To amend the Internal Revenue Code of 1986 to increase and modify the exclusion relating to qualified small business stock and to provide that the exclusion relating to incentive stock options will no longer be a minimum tax preference.

Summary: Increases from 50 to 100 percent the amount of gain excluded from the sale of certain small business stock. Reduces from five to three years the holding period applicable to such a sale. Makes such exclusion available to corporations. Makes the stock of larger businesses eligible.Repeals the minimum tax preference for the exclusion for incentive stock options.

SECTION 1. INCREASED EXCLUSION AND OTHER MODIFICATIONS APPLICABLE TO 
              QUALIFIED SMALL BUSINESS STOCK.

    (a) Increased Exclusion.--
            (1) In general.--Subsection (a) of section 1202 of the 
        Internal Revenue Code of 1986 (relating to 50-percent exclusion 
        for gain from certain small business stock) is amended--
                    (A) by striking ``50 percent'' and inserting ``100 
                percent'', and
                    (B) by striking ``50-Percent'' in the heading and 
                inserting ``100-Percent''.
            (2) Conforming amendments.--
                    (A) Subparagraph (A) of section 1(h)(5) of such 
                Code is amended to read as follows:
                    ``(A) collectibles gain, over''.
                    (B) Section 1(h) of such Code is amended by 
                striking paragraph (8).
                    (C) Paragraph (9) of section 1(h) of such Code is 
                amended by striking ``, gain described in paragraph 
                (7)(A)(i), and section 1202 gain'' and inserting ``and 
                gain described in paragraph (7)(A)(i)''.
                    (D) The heading for section 1202 of such Code is 
                amended by striking ``50-percent'' and inserting ``100-
                percent''.
                    (E) The table of sections for part I of subchapter 
                P of chapter 1 of such Code is amended by striking 
                ``50-percent'' in the item relating to section 1202 and 
                inserting ``100-percent''.
    (b) Reduction in Holding Period.--
            (1) In general.--Subsection (a) of section 1202 of such 
        Code is amended by striking ``5 years'' and inserting ``3 
        years''.
            (2) Conforming amendment.--Subsections (g)(2)(A) and 
        (j)(1)(A) of section 1202 of such Code are each amended by 
        striking ``5 years'' and inserting ``3 years''.
    (c) Exclusion Available to Corporations.--
            (1) In general.--Subsection (a) of section 1202 of such 
        Code is amended by striking ``other than a corporation''.
            (2) Technical amendment.--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 controlled group not 
        eligible.--Stock of a member of a parent-subsidiary controlled 
        group (as defined in subsection (d)(3)) shall not be treated as 
        qualified small business stock while held by another member of 
        such group.''
    (d) Repeal of Minimum Tax Preference.--
            (1) In general.--Subsection (a) of section 57 of such Code 
        (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)''.
    (e) Stock of Larger Businesses Eligible for Exclusion.--
            (1) In general.--Paragraph (1) of section 1202(d) of such 
        Code (defining qualified small business) is amended by striking 
        ``$50,000,000'' each place it appears and inserting 
        ``$300,000,000''.
            (2) Inflation adjustment.--Section 1202(d) of such Code is 
        amended by adding at the end the following:
            ``(4) Inflation adjustment of asset limitation.--In the 
        case of stock issued in any calendar year after 2002, the 
        $300,000,000 amount contained in paragraph (1) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) 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 2001' for `calendar year 1992' in 
                subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $10,000, such amount shall be rounded to the 
        nearest multiple of $10,000.''
    (f) Repeal of Per-Issuer Limitation.--Section 1202 of such Code is 
amended by striking subsection (b).
    (g) Other Modifications.--
            (1) Repeal of working capital limitation.--Section 
        1202(e)(6) of such Code (relating to working capital) is 
        amended--
                    (A) in subparagraph (B), by striking ``2 years'' 
                and inserting ``5 years''; and
                    (B) by striking the last sentence.
            (2) Exception from redemption rules where business 
        purpose.--Section 1202(c)(3) of such Code (relating to certain 
        purchases by corporation of its own stock) is amended by adding 
        at the end the following:
                    ``(D) Waiver where business purpose.--A purchase of 
                stock by the issuing corporation shall be disregarded 
                for purposes of subparagraph (B) if the issuing 
                corporation establishes that there was a business 
                purpose for such purchase and one of the principal 
                purposes of the purchase was not to avoid the 
                limitations of this section.''
    (h) Qualified Trade or Business.--Section 1202(e)(3) of such Code 
(defining qualified trade or business) is amended by inserting ``and'' 
at the end of subparagraph (C), by striking ``, and'' at the end of 
subparagraph (D) and inserting a period, and by striking subparagraph 
(E).
    (i) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section apply to stock issued after the 
        date of enactment of this Act.
            (2) Special rule.--The amendments made by subsections (a), 
        (c), (e), (f), and (g)(1) apply to stock issued after August 
        10, 1993.

SEC. 2. REPEAL OF MINIMUM TAX PREFERENCE FOR EXCLUSION FOR INCENTIVE 
              STOCK OPTIONS.

    (a) In General.--Subsection (b) of section 56 of the Internal 
Revenue Code of 1986 is amended by striking paragraph (3).
    (b) Effective Date.--The amendment made by this section shall apply 
to options exercised in calendar years beginning after the date of the 
enactment of this Act.