Minority Equity Capital Formation Act of 1993

Summary: Minority Equity Capital Formation Act of 1993 - Amends the Internal Revenue Code to allow a minority venture capital fund credit of 20 percent of the aggregate bases of qualified minority fund interests, with limitations.  Sets forth recapture provisions for such stock.  Makes such credit a part of the general business credit and allows it to offset a portion of the tentative minimum tax.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Minority Equity Capital Formation 
Act of 1993''.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress finds that--
            (1) there is a severe shortage of capital available and 
        targeted for investment in the United States minority business 
        marketplace and that such shortage constitutes a ``capital 
        gap'';
            (2) the capital gap is a significant barrier to increased 
        minority entrepreneurship, employment, and economic 
        development;
            (3) the development of targeted venture capital resources 
        is an important and needed stimulus for economic development, 
        employment growth, and wealth creation;
            (4) existing Federal incentives are inadequate to address 
        the capital gap;
            (5) the existing system of federally regulated specialized 
        small business investment companies (and similar public and 
        private entities who support and invest in the minority small 
        business marketplace) should be fully utilized to aggregate and 
        efficiently deploy new capital investments; and
            (6) it is essential, and should be a high priority of the 
        United States Government, to pursue a broad array of Federal 
        tax and other domestic policies that will serve as a catalyst 
        for the creation of capital pools for investment in the 
        minority enterprise marketplace.
    (b) Purposes.--The purposes of this Act are to--
            (1) authorize a Federal tax credit for investment in 
        qualified minority fund interests;
            (2) increase the availability of venture capital for 
        minority small business;
            (3) strengthen existing public and private minority venture 
        capital financial institutions (as well as to encourage the 
        formation of such new institutions); and
            (4) through these actions, support minority enterprise and 
        economic development, increase minority entrepreneurship and 
        employment, and to enhance the opportunities for minority 
        persons to participate fully in the free enterprise system.

SEC. 3. INCENTIVES FOR INVESTMENTS IN MINORITY VENTURE CAPITAL FUNDS.

    (a) General Rule.--Part IV of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to credits against tax) is 
amended by adding at the end thereof the following new subpart:

  ``Subpart H--Incentives for Investments in Minority Venture Capital 
                                 Funds

                              ``Sec. 54. Credit for investment in 
                                        minority venture capital funds.
                              ``Sec. 54A. Recapture provisions.
                              ``Sec. 54B. Definitions and special 
                                        rules.

``SEC. 54. CREDIT FOR INVESTMENT IN MINORITY VENTURE CAPITAL FUNDS.

    ``(a) General Rule.--For purposes of section 38, the minority 
venture capital fund credit determined under this section is an amount 
equal to 20 percent of the aggregate bases of qualified minority fund 
interests which are acquired by the taxpayer during the taxable year at 
their original issuance (directly or through an underwriter) and which 
are held by the taxpayer at the end of the taxable year.
    ``(b) Limitations.--The credit determined under paragraph (1) for 
any taxable year shall not exceed the lesser of--
            ``(1) $250,000 ($125,000 in the case of a separate return 
        by a married individual), or
            ``(2) $7,000,000, ($3,500,000 in the case of a separate 
        return by a married individual), reduced by the amount of the 
        credit allowed under paragraph (1) for all preceding taxable 
        years.

``SEC. 54A. RECAPTURE PROVISIONS.

