Text: HF00302 Text: HF00304 Text: HF00300 - HF00399 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
1 1 Section 1. Section 422.7, Code 2001, is amended by adding
1 2 the following new subsection:
1 3 NEW SUBSECTION. 36. a. For purposes of this subsection:
1 4 (1) "Capital stock" means voting and nonvoting common and
1 5 preferred stock and stock options issued pursuant to an
1 6 incentive stock option plan. "Capital stock" does not include
1 7 stock rights, stock warrants, or debt securities, and does not
1 8 include stock options issued by a corporation which does not
1 9 offer incentive stock options to all full-time employees.
1 10 (2) "Corporation" means any of the following:
1 11 (a) A corporation which at the time of the first sale or
1 12 exchange for which an election is made under paragraph "c" has
1 13 been in existence and actively doing business for at least
1 14 three years and is not a personal holding company as defined
1 15 in section 542(a) of the Internal Revenue Code.
1 16 (b) A corporation which is a member of an affiliated
1 17 group, as defined in section 1504(a) of the Internal Revenue
1 18 Code, which group includes a corporation described in
1 19 subparagraph subdivision (a).
1 20 (c) A predecessor or successor corporation of a
1 21 corporation described in subparagraph subdivision (a). A
1 22 corporation is a predecessor or successor corporation if the
1 23 corporation was a party to a reorganization that was entirely
1 24 or substantially income tax free and that occurred during or
1 25 after the employment of the taxpayer making an election under
1 26 paragraph "c".
1 27 (3) "Incentive stock option" means the same as defined in
1 28 section 422(b) of the Internal Revenue Code.
1 29 b. For purposes of this subsection, the corporation
1 30 issuing capital stock for which an election under paragraph
1 31 "c" is made must, at the time of the first sale or exchange
1 32 for which the election is made, have at least five
1 33 shareholders and at least two shareholders or groups of
1 34 shareholders who are not related to each other and each of
1 35 which owns at least five percent of the capital stock.
2 1 For purposes of this paragraph "b", two persons shall be
2 2 considered to be related when, under section 318 of the
2 3 Internal Revenue Code, one is a person who owns, directly or
2 4 indirectly, capital stock that if directly owned would be
2 5 attributed to the other person or is the spouse, child,
2 6 parent, grandparent, brother, sister, aunt, uncle, cousin,
2 7 niece, or nephew of the other person who owns capital stock
2 8 either directly or indirectly.
2 9 c. (1) An individual may elect to subtract one-half of
2 10 the capital gain from the sale or exchange of capital stock of
2 11 a corporation acquired by the individual on account of
2 12 employment with that corporation or while employed by that
2 13 corporation. However, for tax years beginning in the 2001
2 14 calendar year, the amount that may be subtracted is one-fourth
2 15 of such capital gain.
2 16 (2) (a) Each individual shall be entitled to two
2 17 elections under subparagraph (1) during the individual's
2 18 lifetime for the capital stock of two corporations.
2 19 (b) The election applies only to the tax year for which
2 20 the election was made and applies to all sales and exchanges
2 21 in the tax year for which the election was made of capital
2 22 stock in the same corporation which was acquired as provided
2 23 in subparagraph (1).
2 24 (c) After the individual makes an election for the tax
2 25 year, the election shall also apply to the sale or exchange in
2 26 that tax year of capital stock of the corporation which had
2 27 been transferred by inter vivos gift from the individual to
2 28 the individual's spouse if the capital stock was acquired as
2 29 provided in subparagraph (1). This provision applies in the
2 30 case of the spouse, only if the spouse was married to such
2 31 individual on the date of sale or exchange or the date of
2 32 death of the individual and if the spouse and individual file
2 33 a joint Iowa income tax return on which the election is made.
2 34 If the individual dies without making an election, the
2 35 surviving spouse may make the election for capital stock that
3 1 would have qualified under this subparagraph subdivision.
3 2 However, if there is no surviving spouse, the oldest surviving
3 3 issue who owns capital stock that would have qualified under
3 4 this subparagraph subdivision may make the election.
3 5 d. An election under paragraph "c" shall be made by
3 6 including a written statement with the taxpayer's Iowa income
3 7 tax return for the tax year for which the election is made.
3 8 The written statement shall identify the corporation that
3 9 issued the stock, the grounds for the election under this
3 10 subsection, and that the taxpayer elects to have this
3 11 subsection apply to sales and exchanges in that tax year.
3 12 e. The deduction under this subsection is in lieu of any
3 13 deduction allowable under section 1202 of the Internal Revenue
3 14 Code for the capital gain from the sale or exchange of the
3 15 same capital stock.
3 16 Sec. 2. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE.
3 17 This Act, being deemed of immediate importance, takes effect
3 18 upon enactment and applies retroactively to January 1, 2001,
3 19 for tax years beginning on or after that date.
3 20 EXPLANATION
3 21 This bill provides a deduction under the individual income
3 22 tax of 50 percent (25 percent for the 2001 tax year) of the
3 23 capital gain from the sale or exchange of capital stock of a
3 24 corporation acquired by the taxpayer on account of employment
3 25 with the corporation or acquired while employed by the
3 26 corporation. The taxpayer must make an election to take the
3 27 deduction and the election only applies for that tax year. A
3 28 taxpayer may make two elections for two different corporations
3 29 during the taxpayer's lifetime. The election would also apply
3 30 to stock sold during that tax year which was previously
3 31 granted to a spouse of the taxpayer but only if they file a
3 32 joint Iowa income tax return. The election would not apply to
3 33 capital gains from stock options unless the corporation
3 34 issuing the options offered them to all full-time employees.
3 35 The deduction is in lieu of the deduction that may be
4 1 allowable under the Internal Revenue Code for sale or exchange
4 2 of stock in a small business held for five years.
4 3 The bill takes effect upon enactment and applies
4 4 retroactively to January 1, 2001, for tax years beginning on
4 5 or after that date.
4 6 LSB 2657HH 79
4 7 mg/cls/14
Text: HF00302 Text: HF00304 Text: HF00300 - HF00399 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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