What This Bill Does
This bill allows certain rural telephone companies to exclude profits from selling their stock from their taxable income. The bill also creates a tax credit for rural telephone companies that invest in voice telephone service and broadband internet infrastructure. The bill includes a recapture provision that requires profits to be added back to taxable income if the company fails to meet broadband deployment targets.
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Who It Affects
Rural incumbent local exchange carriers (rural telephone companies that were required to serve all customers regardless of cost). Stockholders who sell their entire interest in these companies. The federal government's tax revenues.
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Key Provisions
- Rural incumbent local exchange carriers can exclude gains from selling their entire stock interest from taxable income. The exclusion only applies to carriers serving rural areas outside urbanized areas with at least 50,000 people. (Sec. 2)
- If a carrier serves both rural and non-rural areas, the tax exclusion is reduced based on what percentage of the company's revenue comes from rural service areas. (Sec. 2)
- The tax exclusion expires 5 years after the bill becomes law. (Sec. 2)
- If a carrier receiving the tax exclusion fails to offer broadband internet access at speeds of at least 1,000 megabits per second to a required percentage of locations in its rural service area within specified timeframes, one-sixth of the excluded gain must be added back to taxable income each year until the targets are met. (Sec. 3)
- Rural incumbent local exchange carriers can claim a tax credit equal to 30 percent of money spent on purchasing, maintaining, or improving equipment to provide voice telephone service or broadband internet access in rural areas. (Sec. 4)
- Federal grants and universal service support funds cannot be counted toward the tax credit. (Sec. 4)
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What Changes
Shareholders selling a qualifying rural telephone company's stock will not pay federal income tax on those profits, instead of paying tax as they normally would. Rural telephone companies investing in broadband or telephone infrastructure can receive a tax credit worth 30 percent of their spending. If a company that received the stock sale tax break fails to deploy broadband at required speeds to required percentages of its rural customers by certain deadlines, the company's taxable income must increase by one-sixth of the excluded gain for each year of non-compliance. The Internal Revenue Code is amended to add these three new tax provisions.
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Important Definitions
**Rural incumbent local exchange carrier** - A telephone company that was required by law or regulation on the date of the Telecommunications Act of 1996 to provide communications services to any customer regardless of cost, and serves areas outside urbanized areas with at least 50,000 people and at least 1,000 people per square mile.
**Qualified 1-year period** - For the stock sale exclusion rule, six consecutive 1-year periods starting on the date of the sale. For the tax credit, three consecutive 1-year periods starting on the date of the sale.
**Broadband internet access service** - Not specified in bill text.
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Effective Date
The stock sale exclusion and recapture provisions apply to sales or exchanges occurring after the bill becomes law. The tax credit applies to amounts paid or incurred after the bill becomes law.
I
118TH CONGRESS
1ST SESSION H. R. 1178
To amend the Internal Revenue Code of 1986 to exclude gain from the
sale or exchange of the entire interest in a wholly owned rural incumbent
local exchange carrier, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 24, 2023
Mr. FERGUSON introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to exclude
gain from the sale or exchange of the entire interest
in a wholly owned rural incumbent local exchange carrier,
and for other purposes.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘Broadband Stock Ac-
4
quisition in Local Exchanges Act’’ or as the ‘‘Broadband
5
SALE Act’’.
6
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•HR 1178 IH
SEC. 2. EXCLUSION OF GAIN FROM SALE OF RURAL INCUM-
1
BENT LOCAL EXCHANGE CARRIER STOCK.
2
(a) IN GENERAL.—Part III of subchapter B of chap-
3
ter 1 of the Internal Revenue Code of 1986 is amended
4
by inserting before section 140 the following new section:
5
‘‘SEC. 139J. GAIN FROM SALE OF RURAL INCUMBENT
6
LOCAL EXCHANGE CARRIER STOCK.
7
‘‘(a) EXCLUSION.—Gross income shall not include
8
gain from the sale or exchange of the entire interest in
9
a wholly owned rural incumbent local exchange carrier.
10
‘‘(b) APPORTIONMENT.—In the case of a carrier de-
11
scribed in paragraph (1) that serves areas not described
12
in paragraph (1), the amount excluded under subsection
13
(a) shall not exceed the product of such amount (without
14
regard to this paragraph) and the ratio of—
15
‘‘(1) revenues attributable to the provision of
16
communications services in an area described in sub-
17
section (c) during the 1-year period preceding such
18
sale, to
19
‘‘(2) all revenues during such period.
