[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4675 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 4675

 To amend the Internal Revenue Code of 1986 to provide that the tax on 
recognized built-in gain of an S corporation shall not apply to amounts 
                      reinvested in the business.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 7, 2002

  Mr. Ramstad (for himself, Mr. Crane, Mr. Herger, Mr. Sam Johnson of 
  Texas, Mr. English, Mr. McInnis, Mr. Foley, and Mr. Brady of Texas) 
 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 provide that the tax on 
recognized built-in gain of an S corporation shall not apply to amounts 
                      reinvested in the business.

    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 ``Small Business Opportunity and 
Growth Act of 2002''.

SEC. 2. EXCEPTION FROM TAX ON RECOGNIZED BUILT-IN GAIN OF S 
              CORPORATIONS.

    (a) In General.--Section 1374 of the Internal Revenue Code of 1986 
(relating to tax imposed on certain built-in gains) is amended by 
redesignating subsection (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection:
    ``(e) Exception for Reinvested Amounts.--
            ``(1) In general.--If an existing S corporation has a net 
        recognized built-in gain for any taxable year in the 
        recognition period and elects the application of this 
        subsection--
                    ``(A) the tax (if any) imposed by subsection (a) on 
                such gain shall not be imposed until the second 
                succeeding taxable year, and
                    ``(B) the amount of such gain on which tax is 
                imposed by subsection (a) for such second succeeding 
                taxable year shall not exceed the amount equal to the 
                excess of--
                            ``(i) the amount realized on the 
                        disposition of those assets that resulted in 
                        such gain, over
                            ``(ii) the excess of--
                                    ``(I) the aggregate qualified 
                                expenditures made by the S corporation 
                                during the nonrecognition period, over
                                    ``(II) the portion (if any) of such 
                                expenditures previously taken into 
                                account under this subsection.
            ``(2) Qualified expenditures.--For purposes of this 
        subsection, the term `qualified expenditures' means--
                    ``(A) amounts chargeable to capital account for 
                property used in a trade or business of the S 
                corporation,
                    ``(B) payments of principal and interest on pre-
                effective date debt of the S corporation, and
                    ``(C) amounts distributed to shareholders to the 
                extent such amounts do not exceed the aggregate of such 
                shareholders' tax imposed by this chapter (and State 
                and local taxes) on amounts attributable to the 
                disposition of those assets that resulted in such net 
                recognized built-in gain.
        Payments of principal as part of a refinancing of pre-effective 
        date debt shall not be taken into account under subparagraph 
        (B).
            ``(3) Nonrecognition period.--For purposes of this 
        subsection, the term `nonrecognition period' means, with 
        respect to a taxable year for which an S corporation has a net 
        recognized built-in gain, such taxable year and the first and 
        second succeeding taxable years.
            ``(4) Pre-effective date debt.--For purposes of paragraph 
        (2)(B), the term `pre-effective date debt' means--
                    ``(A) debt incurred before the date of the 
                enactment of this paragraph, and
                    ``(B) debt incurred on or after such date to 
                refinance debt described in subparagraph (A) (or 
                refinanced indebtedness meeting the requirements of 
                this subparagraph) to the extent that (immediately 
                after the refinancing) the principal amount of the 
                indebtedness resulting from the refinancing does not 
                exceed the principal amount of the refinanced 
                indebtedness (immediately before the refinancing).
            ``(5) Anti-abuse rule.--Solely for purposes of determining 
        the treatment of distributions to shareholders under section 
        1368 during the recognition period--
                    ``(A) any increase in the accumulated adjustment 
                account and shareholder basis by reason of the 
                disposition of those assets that resulted in the net 
                recognized built-in gain shall not exceed the amounts 
                described in paragraph (2)(C), and
                    ``(B) any increase in such account and shareholder 
                basis which is not permitted under subparagraph (A) 
                shall occur immediately after the recognition period.
            ``(6) Existing s corporation.--The term `existing S 
        corporation' means any S corporation for which an election 
        under section 1362 is filed before May 7, 2002.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.
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