[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1918 Introduced in House (IH)]

  1st Session
                                H. R. 1918

 To amend the Internal Revenue Code of 1986 to modify the exclusion of 
                 gain on certain small business stock.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 22, 1995

Mr. Matsui (for himself and Mr. English of Pennsylvania) 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 modify the exclusion of 
                 gain on certain small business stock.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Enterprise Capital Formation Act of 
1995''.

SEC. 2. FINDINGS.

    The Congress hereby finds that--
            (1) investments in small business venture capital stock 
        should be encouraged because of both the special risks and the 
        social and economic benefits associated with such investments,
            (2) the exclusion from income of gain on small business 
        venture capital stock is an important incentive for individuals 
        and corporations to invest in such stock, and
            (3) tax incentives for investments in capital assets in 
        general should be supplemented with an effective tax incentive 
        for investments in small business venture capital stock.

SEC. 3. MODIFICATIONS TO EXCLUSION OF GAIN ON CERTAIN SMALL BUSINESS 
              STOCK.

    (a) Increase in Exclusion.--Subsection (a) of section 1202 of the 
Internal Revenue Code of 1986 is amended by striking ``50 percent'' and 
inserting ``75 percent''.
    (b) Exclusion Available to Corporations.--
            (1) In general.--Subsection (a) of section 1202 of such 
        Code is amended by striking ``other than a corporation''.
            (2) Technical amendment.--Subsection (c) of section 1202 of 
        such Code is amended by adding at the end the following new 
        paragraph:
            ``(4) Stock held among members of controlled group not 
        eligible.--Stock of a member of a parent-subsidiary controlled 
        group (as defined in subsection (d)(3)) shall not be treated as 
        qualified small business stock while held by another member of 
        such group.''
    (c) Repeal of Minimum Tax Preference.--
            (1) In general.--Subsection (a) of section 57 of such Code 
        is amended by striking paragraph (7).
            (2) Technical amendment.--Subclause (II) of section 
        53(d)(1)(B)(ii) of such Code is amended by striking ``, (5), 
        and (7)'' and inserting ``and (5)''.
    (d) Stock of Larger Businesses Eligible for Exclusion.--
            (1) Paragraph (1) of section 1202(d) of such Code is 
        amended by striking ``$50,000,000'' each place it appears and 
        inserting ``$100,000,000''.
            (2) Subsection (d) of section 1202 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(4) Inflation adjustment of asset limitation.--In the 
        case of stock issued in any calendar year after 1996, the 
        $100,000,000 amount contained in paragraph (1) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar
                 year in which the taxable year begins, determined by 
substituting `calendar year 1995' for `calendar year 1992' in 
subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $10,000, such amount shall be rounded to the 
        nearest multiple of $10,000.''
    (e) Repeal of Per-Issuer Limitation.--Section 1202 of such Code is 
amended by striking subsection (b).
    (f) Other Modifications.--
            (1) Repeal of working capital limitation.--Paragraph (6) of 
        section 1202(e) of such Code is amended--
                    (A) by striking ``within 2 years'' in subparagraph 
                (B), and
                    (B) by striking the last sentence.
            (2) Exception from redemption rules where business 
        purpose.--Paragraph (3) of section 1202(c) of such Code is 
        amended by adding at the end the following new subparagraph:
                    ``(D) Waiver where business purpose.--A purchase of 
                stock by the issuing corporation shall be disregarded 
                for purposes of subparagraphs (A) and (B) if the 
                issuing corporation establishes that there was a 
                business purpose for such purchase and such purchase is 
                not inconsistent with the purposes of this section.''
    (g) Effective Date.--The amendments made by this section shall 
apply to stock issued after December 31, 1994.
    (h) Election To Apply Amendments to Stock Issued After August 10, 
1993.--
            (1) In general.--The amendments made by this section shall 
        apply to any qualified stock issued after August 10, 1993, if 
        the taxpayer elects to apply such amendments with respect to 
        such stock.
            (2) Qualified stock.--For purposes of paragraph (1), the 
        term ``qualified stock'' means stock--
                    (A) which is held by the taxpayer on December 31, 
                1994, and
                    (B) which was not qualified small business stock 
                (as defined section 1202(c) of the Internal Revenue 
                Code of 1986) when issued but which would be qualified 
                small business stock (as so defined) if the amendments 
                made by this section applied to stock issued after 
                August 10, 1993.
            (3) Recognition of gain.--For purposes of the Internal 
        Revenue Code of 1986--
                    (A) In general.--Any qualified stock to which the 
                election under paragraph (1) applies shall be treated--
                            (i) as having been sold on January 1, 1995, 
                        for an amount equal to its fair market value on 
                        such date, and
                            (ii) as having been reacquired on such date 
                        for an amount equal to such fair market value.
                The preceding sentence shall not apply for purposes of 
                determining whether the stock is qualified small 
                business stock (as so defined).
                    (B) Treatment of gain or loss.--
                            (i) Any gain resulting from subparagraph 
                        (A) shall be treated as received or accrued on 
                        January 1, 1995, and shall be recognized 
                        notwithstanding any provision of the Internal 
                        Revenue Code of 1986.
                            (ii) Any loss resulting from subparagraph 
                        (A) shall not be allowed for any taxable year.
            (4) Election.--An election under paragraph (1) shall be 
        made in such manner as the Secretary may prescribe and shall 
        specify the stock for which such election is made. Such an 
        election, once made with respect to any stock, shall be 
        irrevocable.
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