Text: HSB00754 Text: HSB00756 Text: HSB00700 - HSB00799 Text: HSB Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
1 1 Section 1. Section 422.7, Code 1999, is amended by adding
1 2 the following new subsection:
1 3 NEW SUBSECTION. 35. a. For purposes of this subsection:
1 4 (1) "Capital stock" means voting and nonvoting common and
1 5 preferred stock and stock options issue pursuant to an
1 6 incentive stock option plan. "Capital stock" does not include
1 7 stock rights, stock warrants, or debt securities.
1 8 (2) "Corporation" means any of the following:
1 9 (a) A corporation which at the time of the first sale or
1 10 exchange for which an election is made under paragraph "c" has
1 11 been in existence and actively doing business in Iowa for at
1 12 least three years.
1 13 (b) A corporation which is a member of an affiliated
1 14 group, as defined in section 1504(a) of the Internal Revenue
1 15 Code, which group includes a corporation described in
1 16 subparagraph subdivision (a).
1 17 (c) A predecessor or successor corporation of a
1 18 corporation described in subparagraph subdivision (a). A
1 19 corporation is a predecessor or successor corporation if the
1 20 corporation was a party to a reorganization that was entirely
1 21 or substantially income tax free and that occurred during or
1 22 after the employment of the taxpayer making an election under
1 23 paragraph "c".
1 24 (3) "Incentive stock option" means the same as defined in
1 25 section 422(b) of the Internal Revenue Code.
1 26 b. For purposes of this subsection, the corporation
1 27 issuing capital stock for which an election under paragraph
1 28 "c" is made shall, at the time of the first sale or exchange
1 29 for which the election is made, have at least five
1 30 shareholders and at least two shareholders or groups of
1 31 shareholders who are not related to each other and each of
1 32 which owns at least five percent of the capital stock.
1 33 For purposes of this paragraph "b", two persons shall be
1 34 considered to be related when, under section 318 of the
1 35 Internal Revenue Code, one is a person who owns, directly or
2 1 indirectly, capital stock that if directly owned would be
2 2 attributed to the other person or is the spouse, child,
2 3 parent, grandparent, brother, sister, aunt, uncle, cousin,
2 4 niece, or nephew of the other person who owns capital stock
2 5 either directly or indirectly.
2 6 c. (1) An individual may elect to subtract one-half of
2 7 the capital gain from the sale or exchange of capital stock of
2 8 a corporation acquired by the individual on account of
2 9 employment by that corporation or while employed by that
2 10 corporation. However, for tax years beginning in the 2000
2 11 calendar year, the amount that may be subtracted is one-fourth
2 12 of such capital gain.
2 13 (2) (a) Each individual shall be entitled to two
2 14 elections under subparagraph (1) during the individual's
2 15 lifetime for the capital stock of two corporations.
2 16 (b) The election applies only to the tax year for which
2 17 the election was made and applies to all sales and exchanges
2 18 in the tax year for which the election was made of capital
2 19 stock in the same corporation which was acquired as provided
2 20 in subparagraph (1).
2 21 (c) After the individual makes an election for the tax
2 22 year, the election shall also apply to the sale or exchange in
2 23 that tax year of capital stock of the corporation which had
2 24 been transferred by inter vivos gift from the individual to
2 25 the individual's spouse or issue or to a trust for the benefit
2 26 of the individual's spouse or issue if the capital stock was
2 27 acquired as provided in subparagraph (1). This provision
2 28 applies in the case of the spouse, only if the spouse was
2 29 married to such individual on the date of sale or exchange or
2 30 the date of death of the individual. If the individual dies
2 31 without making an election, the surviving spouse or, if there
2 32 is no surviving spouse, the oldest surviving issue may make
2 33 the election for capital stock that would have qualified under
2 34 this subparagraph subdivision.
2 35 d. An election under paragraph "c" shall be made by
3 1 including a written statement with the taxpayer's Iowa income
3 2 tax return for the tax year for which the election is made.
3 3 The written statement shall identify the corporation that
3 4 issued the stock, the grounds for the election under this
3 5 subsection, and that the taxpayer elects to have this
3 6 subsection apply to sales and exchanges in that tax year.
3 7 e. The deduction under this subsection is in lieu of any
3 8 deduction allowable under section 1202 of the Internal Revenue
3 9 Code for the capital gain from the sale or exchange of the
3 10 same capital stock.
3 11 Sec. 2. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE.
3 12 This Act, being deemed of immediate importance, takes effect
3 13 upon enactment and applies retroactively to January 1, 2000,
3 14 for tax years beginning on or after that date.
3 15 EXPLANATION
3 16 This bill provides a deduction under the individual income
3 17 tax of 50 percent (25 percent for the 2000 tax year) of the
3 18 capital gain from the sale or exchange of capital stock of a
3 19 corporation required by the taxpayer on account of employment
3 20 by the corporation or acquired while employed by the
3 21 corporation. The taxpayer must make an election to take the
3 22 deduction and the election only applies for that tax year. A
3 23 taxpayer may make two elections for two different corporations
3 24 during the taxpayer's lifetime. The election would also apply
3 25 to stock sold during that tax year which was previously
3 26 granted to a spouse or issue of the taxpayer or to a trust for
3 27 the benefit of a spouse or issue of the taxpayer.
3 28 The deduction is in lieu of the deduction that may be
3 29 allowable under the Internal Revenue Code for sale or exchange
3 30 of stock in a small business held for five years.
3 31 The bill takes effect upon enactment and applies
3 32 retroactively to January 1, 2000, for tax years beginning on
3 33 or after that date.
3 34 LSB 6504HC 78
3 35 mg/cls/14
Text: HSB00754 Text: HSB00756 Text: HSB00700 - HSB00799 Text: HSB Index Bills and Amendments: General Index Bill History: General Index
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