[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 160 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 160

  To amend the Internal Revenue Code of 1986 to promote investment in 
small businesses by providing Federal tax relief and simplification for 
                  such businesses and their investors.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             January 21 (legislative day, January 5), 1993

 Mr. Dole (for himself, Mr. Packwood, Mr. Pressler, Mr. Domenici, Mr. 
 Danforth, Mr. Nickles, Mr. Hatch, Mr. Simpson, Mr. Wallop, Mr. Mack, 
Mr. Cochran, and Mr. Durenberger) introduced the following bill; which 
        was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to promote investment in 
small businesses by providing Federal tax relief and simplification for 
                  such businesses and their investors.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Small Business 
Investment Act of 1993''.
    (b) Amendments of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. PURPOSE.

    It is the purpose of this Act to simplify Federal tax laws 
applicable to small businesses. The resulting decrease in operating 
costs and increase in economic return will stimulate small business 
investment and create new jobs.

SEC. 3. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this Act shall 
apply to taxable years beginning after December 31, 1992.

                     TITLE I--INVESTMENT INCENTIVES

SEC. 101. INCREASE IN SMALL BUSINESS EXPENSING ALLOWANCE.

    Section 179(b)(1) (relating to dollar limitation) is amended by 
striking ``$10,000'' and inserting ``$25,000''.

SEC. 102. ELECTION TO EXPENSE SMALL BUSINESS START-UP EXPENDITURES.

    (a) General Rule.--Section 195 (relating to treatment of start-up 
expenditures) is amended by redesignating subsections (c) and (d) as 
subsections (d) and (e), respectively, and by inserting after 
subsection (b) the following new subsection:
    ``(c) Election To Expense.--
            ``(1) General rule.--Notwithstanding subsection (a), start-
        up expenditures may, at the election of a qualified taxpayer, 
        be allowed as a deduction for the taxable year in which the 
        active trade or business begins. The amount of start-up 
        expenditures allowed as a deduction under the preceding 
        sentence to any taxpayer shall not exceed $2,500.
            ``(2) Qualified taxpayer.--A taxpayer is a qualified 
        taxpayer if the taxpayer reasonably expects or knows (as of the 
        due date, determined with regard to extensions, for filing its 
        return for the taxable year in which the active trade or 
        business begins) that the taxpayer's gross receipts for the 12-
        month period beginning with the month in which the active trade 
        or business begins will not exceed (or has not exceeded) 
        $500,000.
            ``(3) In addition to election to amortize.--If the taxpayer 
        makes an election under paragraph (1), start-up expenses that 
        exceed $2,500 may, at the election of the taxpayer, be treated 
        as deferred expenses as provided in subsection (b).
            ``(4) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 shall be 
        treated as one person for purposes of this subsection.''.
    (b) Conforming Amendment.--Paragraph (1) of section 195(e) (as 
redesignated by subsection (a)) is amended by striking ``subsection 
(b)'' and inserting ``subsection (b) or (c)''.

SEC. 103. SMALL BUSINESS AMT EXCEPTIONS.

    (a) General Rule.--Part VI of subchapter A of chapter 1 is amended 
by inserting after section 58 the following new section:

``SEC. 58A. SPECIAL EXCEPTIONS FOR SMALL BUSINESSES.

