[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 368 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 368

 To amend the Internal Revenue Code of 1986 to provide a capital gains 
 tax differential for individual and corporate taxpayers who make high-
 risk, long-term, growth-oriented venture and seed capital investments 
                in startup and other small enterprises.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             February 16 (legislative day, January 5), 1993

  Mr. Bumpers (for himself, Mr. Brown, Mr. Kerry, Mr. Lieberman, Mr. 
 Mack, Mr. Riegle, Mr. Wofford, Mr. Coats, Mr. Boren, Mr. Daschle, Mr. 
 Craig, Mr. Dodd, Mr. D'Amato, Mr. Pryor, Mr. DeConcini, Mr. Johnston, 
Mrs. Feinstein, and Mr. Kohl) 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 provide a capital gains 
 tax differential for individual and corporate taxpayers who make high-
 risk, long-term, growth-oriented venture and seed capital investments 
                in startup and other small enterprises.

    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 ``Enterprise Capital 
Formation Act of 1993''.
    (b) Amendment 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. EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK.

    (a) General Rule.--Part I of subchapter P of chapter 1 (relating to 
capital gains and losses) is amended by adding at the end thereof the 
following new section:

``SEC. 1202. EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK.

    ``(a) Exclusion.--
            ``(1) In general.--Gross income shall not include the sum 
        of--
                    ``(A) 50 percent of any gain from the sale or 
                exchange of qualified small business stock (other than 
                seed capital stock) held for more than 5 years, plus
                    ``(B) the amounts determined by applying the 
                applicable percentages to the appropriate categories of 
                gain from the sale or exchange of qualified small 
                business stock which is seed capital stock held for 
                more than 5 years.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be computed as follows:

                                                         The applicable
      ``In the case of:                                  percentage is:
          5-year gain.............................               50    
          6-year gain.............................               60    
          7-year gain.............................               70    
          8-year gain.............................               80    
          9-year gain.............................               90    
          10-year gain............................             100.    
            ``(3) Categories of gain.--
                    ``(A) 10-year gain.--The term `10-year gain' means 
                gain determined by taking into account only gain from 
                qualified small business stock with a holding period of 
                more than 10 years at the time of the sale or exchange.
                    ``(B) Other gain.--The terms `5-, 6-, 7-, 8-, and 
                9-year gain' mean the gain determined by taking into 
                account only gain from qualified small business stock 
                with a holding period of more than 5, 6, 7, 8, or 9 
                years but not more than 6, 7, 8, 9, or 10 years, 
                respectively.
    ``(b) Qualified Small Business Stock; Seed Capital Stock.--For 
purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        section, the term `qualified small business stock' means any 
        stock in a corporation which is originally issued on or after 
        January 1, 1993, if--
                    ``(A) as of the date of issuance, such corporation 
                is a qualified small business, and
                    ``(B) except as provided in subsections (e), (f), 
                and (g), such stock is acquired by the taxpayer at its 
                original issue (directly or through an underwriter)--
                            ``(i) in exchange for money or other 
                        property (not including stock), or
                            ``(ii) as compensation for services (other 
                        than services performed as an underwriter of 
                        such stock).
            ``(2) Active business requirement.--Stock in a corporation 
        shall not be treated as qualified small business stock unless, 
        during substantially all of the taxpayer's holding period for 
        such stock, such corporation meets the active business 
        requirements of subsection (d).
            ``(3) Certain purchases by corporation of its own stock.--
                    ``(A) In general.--Stock issued by a corporation 
                shall not be treated as qualified small business stock 
                if such corporation has purchased or purchases any of 
                its stock within the 2-year period beginning 1 year 
                before the date of the issuance of such stock.
                    ``(B) Exception where business purpose.--
                Subparagraph (A) shall not apply where the issuing 
                corporation establishes that there was a business 
                purpose for the purchase of the stock and such purchase 
                is not inconsistent with the purposes of this section. 
                Except as provided in regulations, the preceding 
                sentence shall not apply to any purchase which--
                            ``(i) is part of a transaction or series of 
                        transactions in which the corporation purchases 
                        not more than 5 percent (by vote or value) of 
                        the outstanding shares of the corporation, or
                            ``(ii) is a purchase by the corporation of 
                        convertible preferred stock of the corporation 
                        but only if such purchase is required by the 
                        terms of the stock being purchased.