20
‘‘(c) RURAL INCUMBENT LOCAL EXCHANGE CAR-
21
RIER.—For purposes of this section, the term ‘rural in-
22
cumbent local exchange carrier’ means an incumbent local
23
exchange carrier that serves an area that is an area—
24
‘‘(1) where the carrier was required (on the
25
date of the enactment of the Telecommunications
26
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•HR 1178 IH
Act of 1996) by law or regulation to provide commu-
1
nications services to any customer regardless of cost,
2
and
3
‘‘(2) other than an urbanized area with—
4
‘‘(A) not fewer than 50,000 people, and
5
‘‘(B) a core where there are not fewer than
6
1,000 people per square mile.
7
‘‘(d) DEFINITIONS.—For purposes of this section,
8
terms defined in the Communications Act of 1934 have
9
the meaning given such terms in such Act.
10
‘‘(e) TERMINATION.—This section shall not apply to
11
sales or exchanges for which an application for a certifi-
12
cate under section 214 of the Communications Act of
13
1934 is filed after the date that is 5 years after the date
14
of the enactment of this section.’’.
15
(b) CONFORMING AMENDMENT.—Section 338(a) of
16
such Code is amended by inserting ‘‘(other than section
17
139J)’’ after ‘‘For purposes of this subtitle’’.
18
(c) CLERICAL AMENDMENT.—The table of sections
19
for part III of subchapter B of chapter 1 of such Code
20
is amended by inserting before the item relating to section
21
140 the following new item:
22
‘‘Sec. 139J. Gain from sale of rural incumbent local exchange carrier stock.’’.
(d) EFFECTIVE DATE.—The amendments made by
23
this section shall apply to sales or exchanges after the date
24
of the enactment of this Act.
25
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•HR 1178 IH
SEC. 3. RECAPTURE OF EXCLUSION OF GAIN FROM SALE
1
OF RURAL INCUMBENT LOCAL EXCHANGE
2
CARRIER STOCK.
3
(a) IN GENERAL.—Subchapter B of chapter 1 of the
4
Internal Revenue Code of 1986 is amended by adding at
5
the end the following new part:
6
‘‘PART XII—RECAPTURE OF EXCLUSION OF GAIN
7
FROM SALE OF RURAL INCUMBENT LOCAL
8
EXCHANGE CARRIER STOCK
9
‘‘Sec. 292. Recapture of exclusion of gain from sale of rural incumbent local
exchange carrier stock.
‘‘SEC. 292. RECAPTURE OF EXCLUSION OF GAIN FROM SALE
10
OF RURAL INCUMBENT LOCAL EXCHANGE
11
CARRIER STOCK.
12
‘‘(a) IN GENERAL.—If a taxpayer acquired stock of
13
a rural incumbent local exchange carrier in a sale or ex-
14
change described in section 139J and such carrier is not,
15
for a qualified 1-year period with respect to such sale or
16
exchange, a rural incumbent local exchange carrier, such
17
taxpayer’s taxable income under this chapter for the tax-
18
able year in which such 1-year period ends shall be in-
19
creased by product of 1/6 and any amount excluded from
20
tax by any person with respect to such sale or exchange
21
under such section. Such increase shall be treated as cap-
22
ital gain.
23
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•HR 1178 IH
‘‘(b) RURAL INCUMBENT LOCAL EXCHANGE CAR-
1
RIER.—For purposes of this section, the term ‘rural in-
2
cumbent local exchange carrier’ means, with respect to a
3
qualified 1-year period, a rural incumbent local exchange
4
carrier (as defined in section 48F) that offers broadband
5
internet access service at upload and download speeds of
6
at least 1,000 megabits per second—
7
‘‘(1) in the case of the 4th qualified 1-year pe-
8
riod, to not less than 30 percent of locations in an
9
area described in section 139J(c)(2),
10
‘‘(2) in the case of the 5th qualified 1-year pe-
11
riod, to not less than 40 percent of such locations,
12
and
13
‘‘(3) in the case of the 6th qualified 1-year pe-
14
riod, to not less than 50 percent of such locations.
15
‘‘(c) QUALIFIED 1-YEAR PERIOD.—For purposes of
16
this section, the term ‘qualified 1-year period’ means, with
17
respect to a rural incumbent local exchange carrier with
18
respect to a sale or exchange described in subsection 139J,
19
the 1-year period starting on the date of such sale or ex-
20
change, and each of the 5 subsequent 1-year periods.
21
‘‘(d) DEFINITIONS.—For purposes of this section,
22
terms defined in the Communications Act of 1934 have
23
the meaning given such terms in such Act.’’.
24
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•HR 1178 IH
(b) CLERICAL AMENDMENT.—The table of parts of
1
subchapter B of chapter 1 of such Code is amended by
2
adding at the end the following new item:
3
‘‘PART XII—RECAPTURE OF EXCLUSION OF GAIN FROM SALE OF RURAL
INCUMBENT LOCAL EXCHANGE CARRIER STOCK’’.
