Loans from individual retirement plans for qualified small business capital assets

(a)

Exemption from prohibited transaction rules

Section 4975 of the Internal Revenue Code of 1986 (relating to tax on prohibited transactions) is amended by redesignating subsections (h) and (i) as subsections (i) and (j), respectively, and by inserting after subsection (g) the following new subsection:

(h)

Special rule for loans for qualified small business capital assets

(1)

In general

The prohibitions provided in subsection (c) shall not apply to any qualified small business loan from an individual retirement plan to the individual for whose benefit the plan is maintained to the extent that such loan (when added to the outstanding balance of all other such loans) does exceed the lesser of— (A)$50,000, reduced by the excess (if any) of— (i)the highest outstanding balance of such loans during the 1-year period ending on the day before the date on which such loan was made, over (ii)the outstanding balance of such loans on the date on which such loan was made, or (B)the greater of— (i)one-half of the amount available for distribution under the plan, or (ii)$10,000. (2)

Qualified small business loan

For purposes of this subsection— (A)

In general

The term qualified small business loan means a loan the proceeds of which are used by the individual for whose benefit the individual retirement plan is established to acquire qualified small business capital assets. (B)

Qualified small business capital assets

The term qualified small business capital assets means— (i)stock in a domestic corporation acquired by the taxpayer at its original issue, (ii)any capital or profits interest in a domestic partnership acquired by the taxpayer from the partnership, and (iii)tangible property acquired by the taxpayer substantially all of the use of which is in a trade or business of the taxpayer,

but only if the taxpayer is an active participant in such trade or business or, in the case of interests in a corporation or partnership described in clauses (i) and (ii), only if the taxpayer is an active participant in a trade or business of such corporation or partnership.

(3)

Requirement that loan be repayable within 5 years

Paragraph (1) shall not apply to any loan unless such loan, by its terms, is required to be repaid within 5 years. (4)

Requirement of level amortization

Rules similar to the rules of section 72(p)(2)(C) shall apply for purposes of this subsection.

(b)

Conforming amendment

Subsection (e) of section 408 of such Code (relating to tax treatment of accounts and annuities) is amended by adding at the end the following new paragraph:

(6)

Exception for loans from individual retirement plans for qualified small business capital expenditures

In the case of a qualified small business loan (as defined in section 4975(h)(2)) from an individual retirement plan— (A)such plan shall not fail to be treated as an individual retirement plan under paragraph (2) or (3) solely because of such loan, and (B)such loan shall not be treated as a distribution from such plan.

(c)

Effective date

The amendments made by this section shall apply to loans made after the date of the enactment of this Act.