                    ``(C) Members of affiliated group.--For purposes of 
                this paragraph, the purchase of any stock of the 
                issuing corporation by any corporation which, as of the 
                time of the purchase, is a member of the same 
                affiliated group (within the meaning of section 1504) 
                as the issuing corporation shall be treated as a 
                purchase by the issuing corporation of its stock.
            ``(4) Seed capital stock.--The term `seed capital stock' 
        means stock which is qualified small business stock in a 
        qualified small business, as determined under subsection (c) by 
        substituting `$5,000,000' for `$100,000,000' each place it 
        appears in subsection (c)(1).
    ``(c) Qualified Small Business.--For purposes of this section--
            ``(1) In general.--The term `qualified small business' 
        means any domestic corporation if--
                    ``(A) the aggregate capitalization of such 
                corporation (or any predecessor thereof) at all times 
                on or after January 1, 1993, and before the issuance 
                did not exceed $100,000,000, and
                    ``(B) the aggregate capitalization of such 
                corporation immediately after the issuance (determined 
                by taking into account amounts to be received in the 
                issuance) does not exceed $100,000,000.
            ``(2) Aggregate capitalization.--For purposes of paragraph 
        (1), the term `aggregate capitalization' means the excess of--
                    ``(A) the amount of cash and the aggregate adjusted 
                bases of other property held by the corporation, over
                    ``(B) the aggregate amount of the short-term 
                indebtedness of the corporation.
        For purposes of the preceding sentence, the term `short-term 
        indebtedness' means any indebtedness which, when incurred, did 
        not have a term in excess of 1 year.
            ``(3) Look-thru in case of subsidiaries.--In determining 
        whether a corporation meets the requirements of this 
        subsection--
                    ``(A) stock and debt of any subsidiary (as defined 
                in subsection (d)(4)(C)) held by such corporation shall 
                be disregarded, and
                    ``(B) such corporation shall be treated as holding 
                its ratable share of the assets of such subsidiary and 
                as being liable for its ratable share of the 
                indebtedness of such subsidiary.
        For purposes of subparagraph (B), a corporation's ratable share 
        shall be based on its share of the total combined voting power 
        of the stock of the subsidiary.
            ``(4) Cost-of-living adjustment.--In the case of any 
        taxable year beginning after 1993, each dollar amount contained 
        in paragraph (1) and subsection (b)(4) shall be increased by an 
        amount equal to such dollar amount multiplied by the cost-of-
        living adjustment determined under section 1(f)(3) for the 
        calendar year in which the taxable year begins, except that 
        section 1(f)(3)(B) shall be applied by substituting `1992' for 
        `1989'.
    ``(d) Active Business Requirement.--For purposes of this section--
            ``(1) In general.--For purposes of subsection (b)(2), the 
        requirements of this subsection are met for any period if 
        during such period--
                    ``(A) the corporation is engaged in the active 
                conduct of a trade or business,
                    ``(B) substantially all of the assets of such 
                corporation are used in the active conduct of a trade 
                or business, and
                    ``(C) such corporation is an eligible corporation.
            ``(2) Special rule for certain activities.--For purposes of 
        paragraph (1), if, in connection with any future trade or 
        business, a corporation is engaged in--
                    ``(A) startup activities described in section 
                195(c)(1)(A),
                    ``(B) activities resulting in the payment or 
                incurring of expenditures which may be treated as 
                research and experimental expenditures under section 
                174, or
                    ``(C) activities with respect to in-house research 
                expenses described in section 41(b)(4),
        such corporation shall be treated with respect to such 
        activities as engaged in (and assets used in such activities 
        shall be treated as used in) the active conduct of a trade or 
        business. Any determination under this paragraph shall be made 
        without regard to whether a corporation has any gross income 
        from such activities at the time of the determination.
            ``(3) Eligible corporation.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `eligible corporation' 
                means any domestic corporation; except that such term 
                shall not include--
                            ``(i) any corporation predominantly engaged 
                        in a disqualified business,
                            ``(ii) any personal service corporation 
                        (within the meaning of section 269A(b)),
                            ``(iii) a DISC,
                            ``(iv) a corporation with respect to which 
                        an election under section 936 is in effect,
                            ``(v) any regulated investment company, 
                        real estate investment trust, or REMIC,
                            ``(vi) any cooperative, and
                            ``(vii) in the case of a corporate 
                        shareholder, any corporation which at any time 
                        was a subsidiary (as defined in paragraph 
                        (4)(C)) of such corporate shareholder.
