Text: HSB00500                          Text: HSB00502
Text: HSB00500 - HSB00599               Text: HSB Index
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House Study Bill 501

Bill Text

  1  1    Section 1.  Section 422.7, Code Supplement 2001, is amended
  1  2 by adding the following new subsection:
  1  3    NEW SUBSECTION.  38.  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 or stock options issued by a corporation which
  1  9 does not offer incentive stock options to all full-time
  1 10 employees.  A corporation does not offer incentive stock
  1 11 options to all full-time employees unless each of those
  1 12 employees is issued at least a number of incentive stock
  1 13 options equal to twenty percent of all issued outstanding
  1 14 incentive stock options divided by the number of full-time
  1 15 employees.
  1 16    (2)  "Corporation" means any of the following:
  1 17    (a)  A corporation which at the time of the first sale or
  1 18 exchange for which an election is made under paragraph "c" has
  1 19 been in existence and actively doing business for at least
  1 20 three years and is not a personal holding company as defined
  1 21 in section 542(a) of the Internal Revenue Code.
  1 22    (b)  A corporation which is a member of an affiliated
  1 23 group, as defined in section 1504(a) of the Internal Revenue
  1 24 Code, which group includes a corporation described in
  1 25 subparagraph subdivision (a) and which group has been in
  1 26 existence and actively doing business for at least three
  1 27 years.
  1 28    (c)  A predecessor or successor corporation of a
  1 29 corporation described in subparagraph subdivision (a).  A
  1 30 corporation is a predecessor or successor corporation if the
  1 31 corporation was a party to a reorganization that was entirely
  1 32 or substantially income tax free and that occurred during or
  1 33 after the employment of the taxpayer making an election under
  1 34 paragraph "c".
  1 35    (3)  "Incentive stock option" means the same as defined in
  2  1 section 422(b) of the Internal Revenue Code.
  2  2    b.  For purposes of this subsection, the corporation
  2  3 issuing capital stock for which an election under paragraph
  2  4 "c" is made must, at the time of the first sale or exchange
  2  5 for which the election is made, have at least five
  2  6 shareholders and at least two shareholders or groups of
  2  7 shareholders who are not related to each other and each of
  2  8 which owns at least five percent of the capital stock.
  2  9    For purposes of this paragraph "b", two persons shall be
  2 10 considered to be related when, under section 318 of the
  2 11 Internal Revenue Code, one is a person who owns, directly or
  2 12 indirectly, capital stock that if directly owned would be
  2 13 attributed to the other person or is the spouse, child,
  2 14 parent, grandparent, brother, sister, aunt, uncle, cousin,
  2 15 niece, or nephew of the other person who owns capital stock
  2 16 either directly or indirectly.
  2 17    c.  (1)  In the manner provided in paragraph "d", an
  2 18 individual may elect to subtract one-half of the capital gain
  2 19 from the sale or exchange of capital stock of a corporation
  2 20 acquired by the individual on account of employment with that
  2 21 corporation.  However, for tax years beginning in the 2002
  2 22 calendar year, the amount that may be subtracted is one-fourth
  2 23 of such capital gain.
  2 24    (2)  (a)  Each individual shall be entitled to two
  2 25 elections under subparagraph (1) during the individual's
  2 26 lifetime for the capital stock of two different corporations.
  2 27    (b)  The election applies only to the tax year for which
  2 28 the election was made and applies to all sales and exchanges
  2 29 in the tax year for which the election was made of capital
  2 30 stock in the same corporation which was acquired as provided
  2 31 in subparagraph (1).
  2 32    (c)  After the individual makes an election for the tax
  2 33 year, the election shall also apply to the sale or exchange in
  2 34 that tax year of capital stock of the corporation which had
  2 35 been transferred by inter vivos gift from the individual to
  3  1 the individual's spouse if the capital stock was acquired as
  3  2 provided in subparagraph (1).  This provision applies in the
  3  3 case of the spouse, only if the spouse was married to such
  3  4 individual on the date of sale or exchange or the date of
  3  5 death of the individual and if the spouse and individual file
  3  6 a joint Iowa income tax return on which the election is made.
  3  7 If the individual dies without making an election, the
  3  8 surviving spouse may make the election for capital stock that
  3  9 would have qualified under this subparagraph subdivision.
  3 10 However, if there is no surviving spouse, the oldest surviving
  3 11 issue who owns capital stock that would have qualified under
  3 12 this subparagraph subdivision may make the election.
  3 13    d.  An election under paragraph "c" shall be made by
  3 14 including a written statement with the taxpayer's Iowa income
  3 15 tax return for the tax year for which the election is made.
  3 16 The written statement shall identify the corporation that
  3 17 issued the capital stock, the grounds for the election under
  3 18 this subsection, and that the taxpayer elects to have this
  3 19 subsection apply to sales and exchanges in that tax year.
  3 20    (1)  In order for the taxpayer to claim the benefits of the
  3 21 partial deduction of the capital gain under this subsection,
  3 22 the taxpayer must completely fill out the tax return,
  3 23 determine the taxpayer's income tax liability without the
