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Senate Study Bill 1074

Bill Text

  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 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 1831SC 79
  4  7 mg/cls/14

Text: SSB01073                          Text: SSB01075
Text: SSB01000 - SSB01099               Text: SSB Index
Bills and Amendments: General Index     Bill History: General Index

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