Bill Text: OR HB3296 | 2011 | Regular Session | Introduced
Bill Title: Relating to capital gains subtraction for certain business entity transactions; prescribing an effective date.
Sponsorship: Partisan Bill (Republican 2)
Status: (Failed) 2011-06-30 - In committee upon adjournment. [HB3296 Detail]
Download: Oregon-2011-HB3296-Introduced.html
76th OREGON LEGISLATIVE ASSEMBLY--2011 Regular Session
NOTE: Matter within { + braces and plus signs + } in an
amended section is new. Matter within { - braces and minus
signs - } is existing law to be omitted. New sections are within
{ + braces and plus signs + } .
LC 3810
House Bill 3296
Sponsored by Representative LINDSAY; Representative BREWER
SUMMARY
The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure as
introduced.
Establishes subtraction for purposes of income and excise
taxation for amounts included in federal taxable income as result
of recognition of capital gain due to sale or exchange of
property by certain business entities. Allows for adjusted basis
in property if certain conditions are met.
Applies to tax years beginning on or after January 1, 2012.
Takes effect on 91st day following adjournment sine die.
A BILL FOR AN ACT
Relating to capital gains subtraction for certain business entity
transactions; creating new provisions; amending ORS 314.712;
and prescribing an effective date.
Be It Enacted by the People of the State of Oregon:
SECTION 1. { + Section 2 of this 2011 Act is added to and made
a part of ORS chapter 316. + }
SECTION 2. { + (1) As used in this section:
(a) 'Active conduct of a trade or business' has the meaning
given that term in the Treasury Regulations adopted under section
179 of the Internal Revenue Code.
(b) 'Business entity' means any entity that is treated as a
business entity under section 301 of the Internal Revenue Code
and section 301.7701-2(a) of the Treasury Regulations adopted
under section 301 of the Internal Revenue Code, including an
entity that is disregarded as a separate entity for federal
income tax purposes.
(c) 'Capital gain' means gain that is treated as gain from the
sale or exchange of a capital asset or as a long-term capital
gain under the Internal Revenue Code.
(d) 'Ownership interest' means, with respect to any business
entity, any interest in the capital or profits of the business
entity, other than as a creditor.
(e) 'Parent-subsidiary controlled group' means all of the
business entities in one or more chains of business entities
connected through ownership interests with a common parent
business entity if more than 50 percent of the interests in the
capital and profits of each of the business entities is owned by
one or more of the other business entities and the common parent
business entity owns more than 50 percent of the interests in the
capital and profits of at least one of the other business
entities.
(f) 'Property' means property as described in section 351(a) of
the Internal Revenue Code.
(2) A business entity is a qualified business entity under this
section for a period if, during that period:
(a) More than 50 percent of the average adjusted tax basis of
the property held by the business entity (or by any other
business entity that, for all of such period, is a member of any
parent-subsidiary controlled group of which the business entity
is the common parent) is attributable to property used in the
active conduct of a trade or business (other than the rental of
real property) by the entity (or by any business entity that, for
all of such period, is a member of any parent-subsidiary
controlled group of which the business entity is a member); and
(b) More than 50 percent of the wages paid by the business
entity (and any other member of any parent-subsidiary controlled
group of which the business entity is a member if both the entity
and the other business entity are members of the group for all of
such period) are paid to employees who perform more than 50
percent of their services in Oregon during such period or reside
in Oregon for more than 50 percent of the time that they are
employed during such period by the entity (or other members of
the group).
(3) An ownership interest in a business entity is a qualified
business entity interest under this section if:
(a) The ownership interest is issued on or after January 1,
2011;
(b) For each complete or partial tax year of the business
entity during which the taxpayer held the ownership interest, the
business entity is a qualified business entity; and
(c) The interest is acquired by the taxpayer from the entity,
directly or through an underwriter.
(4)(a) There shall be subtracted from federal taxable income 50
percent of the amount included in federal taxable income for the
tax year as a result of the recognition of capital gain from the
sale or exchange of a qualified business entity interest that was
held for more than one year as of the date of the sale or
exchange.
(b) Any subtraction from federal taxable income pursuant to
this subsection shall be treated as a reduction in capital gain
(and as a capital loss, to the extent the subtraction exceeds the
taxpayer's net capital gains for the tax year) for purposes of
any provisions in this chapter relating to capital gains and
losses.
