To amend the Internal Revenue Code of 1986 to encourage investment in small companies.

Summary: Small Investment Tax Relief Act of 2004 - Amends the Internal Revenue Code to allow a noncorporate taxpayer a tax exclusion for up to $100,000 of the gain from the sale of exchange of certain publicly traded small business stock held for more than one year.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Investment Tax Relief Act of 
2004''.

SEC. 2. EXCLUSION FOR GAIN FROM STOCK OF SMALL, PUBLICLY TRADED 
              COMPANIES.

    (a) In General.--Part 1 of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by inserting after section 1202 the following new section:

``SEC. 1203. EXCLUSION FOR GAIN FROM STOCK OF SMALL, PUBLICLY TRADED 
              COMPANIES.

    ``(a) General Rule.--In the case of a taxpayer other than a 
corporation, gross income shall not include any gain from the sale or 
exchange of section 1203 stock held for more than 1 year.
    ``(b) Limitation.--The amount excluded under subsection (a) for a 
taxable year may not exceed $100,000 ($50,000 in the case of a separate 
return by a married individual).
    ``(c) 1203 Stock.--For purposes of subsection (a), the term `1203 
stock' means any stock--
            ``(1) in a C corporation which is acquired after the date 
        of the enactment of this section if--
                    ``(A) as of the date of acquisition, such 
                corporation is a qualified small business, and
                    ``(B) except as provided in subsection (e), such 
                stock is acquired--
                            ``(i) in exchange for money or other 
                        property, or
                            ``(ii) as compensation for services 
                        provided to such corporation (other than 
                        services performed as an underwriter of such 
                        stock), and
            ``(2) which, at the time of sale or exchange giving rise to 
        gain to be excluded under subsection (a), is publicly traded on 
        any established domestic national or regional stock exchange or 
        stock market, the Over the Counter Bulletin Board, or the 
        National Quotation Bureau.
For purposes of the preceding sentence, rules similar to the rules of 
section 1202(c)(3) shall apply.
    ``(d) Qualified Small Business.--For purposes of this section--
            ``(1) In general.--The term `qualified small business' 
        means any domestic corporation which is a C corporation if the 
        market capitalization of such corporation (or any predecessor 
        thereof), determined with respect to the date of acquisition of 
        stock, is not more than $150,000,000.
            ``(2) Determination of market capitalization.--For purposes 
        of paragraph (1), market capitalization, with respect to the 
        date of acquisition of stock, shall be--
                    ``(A) the amount equal to--
                            ``(i) the closing price of a share of stock 
                        in the corporation as of the end of the 
                        reporting period ending immediately before such 
                        date of acquisition, multiplied by
                            ``(ii) the number of outstanding shares of 
                        such stock in the corporation as of the end of 
                        such period, or
                    ``(B) in the case that subparagraph (A) does not 
                apply, determined (by taking into account all facts and 
                circumstances) on the basis of the most recent amounts 
                paid for each class of stock in the corporation 
                outstanding on the date of the acquisition of the 1203 
                stock.
            ``(3) Reporting period.--For purposes of paragraph (2), the 
        term `reporting period' means the period for which the most 
        recent annual or quarterly report is required to be filed with 
        the Securities and Exchange Commission under section 13(a)(2) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)(2), 
        78o(d)) or periodic information required under section 15(d) of 
        such Act (15 U.S.C. 78o(d)), as the case may be.
            ``(4) Aggregation rules.--For purposes of paragraph (1), 
        rules similar to the rules of section 1202(d)(3) shall apply.
    ``(e) Additional Rules.--
            ``(1) In general.--For purposes of this section, rules 
        similar to the rules of subsections (f), (g), (h), (i), (j), 
        and (k) of section 1202 shall apply, except that subsection 
        (j)(1)(A) of section 1202 shall be applied by substituting `1 
        year' for `5 years'.
            ``(2) Qualified small business stock.--Sales and exchanges 
        taken into account under section 1202 shall not be taken into 
        account under this section.''.
    (b) Conforming Amendments.--
            (1) The first sentence of section 642(c)(4) of such Code is 
        amended--
                    (A) by inserting ``or 1203(a)'' after ``1202(a)'', 
                and
                    (B) by inserting ``or 1203, as the case may be'' 
                before the period at the end.
            (2) Section 643(a)(3) of such Code is amended by striking 
        ``section 1202'' and inserting ``sections 1202 and 1203''.
            (3) Section 691(c)(4) of such Code is amended by inserting 
        ``1203,'' after ``1202,''.
            (4) Section 871(a)(2) of such Code is amended by striking 
        ``section 1202'' and inserting ``sections 1202 and 1203''.
            (5) The second sentence of section 1044(d) of such Code is 
        amended by inserting ``or 1203'' before the period at the end.
            (6) Section 1202(b) of such Code is amended by inserting at 
        the end the following new subsection:
            ``(4) Section 1203 stock.--Sales and exchanges taken into 
        account under section 1203 shall not be taken into account 
        under this section.''.
    (c) Clerical Amendment.--The table of sections for part 1 of 
subchapter P of chapter 1 of such Code is amended by inserting after 
the item relating to section 1202 the following new item:

                              ``Sec. 1203. Exclusion for gain from 
                                        stock of small, publicly traded 
                                        companies.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to securities acquired after the date of the enactment of this 
Act.