[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 635 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 635

 To amend the Internal Revenue Code of 1986 to provide incentives for 
   investments in disadvantaged and women-owned business enterprises.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 23, 1997

  Mr. Specter 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 incentives for 
   investments in disadvantaged and women-owned business enterprises.

    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 ``Minority and Women Capital Formation 
Act of 1997''.

SEC. 2. INCENTIVES FOR INVESTMENTS IN DISADVANTAGED AND WOMEN-OWNED 
              ENTERPRISES.

    (a) Subchapter P of chapter 1 of the Internal Revenue Code of 1986 
(relating to capital gains and losses) is amended by adding at the end 
thereof the following new part:

``PART VI--INCENTIVES FOR INVESTMENTS IN DISADVANTAGED AND WOMEN-OWNED 
                              ENTERPRISES

                              ``Subpart A. Initial investment 
                                        incentives.
                              ``Subpart B. Capital gain provisions.
                              ``Subpart C. General provisions.

               ``Subpart A--Initial Investment Incentives

                              ``Sec. 1301. Deduction for investment in 
                                        minority and women venture 
                                        capital funds.
                              ``Sec. 1302. Deduction for investment in 
                                        small minority and women's 
                                        business corporations.
                              ``Sec. 1303. Taxpayer may elect credit in 
                                        lieu of deduction.
                              ``Sec. 1304. Recapture provisions.

``SEC. 1301. DEDUCTION FOR INVESTMENT IN MINORITY AND WOMEN VENTURE 
              CAPITAL FUNDS.

    ``(a) General Rule.--There shall be allowed as a deduction an 
amount equal to the sum of the aggregate bases of--
            ``(1) qualified minority fund interests, and
            ``(2) qualified women's fund interests,
which are acquired by the taxpayer during the taxable year at their 
original issuance (directly or through an underwriter), and which are 
held by the taxpayer as of the close of such taxable year.
    ``(b) Limitations.--The amount allowable as a deduction under 
subsection (a) (1) or (2), respectively, for any taxable year shall not 
exceed $300,000 ($150,000 in the case of a separate return by a married 
individual).
    ``(c) Qualified Minority Fund Interest.--For purposes of this part, 
the term `qualified minority fund interest' means any stock in a 
domestic corporation or partnership interest in a domestic partnership 
if--
            ``(1) such stock or partnership interest (as the case may 
        be) is issued after the date of the enactment of this part 
        solely in exchange for money,
            ``(2) such corporation or partnership (as the case may be) 
        was formed exclusively for purposes of--
                    ``(A) acquiring at original issuance equity 
                interests in qualified minority corporations, or
                    ``(B) making loans to such corporations, and
            ``(3) at least 70 percent of the total bases of its assets 
        is represented by--
                    ``(A) investments referred to in paragraph (2), and
                    ``(B) cash and cash equivalents.
For purposes of paragraph (2), the term `equity interests' means stock, 
warrants, and convertible securities.
    ``(d) Qualified Women's Fund Interest.--For purposes of this part, 
the term `qualified women's fund interest' shall be determined under 
subsection (c) by substituting `qualified women's corporations' for 
`qualified minority corporations' in paragraph (2)(B).

``SEC. 1302. DEDUCTION FOR INVESTMENT IN SMALL MINORITY AND WOMEN'S 
              BUSINESS CORPORATIONS.

