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1 "SEC. 860A. TAX TREATMENT OF BUSINESS DEVELOPMENT

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COMPANIES.

"(a) GENERAL RULE.-Except as otherwise provided 4 in this section, the provisions of parts I and III of this sub5 chapter shall apply to a business development company 6 which would be a regulated investment company but for the 7 requirements of section 851(a). When used other than in this 8 section, the term 'regulated investment company' shall be 9 deemed to include a business development company which 10 would be a regulated investment company but for the re11 quirements of section 851(a).

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"(b) DEFINITION OF BUSINESS DEVELOPMENT COM13 PANY.-For purposes of this section, the term 'business de14 velopment company' means any domestic corporation (other 15 than a personal holding company as defined in section 542 16 without regard to section 542(c)(8)) which is a business de17 velopment company within the meaning of section 2(a)(48) 18 (15 U.S.C. 80a-2(a)(48)) of the Investment Company Act of 19 1940, as amended (15 U.S.C. 80a-1-80b-2)."

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(b) CLERICAL AMENDMENT.-The table of parts for 21 subchapter M of chapter 1 of such Code is amended by

22 adding at the end thereof the following new item:

"Part IV. Provisions which apply to business development companies."

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1 (c) EFFECTIVE DATE.-The amendments made by sub

2 sections (a) and (b) shall apply to taxable years beginning on 3 or after October 21, 1980.

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SUMMARY AND DESCRIPTION

PRESENT LAW

Overview

Income-producing assets can be owned directly, or can be owned indirectly by means of an equity interest in an intermediary entity. Income generated by property that is owned directly is generally taxed to the owner of the property and therefore is subject to only one level of taxation. Income from property owned indirectly in an intermediary entity is subject to one or two levels of taxation depending on whether the intermediary entity is treated for tax purposes as (1) a separate taxable entity (such as a corporation or an association taxable as a corporation), (2) a complete conduit entity (such as a partnership or S corporation), or (3) as a partial conduit entity (such as a real estate investment trust) under which income is not taxed to the extent it is currently distributed to the entity's owners. A regulated investment company ("RIC") is a partial conduit entity.

RIC's

RICS are domestic corporations that issue shares to investors and invest the proceeds in diversified portfolios of securities. Under the RIC provisions of the Code, a RIC is generally treated as a conduit for tax purposes. This is accomplished by allowing a RIC a deduction for income that is distributed to its shareholders on a current basis. Income that is not distributed on a current basis is taxed at the RIC level as in the case of a normal corporation. The original purpose of the RIC provisions was to permit small investors to obtain the benefits of investment diversification and professional management by making passive investments through a widely held vehicle without subjecting the profits derived from the investment to a second level of taxation.

Requirements for RIC status

A RIC is a domestic corporation that (1) is registered with the Securities and Exchange Commission at all times during the taxable year as a management company or a unit investment trust under the Investment Company Act of 1940, or (2) is a common trust fund or similar fund that is not a "common trust fund" under the Internal Revenue Code and which is excluded by the Investment Company Act from the definition of investment company. Under present law, a business development company within the meaning of section 2(a)(48) of the Investment Company Act does not qualify as a RIC.

Business development companies

Under the Small Business Incentive Act of 1980, certain investment companies providing capital and managerial assistance to small business may elect to be treated as "business development companies" in lieu of registering under the Investment Company Act.

EXPLANATION OF THE BILL

Under the bill, a business development company within the meaning of section 2(a)(48) of the Investment Company Act of 1940, as amended, other than a business development company that is a personal holding company,1 could qualify as a RIC.

EFFECTIVE DATE

The bill would apply in taxable years beginning on or after October 21, 1980.

REVENUE EFFECT

The provisions of the bill are estimated to decrease fiscal year budget receipts by less than $50 million annually.

The prohibition against personal holding companies qualifying as RICS generally was repealed by section 1071 of the Tax Reform Act of 1984 (Public Law 98-369).

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To amend the Internal Revenue Code of 1954 to allow an amortization deduction for bus operating rights based on a 60-month period.

IN THE HOUSE OF REPRESENTATIVES

JUNE 13, 1983

Mr. JENKINS (for himself and Mr. HANCE) introduced the following bill; which was referred to the Committee on Ways and Means

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A BILL

To amend the Internal Revenue Code of 1954 to allow an amortization deduction for bus operating rights based on a 60-month period.

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Be it enacted by the Senate and House of Representa

2 tives of the United States of America in Congress assembled,

3 SECTION 1. DEDUCTION FOR BUS OPERATING AUTHORITY.

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(a) GENERAL RULE.-For purposes of chapter 1 of the 5 Internal Revenue Code of 1954, in computing the taxable 6 income of a taxpayer who, on November 19, 1982, held one 7 or more bus operating authorities, an amount equal to the 8 aggregate adjusted basis of all bus operating authorities held 9 by the taxpayer on November 19, 1982, or acquired subse10 quent thereto pursuant to a binding contract in effect on No

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1 vember 19, 1982, shall be allowed as a deduction ratably 2 over a period of 60 months. Such 60-month period shall 3 begin with the later of the month of November 1982 or the 4 month in which acquired, or, if later, at the election of the 5 taxpayer, the first month of the taxpayer's first taxable year 6 beginning after November 19, 1982.

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(b) AGGREGATE DEDUCTION NOT TO EXCEED

8 $5,000,000.

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(1) LIMITATION.—

(A) IN GENERAL.-The maximum amount of

basis which may be taken into account under this section with respect to all bus operating authorities

(i) held by a taxpayer on November 19, 1982, or

(ii) acquired by such taxpayer subsequent thereto pursuant to a binding contract in effect on November 19, 1982,

shall not exceed $5,000,000.

(B) ALLOCATION OF LIMITATION AMONG AUTHORITIES.—In the case of a taxpayer with respect to which there is more than 1 bus operating authority described in subparagraph (A), a portion of the $5,000,000 limitation contained in subparagraph (A) shall be allocated to each bus

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