  3 24 benefit of this subsection, and pay the amount of tax owed.
  3 25 The taxpayer shall recompute the taxpayer's income tax
  3 26 liability, by applying the provisions of this subsection on a
  3 27 special return.  This special return shall be filed under
  3 28 rules of the director and constitutes a claim for refund of
  3 29 the difference between the amount of tax the taxpayer paid as
  3 30 determined without the application of the provisions of this
  3 31 subsection and the amount of tax determined with the
  3 32 application of the provisions of this subsection.
  3 33    (2)  This subsection shall not affect the amount of the
  3 34 taxpayer's checkoff to the Iowa election campaign fund under
  3 35 section 56.18, the checkoff for the state fish and game
  4  1 protection fund in section 456A.16, the credits from tax
  4  2 provided in sections 422.10, 422.11A, and 422.12 and the
  4  3 allocation of these credits between spouses if the taxpayers
  4  4 filed separate returns or separately on combined returns.
  4  5    (3)  For any tax year, the aggregate amount of refund
  4  6 claims that shall be paid pursuant to this subsection shall
  4  7 not exceed three million dollars.  If, for a tax year, the
  4  8 aggregate amount of refund claims filed pursuant to this
  4  9 subsection exceeds three million dollars, each claim for
  4 10 refund shall be paid on a pro rata basis so that the aggregate
  4 11 amount of refund claims paid does not exceed three million
  4 12 dollars.  In the case where refund claims are not paid in
  4 13 full, the amount of the refund to which the taxpayer is
  4 14 entitled under this subsection is the pro rata amount that was
  4 15 paid and the taxpayer is not entitled to a refund of the
  4 16 unpaid portion and is not entitled to carry that amount
  4 17 forward or backward to another tax year.  Taxpayers shall not
  4 18 use refunds as estimated payments for the succeeding tax year.
  4 19 Taxpayers whose tax years begin on January 1 must file their
  4 20 refund claims by October 31 of the calendar year following the
  4 21 end of their tax years to be eligible for refunds.  Taxpayers
  4 22 whose tax years begin on a date other than January 1 must file
  4 23 their refund claims by the end of the tenth month following
  4 24 the end of their tax years to be eligible.  The department
  4 25 shall determine on February 1 of the second succeeding
  4 26 calendar year if the total amount of claims for refund exceeds
  4 27 three million dollars for the tax year.  Notwithstanding any
  4 28 other provision, interest shall not be due on any refund
  4 29 claims that are paid by the last day of February of the second
  4 30 succeeding calendar year.  If the claim is not payable on
  4 31 February 1 of the second succeeding calendar year, because the
  4 32 taxpayer is a fiscal year filer, the claim shall be considered
  4 33 a claim for the following tax year.
  4 34    e.  The deduction under this subsection is in lieu of any
  4 35 deduction allowable under section 1202 of the Internal Revenue
  5  1 Code for the capital gain from the sale or exchange of the
  5  2 same capital stock.
  5  4 This Act, being deemed of immediate importance, takes effect
  5  5 upon enactment and applies retroactively to January 1, 2002,
  5  6 for tax years beginning on or after that date.  
  5  7                           EXPLANATION
  5  8    This bill provides a deduction under the individual income
  5  9 tax of 50 percent (25 percent for the 2002 tax year) of the
  5 10 capital gain from the sale or exchange of capital stock of a
  5 11 corporation acquired by the taxpayer on account of employment
  5 12 with the corporation.  The taxpayer must make an election to
  5 13 take the deduction and the election only applies for that tax
  5 14 year.  The election is made by a written statement filed with
  5 15 the department.  In addition, the benefits of the deduction
  5 16 are realized by means of a refund claim.  This involves the
  5 17 taxpayer filing a return with tax liability determined without
  5 18 deduction for the capital gain and a special return with tax
  5 19 liability determined with the deduction for the capital gain.
  5 20 The reduction in tax liability will be treated as a claim for
  5 21 refund of the amount of the reduction.  However, not more than
  5 22 $3 million in tax refunds may be allowed for any tax year.  If
  5 23 more refunds are claimed, then each refund claim is payable at
  5 24 a pro rata amount, which is the final amount of the taxpayer's
  5 25 actual refund.  A taxpayer may make two elections for two
  5 26 different corporations during the taxpayer's lifetime.  The
  5 27 election would also apply to stock sold during that tax year
  5 28 which was previously granted to a spouse of the taxpayer but
  5 29 only if they file a joint Iowa income tax return.  The
  5 30 election would not apply to capital gains from stock or stock
  5 31 options unless the corporation issuing the options offered
  5 32 them to all full-time employees.
  5 33    The deduction is in lieu of the deduction that may be
  5 34 allowable under the Internal Revenue Code for sale or exchange
  5 35 of stock in a small business held for five years.
  6  1    The bill takes effect upon enactment and applies
  6  2 retroactively to January 1, 2002, for tax years beginning on
  6  3 or after that date.  
  6  4 LSB 5319HC 79
  6  5 mg/cls/14

Text: HSB00500                          Text: HSB00502
Text: HSB00500 - HSB00599               Text: HSB Index
Bills and Amendments: General Index     Bill History: General Index

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