                    ``(B) Disqualified business.--The term 
                `disqualified business' means--
                            ``(i) any banking, insurance, financing, or 
                        similar business,
                            ``(ii) any farming business (other than the 
                        business of raising or harvesting trees),
                            ``(iii) any business involving the 
                        production or extraction of products of a 
                        character with respect to which a deduction is 
                        allowable under section 613 or 613A, and
                            ``(iv) any business of franchising or 
                        operating a hotel, motel, or restaurant or 
                        similar business.
            ``(4) Stock in other corporations.--
                    ``(A) Look-thru in case of subsidiaries.--For 
                purposes of this subsection, stock and debt in any 
                subsidiary corporation shall be disregarded and the 
                parent corporation shall be deemed to own its ratable 
                share of the subsidiary's assets, and to conduct its 
                ratable share of the subsidiary's activities. For 
                purposes of the preceding sentence, a corporation's 
                ratable share shall be based on its share of the total 
                combined voting power of the stock of the subsidiary.
                    ``(B) Portfolio stock or securities.--A corporation 
                shall be treated as failing to meet the requirements of 
                paragraph (1) for any period during which more than 10 
                percent of the value of its assets consists of stock or 
                securities in other corporations which are not 
                subsidiaries of such corporation (other than assets 
                described in paragraph (5)).
                    ``(C) Subsidiary.--For purposes of this paragraph, 
                a corporation shall be considered a subsidiary if the 
                parent corporation owns more than 50 percent of the 
                combined voting power of all classes of stock entitled 
                to vote, or more than 50 percent in value of all 
                outstanding stock, of such corporation.
            ``(5) Working capital.--For purposes of paragraph (1)(B), 
        any assets which--
                    ``(A) are held for investment, and
                    ``(B) are to be used to finance future research and 
                experimentation or working capital needs of the 
                corporation,
        shall be treated as used in the active conduct of a trade or 
        business.
            ``(6) Maximum real estate holdings.--A corporation shall be 
        treated as failing to meet the requirements of paragraph (1) 
        for any period during which more than 10 percent of the total 
        value of its assets consists of real property which is not used 
        (or to be used) in the active conduct of a trade or business. 
        For purposes of the preceding sentence--
                    ``(A) the ownership of, dealing in, or renting of 
                real property shall not be treated as the active 
                conduct of a trade or business; and
                    ``(B) the total value of the assets and of any real 
                property shall be reduced by all liabilities to which 
                the property is subject.
            ``(7) Computer software royalties.--For purposes of 
        paragraph (1), rights to computer software which produces 
        income described in section 543(d) shall be treated as an asset 
        used in the active conduct of a trade or business.
            ``(8) Exception for small business investment companies.--
        This subsection shall not apply to any small business 
        investment company described in section 301 of the Small 
        Business Investment Act of 1958 (15 U.S.C. 682).
    ``(e) Stock Acquired on Conversion of Other Stock.--If any stock is 
acquired through the conversion of other stock which is qualified small 
business stock in the hands of the taxpayer--
            ``(1) the stock so acquired shall be treated as qualified 
        small business stock in the hands of the taxpayer, and
            ``(2) the stock so acquired shall be treated as having been 
        held during the period during which the converted stock was 
        held.
    ``(f) Special Rules for Warrants and Certain Convertible 
Investments.--For purposes of this section--
            ``(1) In general.--In the case of stock which is acquired 
        by the taxpayer through the exercise of an applicable warrant, 
        through the conversion of convertible debt, or in exchange for 
        securities of the corporation in a transaction described in 
        section 368--
                    ``(A) such stock shall be treated as acquired by 
                the taxpayer at original issue,
                    ``(B) the holding period of such stock shall be 
                treated for purposes of subsection (a) as including the 
                period such warrant or debt was held by the taxpayer, 
                or such security was outstanding, and
                    ``(C) such stock shall be treated as meeting the 
                requirements of subsection (c) if such requirements 
                were met at the time the warrant, debt, or security was 
                acquired by the taxpayer.
