Increased exclusion and other modifications applicable to qualified small business stock

(a)

Increased exclusion

(1)

In general

Subsection (a) of section 1202 of the Internal Revenue Code of 1986 (relating to exclusion) is amended to read as follows:

(a)

Exclusion

Gross income shall not include any gain from the sale or exchange of qualified small business stock held for more than 3 years.

(2)

Rule relating to stock held among members of controlled group

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 25-percent controlled group not eligible

(A)

In general

Stock of a member of a 25-percent controlled group shall not be treated as qualified small business stock while held by another member of such group. (B)

25-percent controlled group

For purposes of subparagraph (A), the term 25-percent controlled group means any controlled group of corporations as defined in section 1563(a)(1), except that— (i)more than 25 percent shall be substituted for at least 80 percent each place it appears in section 1563(a)(1), and (ii)section 1563(a)(4) shall not apply.

(3)

Conforming amendments

(A)Subsections (b)(2), (g)(2)(A), and (j)(1)(A) of section 1202 of such Code are each amended by striking 5 years and inserting 3 years. (B)Section 1223(13) of such Code is amended by striking 1202(a)(2). (C)The heading for section 1202 of such Code is amended by striking

Partial

. (D)The item relating to section 1202 in the table of sections for part I of subchapter P of chapter 1 of such Code is amended to read as follows:

Sec. 1202. Exclusion for gain from certain small business stock.

(b)

Repeal of minimum tax preference

(1)

In general

Subsection (a) of section 57 of the Internal Revenue Code of 1986 (relating to items of tax preference) 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). (c)

Repeal of 28 percent capital gains rate on qualified small business stock

(1)

In general

Subparagraph (A) of section 1(h)(4) of the Internal Revenue Code of 1986 is amended to read as follows:

(A)collectibles gain, over

(2)

Conforming amendments

(A)Section 1(h) of such Code is amended by striking paragraph (7). (B)(i)Section 1(h) of such Code is amended by redesignating paragraphs (8), (9), (10), (11), (12), and (13) as paragraphs (7), (8), (9), (10), (11), and (12), respectively. (ii)Sections 163(d)(4)(B), 854(b)(5), 857(c)(2)(D) of such Code are each amended by striking section 1(h)(11)(B) and inserting section 1(h)(10)(B). (iii)The following sections of such Code are each amended by striking section 1(h)(11) and inserting section 1(h)(10): (I)Section 301(f)(4). (II)Section 306(a)(1)(D). (III)Section 584(c). (IV)Section702(a)(5). (V)Section 854(a). (VI)Section 854(b)(2). (iv)The heading of section 857(c)(2) is amended by striking 1(h)(11) and inserting 1(h)(10). (d)

Increase aggregate asset limitation for qualified small businesses

(1)

In general

Paragraph (1) of section 1202(d) of the Internal Revenue Code of 1986 (relating to qualified small business) is amended by striking $50,000,000 each place it appears and inserting $100,000,000. (2)

Inflation adjustment

Section 1202(d) of such Code is amended by adding at the end the following new paragraph:

(4)

Inflation adjustment

(A)

In general

In the case of any taxable year beginning in a calendar year after 2009, each of the $100,000,000 dollar amounts in paragraph (1) shall be increased by an amount equal to— (i)such dollar amount, multiplied by (ii)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 2008 for calendar year 1992 in subparagraph (B) thereof. (B)

Rounding

If any amount as adjusted under subparagraph (A) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $100.

(e)

Effective date

(1)

In general

The amendments made by this section apply to stock issued after December 31, 2008. (2)

Special rule for stock issued before January 1, 2009

The amendments made by subsections (a), (b), and (c) shall apply to sales or exchanges— (A)made after December 31, 2008, (B)of stock issued on or before such date, and (C)by a taxpayer other than a corporation.