A bill to amend the Internal Revenue Code of 1986 to modify the partial exclusion for gain from certain small business stocks.

Summary: Invest in Small Business Act of 2007 - Amends the Internal Revenue Code to: (1) increase the exclusion from gross income of gain from the sale or exchange of qualified small business stock from 50 to 75 % of such gain and to reduce the required holding period for such stock from five to four years; (2) allow a 100% exclusion of gain from such stock sold by a business in an empowerment zone; (3) deny a tax exclusion for small business stock held by a 25% controlled corporate group; (4) repeal as an item of tax preference under the alternative minimum tax the exclusion of gain from the sale of small business stock; (5) repeal the 28% income tax rate on the gain from the sale of small business stock which is not excluded from gross income; (6) revise the definition of "qualified small business" for certain tax purposes to mean a C corporation with aggregate gross assets not exceeding $100 million (currently, $50 million); and (7) provide for an annual inflation adjustment to the small business aggregate gross asset amount after 2007.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Invest in Small Business Act of 
2007''.

SEC. 2. INCREASED EXCLUSION AND OTHER MODIFICATIONS APPLICABLE TO 
              QUALIFIED SMALL BUSINESS STOCK.

    (a) Increased Exclusion.--
            (1) In general.--Paragraph (1) of section 1202(a) of the 
        Internal Revenue Code of 1986 (relating partial exclusion for 
        gain from certain small business stock) is amended to read as 
        follows:
            ``(1) In general.--Gross income shall not include 75 
        percent of any gain from the sale or exchange of qualified 
        small business stock held for more than 4 years.''.
            (2) Empowerment zone businesses.--Subparagraph (A) of 
        section 1202(a)(2) of such Code is amended--
                    (A) by striking ``60 percent'' and inserting ``100 
                percent'', and
                    (B) by striking ``50 percent'' and inserting ``75 
                percent''.
            (3) 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.''.
            (4) Conforming amendments.--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 ``4 years''.
    (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 2007, 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 2006' 
                        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, 2007.
            (2) Special rule for stock issued before december 31, 
        2007.--The amendments made by subsections (a), (b), and (c) 
        shall apply to sales or exchanges--
                    (A) made after December 31, 2007,
                    (B) of stock issued before such date,
                    (C) by a taxpayer other than a corporation.