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PAG LIN
1 1 SENATE FILE 521
1 2
1 3 AN ACT
1 4 ESTABLISHING A NEW ECONOMY EMPLOYMENT INITIATIVE BY PROVIDING
1 5 FOR A PARTIAL DEDUCTION UNDER THE INDIVIDUAL INCOME TAX FOR
1 6 THE CAPITAL GAIN FROM THE SALE OR EXCHANGE OF CAPITAL STOCK
1 7 OF A CORPORATION WHICH WAS ACQUIRED BY AN INDIVIDUAL ON
1 8 ACCOUNT OF EMPLOYMENT WITH THE CORPORATION, LIMITING THE
1 9 FISCAL IMPACT OF THE PARTIAL DEDUCTIONS, AND INCLUDING AN
1 10 EFFECTIVE AND RETROACTIVE APPLICABILITY DATE PROVISION.
1 11
1 12 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 13
1 14 Section 1. Section 422.7, Code 2001, is amended by adding
1 15 the following new subsection:
1 16 NEW SUBSECTION. 36. a. For purposes of this subsection:
1 17 (1) "Capital stock" means voting and nonvoting common and
1 18 preferred stock and stock options issued pursuant to an
1 19 incentive stock option plan. "Capital stock" does not include
1 20 stock rights, stock warrants, or debt securities, and does not
1 21 include stock or stock options issued by a corporation which
1 22 does not offer incentive stock options to all full-time
1 23 employees. A corporation does not offer incentive stock
1 24 options to all full-time employees unless each of those
1 25 employees is issued at least a number of incentive stock
1 26 options equal to twenty percent of all issued outstanding
1 27 incentive stock options divided by the number of full-time
1 28 employees.
1 29 (2) "Corporation" means any of the following:
1 30 (a) A corporation which at the time of the first sale or
1 31 exchange for which an election is made under paragraph "c" has
1 32 been in existence and actively doing business for at least
1 33 three years and is not a personal holding company as defined
1 34 in section 542(a) of the Internal Revenue Code.
1 35 (b) A corporation which is a member of an affiliated
2 1 group, as defined in section 1504(a) of the Internal Revenue
2 2 Code, which group includes a corporation described in
2 3 subparagraph subdivision (a) and which group has been in
2 4 existence and actively doing business for at least three
2 5 years.
2 6 (c) A predecessor or successor corporation of a
2 7 corporation described in subparagraph subdivision (a). A
2 8 corporation is a predecessor or successor corporation if the
2 9 corporation was a party to a reorganization that was entirely
2 10 or substantially income tax free and that occurred during or
2 11 after the employment of the taxpayer making an election under
2 12 paragraph "c".
2 13 (3) "Incentive stock option" means the same as defined in
2 14 section 422(b) of the Internal Revenue Code.
2 15 b. For purposes of this subsection, the corporation
2 16 issuing capital stock for which an election under paragraph
2 17 "c" is made must, at the time of the first sale or exchange
2 18 for which the election is made, have at least five
2 19 shareholders and at least two shareholders or groups of
2 20 shareholders who are not related to each other and each of
2 21 which owns at least five percent of the capital stock.
2 22 For purposes of this paragraph "b", two persons shall be
2 23 considered to be related when, under section 318 of the
2 24 Internal Revenue Code, one is a person who owns, directly or
2 25 indirectly, capital stock that if directly owned would be
2 26 attributed to the other person or is the spouse, child,
2 27 parent, grandparent, brother, sister, aunt, uncle, cousin,
2 28 niece, or nephew of the other person who owns capital stock
2 29 either directly or indirectly.
2 30 c. (1) In the manner provided in paragraph "d", an
2 31 individual may elect to subtract one-half of the capital gain
2 32 from the sale or exchange of capital stock of a corporation
2 33 acquired by the individual on account of employment with that
2 34 corporation. However, for tax years beginning in the 2001
2 35 calendar year, the amount that may be subtracted is one-fourth
3 1 of such capital gain.
3 2 (2) (a) Each individual shall be entitled to two
3 3 elections under subparagraph (1) during the individual's
3 4 lifetime for the capital stock of two different corporations.
3 5 (b) The election applies only to the tax year for which
3 6 the election was made and applies to all sales and exchanges
3 7 in the tax year for which the election was made of capital
3 8 stock in the same corporation which was acquired as provided
3 9 in subparagraph (1).
3 10 (c) After the individual makes an election for the tax
3 11 year, the election shall also apply to the sale or exchange in
3 12 that tax year of capital stock of the corporation which had
3 13 been transferred by inter vivos gift from the individual to
3 14 the individual's spouse if the capital stock was acquired as
3 15 provided in subparagraph (1). This provision applies in the
3 16 case of the spouse, only if the spouse was married to such
3 17 individual on the date of sale or exchange or the date of
3 18 death of the individual and if the spouse and individual file
3 19 a joint Iowa income tax return on which the election is made.