    ``(a) General Rule.--For purposes of this part--
            ``(1) the adjustments listed in subsection (b), and
            ``(2) the preferences listed in subsection (c),
shall not be taken into account for any purpose in computing 
alternative minimum taxable income from any qualified small business 
activity of the taxpayer.
    ``(b) Adjustments Not Taken Into Account by Qualified Small 
Business Taxpayers.--The adjustments listed in this subsection are the 
adjustments provided by the following provisions:
            ``(1) Section 56(a)(1) (relating to depreciation).
            ``(2) Section 56(a)(2) (relating to mining exploration and 
        development costs).
            ``(3) Section 56(a)(3) (relating to long-term contracts).
            ``(4) Section 56(a)(5) (relating to pollution control 
        facilities).
            ``(5) Section 56(a)(6) (relating to installment sales).
            ``(6) Section 56(b)(2) (relating to circulation and 
        research expenditures).
            ``(7) Section 56(c) (relating to special adjustments for 
        corporations).
    ``(c) Preferences Not Taken Into Account by Qualified Small 
Businesses.--The preferences listed in this subsection are the 
preferences provided by the following provisions:
            ``(1) Section 57(a)(1) (relating to depletion).
            ``(2) Section 57(a)(2) (relating to intangible drilling 
        costs).
            ``(3) Section 57(a)(4) (relating to bad debts reserve).
            ``(4) Section 57(a)(7) (relating to accelerated 
        depreciation or amortization).
    ``(d) Definitions.--
            ``(1) Qualified small business activity.--For purposes of 
        this section, the term `qualified small business activity' 
        means any trade or business activity conducted by an individual 
        or by a corporation or partnership if such individual or entity 
        (as the case may be) meets the $1,000,000 gross receipts test 
        of paragraph (3) for all prior taxable years beginning after 
        December 31, 1991.
            ``(2) $1,000,000 gross receipts test.--For purposes of 
        paragraph (1)--
                    ``(A) In general.--An individual or entity meets 
                the $1,000,000 gross receipts test of this subsection 
                for any prior taxable year if the average annual gross 
                receipts of such person or entity for the 3-taxable 
                year period ending with such prior taxable year does 
                not exceed $1,000,000.
                    ``(B) Aggregation and special rules.--For purposes 
                of subparagraph (A), aggregation and special rules 
                similar to the rules of paragraphs (2) and (3) of 
                section 448(c) shall apply in determining whether an 
                individual or entity satisfies the $1,000,000 gross 
                receipts test.
    ``(e) Fresh Start Transitional Rules for an Activity That Ceases To 
Be a Qualified Small Business Activity.--
            ``(1) In general.--If an activity ceases to be a qualified 
        small business activity, the adjustments and preferences with 
        respect to the activity listed in subsections (b) and (c) shall 
        be applied in computing alternative minimum taxable income for 
        the taxable year of the cessation and subsequent taxable years 
        by substituting the last day of the last taxable year in which 
        the activity was as a qualified small business activity for 
        December 31, 1986, and December 31, 1989. Any references to 
        January 1, 1987, or January 1, 1990, in sections 56 and 57 
        shall be treated as if such references were to the first day of 
        the taxable year in which the activity ceased to be a qualified 
        small business activity.
            ``(2) Effect of adjustments prior to the enactment of this 
        section.--
                    ``(A) In general.--In determining the amount of any 
                adjustments or preferences with respect to an activity 
                in a taxable year in which (or after) the activity 
                ceases to be a qualified small business activity, any 
                of the adjustments listed in subsection (b) and 
                previously taken into account with respect to the 
                activity in a taxable year beginning on or before 
                December 31, 1992, shall be disregarded.
                    ``(B) Fresh start basis.--As of the first day of 
                the taxable year in which an activity ceases to be a 
                qualified small business activity, the basis of the 
                activity's assets for purposes of determining the 
                regular tax shall be used in computing the adjustments 
                and preferences required under sections 56 and 57.
    ``(f) Election To Be Treated as Other Than a Qualified Small 
Business Activity.--An activity may elect to be treated for all taxable 
years as other than a qualified small business activity. Such election 
shall be made on or before the due date of the activity's return 
(determined without regard to extensions) for the later of--
            ``(1) the first taxable year that the activity is a 
        qualified small business activity, or
            ``(2) the first taxable year beginning after December 31, 
        1992.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Clerical Amendment.--The table of sections for part VI of 
subchapter A of chapter 1 is amended by inserting after the item 
relating to section 58 the following new item:

                              ``Sec. 58A. Special exceptions for small 
                                        businesses.''.