    ``(a) General Rule.--There shall be allowed as a deduction an 
amount equal to the sum of the aggregate bases of--
            ``(1) small minority business stock, and
            ``(2) small women's business corporations,
which are acquired by the taxpayer during the taxable year at its 
original issuance (directly or through an underwriter), and which are 
held by the taxpayer as of the close of such taxable year.
    ``(b) Limitations.--
            ``(1) Noncorporate taxpayers.--
                    ``(A) In general.--In the case of a taxpayer other 
                than a corporation, the amount allowable as a deduction 
                under subsection (a)(1) or (2), respectively, for any 
                taxable year shall not exceed the lesser of--
                            ``(i) $50,000 ($25,000 in the case of a 
                        separate return by a married individual), or
                            ``(ii) $500,000 ($250,000 in the case of a 
                        separate return by a married individual), 
                        reduced by the aggregate amount allowable as a 
                        deduction under subsection (a) (1) or (2), 
                        respectively, to the taxpayer for prior taxable 
                        years.
                    ``(B) Carryover.--If the amount otherwise 
                deductible under subsection (a) exceeds the limitation 
                under subparagraph (A)(i) for any taxable year, the 
                amount of such excess shall be treated as an amount 
described in subsection (a) which is paid in the following taxable 
year.
                    ``(C) Special rule.--The amount allowable as a 
                deduction under subparagraph (A) (i) or (ii) with 
                respect to any joint return shall be allocated equally 
                between the spouses in determining the limitation under 
                subparagraph (A)(ii) for any subsequent taxable year.
            ``(2) Corporate taxpayer.--In the case of a corporation, 
        the amount allowable as a deduction under subsection (a) (1) or 
        (2), respectively, for any taxable year shall not exceed 
        $100,000.
    ``(c) Small Minority Business Stock.--For purposes of this part, 
the term `small minority business stock' means any stock in a qualified 
minority corporation if--
            ``(1) as of the date of the issuance of such stock, the 
        total bases of property owned or leased by such corporation 
        does not exceed $12,000,000,
            ``(2) such stock is issued after the date of the enactment 
        of this part solely in exchange for money, and
            ``(3) such corporation elects to treat such stock as small 
        minority business stock for purposes of this section.
An election under paragraph (3), once made, shall be irrevocable.
    ``(d) Small Women's Business Stock.--For purposes of this part, the 
term `small women's business stock' means any stock in a qualified 
women's corporation if--
            ``(1) as of the date of the issuance of such stock, the 
        total bases of property owned or leased by such corporation 
        does not exceed $12,000,000,
            ``(2) such stock is issued after the date of the enactment 
        of this part solely in exchange for money, and
            ``(3) such corporation elects to treat such stock as small 
        women's business stock for purposes of this section.
An election under paragraph (3), once made, shall be irrevocable.
    ``(e) Issuer Limitation.--The aggregate amount of stock for which 
an issuer may make an election under subsection (c)(3) or (d)(3) shall 
not exceed $5,000,000.

``SEC. 1303. TAXPAYER MAY ELECT CREDIT IN LIEU OF DEDUCTION.

    ``(a) Minority and Women Venture Capital Funds.--
            ``(1) In general.--A taxpayer may elect, in lieu of the 
        deduction under section 1301, to take a credit against the tax 
        imposed by this chapter for the taxable year in an amount equal 
        to 15 percent of the sum of the aggregate bases of--
                    ``(A) qualified minority fund interests, and
                    ``(B) qualified women's fund interest,
        which are acquired by the taxpayer during the taxable year at 
        their original issuance (directly or through an underwriter), 
        and which are held by the taxpayer at the end of the taxable 
        year.
            ``(2) Limitations.--The amount allowable as a credit under 
        paragraph (1) for any taxable year shall not exceed the lesser 
        of--
                    ``(A) $500,000 ($250,000 in the case of a separate 
                return by a married individual), or
                    ``(B) $7,000,000, ($3,500,000 in the case of a 
                separate return by a married individual), reduced by 
                the amount of the credit allowed under paragraph (1) 
                for all preceding taxable years.
            ``(3) Carryover.--If the amount otherwise allowable as a 
        credit under paragraph (1) exceeds the limitation under 
        paragraph (2)(A) for any taxable year, the amount of such 
        excess shall, subject to the limitation of paragraph (2), be 
        treated as an amount which is allowable as a credit in the 
        following taxable year.
    ``(b) Small Minority and Women's Business Corporations.--
            ``(1) In general.--A taxpayer may elect, in lieu of the 
        deduction under section 1302, to take a credit against the tax 
        imposed by this chapter for the taxable year in an amount equal 
        to 10 percent of the sum of the aggregate bases of--
                    ``(A) small minority business stock
                    ``(B) small women's business corporations,
        which are acquired by the taxpayer during the taxable year at 
        their original issuance (directly or through an underwriter), 
        and which are held by the taxpayer at the end of the taxable 
        year.
            ``(2) Limitations.--The amount allowable as a credit under 
        paragraph (1) for any taxable year shall not exceed the lesser 
        of--
                    ``(A) $250,000 ($125,000 in the case of a separate 
                return by a married individual), or
                    ``(B) $5,000,000, ($2,500,000 in the case of the 
                separate return by a married individual), reduced by 
                the amount of the credit allowed under paragraph (1) 
                for all preceding taxable years.
            ``(3) Carryover.--If the amount otherwise allowable as 
a credit under paragraph (1) exceeds the limitation under paragraph 
(2)(A) for any taxable year, the amount of such excess shall, subject 
to the limitation of paragraph (2), be treated as an amount which is 
allowable as a credit in the following taxable year.
    ``(c) Application With Other Provisions.--For purposes of this 
title, any credit allowed under this section shall be treated in the 
same manner as a credit allowed under subpart B of part IV of 
subchapter A.
    ``(d) Election.--An election under this section for any taxable 
year shall be made at such time and in such manner as the Secretary may 
prescribe and shall apply with respect to all acquisitions to which 
this subpart applies for such taxable year.