            ``(2) Issue price for convertible debt or security.--For 
        purposes of subsection (c)(1), in the case of a debt instrument 
        converted to stock, or stock issued in exchange for securities 
        in a transaction described in section 368, such stock shall be 
        treated as issued for an amount equal to the sum of--
                    ``(A) the principal amount of the debt or security 
                as of the time of the conversion or exchange, and
                    ``(B) accrued but unpaid interest on such debt or 
                security.
            ``(3) Applicable warrant.--For purposes of this subsection, 
        the term `applicable warrant' means a warrant which--
                    ``(A) was granted in connection with the 
                performance of services for the corporation granting it 
                (or its parent or subsidiary), and
                    ``(B) by its terms is not transferable other than 
                by will or the laws of descent or distribution.
    ``(g) Special Rule for Options.--
            ``(1) In general.--For purposes of this section, in the 
        case of stock which is acquired by the taxpayer through the 
        exercise of an applicable option--
                    ``(A) such stock shall be treated as acquired by 
                the taxpayer at original issue,
                    ``(B) such stock shall be treated as having been 
                held during the period such option was held by the 
                taxpayer, and
                    ``(C) such stock shall be treated as meeting the 
                requirements of subsection (c) if such requirements 
                were met at the time the option was granted.
            ``(2) Applicable option.--For purposes of this subsection, 
        the term `applicable option' means an option which--
                    ``(A) was granted in connection with the 
                performance of services for the corporation granting it 
                (or its parent or subsidiary), and
                    ``(B) by its terms is not transferable other than 
                by will or the laws of descent or distribution.
    ``(h) Treatment of Pass-Thru Entities.--
            ``(1) In general.--Any amount included in income by reason 
        of holding an interest in a pass-thru entity shall be treated 
        as gain described in subsection (a) if such amount meets the 
        requirements of paragraph (2).
            ``(2) Requirements.--An amount meets the requirements of 
        this paragraph if--
                    ``(A) such amount is attributable to gain on the 
                sale or exchange by the pass-thru entity of stock which 
                is qualified small business stock in the hands of such 
                entity and which was held by such entity for more than 
                5 years, and
                    ``(B) such amount is includible in the gross income 
                of the taxpayer by reason of the holding of an interest 
                in such entity which was held by the taxpayer on the 
                date on which such pass-thru entity acquired such stock 
                and at all times thereafter before the disposition of 
                such stock by such pass-thru entity.
            ``(3) Limitation based on interest originally held by 
        taxpayer.--Paragraph (1) shall not apply to any amount to the 
        extent such amount exceeds the amount to which paragraph (1) 
        would have applied if such amount were determined by reference 
        to the interest the taxpayer held in the pass-thru entity on 
        the date the qualified small business stock was acquired.
            ``(4) Pass-thru entity.--For purposes of this subsection, 
        the term `pass-thru entity' means--
                    ``(A) any partnership,
                    ``(B) any S corporation,
                    ``(C) any regulated investment company, and
                    ``(D) any common trust fund.
    ``(i) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer of stock to 
        which this subsection applies, the transferee shall be treated 
        as--
                    ``(A) having acquired such stock in the same manner 
                as the transferor, and
                    ``(B) having held such stock during any continuous 
                period immediately preceding the transfer during which 
                it was held (or treated as held under this subsection) 
                by the transferor.
            ``(2) Transfers to which subsection applies.--This 
        subsection shall apply to any transfer--
                    ``(A) by gift,
                    ``(B) at death,
                    ``(C) subject to the limitation of subsection 
                (h)(3), from a partnership to a partner of stock with 
                respect to which the requirements of subsection (h) are 
                met at the time of the transfer (without regard to the 
                5-year holding requirement),
                    ``(D) to the extent that the basis of the property 
                in the hands of the transferee is determined by 
                reference to the basis of the property in the hands of 
                the transferor by reason of section 334(b), but only if 
                requirements similar to the requirements of subsection 
                (h) are met with respect to the stock,
                    ``(E) of qualified small business stock for other 
                qualified small business stock in a transaction 
                described in section 351 or a reorganization described 
                in section 368, or
                    ``(F) as a stock distribution of qualified small 
                business stock in a transaction not subject to tax 
                under section 305.
