text: SECTION 1. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME FROM TAX.
  
      (a) In General.--Part III of subchapter B of chapter 1 of the 
  Internal Revenue Code of 1986 (relating to amounts specifically 
  excluded from gross income) is amended by inserting after section 115 
  the following new section:
  
  ``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
                INDIVIDUALS.
  
      ``(a) Exclusion From Gross Income.--Gross income does not include 
  the sum of the amounts received during the taxable year by an 
  individual as--
              ``(1) dividends from domestic corporations, or
              ``(2) interest.
      ``(b) Limitations.--
              ``(1) Maximum amount.--The aggregate amount excluded under 
          subsection (a) for any taxable year shall not exceed $5,000 
          ($10,000 in the case of a joint return).
              ``(2) Certain dividends excluded.--Subsection (a)(1) shall 
          not apply to any dividend from a corporation which, for the 
          taxable year of the corporation in which the distribution is 
          made, or for the next preceding taxable year of the 
          corporation, is a corporation exempt from tax under section 501 
          (relating to certain charitable, etc., organization) or section 
          521 (relating to farmers' cooperative associations).
      ``(c) Special Rules.--For purposes of this section--
              ``(1) Distributions from regulated investment companies and 
          real estate investment trusts.--Subsection (a) shall apply with 
          respect to distributions by--
                      ``(A) regulated investment companies to the extent 
                  provided in section 854(c), and
                      ``(B) real estate investment trusts to the extent 
                  provided in section 857(c).
              ``(2) Distributions by a trust.--For purposes of subsection 
          (a), the amount of dividends and interest properly allocable to 
          a beneficiary under section 652 or 662 shall be deemed to have 
          been received by the beneficiary ratably on the same date that 
          the dividends and interest were received by the estate or 
          trust.
              ``(3) Certain nonresident aliens ineligible for 
          exclusion.--In the case of a nonresident alien individual, 
          subsection (a) shall apply only--
                      ``(A) in determining the tax imposed for the 
                  taxable year pursuant to section 871(b)(1) and only in 
                  respect of dividends and interest which are effectively 
                  connected with the conduct of a trade or business 
                  within the United States, or
                      ``(B) in determining the tax imposed for the 
                  taxable year pursuant to section 877(b).''
      (b) Clerical and Conforming Amendments.--
              (1) 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 
                                          dividends and interest received 
                                          by individuals.''
              (2) Paragraph (2) of section 265(a) of such Code is amended 
          by inserting before the period at the end thereof the 
          following: ``, or to purchase or carry obligations or shares, 
          or to make deposits, to the extent the interest thereon is 
          excludable from gross income under section 116''.
              (3) Subsection (c) of section 584 of such Code is amended 
          by adding at the end thereof the following new sentence:
  ``The proportionate share of each participant in the amount of 
  dividends or interest received by the common trust fund and to which 
  section 116 applies shall be considered for purposes of such section as 
  having been received by such participant.''
              (4) Subsection (a) of section 643 of such Code is amended 
          by inserting after paragraph (6) the following new paragraph:
              ``(7) Dividends or interest.--There shall be included the 
          amount of any dividends or interest excluded from gross income 
          pursuant to section 116.''
              (5) Section 854 of such Code is amended by adding at the 
          end thereof the following new subsection:
      ``(c) Treatment Under Section 116.--
              ``(1) In general.--For purposes of section 116, in the case 
          of any dividend (other than a dividend described in subsection 
          (a)) received from a regulated investment company which meets 
          the requirements of section 852 for the taxable year in which 
          it paid the dividend--
                      ``(A) the entire amount of such dividend shall be 
                  treated as a dividend if the aggregate dividends and 
                  interest received by such company during the taxable 
                  year equal or exceed 75 percent of its gross income, or
                      ``(B) if subparagraph (A) does not apply, a portion 
                  of such dividend shall be treated as a dividend (and a 
                  portion of such dividend shall be treated as interest) 
                  based on the portion of the company's gross income 
                  which consists of aggregate dividends or aggregate 
                  interest, as the case may be.
          For purposes of the preceding sentence, gross income and 
          aggregate interest received shall each be reduced by so much of 
          the deduction allowable by section 163 for the taxable year as 
          does not exceed aggregate interest received for the taxable 
          year.
              ``(2) Notice to shareholders.--The amount of any 
          distribution by a regulated investment company which may be 
          taken into account as a dividend for purposes of the exclusion 
          under section 116 shall not exceed the amount so designated by 
          the company in a written notice to its shareholders mailed not 
          later than 45 days after the close of its taxable year.
              ``(3) Definitions.--For purposes of this subsection--
                      ``(A) The term `gross income' does not include gain 
                  from the sale or other disposition of stock or 
                  securities.
                      ``(B) The term `aggregate dividends received' 
                  includes only dividends received from domestic 
                  corporations other than dividends described in section 
                  116(b)(2). In determining the amount of any dividend 
                  for purposes of this subparagraph, the rules provided 
                  in section 116(c)(1) (relating to certain 
                  distributions) shall apply.''
              (6) Subsection (c) of section 857 of such Code is amended 
          to read as follows:
      ``(c) Limitations Applicable to Dividends Received From Real Estate 
  Investment Trusts.--
              ``(1) In general.--For purposes of section 116 (relating to 
          an exclusion for dividends and interest received by 
          individuals) and section 243 (relating to deductions for 
          dividends received by corporations), a dividend received from a 
          real estate investment trust which meets the requirements of 
          this part shall not be considered as a dividend.
              ``(2) Treatment as interest.--In the case of a dividend 
          (other than a capital gain dividend, as defined in subsection 
          (b)(3)(C)) received from a real estate investment trust which 
          meets the requirements of this part for the taxable year in 
          which it paid the dividend--
                      ``(A) such dividend shall be treated as interest if 
                  the aggregate interest received by the real estate 
                  investment trust for the taxable year equals or exceeds 
                  75 percent of its gross income, or
                      ``(B) if subparagraph (A) does not apply, the 
                  portion of such dividend which bears the same ratio to 
                  the amount of such dividend as the aggregate interest 
                  received bears to gross income shall be treated as 
                  interest.
              ``(3) Adjustments to gross income and aggregate interest 
          received.--For purposes of paragraph (2)--
                      ``(A) gross income does not include the net capital 
                  gain,
                      ``(B) gross income and aggregate interest received 
                  shall each be reduced by so much of the deduction 
                  allowable by section 163 for the taxable year (other 
                  than for interest on mortgages on real property owned 
                  by the real estate investment trust) as does not exceed 
                  aggregate interest received by the taxable year, and
                      ``(C) gross income shall be reduced by the sum of 
                  the taxes imposed by paragraphs (4), (5), and (6) of 
                  section 857(b).
              ``(4) Notice to shareholders.--The amount of any 
          distribution by a real estate investment trust which may be 
          taken into account as interest for purposes of the exclusion 
          under section 116 shall not exceed the amount so designated by 
          the trust in a written notice to its shareholders mailed not 
          later than 45 days after the close of its taxable year.''
      (c) Effective Date.--The amendments made by this section shall 
  apply with respect to taxable years beginning after December 31, 1992.
target: Amends the Internal Revenue Code to provide a partial exclusion of dividends or interest received by an individual.
feat_title: To amend the Internal Revenue Code of 1986 to provide a partial exclusion of dividends and interest received by individuals.