``SEC. 1304. RECAPTURE PROVISIONS.

    ``(a) Basis Reduction.--For purposes of this title, the basis of 
any qualified minority or women's fund interest or small minority or 
women's business stock shall be reduced by the amount of the deduction 
allowed under section 1301 or 1302, or the credit allowed under section 
1303, with respect to such property. In any case in which the deduction 
allowable under subsection (a) of section 1301 or 1302 (as the case may 
be) is limited by reason of subsection (b) of such section, or in any 
case in which the credit allowable under subsection (a)(1) or (b)(1) of 
section 1303 is limited by reason of subsection (a)(2) or (b)(2) of 
section 1303, the deduction or credit shall be allocated 
proportionately among the qualified minority or women's fund interests 
or small minority or women's businesses stock, whichever is applicable, 
acquired during the taxable year on the basis of their respective bases 
(as determined before any reduction under this subsection).
    ``(b) Deduction Recaptured as Ordinary Income.--
            ``(1) In general.--For purposes of section 1245--
                    ``(A) any property the basis of which is reduced 
                under subsection (a) (and any other property the basis 
                of which is determined in whole or in part by reference 
                to the adjusted basis of such property) shall be 
                treated as section 1245 property, and
                    ``(B) any reduction under subsection (a) shall be 
                treated as a deduction allowed for depreciation.
        If an exchange of any stock the basis of which is reduced under 
        subsection (a) qualifies under section 354(a), 355(a), or 
        356(a), the amount of gain recognized under section 1254 by 
        reason of this paragraph shall not exceed the amount of gain 
        recognized in the exchange (determined without regard to this 
        paragraph).
            ``(2) Certain events treated as dispositions.--For purposes 
        of this section, if--
                    ``(A) a deduction was allowable under section 1301, 
                or a credit was allowable under section 1303, with 
                respect to any stock in a corporation or interest in a 
                partnership and such corporation or partnership, as the 
                case may be, ceases to meet the requirements of 
                paragraphs (2) and (3) of section 1301(c), or
                    ``(B) a deduction was allowable under section 1302, 
                or a credit was allowable under section 1303, with 
                respect to any stock in a corporation and such 
                corporation ceases to be a qualified minority 
                corporation or qualified women's corporation, whichever 
                is applicable, the taxpayer shall be treated as having 
                disposed of such property for an amount equal to its 
                fair market value.
    ``(c) Interest Charged if Disposition Within 5 Years.--
            ``(1) In general.--If a taxpayer disposes of any property 
        the basis of which is reduced under subsection (a) before the 
        date 5 years after the date of its acquisition by the taxpayer, 
        the tax imposed by this chapter for the taxable year in which 
        such disposition occurs shall be increased by interest at the 
        underpayment rate (established under section 6621(a)(2))--
                    ``(A) on the additional tax which would have been 
                imposed under this chapter for the taxable year in 
                which such property was acquired if such property had 
                not been taken into account under section 1301, 1302, 
                or 1303, whichever is applicable;
                    ``(B) for the period beginning on the due date for 
                the taxable year in which the property was acquired and 
                ending on the due date for the taxable year in which 
                the disposition occurs.
        For purposes of the preceding sentence, the term `due date' 
        means the due date (determined without regard to extensions for 
        filing the return of the tax imposed by this chapter).
            ``(2) Special rule.--Any increase in tax under paragraph 
        (1) shall not be treated as a tax imposed by this chapter, for 
        purposes of determining the amount of any credit allowable 
        under this chapter or the amount of the minimum tax imposed by 
        section 55.

                  ``Subpart B--Capital Gain Provisions

                              ``Sec. 1311. Exclusion of gain on sale by 
                                        qualified minority or women's 
                                        fund.
                              ``Sec. 1312. Deferral of capital gain 
                                        reinvested in certain property.

