Investors may defer taxation of reinvested mutual fund capital gains dividends until the fund is sold, if a bill introduced Tuesday in the House of Representatives were to become law, Dow Jones reports.

Under current law, investors must pay taxes on dividends before they sell their shares in a mutual fund. The bill, submitted by Rep. Paul Ryan, (R-Wis.), who serves on the House Ways and Means Committee, will bring the tax treatment of fund investors in line with those of stock investors.

In 2002, mutual funds distributed $16 billion in capital gains, among which $5 billion was paid out to taxable accounts of individual investors, while the rest went to tax-deferred accounts such as 401(k) retirement plans or institutional investors, according to data from the Investment Company Institute.

If enacted, the new law "will benefit tens of millions of mutual-fund investors and fuel more long-term investment for the economy," Matthew Fink, president of the ICI said.

ICI spokesman John Collins said the Ryan bill is preferable to a similar bill by Rep. Jim Saxton (R-N.J.) that would cap deferral of taxes on distributions of $3,000 for individuals and $6,000 for joint filers.

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