(5) If subsection (4) of this section applies to the sale or
exchange of a qualified business entity interest in a qualified
business entity, the following rules shall apply in determining
the amount of gain recognized from the sale or exchange, solely
for purposes of determining the amount subtracted from federal
taxable income pursuant to subsection (4) of this section:
(a) If the taxpayer acquired the interest in exchange for a
contribution of property in a transaction in which gain or loss
was not recognized, in whole or in part (including a transaction
described in subsection (6) of this section), the amount of gain
recognized from the sale or exchange shall be determined as if
the basis of the ownership interest, immediately after the
acquisition, was equal to the greater of:
(A) The fair market value of the contributed property at the
time of the contribution; and
(B) The adjusted tax basis of the contributed property at the
time of the contribution.
(b) If the taxpayer contributed property to the qualified
business entity, in a transaction in which gain or loss was not
recognized, in whole or in part (including a transaction
described in subsection (6) of this section), after the date on
which the taxpayer acquired the ownership interest, the amount of
gain recognized from the sale or exchange shall be determined as
if the adjusted basis of the ownership interest was increased by
reason of the contribution, in lieu of the increase required
under section 358 of the Internal Revenue Code, or section 722 of
the Internal Revenue Code, as the case may be, by the greater of:
(A) The fair market value of the contributed property at the
time of the contribution; and
(B) The adjusted tax basis of the contributed property at the
time of the contribution.
(c) Paragraphs (a) and (b) of this subsection do not apply to
the contribution of a qualified business entity interest in a
business entity to another business entity unless a basis
adjustment pursuant to subsection (6) of this section occurs as a
result of the contribution.
(6)(a) If a taxpayer contributes a qualified business entity
interest in a business entity to another business entity in
exchange for an ownership interest in the other business entity,
or contributes the qualified business entity interest to the
capital of another business entity, in a transaction in which
gain or loss is not recognized, and the taxpayer attaches to the
taxpayer's tax return for the tax year in which the contribution
occurs a statement containing the information described in
paragraph (b) of this subsection, the taxpayer's adjusted basis
in the ownership interest received in the exchange, after
applying section 358 or 722 of the Internal Revenue Code, as the
case may be, shall be increased, for purposes of determining
Oregon taxable income, by the amount that would have been
subtracted from the taxpayer's federal taxable income pursuant to
subsection (4) of this section if gain had been recognized in the
transaction in an amount equal to the gain the taxpayer would
have recognized if the taxpayer had sold the qualified business
entity interest for an amount equal to its fair market value.
(b) The statement described in paragraph (a) of this subsection
shall contain the following information:
(A) The fair market value of the qualified business entity as
of the time of the contribution and facts supporting the
taxpayer's determination of the fair market value; and
(B) Facts supporting the taxpayer's determination that the
ownership interest is a qualified business entity interest.
(c) The basis of property held by a business entity may not be
adjusted by reason of any increase in the basis of any qualified
business entity interest in the business entity pursuant to
subsection (4)(a) of this section.
(d) For purposes of this subsection, a partnership shall be
treated as a taxpayer and can cause a basis increase to occur if
the partnership transfers a qualified business entity interest in
a nonrecognition transaction.
(7)(a) For purposes of subsection (3) of this section, an
ownership interest held by a taxpayer on December 31, 2010, shall
be treated as issued to the taxpayer on or after January 1, 2011,
if the taxpayer elects to treat the ownership interest as if it
had been sold by the taxpayer on January 1, 2011, in a taxable
transaction for an amount equal to its fair market value as of
January 1, 2011, and repurchased by the taxpayer on January 1,
2011, for that amount.
(b) An election pursuant to this subsection shall include a
statement containing facts supporting the taxpayer's
determination of the fair market value of the ownership interest
as of January 1, 2011.
(c) If a taxpayer makes an election pursuant to this subsection
with respect to an ownership interest:
(A) There shall be added to the taxpayer's federal taxable
income for the tax year that includes January 1, 2011, an amount
equal to the income or gain that would have been recognized if
the taxpayer had sold the ownership interest on January 1, 2011,
for an amount equal to its fair market value; and
(B) The adjusted basis of the ownership as of January 1, 2011,
for purposes of determining Oregon taxable income, shall be equal
to its fair market value.
(d) The basis of property held by a business entity may not be
adjusted by reason of the transactions deemed to occur by reason
of an election pursuant to this subsection. + }
SECTION 3. { + Section 4 of this 2011 Act is added to and made
a part of ORS chapter 317. + }
SECTION 4. { + (1) As used in this section:
(a) 'Active conduct of a trade or business' has the meaning
given that term in the Treasury Regulations adopted under section
179 of the Internal Revenue Code.