``SEC. 1311. EXCLUSION OF GAIN ON SALE BY QUALIFIED MINORITY OR WOMEN'S 
              FUND.

    ``(a) General Rule.--Gross income shall not include 50 percent of 
any gain on the sale or exchange of any property by a qualified 
minority or women's fund if such property was acquired after the date 
of the enactment of this part and was held by such fund for at least 5 
years.
    ``(b) Qualified Minority Fund.--For purposes of this section, the 
term `qualified minority fund' means any domestic corporation or 
domestic partnership which meets the requirements of paragraphs (2) and 
(3) of section 1301(c).
    ``(c) Qualified Women's Fund.--For purposes of this section, the 
term `qualified women's fund' means any domestic corporation or 
partnership meeting the requirements of paragraphs (2) and (3) of 
section 1301(c) (as modified by section 1301(d)).

``SEC. 1312. DEFERRAL OF CAPITAL GAIN REINVESTED IN CERTAIN PROPERTY.

    ``(a) General Rule.--Except as otherwise provided in this section, 
in the case of an individual, any qualified reinvested capital gain 
shall be taken into account for purposes of this title--
            ``(1) in the 9th taxable year following the taxable year of 
        the sale or exchange, or
            ``(2) in such earlier taxable year (or years) following the 
        taxable year of the sale or exchange as the taxpayer may 
        provide.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--
                    ``(A) In general.--The amount of the gain to which 
                subsection (a) applies shall not exceed $500,000, 
                reduced by the aggregate amount of gain of the taxpayer 
                to which subsection (a) applied for prior taxable 
                years. This subparagraph shall be applied separately 
                for property described in subsections (c)(2) (A) and 
                (B) and for property described in subsection (c)(2) (C) 
                and (D).
                    ``(B) Special rule.--The amount of gain to which 
                subsection (a) applied on a joint return for any 
                taxable year shall be allocated equally between the 
                spouses in determining the limitation under 
                subparagraph (A) for any subsequent taxable year.
            ``(2) Ineligibility of certain taxpayers.--Subsection (a) 
        shall not apply to--
                    ``(A) a married individual (as defined in section 
                7703) who does not file a joint return for the taxable 
                year, or
                    ``(B) any estate or trust.
    ``(c) Qualified Reinvested Capital Gain.--For purposes of this 
section--
            ``(1) Qualified reinvested capital gain.--The term 
        qualified reinvested capital gain' means the amount of any 
        long-term capital gain (determined without regard to this 
        section) from any sale or exchange after the date of the 
        enactment of this part to which an election under this section 
        applies but only to the extent that the amount of such gain 
        exceeds the excess (if any) of--
                    ``(A) the amount realized on such sale or exchange, 
                over
                    ``(B) the cost of any qualified property which the 
                taxpayer elects to take into account under this 
                paragraph with respect to such sale or exchange.
        For purposes of subparagraph (B), the cost of any property 
        shall be reduced by the portion of such cost previously taken 
        into account under this paragraph.
            ``(2) Qualified property.--The term `qualified property' 
        means--
                    ``(A) any qualified minority fund interest acquired 
                by the taxpayer at its original issuance (directly or 
                through an underwriter),
                    ``(B) any small minority business stock acquired by 
                the taxpayer at its original issuance (directly or 
                through an underwriter),
                    ``(C) any qualified women's fund interest acquired 
                by the taxpayer at its original issuance (directly or 
                through an underwriter), and
                    ``(D) any small women's business stock acquired by 
                the taxpayer at its original issuance (directly or 
                through an underwriter).
        Such term shall not include any property taken into account by 
        the taxpayer under section 1301, 1302, or 1303.
            ``(3) Reinvestment period.--The term `reinvestment period' 
        means, with respect to any sale or exchange, the period 
        beginning on the date of the sale or exchange and ending on the 
        day 1 year after the close of the taxable year in which the 
        sale or exchange occurs.
    ``(d) Termination of Deferral in Certain Cases.--
            ``(1) Certain dispositions, etc., of replacement 
        property.--
                    ``(A) In general.--If the taxpayer disposes of any 
                qualified property before the date 5 years after the 
                date of its purchase--
                            ``(i) any amount treated as a qualified 
                        reinvested capital gain by reason of the 
                        purchase of such property (to the extent not 
                        previously taken into account under subsection 
                        (a)) shall be taken into account for the 
                        taxable year in which such disposition or 
                        cessation occurs, and
                            ``(ii) the tax imposed by this chapter for 
                        the taxable year in which such disposition or 
                        cessation occurs shall be increased by interest 
                        at the underpayment rate (established under 
                        section 6621(a)(2))--
                                    ``(I) on the additional tax which 
                                would have been imposed under this 
                                chapter (but for this section) for the 
                                taxable year of the sale or exchange, 
                                and
                                    ``(II) for the period of the 
                                deferral under this section.
                Any increase in tax under clause (ii) shall not be 
                treated as a tax imposed by this chapter for purposes 
                of determining the amount of any credit allowable under 
                this chapter or the amount of the minimum tax imposed 
                by section 55.
                    ``(B) Certain events treated as dispositions.--For 
                purposes of subparagraph (A), rules similar to the 
                rules of section 1304(b)(2) shall apply.
            ``(2) Last taxable year.--In the case of the last taxable 
        year of any taxpayer, any qualified reinvestment capital gain 
        (to the extent not previously taken into account under 
        subsection (a)) shall be taken into account for such last 
        taxable year.
    ``(e) Coordination With Installment Method Reporting.--This section 
shall not apply to any gain from any installment sale (as defined in 
section 453(b)) if section 453(a) applies to such sale.
    ``(f) Statute of Limitations.--If any gain is realized by the 
taxpayer on any sale or exchange to which an election under this 
section applies, then--
            ``(1) the statutory period for the assessment of any 
        deficiency with respect to such gain shall not expire before 
        the expiration of 3 years from the date the Secretary is 
        notified by the taxpayer (in such manner as the Secretary may 
        by regulations prescribe) of--
                    ``(A) the taxpayer's cost of purchasing any 
                qualified property,
                    ``(B) the taxpayer's intention not to purchase 
                qualified property within the reinvestment period, or
                    ``(C) a failure to make such purchase within the 
                reinvestment period, and
            ``(2) such deficiency may be assessed before the expiration 
        of such 3-year period notwithstanding the provisions of any law 
        or rule of law which would otherwise prevent such assessment.