    ``(a) Basis Reduction.--
            ``(1) In general.--If a credit is determined under section 
        54(a) with respect to any qualified minority fund interest, the 
        basis of such qualified minority fund interest shall be reduced 
        by the credit so determined.
            ``(2) Certain dispositions.--If during any taxable year 
        there is a recapture under subsection (c) with respect to any 
        qualified minority fund interest, the basis of such interest 
        (immediately before the event resulting in such recapture) 
        shall be increased by an amount equal to the recapture amount. 
        For purposes of the preceding sentence, the term `recapture 
        amount' means any increase in tax under subsection (c) (or 
        adjustment in carrybacks or carryovers under subsection (c)) to 
        the extent attributable to the amount referred to in subsection 
        (c)(1)(A).
    ``(b) Tax Credit Recaptured as Ordinary Income.--
            ``(1) In general.--For purposes of section 1245--
                    ``(A) any property the basis of which is reduced 
                under subsection (a) (and any other property the basis 
                of which is determined in whole or in part by reference 
                to the adjusted basis of such property) shall be 
                treated as section 1245 property, and
                    ``(B) any reduction under subsection (a) shall be 
                treated as a deduction allowed for depreciation.
        If an exchange of any stock or partnership interest the basis 
        of which is reduced under subsection (a) qualifies under 
        section 351(a), 354(a), 355(a), or 356(a), the amount of gain 
        recognized under section 1245 by reason of this paragraph shall 
        not exceed the amount of gain recognized in the exchange 
        (determined without regard to this paragraph).
            ``(2) Certain events treated as dispositions.--For purposes 
        of this subsection and subsection (c), if a credit was 
        determined under section 54 with respect to any stock in a 
        corporation or interest in a partnership and such stock or 
        partnership interest, as the case may be, ceases to be a 
        qualified minority fund interest, the taxpayer shall be treated 
        as having disposed of such property (as of the time of such 
        cessation) for an amount equal to its fair market value.
    ``(c) Increase in Tax if Disposition Within 5 Years.--
            ``(1) In general.--If a taxpayer disposes of any qualified 
        minority fund interest before the close of the fifth taxable 
        year after the taxable year in which such interest was acquired 
        by the taxpayer, the tax imposed by this chapter for the 
        taxable year in which such disposition occurs shall be 
        increased by the sum of--
                    ``(A) the recapture percentage of the aggregate 
                decrease in the credits allowed under section 38 for 
                all prior taxable years which would have resulted 
                solely from reducing to zero any credit determined 
                under this subpart with respect to such interest, and
                    ``(B) the interest amount determined under 
                paragraph (3).
            ``(2) Recapture percentage.--For purposes of paragraph (1), 
        the recapture percentage is--
                    ``(A) 100 percent if the disposition occurs during 
                the first, second, or third taxable year after the 
                taxable year in which the qualified minority fund 
                interest was acquired, and
                    ``(B) 50 percent if the disposition occurs in the 
                fourth or fifth taxable year after the taxable year in 
                which such interest was acquired.
            ``(3) Interest amount.--For purposes of paragraph (1), the 
        interest amount determined under this paragraph is interest 
        determined at the overpayment rate established under section 
        662(a)(2) (without regard to section 6621(c))--
                    ``(A) on the recapture percentage of each decrease 
                in credit referred to in paragraph (1)(A) for any prior 
                taxable year,
                    ``(B) for the period beginning on the due date for 
                such prior taxable year and ending on the due date for 
                the taxable year in which the disposition occurs.
        For purposes of the preceding sentence, the term `due date' 
        means the due date (determined without regard to extensions) 
        for filing the return of the tax imposed by this chapter.
            ``(4) Carrybacks and carryovers adjusted.--In the case of 
        any disposition described in paragraph (1), the carrybacks and 
        carryovers under section 39 shall be adjusted by reason of such 
        disposition.
            ``(5) Coordination with other credits, etc.--Any increase 
        in tax under paragraph (1) shall not be treated as a tax 
        imposed by this chapter for purposes of determining the amount 
        of--
                    ``(A) any credit allowable under subpart A, B, D, 
                or G, and
                    ``(B) the minimum tax imposed by section 55.
            ``(6) Special rules.--For purposes of this subsection--
                    ``(A) Mere change in form.--A taxpayer shall not be 
                treated as disposing of any qualified minority fund 
                interest by reason of a mere change in the form of the 
                taxpayer, the entity which issued such interest or any 
                qualified minority business.
                    ``(B) Exception for certain transfers.--Paragraph 
                (1) shall not apply to any transfer by reason of death 
                or in a transaction to which section 381(a) applies.

``SEC. 54B. DEFINITIONS AND SPECIAL RULES.