(b) 'Business entity' means any entity that is treated as a
business entity under section 301 of the Internal Revenue Code
and section 301.7701-2(a) of the Treasury Regulations adopted
under section 301 of the Internal Revenue Code, including an
entity that is disregarded as a separate entity for federal
income tax purposes.
(c) 'Capital gain' means gain that is treated as gain from the
sale or exchange of a capital asset or as a long-term capital
gain under the Internal Revenue Code.
(d) 'Ownership interest' means, with respect to any business
entity, any interest in the capital or profits of the business
entity, other than as a creditor.
(e) 'Parent-subsidiary controlled group' means all of the
business entities in one or more chains of business entities
connected through ownership interests with a common parent
business entity if more than 50 percent of the interests in the
capital and profits of each of the business entities is owned by
one or more of the other business entities and the common parent
business entity owns more than 50 percent of the interests in the
capital and profits of at least one of the other business
entities.
(f) 'Property' means property described in section 351(a) of
the Internal Revenue Code.
(2) A business entity is a qualified business entity under this
section for a period if, during that period:
(a) More than 50 percent of the average adjusted tax basis of
the property held by the business entity (or by any other
business entity that, for all of such period, is a member of any
parent-subsidiary controlled group of which the business entity
is the common parent) is attributable to property used in the
active conduct of a trade or business (other than the rental of
real property) by the entity (or by any business entity that, for
all of such period, is a member of any parent-subsidiary
controlled group of which the business entity is a member); and
(b) More than 50 percent of the wages paid by the business
entity (and any other member of any parent-subsidiary controlled
group of which the business entity is a member if both the entity
and the other business entity are members of the group for all of
such period) are paid to employees who perform more than 50
percent of their services in Oregon during such period or reside
in Oregon for more than 50 percent of the time that they are
employed during such period by the entity (or other members of
the group).
(3) An ownership interest in a business entity is a qualified
business entity interest under this section if:
(a) The ownership interest is issued on or after January 1,
2011;
(b) For each complete or partial tax year of the business
entity during which the taxpayer held the ownership interest, the
business entity is a qualified business entity; and
(c) The interest is acquired by the taxpayer from the entity,
directly or through an underwriter.
(4)(a) There shall be subtracted from federal taxable income 50
percent of the amount included in federal taxable income for the
tax year as a result of the recognition of capital gain from the
sale or exchange of a qualified business entity interest that was
held for more than one year as of the date of the sale or
exchange.
(b) Any subtraction from federal taxable income pursuant to
this subsection shall be treated as a reduction in capital gain
(and as a capital loss, to the extent the subtraction exceeds the
taxpayer's net capital gains for the tax year) for purposes of
any provisions in this chapter relating to capital gains and
losses.
(5) If subsection (4) of this section applies to the sale or
exchange of a qualified business entity interest in a qualified
business entity, the following rules shall apply in determining
the amount of gain recognized from the sale or exchange, solely
for purposes of determining the amount subtracted from federal
taxable income pursuant to subsection (4) of this section:
(a) If the taxpayer acquired the interest in exchange for a
contribution of property in a transaction in which gain or loss
was not recognized, in whole or in part (including a transaction
described in subsection (6) of this section), the amount of gain
recognized from the sale or exchange shall be determined as if
the basis of the ownership interest, immediately after the
acquisition, was equal to the greater of:
(A) The fair market value of the contributed property at the
time of the contribution; and
(B) The adjusted tax basis of the contributed property at the
time of the contribution.
(b) If the taxpayer contributed property to the qualified
business entity, in a transaction in which gain or loss was not
recognized, in whole or in part (including a transaction
described in subsection (6) of this section), after the date on
which the taxpayer acquired the ownership interest, the amount of
gain recognized from the sale or exchange shall be determined as
if the adjusted basis of the ownership interest was increased by
reason of the contribution, in lieu of the increase required
under section 358 of the Internal Revenue Code, or section 722 of
the Internal Revenue Code, as the case may be, by the greater of:
(A) The fair market value of the contributed property at the
time of the contribution; and
(B) The adjusted tax basis of the contributed property at the
time of the contribution.
