Bill Text: IA HF633 | 2013-2014 | 85th General Assembly | Introduced
Bill Title: A bill for an act providing an exemption from the computation of net income for the individual income tax of net capital gain from the sale or exchange of qualified capital stock and including effective date and retroactive applicability provisions. (Formerly HF 336)
Spectrum: Committee Bill
Status: (Engrossed - Dead) 2013-12-31 - END OF 2013 ACTIONS [HF633 Detail]
Download: Iowa-2013-HF633-Introduced.html
House
File
633
-
Introduced
HOUSE
FILE
633
BY
COMMITTEE
ON
WAYS
AND
MEANS
(SUCCESSOR
TO
HF
336)
A
BILL
FOR
An
Act
providing
an
exemption
from
the
computation
of
net
1
income
for
the
individual
income
tax
of
net
capital
gain
2
from
the
sale
or
exchange
of
qualified
capital
stock
and
3
including
effective
date
and
retroactive
applicability
4
provisions.
5
BE
IT
ENACTED
BY
THE
GENERAL
ASSEMBLY
OF
THE
STATE
OF
IOWA:
6
TLSB
2096HV
(2)
85
mm/sc
H.F.
633
Section
1.
Section
422.7,
subsection
21,
paragraph
a,
1
subparagraph
(2),
Code
2013,
is
amended
to
read
as
follows:
2
(2)
For
purposes
of
this
paragraph
subsection
,
“lineal
3
descendant”
means
children
of
the
taxpayer,
including
legally
4
adopted
children
and
biological
children,
stepchildren,
5
grandchildren,
great-grandchildren,
and
any
other
lineal
6
descendants
of
the
taxpayer.
7
Sec.
2.
Section
422.7,
subsection
21,
Code
2013,
is
amended
8
by
adding
the
following
new
paragraph:
9
NEW
PARAGRAPH
.
f.
(1)
Net
capital
gain
from
the
sale
or
10
exchange
of
capital
stock
of
a
qualified
corporation
for
which
11
an
election
is
made
by
an
employee-owner.
12
(2)
(a)
An
employee-owner
is
entitled
to
make
one
13
irrevocable
lifetime
election
to
exclude
the
net
capital
14
gain
from
the
sale
or
exchange
of
capital
stock
of
one
15
qualified
corporation
which
capital
stock
was
acquired
by
the
16
employee-owner
on
account
of
employment
by
such
qualified
17
corporation
and
while
employed
by
such
qualified
corporation.
18
(b)
The
election
shall
apply
to
all
subsequent
sales
or
19
exchanges
of
the
elected
capital
stock,
provided
it
is
capital
20
stock
in
the
same
qualified
corporation
and
was
acquired
on
21
account
of
employment
by
such
qualified
corporation
and
while
22
employed
by
such
qualified
corporation.
23
(c)
The
election
shall
apply
to
transfers
of
the
capital
24
stock
by
inter
vivos
gift
from
the
employee-owner
to
the
25
employee-owner’s
spouse
or
lineal
descendants,
or
to
a
trust
26
for
the
benefit
of
the
employee-owner’s
spouse
or
lineal
27
descendants.
This
subparagraph
division
(c)
shall
apply
to
a
28
spouse
only
if
the
spouse
was
married
to
the
employee-owner
on
29
the
date
of
the
sale
or
exchange
or
the
date
of
death
of
the
30
employee-owner.
31
(d)
If
the
employee-owner
dies
without
making
an
election,
32
the
surviving
spouse
or,
if
there
is
no
surviving
spouse,
the
33
personal
representative
of
the
employee-owner’s
estate
may
34
make
the
election
that
would
have
qualified
under
subparagraph
35
-1-
LSB
2096HV
(2)
85
mm/sc
1/
4
H.F.
633
division
(c).
1
(e)
The
election
shall
be
made
by
including
a
written
2
statement
with
the
taxpayer’s
state
income
tax
return
for
3
the
taxable
year
in
which
the
election
is
made.
The
written
4
statement
shall
identify
the
qualified
corporation
that
issued
5
the
capital
stock,
the
grounds
for
the
election
under
this
6
paragraph
“f”
,
a
statement
that
the
taxpayer
elects
to
have
this
7
paragraph
“f”
apply,
and
any
other
information
required
by
the
8
department.
The
department
shall
provide
appropriate
forms
9
for
making
elections
and
reporting
exclusions
pursuant
to
this
10
paragraph
“f”
.
11
(3)
For
purposes
of
this
paragraph:
12
(a)
“Capital
stock”
means
common
or
preferred
stock,
either
13
voting
or
nonvoting.
“Capital
stock”
does
not
include
stock
14
rights,
stock
warrants,
stock
options,
or
debt
securities.
15
(b)
“Employee-owner”
means
an
individual
who
owns
capital
16
stock
in
a
qualified
corporation,
which
capital
stock
was
17
acquired
by
the
individual
on
account
of
employment
by
such
18
qualified
corporation
and
while
employed
by
such
corporation.
19
(c)
“Personal
representative”
means
the
same
as
defined
in
20
section
633.3,
or
if
there
is
no
such
personal
representative
21
appointed,
then
the
person
legally
authorized
to
perform
22
substantially
the
same
functions.