            ``(3) Certain rules made applicable.--In the case of 
        distributions or transactions described in subparagraph (E) or 
        (F) of section 368(a)(1), rules similar to the rules of section 
        1244(d)(2) shall apply for purposes of this section.
            ``(4) Incorporations and reorganizations involving 
        nonqualified stock.--
                    ``(A) In general.--In the case of a transaction 
                described in section 351 or a reorganization described 
                in section 368, if qualified small business stock is 
                transferred for other stock, such transfer shall be 
                treated as a transfer to which this subsection applies 
                solely with respect to the person receiving such other 
                stock.
                    ``(B) Limitation.--This section shall apply to the 
                sale or exchange of stock treated as qualified small 
                business stock by reason of subparagraph (A) only to 
                the extent of the gain (if any) which would have been 
                recognized at the time of the transfer described in 
                subparagraph (A) if section 351 or 368 had not applied 
                at such time.
                    ``(C) Successive application.--For purposes of this 
                paragraph, stock treated as qualified small business 
                stock under subparagraph (A) shall be so treated for 
                subsequent transactions or reorganizations, except that 
                the limitation of subparagraph (B) shall be applied as 
                of the time of the first transfer to which subparagraph 
                (A) applied.
                    ``(D) Control test.--Except in the case of a 
                transaction described in section 368, this paragraph 
                shall apply only if, immediately after the transaction, 
                the corporation issuing the stock owns directly or 
                indirectly stock representing control (within the 
                meaning of section 368(c)) of the corporation whose 
                stock was transferred.
    ``(j) Basis Rules.--
            ``(1) Stock exchanged for property.--For purposes of this 
        section, in the case where the taxpayer transfers property 
        (other than money or stock) to a corporation in exchange for 
        stock in such corporation--
                    ``(A) such stock shall be treated as having been 
                acquired by the taxpayer on the date of such exchange, 
                and
                    ``(B) the basis of such stock in the hands of the 
                taxpayer shall in no event be less than the fair market 
                value of the property exchanged.
        Notwithstanding subparagraph (B), for purposes of subsection 
        (c)(1), the adjusted basis to the corporation of the property 
        received shall be the fair market value of such property at the 
        time of the determination.
            ``(2) Basis of s corporation stock.--For purposes of 
        determining the amount of gain to which this section applies, 
        the adjusted basis of stock in an S corporation shall in no 
        event be less than its adjusted basis determined without regard 
        to any adjustment to the basis of such stock under section 
        1367.
    ``(k) Application of Tax Incentive to Current Stock Holdings of 
Investors.--
            ``(1) In general.--If--
                    ``(A) a taxpayer holds any stock on December 31, 
                1992, which, at the time it was issued, would have been 
                treated as qualified small business stock if such 
                determination had been made without regard to the time 
                such stock was issued, and
                    ``(B) the value of such stock on December 31, 1992 
                exceeds its adjusted basis,
        the taxpayer may elect to treat such stock as having been sold 
        on such date for an amount equal to its value on such date (and 
        as having been reacquired on such date for an amount equal to 
        such value). The gain attributable to such sale shall be 
        treated as realized and recognized or accrued (and the holding 
        period of the reacquired stock shall be treated as beginning) 
        on December 31, 1992. For purposes of applying this section, 
        the requirement of subsection (b)(1) that the stock must have 
        been issued on or after January 1, 1993, shall not apply.
            ``(2) Election.--An election under paragraph (1) with 
        respect to any stock shall be made in such manner as the 
        Secretary may prescribe. Such an election, once made with 
        respect to any stock, shall be irrevocable.
    ``(l) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations to prevent the avoidance of the purposes of this 
section through split-ups or otherwise.''.
    (b) Maximum 14 Percent Tax Rate.--
            (1) Individuals.--Section 1(h) is amended to read as 
        follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital gain for 
        any taxable year, then the tax imposed by this section shall 
        not exceed the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                the greater of--
                            ``(i) taxable income reduced by the amount 
                        of the net capital gain, or
                            ``(ii) the amount of taxable income taxed 
                        at a rate below 28 percent, plus
                    ``(B) a tax of 28 percent of the amount of taxable 
                income in excess of the amount determined under 
                subparagraph (A).
