B, the amount of such adjustment shall be treated as made as of
the close of such taxable year.
``(e) Allocation of Qualified Dividend Account in Corporate
Separations, Reorganizations, and Redemptions.--Adjustments similar to
the adjustments provided in subsection (h) or (n)(7) of section 312
shall be made to the qualified dividend account in the case of a
transaction described in either of such subsections.
``(f) Mutual Life Insurance Companies.--
``(1) General rule.--In the case of a mutual life insurance
company, for purposes of this subpart, 80 percent of the
differential earnings amount (as defined in section 809(a)(3))
shall be treated as a dividend paid to a shareholder.
``(2) Regulations.--The Secretary may prescribe regulations
applying rules consistent with this subpart to mutual life
insurance companies. Such regulations may include rules
treating an appropriate portion of the recomputed differential
earnings amount (as defined in section 809(f)(3)) as an
adjustment to the amount described in paragraph (1).
``Subpart B--Dividend Received Deduction
``Sec. 243. Dividends received by
corporations.
``Sec. 244. Dividends received on certain
preferred stock.
``Sec. 245. Dividends received from
certain foreign corporations.
``Sec. 246. Rules applying to deductions
for dividends received.
``Sec. 246A. Dividends received deduction
reduced where portfolio stock
is debt financed.
``Sec. 247. Dividends paid on certain
preferred stock of public
utilities.''.
(b) Compensatory Withholding Tax on Dividends Paid to Nonresident
Aliens or Foreign Corporations.--
(1) General rule.--Subpart D of part II of subchapter N of
chapter 1 (relating to miscellaneous provisions) is amended by
adding at the end thereof the following new section:
``SEC. 899. ADDITIONAL TAX ON DIVIDENDS TO REFLECT DIVIDEND PAID
DEDUCTION.
``(a) General Rule.--In addition to any tax imposed by section 871
or 881, there is hereby imposed a tax equal to 30.4 percent of the
dividends received from sources within the United States by a
nonresident alien individual or foreign corporation.
``(b) Tax Not To Apply to Shareholder's Effectively Connected
Items.--The tax imposed by this section shall not apply to any dividend
to the extent such dividend is effectively connected with the conduct
of a trade or business by the shareholder within the United States.
``(c) Corresponding Increase in Withholding Tax.--In the case of
any dividend subject to tax under subsection (a), the tax imposed by
section 1441 or 1442 (as the case may be) shall be increased by an
amount equal to the applicable percentage of such dividend.
``(d) Exception for Certain Treaty Countries.--The tax imposed by
subsection (a) shall not apply to any dividend paid to a resident or
corporation of a foreign country during any period--
``(1) in which an income tax treaty between such country
and the United States is in effect, and
``(2) during which there is in effect a certification by
the Secretary that--
``(A) such income tax treaty has adequate
provisions to prevent treaty shopping, and
``(B) if such foreign country imposes an income tax
comparable to the tax imposed by this subtitle and
grants relief from such tax to its residents, such
country grants relief equivalent to that provided in
section 231 with respect to dividends paid to United
States persons.
The requirements of paragraph (2) shall not apply to dividends paid
before January 1, 1994.''.
(2) Clerical amendment.--The table of sections for subpart
D of part II of subchapter N of chapter 1 is amended by adding
at the end thereof the following new item:
``Sec. 899. Additional tax on dividends
to reflect dividend paid
deduction.''.
(c) Section 381 To Apply to Qualified Dividend Account.--Subsection
(c) of section 381 (relating to items of the distributor or transferor
corporation) is amended by adding at the end thereof the following new
paragraph:
``(27) Qualified dividend account.--Under regulations
prescribed by the Secretary, the acquiring corporation shall
take into account (to the extent proper to carry out the
purposes of this section and subpart A of part VIII of
subchapter B of this chapter) the qualified dividend account of
the distributor or transferor corporation.''.
(d) Clerical Amendment.--Part VIII of subchapter B of chapter 1 is
amended by inserting after section 247 the following:
``Subpart C--Miscellaneous Provisions
``Sec. 248. Organizational expenditures.
``Sec. 249. Limitation on deduction of
bond premium on repurchase.''.
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