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.

Summary: Small Business Opportunity and Growth Act of 2003 - Amends the Internal Revenue Code to provide that the tax imposed on the recognition of built-in gain by an S corporation shall not apply to the extent such gain is reinvested in the business.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Opportunity and 
Growth Act of 2003''.

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 (determined by taking into account only 
        assets held on March 27, 2003) and elects the application of 
        this subsection, the amount of such gain on which tax is 
        imposed by subsection (a) shall not exceed the amount equal to 
        the excess of--
                    ``(A) the amount realized on the disposition of 
                those assets that resulted in such gain, over
                    ``(B) 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) Payment of tax.--If--
                    ``(A) the return of an S corporation shows that no 
                tax is required to be paid on an amount of recognized 
                built-in gain for any taxable year by reason of 
                paragraph (1) because the S corporation anticipates 
                making qualified expenditures during the succeeding 
                taxable year, and
                    ``(B) as of the close of such succeeding taxable 
                year, tax is required to be paid on such amount because 
                of the failure to make such expenditures,
        then the tax imposed by this chapter for the first taxable year 
        of the nonrecognition period shall be increased by 10 percent 
        of the increase in tax (determined without regard to this 
        paragraph) for such year by reason of the failure to make such 
        expenditures.
            ``(3) 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).
            ``(4) 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 succeeding 
        taxable year.
            ``(5) Pre-effective date debt.--For purposes of paragraph 
        (2)(B), the term `pre-effective date debt' means--
                    ``(A) debt incurred before March 27, 2003, 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).
            ``(6) 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.
            ``(7) Existing s corporation.--The term `existing S 
        corporation' means any S corporation for which an election 
        under section 1362 is filed before March 27, 2003.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning during or after the calendar year which 
includes the date of the enactment of this Act but only with respect to 
built-in gain recognized after such date.