Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. PARTIAL EXCLUSION OF CAPITAL GAINS DISTRIBUTIONS FROM REGULATED INVESTMENT
COMPANIES.

    (a) IN GENERAL- Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is
     amended by inserting after section 115 the following new section:
 

`SEC. 116. PARTIAL EXCLUSION OF CAPITAL GAINS DISTRIBUTIONS FROM REGULATED INVESTMENT
COMPANIES.

    `(a) IN GENERAL- In the case of an individual, gross income shall not include any capital gain dividend--

        `(1) which is distributed by a regulated investment company to which part I of subchapter M applies, and

        `(2) which is automatically reinvested by the company in the stock of such company with respect to which the dividend is distributed.

    `(b) MAXIMUM EXCLUSION- The amount excluded from gross income under subsection (a) for the taxable year shall not exceed--

        `(1) $3,000, or

        `(2) in the case of a joint return, twice the amount applicable under paragraph (1).

    `(c) CAPITAL GAIN DIVIDEND- For purposes of this section, the term `capital gain dividend' means--

        `(1) any capital gain dividend (as defined by section 852(b)(3)(C)), and

        `(2) the portion of any other dividend designated by the company (under rules similar to the rules of such section) as representing such dividend's
        proportionate share of the net short-term capital gain of the company.

    `(d) INFLATION ADJUSTMENT OF MAXIMUM EXCLUSION-

        `(1) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2000, the $3,000 amount in subsection (b)(1) shall be increased
          by an amount equal to--

            `(A) such dollar amount, multiplied by

            `(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by
               substituting `calendar year 1999' for `calendar year 1992' in subparagraph (B) thereof.

        `(2) ROUNDING RULES- If any amount after adjustment under paragraph (1) is not a multiple of $100, such amount shall be rounded to the nearest
          multiple of $100.

    `(e) NO BASIS ADJUSTMENT- No adjustment shall be made to the taxpayer's basis in the shares of the regulated investment company by reason of any
     amount excluded from gross income under this section.'

     (b) CLERICAL AMENDMENT- The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating
     to section 115 the following new item:

`Sec. 116. Partial exclusion of capital gains distributions from regulated investment companies.'

     (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1999.

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