Entrepreneurship Promotion Act of 1994

Summary: Entrepreneurship Promotion Act of 1994 - Amends the Internal Revenue Code to provide for the nonrecognition of gain from the sale of eligible small business stock if the proceeds are used to purchase other eligible small business stock.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Entrepreneurship Promotion Act of 
1994''.

SEC. 2. ROLLOVER OF GAIN FROM SALE OF ELIGIBLE SMALL BUSINESS STOCK 
              INTO OTHER ELIGIBLE SMALL BUSINESS STOCK.

    (a) In General.--Part III of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to common nontaxable exchanges) 
is amended by adding at the end the following new section:

``SEC. 1045. ROLLOVER OF GAIN FROM SALE OF ELIGIBLE SMALL BUSINESS 
              STOCK INTO OTHER ELIGIBLE SMALL BUSINESS STOCK.

    ``(a) Nonrecognition of Gain.--In the case of the sale of any 
eligible small business stock with respect to which the taxpayer elects 
the application of this section, gain from such sale shall be 
recognized only to the extent that the amount realized on such sale 
exceeds--
            ``(1) the cost of any other eligible small business stock 
        purchased (as defined by section 1043(b)(4)) by the taxpayer 
        during the 18-month period beginning on the date of such sale, 
        reduced by
            ``(2) any portion of such cost previously taken into 
        account under this section.
This section shall not apply to any gain which is treated as ordinary 
income for purposes of this subtitle.
    ``(b) Eligible Small Business Stock.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        section, the term `eligible small business stock' means any 
        stock in a C corporation if--
                    ``(A) as of the date of issuance, such corporation 
                is an eligible small business, and
                    ``(B) such stock is acquired by the taxpayer at its 
                original issue (directly or through an underwriter) in 
                exchange for money or other property (not including 
                stock).
            ``(2) Active business requirement.--Subsection (a) shall 
        not apply to the sale of any eligible small business stock 
        unless, during substantially all of the taxpayer's holding 
        period for such stock, the corporation meets the active 
        business requirements of subsection (d) and such corporation is 
        a C corporation. For purposes of the preceding sentence, a rule 
        similar to the rule of section 1202(c)(2)(B) shall apply.
            ``(3) Special rule for stock issued by s corporations.--In 
        the case of stock which, as of the date of the sale to which 
        subsection (a) applies, is stock of an eligible small business 
        but which, as of the date of issuance, was not stock of an 
        eligible small business solely by reason of the fact that the 
        corporation was an S corporation--
                    ``(A) such stock shall be treated as meeting the 
                requirement of paragraph (1)(A), but
                    ``(B) subsection (a) shall not apply to so much of 
                the gain which is attributable to the period before 
                such stock became stock of an eligible small business.
            ``(4) Certain purchases by corporation of its own stock.--
        Rules similar to the rules of section 1202(c)(3) shall apply 
        for purposes of this subsection.
    ``(c) Eligible Small Business.--For purposes of this section, the 
term `eligible small business' means any domestic corporation which is 
a C corporation if the aggregate annual gross receipts of such 
corporation (or any predecessor thereof) for all taxable years ending 
before the date of issuance did not exceed $20,000,000. For purposes of 
the preceding sentence, rules similar to the rules of paragraphs (2) 
and (3) of section 448(c) shall apply.
    ``(d) Active Business Requirement.--For purposes of subsection 
(b)(2), the requirements of this subsection are met by a corporation 
for any period if during such period--
            ``(1) at least 80 percent (by value) of the assets of such 
        corporation are used by such corporation in the active conduct 
        of 1 or more trades or businesses, and
            ``(2) such corporation is an eligible corporation (as 
        defined in section 1202(e)(4)).
For purposes of the preceding sentence, a rules similar to the rules of 
paragraphs (2), (5), (6), (7) and (8) of section 1202(e) shall apply.
    ``(e)  Basis Adjustments.--If gain from any sale is not recognized 
by reason of subsection (a), such gain shall be applied to reduce (in 
the order acquired) the basis for determining gain or loss of any 
eligible small business stock purchased by the taxpayer during the 18-
month period described in subsection (a). This subsection shall not 
apply for purposes of section 1202.
    ``(f) Statute of Limitations.--If any gain is realized by the 
taxpayer on any sale to which an election under this section applies, 
then--
            ``(1) the statutory period for the assessment of any 
        deficiency with respect to such gain shall not expire before 
        the expiration of 3 years from the date the Secretary is 
        notified by the taxpayer (in such manner as the Secretary may 
        by regulations prescribe) of--
                    ``(A) the taxpayer's cost of purchasing any 
                eligible small business stock,
                    ``(B) the taxpayer's intention not to purchase such 
                stock within the reinvestment period, or
                    ``(C) a failure to make such purchase within the 
                reinvestment period, and
            ``(2) such deficiency may be assessed before the expiration 
        of such 3-year period notwithstanding the provisions of any law 
        or rule of law which would otherwise prevent such assessment.''
    (b) Conforming Amendment.--Paragraph (24) of section 1016(a) of 
such Code is amended--
            (1) by striking ``or 1044'' and inserting ``, 1044, or 
        1045'', and
            (2) by striking ``or 1044(d)'' and inserting ``, 1044(d), 
        or 1045(e)''.
    (c) Clerical Amendment.--The table of sections for part III of 
subchapter O of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 1045. Rollover of gain from sale 
                                        of eligible small business 
                                        stock into other eligible small 
                                        business stock.''
    (d) Effective Date.--The amendments made by this section shall 
apply to sales on and after the date of the enactment of this Act, in 
taxable years ending on and after such date.