SEC. 104. INCREASE IN PERMITTED NUMBER OF SUBCHAPTER S SHAREHOLDERS.

    Subparagraph (A) of section 1361(b)(1) (defining small business 
corporation) is amended by striking ``35'' and inserting ``50''.

                    TITLE II--ACCOUNTING PROVISIONS

SEC. 201. INFLATION-ADJUSTED FIFO INVENTORY METHOD FOR CERTAIN SMALL 
              BUSINESSES.

    (a) General Rule.--Subpart D of part II of subchapter E of chapter 
1 (relating to inventories) is amended by adding at the end thereof the 
following new section:

``SEC. 475. INFLATION-ADJUSTED FIFO INVENTORY METHOD FOR CERTAIN SMALL 
              BUSINESSES.

    ``(a) General Rule.--An eligible small business may elect to use 
the inflation-adjusted FIFO inventory method for purposes of valuing 
all of its inventories.
    ``(b) Inflation-Adjusted FIFO Inventory Method of Valuing 
Inventories.--For purposes of this section--
            ``(1) In general.--The inflation-adjusted FIFO inventory 
        method of valuing inventories is a method of valuing 
        inventories under which--
                    ``(A) the taxpayer maintains its inventory under 
                the first-in, first-out method authorized by section 
                471, and
                    ``(B) cost of goods sold is increased each taxable 
                year by an amount computed by multiplying the 
                applicable Consumer Price Index increase by so much of 
                the total beginning of the year FIFO inventory 
                (computed in subparagraph (A)) as does not exceed the 
                total ending of the year FIFO inventory.
            ``(2) Applicable consumer price index increase.--The term 
        `applicable Consumer Price Index increase' means the percentage 
        increase (if any) in the Consumer Price Index for all-urban 
        consumers published by the Department of Labor during the 
        calendar year ending with or within the taxable year of the 
        taxpayer.
    ``(c) Eligible Small Business.--For purposes of this section, a 
taxpayer is an eligible small business for any taxable year if the 
average annual gross receipts of the taxpayer for the 3 preceding 
taxable years do not exceed $10,000,000. For purposes of the preceding 
sentence, rules similar to the rules of paragraphs (2) and (3) of 
section 448(c) shall apply.
    ``(d) 6-Year Averaging for Increases in Inventory Value.--The 
beginning inventory for the first taxable year for which the method 
described in subsection (b) is used (and for all subsequent years that 
the method is used) shall be valued at cost. Any change in the 
inventory amount resulting from the application of the preceding 
sentence shall be taken into account ratably in each of the 6 taxable 
years beginning with the first taxable year for which the method 
described in subsection (b) is first used.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Election.--
                    ``(A) In general.--The election under this section 
                may be made without the consent of the Secretary.
                    ``(B) Period to which election applies.--The 
                election under this section shall apply--
                            ``(i) to the taxable year for which it is 
                        made, and
                            ``(ii) to all subsequent taxable years for 
                        which the taxpayer is an eligible small 
                        business, unless the taxpayer secures the 
                        consent of the Secretary to the revocation of 
                        such election.
            ``(2) Changes in method of accounting.--
                    ``(A) Taxpayers changing from lifo to the method 
                under this section.--In the case of a change from a 
                LIFO method under section 472 or 474 to an election 
                under this section--
                            ``(i) beginning inventory shall be restated 
                        to FIFO as described in subsection (b), and
                            ``(ii) the difference between restated 
                        inventory computed in clause (i) and the basis 
                        of the taxpayer's inventory computed under LIFO 
                        will be treated as an increase to basis of 
                        inventory with no corresponding increase to 
                        income.
                    ``(B) Taxpayers changing from the method under this 
                section to lifo.--A taxpayer changing its method of 
                accounting to LIFO from the method prescribed in this 
                section--
                            ``(i) may change its method of accounting 
                        without the consent of the Commissioner, 
                        provided the taxpayer has not used the LIFO 
                        method within the past 6 taxable years, and
                            ``(ii) must comply with section 472 and the 
                        regulations thereunder regarding the adoption 
                        of LIFO.
                    ``(C) Taxpayers changing from the method under this 
                section to fifo.--A taxpayer changing its method of 
                accounting to FIFO from the method prescribed in this 
                section may change its method of accounting without the 
                consent of the Commissioner.
    ``(f) Regulations.--The Secretary shall be authorized to prescribe 
regulations necessary to carry out the purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for subpart D of 
part II of subchapter E of chapter 1 is amended by adding at the end 
thereof the following new item:

                              ``Sec. 475. Inflation-adjusted FIFO 
                                        method for certain small 
                                        businesses.''.

SEC. 202. EXEMPT SMALL BUSINESS FROM THE UNIFORM CAPITALIZATION RULES.

    (a) Amendments to Section 263A.--
            (1) In general.--Subsection (c) of section 263A is amended 
        by adding at the end thereof the following new paragraph:
            ``(7) Taxpayers with gross receipts of $10,000,000 or 
        less.--
                    ``(A) In general.--This section shall not apply to 
                any taxpayer if the average annual gross receipts of 
                the taxpayer (or any predecessor) for the 3-taxable 
                year period ending with the taxable year preceding such 
                taxable year do not exceed $10,000,000. For purposes of 
                the preceding sentence, rules similar to the rules of 
                paragraphs (2) and (3) of section 448(c) shall apply.
                    ``(B) Changes in method of accounting.--Except as 
                otherwise provided by the Secretary through regulations 
                (or other administrative guidance), a taxpayer changing 
                its method of accounting by reason of satisfying or 
                failing to satisfy the $10,000,000 average annual gross 
                receipts test in subparagraph (A) must obtain the 
                consent of the Secretary to change its method of 
                accounting.''.
            (2) Conforming amendments.--
                    (A) Paragraph 2 of section 263A(b) is amended to 
                read as follows:
            ``(2) Property acquired for resale.--Real or personal 
        property described in section 1221(1) which is acquired by the 
        taxpayer for resale.''.
                    (B) Subsection (i)(2) of section 263A is amended by 
                striking ``in the case of property described in 
                subsection (b)(2)''.
    (b) Amendment to Section 471.--Section 471 (relating to general 
rules for inventories) is amended by redesignating subsection (b) as 
subsection (c) and inserting after subsection (a) the following new 
subsection:
    ``(b) Cost Capitalization for Taxpayers With Gross Receipts That Do 
Not Exceed $1,000,000.--
            ``(1) In general.--If a taxpayer's average annual gross 
        receipts for its immediately preceding three taxable years do 
        not exceed $1,000,000 the taxpayer shall not be required to 
        include in its inventory costs any indirect costs incurred. For 
        purposes of the preceding sentence, indirect costs include all 
        costs other than direct costs of acquiring or producing the 
        inventory. For purposes of this subsection, rules similar to 
        the rules of paragraphs (2) and (3) of section 448(c) shall 
        apply in determining whether a taxpayer has average annual 
        gross receipts that do not exceed $1,000,000.
            ``(2) Changes in method of accounting.--Except as otherwise 
        provided by the Secretary through regulations (or other 
        administrative guidance), a taxpayer changing its method of 
        accounting by reason of satisfying or failing the $1,000,000 
        average annual gross receipts test in paragraph (1) must obtain 
        the consent of the Secretary to change its method of accounting 
        for indirect costs under paragraph (1).''.
    (c) Amendment to Section 263.--Section 263 (relating to capital 
expenditures) is amended by adding at the end thereof the following new 
subsection:
    ``(j) Cost Capitalization for Taxpayers With Gross Receipts That Do 
Not Exceed $1,000,000.--If a taxpayer's average annual gross receipts 
for its immediately preceding 3 taxable years do not exceed $1,000,000, 
the taxpayer shall not be required to capitalize any indirect costs 
incurred in the taxpayer's current taxable year to its capital 
expenditures. For purposes of the preceding sentence, indirect costs 
include all costs other than direct costs. For purposes of this 
subsection, rules similar to the rules of paragraphs (2) and (3) of 
section 448(c) shall apply in determining whether a taxpayer has 
average annual gross receipts that do not exceed $1,000,000.''.
    (d) Effective Dates.--
            (1) Special rule applicable to inventory property.--
                    (A) In general.--The amendments made by subsections 
                (a) and (b) shall apply to taxable years beginning 
                after December 31, 1992.
                    (B) Change in method of accounting.--If the 
                taxpayer is permitted by the amendments made by this 
                section to change its method of accounting with respect 
                to inventory for its 1st taxable year beginning after 
                December 31, 1992--
                            (i) such change shall be treated as 
                        initiated by the taxpayer,
                            (ii) such change shall be treated as made 
                        with the consent of the Secretary,
                            (iii) the net amount of adjustments 
                        required by section 481 of the Internal Revenue 
                        Code of 1986 shall be taken into account over a 
                        period not longer than 3 years.
                In applying clause (iii), however, the Secretary may 
                prescribe any other administrative procedures (for 
                example, a cut-off method) for effecting the permitted 
                method change which would prevent duplications or 
                omissions of income or deductions, and thus make 
                adjustments under section 481 unnecessary.
            (2) Noninventory effective date.--The amendments made by 
        subsection (c) shall apply with respect to costs incurred in 
        taxable years beginning after December 31, 1992.

