Bill Summary
The "Generating Retirement Ownership through Long-Term Holding" Act proposes an amendment to the Internal Revenue Code of 1986 that allows individuals to defer the recognition of capital gains when they reinvest capital gain dividends received from regulated investment companies (RICs) through a dividend reinvestment plan.
Key points of the legislation include:
1. **Nonrecognition of Gain**: Individuals will not need to recognize capital gains on dividends reinvested in additional shares of the RIC.
2. **Recognition Upon Sale or Death**: The deferred gains will only be recognized when the individual sells or redeems the shares, or upon the individual's death.
3. **Holding Period**: Shares acquired through reinvested dividends will be treated as held for a minimum of one year and a day, potentially providing tax benefits related to long-term capital gains.
4. **Exclusions**: Certain individuals, such as dependents of other taxpayers or estates and trusts, are excluded from this provision.
5. **Regulatory Authority**: The Secretary of the Treasury is authorized to create regulations to implement this section.
The legislation aims to promote long-term investment and retirement savings by allowing individuals to defer taxes on reinvested gains, thereby encouraging the accumulation of wealth over time. The provisions take effect for taxable years ending after the bill's enactment.
Possible Impacts
Here are three examples of how the proposed legislation, "Generating Retirement Ownership through Long-Term Holding," could affect individuals:
1. **Tax Deferral Benefits**: Individuals who invest in regulated investment companies (RICs) would benefit from the ability to defer taxes on capital gains that are automatically reinvested. This means that instead of paying taxes on the capital gains distributions in the year they are received, investors can reinvest those gains and potentially grow their investment without the immediate tax burden. This deferral can lead to greater accumulation of wealth over time.
2. **Increased Long-Term Investment**: The legislation encourages individuals to hold their investments longer by treating shares acquired through reinvested capital gain dividends as having a holding period of one year and a day. This could incentivize more investors to commit to long-term strategies rather than seeking short-term profits, which may contribute to market stability and potentially enhance retirement savings.
3. **Tax Implications Upon Sale or Death**: While the legislation allows for the deferral of capital gains tax, individuals need to be aware that they will eventually have to recognize those gains either upon selling their shares or upon their death. This means that planning for tax liabilities will become crucial for investors, as they may face a significant tax bill at the time of selling their investments or when their estate is settled. Awareness of these potential future tax implications will be important for financial planning and investment strategies.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1839 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 1839
To amend the Internal Revenue Code of 1986 to allow individuals to
defer recognition of reinvested capital gains distributions from
regulated investment companies.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 21, 2025
Mr. Cornyn introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to allow individuals to
defer recognition of reinvested capital gains distributions from
regulated investment companies.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Generating Retirement Ownership
through Long-Term Holding''.
SEC. 2. DEFERRAL OF REINVESTED CAPITAL GAIN DIVIDENDS OF REGULATED
INVESTMENT COMPANIES.
(a) In General.--Part III of subchapter O of chapter 1 of the
Internal Revenue Code of 1986 is amended by inserting after section
1045 the following new section:
``SEC. 1046. REINVESTED CAPITAL GAIN DIVIDENDS OF REGULATED INVESTMENT
COMPANIES.
``(a) Nonrecognition of Gain.--In the case of an individual, no
gain shall be recognized on the receipt of a capital gain dividend
distributed by a regulated investment company to which part I of
subchapter M applies if such capital gain dividend is automatically
reinvested in additional shares of the company pursuant to a dividend
reinvestment plan.
``(b) Definitions and Special Rules.--For purposes of this
section--
``(1) Capital gain dividend.--The term `capital gain
dividend' has the meaning given to such term by section
852(b)(3)(C).
``(2) Recognition of deferred capital gain dividends.--
``(A) In general.--Gain treated as unrecognized in
accordance with subsection (a) shall be recognized in
accordance with subparagraph (B)--
``(i) upon a subsequent sale or redemption
by such individual of stock in the distributing
company, or
``(ii) upon the death of the individual.
``(B) Gain recognition.--
``(i) In general.--Upon a sale or
redemption described in subparagraph (A), the
taxpayer shall recognize that portion of total
gain treated as unrecognized in accordance with
subsection (a) (and not previously recognized
pursuant to this subparagraph) that is
equivalent to the portion of the taxpayer's
shares in the distributing company that are
sold or redeemed.
``(ii) Death of individual.--Except as
provided by regulations, any portion of such
total gain not recognized under clause (i)
prior to the taxpayer's death shall be
recognized upon the death of the taxpayer and
included in the taxpayer's gross income for the
taxable year ending on the date of the
taxpayer's death.
``(3) Holding period.--The taxpayer's holding period in
shares acquired through reinvestment of a capital gain dividend
to which subsection (a) applies shall be determined by treating
the shareholder as having held such shares for one year and a
day as of the date such shares are acquired.
``(c) Section Not To Apply to Certain Taxpayers.--This section
shall not apply to--
``(1) an individual with respect to whom a deduction under
section 151 is allowable to another taxpayer for a taxable year
beginning in the calendar year in which such individual's
taxable year begins, or
``(2) an estate or trust.
``(d) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) Section 852(b)(3)(B) of such Code is amended by adding
at the end the following new sentence: ``For rules regarding
nonrecognition of gain with respect to reinvested capital gain
dividends received by individuals, see section 1046.''.
(2) The table of sections for part III of subchapter O of
chapter 1 of such Code is amended by inserting after the item
relating to section 1045 the following new item:
``Sec. 1046. Reinvested capital gain dividends of regulated investment
companies.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
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