(c) Paragraphs (a) and (b) of this subsection do not apply to
the contribution of a qualified business entity interest in a
business entity to another business entity unless a basis
adjustment pursuant to subsection (6) of this section occurs as a
result of the contribution.
(6)(a) If a taxpayer contributes a qualified business entity
interest in a business entity to another business entity in
exchange for an ownership interest in the other business entity,
or contributes the qualified business entity interest to the
capital of another business entity, in a transaction in which
gain or loss is not recognized, and the taxpayer attaches to the
taxpayer's tax return for the tax year in which the contribution
occurs a statement containing the information described in
paragraph (b) of this subsection, the taxpayer's adjusted basis
in the ownership interest received in the exchange, after
applying section 358 or 722 of the Internal Revenue Code, as the
case may be, shall be increased, for purposes of determining
Oregon taxable income, by the amount that would have been
subtracted from the taxpayer's federal taxable income pursuant to
subsection (4) of this section if gain had been recognized in the
transaction in an amount equal to the gain the taxpayer would
have recognized if the taxpayer had sold the qualified business
entity interest for an amount equal to its fair market value.
(b) The statement described in paragraph (a) of this subsection
shall contain the following information:
(A) The fair market value of the qualified business entity as
of the time of the contribution and facts supporting the
taxpayer's determination of the fair market value; and
(B) Facts supporting the taxpayer's determination that the
ownership interest is a qualified business entity interest.
(c) The basis of property held by a business entity may not be
adjusted by reason of any increase in the basis of any qualified
business entity interest in the business entity pursuant to
subsection (4)(a) of this section.
(d) For purposes of this subsection, a partnership shall be
treated as a taxpayer and can cause a basis increase to occur if
the partnership transfers a qualified business entity interest in
a nonrecognition transaction.
(7)(a) For purposes of subsection (3) of this section, an
ownership interest held by a taxpayer on December 31, 2010, shall
be treated as issued to the taxpayer on or after January 1, 2011,
if the taxpayer elects to treat the ownership interest as if it
had been sold by the taxpayer on January 1, 2011, in a taxable
transaction for an amount equal to its fair market value as of
January 1, 2011, and repurchased by the taxpayer on January 1,
2011, for that amount.
(b) An election pursuant to this subsection shall include a
statement containing facts supporting the taxpayer's
determination of the fair market value of the ownership interest
as of January 1, 2011.
(c) If a taxpayer makes an election pursuant to this subsection
with respect to an ownership interest:
(A) There shall be added to the taxpayer's federal taxable
income for the tax year that includes January 1, 2011, an amount
equal to the income or gain that would have been recognized if
the taxpayer had sold the ownership interest on January 1, 2011,
for an amount equal to its fair market value; and
(B) The adjusted basis of the ownership as of January 1, 2011,
for purposes of determining Oregon taxable income, shall be equal
to its fair market value.
(d) The basis of property held by a business entity may not be
adjusted by reason of the transactions deemed to occur by reason
of an election pursuant to this subsection. + }
SECTION 5. ORS 314.712 is amended to read:
314.712. (1) Except as provided in ORS 314.722 or 314.723, a
partnership as such is not subject to the tax imposed by ORS
chapter 316, 317 or 318. Partnership income shall be computed
pursuant to section 703 of the Internal Revenue Code, with the
modifications, additions and subtractions provided in this
chapter and ORS chapter 316. Persons carrying on business as
partners are liable for the tax imposed by ORS chapter 316, 317
or 318 on their distributive shares of partnership income only in
their separate or individual capacities.
(2) If a partner engages in a transaction with a partnership
other than in the partner's capacity as a member of the
partnership, the transaction shall be treated in the manner
described in section 707 of the Internal Revenue Code.
(3) If a partnership is an electing large partnership under
section 775 of the Internal Revenue Code, the modifications of
law applicable to an electing large partnership for federal tax
purposes are applicable to the electing large partnership for
purposes of the tax imposed by this chapter or ORS chapter 316,
317 or 318.
{ + (4) A partnership may make an election as provided in
section 2 (6) or 4 (6) of this 2011 Act with respect to interests
the partnership owns in other entities. + }
SECTION 6. { + Sections 2 and 4 of this 2011 Act and the
amendments to ORS 314.712 by section 5 of this 2011 Act apply to
tax years beginning on or after January 1, 2012. + }
SECTION 7. { + This 2011 Act takes effect on the 91st day
after the date on which the 2011 regular session of the
Seventy-sixth Legislative Assembly adjourns sine die. + }
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