SEC. 203. EXEMPTION OF SMALL BUSINESSES FROM LONG-TERM CONTRACT RULES.

    (a) General Rule.--
            (1) Paragraph (1) of section 460(e) is amended to read as 
        follows:
            ``(1) In general.--
                    ``(A) Subsections (a), (b), and (c) (1) and (2) 
                shall not apply to any home construction contract.
                    ``(B) This section shall not apply to any other 
                contract entered into by a taxpayer whose average 
                annual gross receipts for the 3 taxable years 
                immediately preceding the taxable year in which such 
                contract is entered into do not exceed $10,000,000.
        In the case of a home construction contract with respect to 
        which the requirements of subparagraph (B) are not met, section 
        263A shall apply notwithstanding subsection (c)(4) thereof.''.
            (2) The subsection heading for subsection (e) of section 
        460 is amended by striking ``Construction''.
    (b) Amt Exception for Small Contractors.--Paragraph (3) of section 
56(a) is amended to read as follows:
            ``(3) Treatment of certain long-term contracts.--In the 
        case of any long-term contract entered into by the taxpayer on 
        or after March 1, 1986, the taxable income from such contract 
        shall be determined under the percentage of completion method 
        of accounting (as modified by section 460(b)). The preceding 
        sentence shall not apply to any contract described in section 
        460(e)(1).''.
    (c) Amendments to Section 451.--Section 451 is amended by adding at 
the end thereof the following new subsection:
    ``(h) Special Rule for Determining Income From a Long-Term Contract 
for Eligible Taxpayers.--
            ``(1) In general.--A taxpayer shall not be required to 
        allocate indirect costs to any long-term contract entered into 
        during a taxable year for which the taxpayer is an eligible 
        taxpayer.
            ``(2) Eligible taxpayer.--For purposes of this subsection, 
        an `eligible taxpayer' is a taxpayer whose average annual gross 
        receipts for the 3 taxable years immediately preceding the 
        current taxable year do not exceed $1,000,000. For purposes of 
        the preceding sentence, rules similar to the rules of 
        paragraphs (2) and (3) of section 448(c) shall apply in 
        determining whether a taxpayer has average annual gross 
        receipts that do not exceed $1,000,000.
            ``(3) Indirect costs.--For purposes of this subsection, 
        indirect costs are all costs other than direct costs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contracts entered into in taxable years beginning after 
December 31, 1992.

                                 <all>

S 160 IS----2