(c) EFFECTIVE DATE.—The amendments made by
4
this section shall apply after the date of the enactment
5
of this Act.
6
SEC. 4. RURAL COMMUNICATIONS INVESTMENT TAX CRED-
7
IT.
8
(a) IN GENERAL.—Subpart E of part IV of sub-
9
chapter A of chapter 1 of the Internal Revenue Code of
10
1986 is amended by inserting after subsection 48E the
11
following new section:
12
‘‘SEC. 48F. RURAL COMMUNICATIONS INVESTMENT CREDIT.
13
‘‘(a) IN GENERAL.—
14
‘‘(1) CREDIT
AMOUNT.—For the purposes of
15
section 46, in the case of a rural incumbent local ex-
16
change carrier, the rural communications investment
17
credit for any taxable year is an amount equal to 30
18
percent of the amounts that are paid or incurred by
19
such carrier during any qualified 1-year period end-
20
ing in such taxable year to purchase, maintain, or
21
improve property for the purpose of providing voice
22
telephone service or broadband internet access serv-
23
ice in an area described in section 139J(c)(2).
24
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•HR 1178 IH
‘‘(2)
EXCLUSION
OF
CERTAIN
FEDERAL
1
FUNDS.—Amounts paid or incurred which are other-
2
wise taken into account under paragraph (1) with
3
respect to any qualified 1-year period shall be re-
4
duced (including for purposes of subsection (b)) by
5
the amount of any Federal universal service support
6
under section 254 of the Communications Act of
7
1934 for the deployment of communications infra-
8
structure, or any Federal grant for the deployment
9
of communications infrastructure received by such
10
carrier and properly attributable to such period.
11
‘‘(b) RURAL INCUMBENT LOCAL EXCHANGE CAR-
12
RIER.—For purposes of this section, the term ‘rural in-
13
cumbent local exchange carrier’ means, for a 1-year pe-
14
riod, an incumbent local exchange carrier—
15
‘‘(1) whose stock has been acquired in a sale or
16
exchange described in section 139J,
17
‘‘(2) for which—
18
‘‘(A) the ratio of—
19
‘‘(i) the amount described in sub-
20
section (a)(1), divided by
21
‘‘(ii) the average active voice telephone
22
service or broadband internet access serv-
23
ice connections during the qualified 1-year
24
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•HR 1178 IH
period referred to in subsection (a)(1), is
1
not less than; and
2
‘‘(B) the ratio of—
3
‘‘(i) the product of 1.25 and the
4
annualized average of the amounts de-
5
scribed in subsection (a)(1) for the 3-year
6
period preceding the sale or exchange, di-
7
vided by
8
‘‘(ii) the average active voice telephone
9
service or broadband internet access serv-
10
ice connections during such 3-year period;
11
and
12
‘‘(3) in the case of the 3rd qualified 1-year pe-
13
riod, that offers broadband internet access service
14
described in section 292(b) to not less than 20 per-
15
cent of locations in an area described in section
16
139J(c)(2).
17
‘‘(c) QUALIFIED 1-YEAR PERIOD.—For purposes of
18
this section, the term ‘qualified 1-year period’ means, with
19
respect to a rural incumbent local exchange carrier with
20
respect to a sale or exchange described in subsection 139J,
21
the 1-year period starting on the date of such sale or ex-
22
change, and each of the 2 subsequent 1-year periods.
23
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•HR 1178 IH
‘‘(d) DEFINITIONS.—For purposes of this section,
1
terms defined in the Communications Act of 1934 have
2
the meaning given such terms in such Act.
3
‘‘(e) TRANSFER OF CREDIT.—If, with respect to a
4
credit under subsection (a) for any taxable year, the tax-
5
payer elects the application of this paragraph for such tax-
6
able year with respect to all (or any portion specified in
7
such election) of such credit, the person specified in such
8
election, and not the taxpayer, shall be treated as the tax-
9
payer for purposes of this title with respect to such credit
10
(or such portion thereof).’’.
11
(b) CONFORMING AMENDMENT.—Section 46 of such
12
Code is amended by striking ‘‘and’’ at the end of para-
13
graph (6), by striking the period at the end of paragraph
14
(7) and inserting ‘‘, and’’, and by adding at the end the
15
following new paragraph:
16
‘‘(8) the rural communications investment cred-
17
it.’’.
18
(c) CLERICAL AMENDMENT.—The table of sections
19
for subpart E of part IV of subchapter A of chapter 1
20
of such Code is amended by inserting after the item relat-
21
ing to section 48E the following new item:
22
‘‘Sec. 48F. Rural communications investment credit.’’.
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•HR 1178 IH
(d) EFFECTIVE DATE.—The amendments made by
1
this section shall apply to amounts paid or incurred after
2
the date of the enactment of this Act.
3
Æ
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