legislation: 99-hr-4930
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| 99-hr-4930 | 99 | hr | 4930 | A bill to amend the Internal Revenue Code of 1954 with respect to the taxation of interests in entities holding financial instruments. | Taxation | 1986-06-04 | 1986-06-04 | Referred to Subcommittee on Select Revenue Measures. | House | Rep. Matsui, Robert T. [D-CA-3] | CA | D | M000249 | 0 | Amends the Internal Revenue Code to create a new type of entity, known as a debt holding company, which must elect such treatment and meet certain specified requirements. Imposes a tax on the adjustable taxable income of such debt holding company at the maximum corporate rate. Provides the following adjustments in arriving at taxable income: (1) an unlimited carryback of net operating losses of debt holding companies; (2) a deduction for certain amounts paid to holders of residual interests; (3) disallowance of the dividends received deduction for corporations; and (4) exclusion of all items of income, gain, loss, or deduction relating to prohibited transactions. Requires the amortization of the organizational expenses over the period of the qualified financial instrument held by the debt holding company with the longest maturity. Requires that substantially all of the assets of a debt holding company must consist of qualified financial instruments or permitted investments. Provides that all the interests in a debt holding company must be either "regular interests" or "residual interests." Defines a "regular interest" as an interest in a debt holding company the terms of which are fixed on the first day, and which: (1) unconditionally entitles the holder to receive a specified principal amount; and (2) provides that interest payments (if any) before maturity are payable at a fixed rate (or to the extent provided in regulations, at variable rates) and on a periodic basis. Permits the timing of payment of principal amounts to be contingent on the extent of prepayments on qualified financial instruments and the amount of income from permitted investments. Defines "residual interest" to mean an interest in a debt holding company the terms of which are fixed on the first day and which entitles the holder only to receive one or more payment the amount and timing of which are wholly contingent on: (1) the extent of prepayments on qualified financial instruments; (2) the extent of income from permitted investments; (3) contingent payments on qualified financial instruments; (4) the return of amounts in a qualified reserve fund; or (5) any combination of the foregoing. Sets forth rules for the taxation of holders of regular interests and residual interests in debt holding companies. Imposes a 100 percent tax on the net income of a debt holding company derived from prohibited transactions. Provides that no gain or loss will be recognized to the debt holding company on the sale of any qualified financial instrument or permitted investment during the liquidation period if it is pursuant to a qualified liquidation of the debt holding company. Requires the recognition of gain or loss to the transferor on the transfer of any property to a debt holding company. Requires the nonrecognition of loss for transfers in exchange for regular or residual interest in a debt holding company. Provides rules relating to the original issue discount rules applicable to regular interests of debt holding companies and similar debt instruments. Provides that any entity that would otherwise be treated as a partnership or trust for income tax purposes is to be treated as a corporation if the principal activity of the trust or partnership is the holding of assets the principal portion of which is debt obligations (or interest therein) which directly or indirectly act as collateral for other debt obligations having varying maturities. | 2024-02-07T16:32:33Z |