    ``(a) Qualified Minority Business Defined.--For purposes of this 
subpart--
            ``(1) General rule.--The term `qualified minority business' 
        means any domestic business if--
                    ``(A) 50 percent or more of the total value of the 
                ownership interests in such business are held (directly 
                or indirectly) by individuals who are members of a 
                minority,
                    ``(B) throughout the 5-year period ending on the 
                date as of which the determination is being made (or, 
                if shorter, throughout the period such business was in 
                existence), such business has been engaged in the 
                active conduct of a trade or business or in startup 
                activities relating to a trade or business, and
                    ``(C) substantially all of the assets of such 
                business are being used in the active conduct of a 
                trade or business or in startup activities related to a 
                trade or business.
            ``(2) Domestic business.--For purposes of paragraph (1), 
        the term `domestic business' means--
                    ``(A) any domestic corporation or domestic 
                partnership, and
                    ``(B) any trade or business conducted in the United 
                States as a sole proprietorship.
    ``(b) Qualified Minority Fund Interest Defined.--For purposes of 
this subpart, the term `qualified minority fund interest' means any 
stock in a domestic corporation or partnership interest in a domestic 
partnership if--
            ``(1) such stock or partnership interest (as the case may 
        be) is issued after the date of the enactment of this subpart 
        solely in exchange for money,
            ``(2) such corporation or partnership (as the case may be) 
        was formed exclusively for purposes of--
                    ``(A) acquiring at original issuance (directly or 
                through an underwriter) owner interests in qualified 
                minority businesses, or
                    ``(B) making loans to such businesses, and
            ``(3) at least 80 percent of the total bases of its assets 
        is represented by--
                    ``(A) investments referred to in paragraph (2), and
                    ``(B) cash and cash equivalents.
    ``(c) Minority Individuals.--For purposes of this subpart, 
individuals are members of a minority if the participation of such 
individuals in the free enterprise system is hampered because of social 
disadvantage within the meaning of section 301(d) of the Small Business 
Investment Act of 1958.
    ``(d) Controlled Group Rules.--
            ``(1) In general.--All corporations which are members of 
        the same controlled groups shall be treated as 1 corporation 
        for purposes of this subpart.
            ``(2) Controlled group.--For purposes of paragraph (1), the 
        term `controlled group' has the meaning given such term by 
        section 179(d)(7).''
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 of such Code is amended by striking ``plus'' at the end of 
paragraph (7), by striking the period at the end of paragraph (8) and 
inserting ``, plus'', and by adding at the end thereof the following 
new paragraph:
            ``(9) the minority venture capital fund credit determined 
        under section 54.''
    (c) Credit May Offset 25 Percent of Minimum Tax.--Subsection (c) of 
section 38 of such Code is amended by redesignating paragraph (2) as 
paragraph (3) and by inserting after paragraph (1) the following new 
paragraph:
            ``(2) Credit for investments in minority venture capital 
        funds may offset 25 percent of minimum tax.--
                    ``(A) In general.--In the case of a C corporation, 
                the amount determined under paragraph (1)(A) shall be 
                reduced by the lesser of--
                            ``(i) the portion of the credit under 
                        section 54 not used against the normal 
                        limitation, or
                            ``(ii) 25 percent of the taxpayer's 
                        tentative minimum tax for the taxable year.
                    ``(B) Portion of the credit under section 54 not 
                used against normal limit.--For purposes of 
                subparagraph (A), the portion of the credit under 
                section 54 for any taxable year not used against the 
                normal limitation is the excess (if any) of--
                            ``(i) the portion of the credit under 
                        subsection (a) which is attributable to the 
                        credit under section 54, over
                            ``(ii) the limitation of paragraph (1) 
                        (without regard to this paragraph) reduced by 
                        the portion of the credit under subsection (a) 
                        which is not so attributable.
                    ``(C) Limitation.--In no event shall this paragraph 
                permit the allowance of a credit which would result in 
                a net chapter 1 tax less than an amount equal to 10 
                percent of the amount determined under section 
                55(b)(1)(A) without regard to the alternative tax net 
                operating loss deduction. For purposes of the preceding 
                sentence, the term `net chapter 1 tax' means the sum of 
                the regular tax liability for the taxable year and the 
                tax imposed by section 55 for the taxable year, reduced 
                by the sum of the credits allowable under this part for 
                the taxable year (other than under section 34).''
    (d) Clerical Amendment.--The table of subparts for part IV 
subchapter A of chapter 1 of such Code is amended by adding at the end 
thereof the following item:

                              ``Subpart H. Incentives for investments 
                                        in enterprises owned by 
                                        disadvantaged individuals.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.