                    ``Subpart C--General Provisions

                              ``Sec. 1321. Qualified minority 
                                        corporation defined.
                              ``Sec. 1322. Qualified women's 
                                        corporation defined.
                              ``Sec. 1323. Other definitions and 
                                        special rules.

``SEC. 1321. QUALIFIED MINORITY CORPORATION DEFINED.

    ``For purposes of this part, the term `qualified minority 
corporation' means any domestic corporation if--
            ``(1) 50 percent or more of the total value of the stock of 
        such corporation is held by individuals who are members of a 
        minority,
            ``(2) throughout the 5-year period ending on the date as of 
        which the determination is being made (or, if shorter, 
        throughout the period such corporation was in existence), such 
        corporation has been engaged in the active conduct of a trade 
        or business or in startup activities relating to a trade or 
        business, and
            ``(3) substantially all of the assets of such corporation 
        are used in the active conduct of a trade or business or in 
        startup activities related to a trade or business.

``SEC. 1322. QUALIFIED WOMEN'S CORPORATION.

    ``For purposes of this part, the term `qualified women's 
corporation' means any domestic corporation if--
            ``(1) 50 percent or more of the total value of the stock of 
        such corporation is held by individuals who are women,
            ``(2) the management and daily business operations of the 
        corporation are controlled by one or more women, and
            ``(3) the requirements of paragraphs (2) and (3) of section 
        1301 are met with respect to the corporation.

``SEC. 1323. OTHER DEFINITIONS AND SPECIAL RULES.

    ``(a) Minority Individuals.--For purposes of this part, individuals 
are members of a minority if the participation of such individuals in 
the free enterprise system is hampered because of social disadvantage 
within the meaning of section 301(d) of the Small Business Investment 
Act of 1958.
    ``(b) Controlled Group Rules.--
            ``(1) In general.--All corporations which are members of 
        the same controlled groups shall be treated as 1 corporation 
        for purposes of this part.
            ``(2) Controlled group.--For purposes of paragraph (1), the 
        term `controlled group' has the meaning given such term by 
        section 179(d)(7).''
    (b) The table of parts for subchapter P of chapter 1 of such Code 
is amended by adding at the end thereof the following item:
                              ``Part VI. Incentives for investments in 
                                        disadvantaged and women-owned 
                                        enterprises.''
    (c) The amendments made by this section shall apply to taxable 
years ending after the date of the enactment of this Act.
                                 <all>