23
(d)
(i)
“Qualified
corporation”
means
a
corporation
24
which,
at
the
time
of
the
first
sale
or
exchange
for
which
an
25
election
is
made
under
this
paragraph
“f”
,
meets
the
following
26
conditions:
27
(A)
The
corporation
has
been
in
existence
and
actively
doing
28
business
in
this
state
for
at
least
ten
years.
29
(B)
The
corporation
has
at
least
five
shareholders.
30
(C)
The
corporation
has
at
least
two
shareholders
or
31
groups
of
shareholders
who
are
not
related.
Two
persons
are
32
considered
related
when,
under
section
318
of
the
Internal
33
Revenue
Code,
one
is
a
person
who
owns,
directly
or
indirectly,
34
capital
stock
that
if
directly
owned
would
be
attributed
to
the
35
-2-
LSB
2096HV
(2)
85
mm/sc
2/
4
H.F.
633
other
person,
or
is
the
brother,
sister,
aunt,
uncle,
cousin,
1
niece,
or
nephew
of
the
other
person
who
owns
capital
stock
2
either
directly
or
indirectly.
3
(ii)
A
qualified
corporation
shall
include
any
member
4
of
an
affiliated
group,
as
defined
in
section
422.32,
if
the
5
affiliated
group
includes
a
member
that
has
been
in
existence
6
and
actively
doing
business
in
this
state
for
at
least
ten
7
years.
8
(iii)
A
qualified
corporation
shall
include
any
corporation
9
that
was
a
party
to
a
reorganization
that
was
entirely
or
10
substantially
tax
free
if
such
reorganization
occurred
during
11
or
after
the
employment
of
the
employee-owner.
12
Sec.
3.
EFFECTIVE
UPON
ENACTMENT.
This
Act,
being
deemed
of
13
immediate
importance,
takes
effect
upon
enactment.
14
Sec.
4.
RETROACTIVE
APPLICABILITY.
This
Act
applies
15
retroactively
to
January
1,
2013,
for
tax
years
beginning
on
16
or
after
that
date.
17
EXPLANATION
18
This
bill
grants
an
employee-owner,
as
defined
in
the
19
bill,
one
irrevocable
lifetime
election
to
exclude
from
state
20
individual
income
tax
the
net
capital
gain
from
the
sale
of
21
the
capital
stock
of
one
qualified
corporation.
Several
22
requirements
must
be
met
for
capital
stock
to
qualify
as
23
capital
stock
of
a
qualified
corporation.
First,
the
stock
24
must
be
either
voting
or
nonvoting,
common
or
preferred
25
stock.
Stock
rights,
stock
warrants,
stock
options,
and
debt
26
securities
do
not
qualify.
Second,
the
corporation
that
issued
27
the
stock
must
be
in
existence
and
actively
doing
business
28
in
Iowa
for
at
least
10
years.
A
corporation
that
is
part
29
of
an
affiliated
group
will
qualify
if
the
affiliated
group
30
includes
a
member
that
has
been
in
existence
and
actively
doing
31
business
in
Iowa
for
at
least
10
years.
Third,
the
corporation
32
that
issued
the
stock
must
have
at
least
five
shareholders,
33
two
of
whom
must
not
be
related.
Fourth,
the
stock
must
have
34
been
acquired
by
the
employee-owner
on
account
of
employment
35
-3-
LSB
2096HV
(2)
85
mm/sc
3/
4
H.F.
633
with
the
corporation
and
while
employed
by
the
corporation.
A
1
corporation
will
qualify
if
it
is
a
party
to
a
reorganization
2
that
was
entirely
or
substantially
tax
free
as
long
as
the
3
reorganization
occurred
during
or
after
the
employee-owner’s
4
employment.
5
The
election
shall
apply
to
all
subsequent
sales
of
the
6
elected
capital
stock,
provided
it
is
capital
stock
in
the
same
7
qualified
corporation
and
was
acquired
on
account
of
employment
8
by
the
corporation
and
while
employed
by
the
corporation.
9
The
bill
provides
that
the
election
applies
to
transfers
of
10
the
capital
stock
by
inter
vivos
gift
from
the
employee-owner
11
to
a
spouse
or
lineal
descendant,
or
to
a
trust
for
the
benefit
12
of
the
employee-owner’s
spouse
or
lineal
descendant.
The
13
election
will
apply
to
a
spouse
only
if
the
spouse
was
married
14
to
the
employee-owner
on
the
date
of
the
sale
or
the
date
of
the
15
employee-owner’s
death.
16
If,
after
making
a
valid
inter
vivos
transfer
of
stock
that
17
meets
all
the
requirements
for
an
election,
an
employee-owner
18
dies
without
making
an
election,
the
surviving
spouse,
or
if
19
there
is
no
surviving
spouse,
the
personal
representative
of
20
the
employee-owner’s
estate
may
make
the
election.
21
An
election
is
made
by
including
a
written
statement
22
containing
certain
required
information,
as
specified
in
the
23
bill,
with
the
taxpayer’s
Iowa
income
tax
return
for
the
24
taxable
year
in
which
the
election
is
made.
The
department
of
25
revenue
is
required
to
provide
appropriate
forms
for
making
26
elections
and
reporting
exclusions.
27
The
bill
takes
effect
upon
enactment
and
applies
28
retroactively
to
January
1,
2013,
for
tax
years
beginning
on
29
or
after
that
date.
30
-4-
LSB
2096HV
(2)
85
mm/sc
4/
4