3 20 If the individual dies without making an election, the
3 21 surviving spouse may make the election for capital stock that
3 22 would have qualified under this subparagraph subdivision.
3 23 However, if there is no surviving spouse, the oldest surviving
3 24 issue who owns capital stock that would have qualified under
3 25 this subparagraph subdivision may make the election.
3 26 d. An election under paragraph "c" shall be made by
3 27 including a written statement with the taxpayer's Iowa income
3 28 tax return for the tax year for which the election is made.
3 29 The written statement shall identify the corporation that
3 30 issued the capital stock, the grounds for the election under
3 31 this subsection, and that the taxpayer elects to have this
3 32 subsection apply to sales and exchanges in that tax year.
3 33 (1) In order for the taxpayer to claim the benefits of the
3 34 partial deduction of the capital gain under this subsection,
3 35 the taxpayer must completely fill out the tax return,
4 1 determine the taxpayer's income tax liability without the
4 2 benefit of this subsection, and pay the amount of tax owed.
4 3 The taxpayer shall recompute the taxpayer's income tax
4 4 liability, by applying the provisions of this subsection on a
4 5 special return. This special return shall be filed under
4 6 rules of the director and constitutes a claim for refund of
4 7 the difference between the amount of tax the taxpayer paid as
4 8 determined without the application of the provisions of this
4 9 subsection and the amount of tax determined with the
4 10 application of the provisions of this subsection.
4 11 (2) This subsection shall not affect the amount of the
4 12 taxpayer's checkoff to the Iowa election campaign fund under
4 13 section 56.18, the checkoff for the state fish and game
4 14 protection fund in section 456A.16, the credits from tax
4 15 provided in sections 422.10, 422.11A, and 422.12 and the
4 16 allocation of these credits between spouses if the taxpayers
4 17 filed separate returns or separately on combined returns.
4 18 (3) For any tax year, the aggregate amount of refund
4 19 claims that shall be paid pursuant to this subsection shall
4 20 not exceed three million dollars. If, for a tax year, the
4 21 aggregate amount of refund claims filed pursuant to this
4 22 subsection exceeds three million dollars, each claim for
4 23 refund shall be paid on a pro rata basis so that the aggregate
4 24 amount of refund claims paid does not exceed three million
4 25 dollars. In the case where refund claims are not paid in
4 26 full, the amount of the refund to which the taxpayer is
4 27 entitled under this subsection is the pro rata amount that was
4 28 paid and the taxpayer is not entitled to a refund of the
4 29 unpaid portion and is not entitled to carry that amount
4 30 forward or backward to another tax year. Taxpayers shall not
4 31 use refunds as estimated payments for the succeeding tax year.
4 32 Taxpayers whose tax years begin on January 1 must file their
4 33 refund claims by October 31 of the calendar year following the
4 34 end of their tax years to be eligible for refunds. Taxpayers
4 35 whose tax years begin on a date other than January 1 must file
5 1 their refund claims by the end of the tenth month following
5 2 the end of their tax years to be eligible. The department
5 3 shall determine on February 1 of the second succeeding
5 4 calendar year if the total amount of claims for refund exceeds
5 5 three million dollars for the tax year. Notwithstanding any
5 6 other provision, interest shall not be due on any refund
5 7 claims that are paid by the last day of February of the second
5 8 succeeding calendar year. If the claim is not payable on
5 9 February 1 of the second succeeding calendar year, because the
5 10 taxpayer is a fiscal year filer, the claim shall be considered
5 11 as a claim for the following tax year.
5 12 e. The deduction under this subsection is in lieu of any
5 13 deduction allowable under section 1202 of the Internal Revenue
5 14 Code for the capital gain from the sale or exchange of the
5 15 same capital stock.
5 16 Sec. 2. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE.
5 17 This Act, being deemed of immediate importance, takes effect
5 18 upon enactment and applies retroactively to January 1, 2001,
5 19 for tax years beginning on or after that date.
5 20
5 21
5 22
5 23 MARY E. KRAMER
5 24 President of the Senate
5 25
5 26
5 27
5 28 BRENT SIEGRIST
5 29 Speaker of the House
5 30
5 31 I hereby certify that this bill originated in the Senate and
5 32 is known as Senate File 521, Seventy-ninth General Assembly.
5 33
5 34
5 35
6 1 MICHAEL E. MARSHALL
6 2 Secretary of the Senate
6 3 Approved , 2001
6 4
6 5
6 6
6 7 THOMAS J. VILSACK
6 8 Governor
Text: SF00520 Text: SF00522 Text: SF00500 - SF00599 Text: SF Index Bills and Amendments: General Index Bill History: General Index
© 2001 Cornell College and League of Women Voters of Iowa
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