            ``(2) Special rule where taxpayer has qualified small 
        business net capital or seed capital gain.--
                    ``(A) In general.--If a taxpayer has gain for any 
                taxable year attributable to the sale or exchange of 
                any qualified small business stock held for more than 5 
                years, then the tax imposed by this section shall not 
                exceed the lesser of--
                            ``(i) the amount determined under paragraph 
                        (1), or
                            ``(ii) the sum of--
                                    ``(I) the amount determined under 
                                paragraph (1) without taking into 
                                account gain or loss from qualified 
                                small business stock held for more than 
                                5 years for purposes of subparagraphs 
                                (A) and (B) thereof, plus
                                    ``(II) 14 percent of the net 
                                capital gain determined by only taking 
                                into account such gain or loss.
                    ``(B) Definition.--For purposes of this paragraph, 
                the term `qualified small business stock' has the 
                meaning given such term by section 1202.''.
            (2) Corporations.--Section 1201(a) is amended--
                    (A) by inserting ``or the corporation has gain from 
                the sale or exchange of any qualified small business 
                stock held for more than 5 years'' before ``, then'', 
                and
                    (B) by striking paragraph (2) and inserting:
            ``(2) a tax equal to the sum of--
                    ``(A) 34 percent of the sum of the net capital 
                gain, determined by not taking into account any gain or 
                loss from the sale or exchange of any qualified small 
                business stock held for more than 5 years, plus
                    ``(B) 17 percent of the net capital gain determined 
                by only taking into account such gain or loss.
For purposes of this subsection, the term `qualified small business 
stock' has the meaning given such term by section 1202.''.
    (c) Minimum Tax Treatment.--
            (1) In general.--Subsection (a) of section 57 (relating to 
        items of tax preference) is amended by adding at the end 
        thereof the following new paragraph:
            ``(8) Exclusion for gains on sale of venture capital small 
        business stock.--An amount equal to the amount excluded from 
        gross income for the taxable year under section 1202(a)(1)(A) 
        (relating to exclusion of gain on small business stock other 
        than seed capital stock).''.
            (2) Conforming amendment.--Subclause (II) of section 
        53(d)(2)(B)(ii) is amended by striking ``and (6)'' and 
        inserting ``(6), and (8)''.
    (d) Losses on Small Business Stock.--Section 1244(c)(3)(A) is 
amended by striking ``$1,000,000'' and inserting ``$5,000,000 (adjusted 
at the same time and manner as under section 1202(c)(4))''.
    (e) Conforming Amendments.--
            (1)(A) Section 172(d)(2) (relating to modifications with 
        respect to net operating loss deduction) is amended to read as 
        follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation--
                    ``(A) the amount deductible on account of losses 
                from sales or exchanges of capital assets shall not 
                exceed the amount includable on account of gains from 
                sales or exchanges of capital assets; and
                    ``(B) the exclusion provided by section 1202 shall 
                not be allowed.''.
            (B) Subparagraph (B) of section 172(d)(4) is amended by 
        inserting ``, (2)(B),'' after ``paragraph (1)''.
            (2) Paragraph (4) of section 642(c) is amended to read as 
        follows:
            ``(4) Adjustments.--To the extent that the amount otherwise 
        allowable as a deduction under this subsection consists of gain 
        described in section 1202(a), proper adjustment shall be made 
        for any exclusion allowable to the estate or trust under 
        section 1202. In the case of a trust, the deduction allowed by 
        this subsection shall be subject to section 681 (relating to 
        unrelated business income).''.
            (3) Paragraph (3) of section 643(a) is amended by adding at 
        the end thereof the following new sentence: ``The exclusion 
        under section 1202 shall not be taken into account.''.
            (4) Paragraph (4) of section 691(c) is amended by striking 
        ``1201, and 1211'' and inserting ``1201, 1202, and 1211, and 
        for purposes of section 57(a)(8)''.
            (5) The second sentence of paragraph (2) of section 871(a) 
        is amended by inserting ``such gains and losses shall be 
        determined without regard to section 1202 and'' after ``except 
        that''.
            (6) The table of sections for part I of subchapter P of 
        chapter 1 is amended by adding after the item relating to 
        section 1201 the following new item:

                              ``Sec. 1202. Exclusion for gain from 
                                        certain small business 
                                        stock.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to stock issued (or treated as issued) on or after January 1, 
1993.

                                 <all>

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