To amend the Internal Revenue Code of 1986 to allow distributions from retirement accounts to start a business.

Summary: Entrepreneurship Tax Cut Act of 2011 - Amends the Internal Revenue Code to exclude from gross income amounts distributed from tax-exempt retirement plans, health savings accounts, Roth individual retirement accounts (IRAs), and qualified tuition programs to acquire an ownership interest (at least 40%) in an entity in connection with beginning an active trade or business.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``The Entrepreneurship Tax Cut Act of 
2011''.

SEC. 2. EXCLUSION FROM GROSS INCOME OF QUALIFIED CAPITAL DISTRIBUTION 
              FROM TAX-FAVORED ACCOUNTS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code is amended by inserting before section 140 the 
following new section:

``SEC. 139F. QUALIFIED CAPITAL DISTRIBUTIONS.

    ``(a) In General.--Gross income shall not include any qualified 
capital distribution from a tax-favored account.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified capital distribution.--
                    ``(A) In general.--The term `qualified capital 
                distribution' means any distribution to an individual 
                from a tax-favored account of such individual to the 
                extent such distribution is used to acquire an eligible 
                interest in an entity in connection with beginning an 
                active trade or business.
                    ``(B) Eligible interest.--For purposes of this 
                paragraph, the term `eligible interest' means, with 
                respect to any entity, an ownership interest in such 
                entity of at least 40 percent of the total combined 
                voting power of all classes of interests entitled to 
                vote, or at least 40 percent of the total value of all 
                ownership interests in the entity.
                    ``(C) Sole proprietorships.--Any capital 
                contribution to a sole proprietorship shall be treated 
                as meeting the requirements of subparagraphs (A) and 
                (B) if such requirements would be met if such 
                proprietorship were a corporation.
                    ``(D) Beginning of trade or business.--Rules 
                similar to the rules of section 195(c)(2) shall apply 
                for purposes of this paragraph.
            ``(2) Tax-favored account.--The term `tax-favored account' 
        means any of the following:
                    ``(A) An eligible retirement plan (as defined in 
                section 402(c)(8)(B)).
                    ``(B) A health savings account described in section 
                223.
                    ``(C) A Roth IRA.
                    ``(D) A qualified tuition program described in 
                section 529.
    ``(c) Amount Distributed Must Be Repaid.--
            ``(1) In general.--Any individual who receives a qualified 
        capital distribution may make one or more contributions in an 
        aggregate amount not to exceed the amount of such distribution 
        to a tax-favored account of which such individual is a 
        beneficiary and to which a rollover contribution of such 
        distribution could be made under section 402(c), 403(a)(4), 
        403(b)(8), 408(d)(3), or 457(e)(16), 223(f)(5),or 529(c)(3)(C), 
        as the case may be.
            ``(2) Treatment of repayments of distributions from 
        eligible retirement plans other than iras.--For purposes of 
        this title, if a contribution is made pursuant to paragraph (1) 
        with respect to a qualified capital distribution from an 
        eligible retirement plan other than an individual retirement 
        plan, then the taxpayer shall, to the extent of the amount of 
        the contribution, be treated as having received the qualified 
        capital distribution in an eligible rollover distribution (as 
        defined in section 402(c)(4)) and as having transferred the 
        amount to the eligible retirement plan in a direct trustee to 
        trustee transfer within 60 days of the distribution.
            ``(3) Treatment of repayments for distributions from 
        iras.--For purposes of this title, if a contribution is made 
        pursuant to paragraph (1) with respect to a qualified capital 
        distribution from an individual retirement plan, then, to the 
        extent of the amount of the contribution, the qualified capital 
        distribution shall be treated as a distribution described in 
        section 408(d)(3) and as having been transferred to the 
        eligible retirement plan in a direct trustee to trustee 
        transfer within 60 days of the distribution.
            ``(4) Other tax-favored accounts.--For purposes of this 
        title, if a contribution is made pursuant to paragraph (1) with 
        respect to a qualified capital distribution--
                    ``(A) from a health savings account described in 
                section 223, or
                    ``(B) from a qualified tuition program described in 
                section 529,
        then, to the extent of the amount of the contribution, the 
        qualified capital distribution shall be treated as a 
        distribution described in section 529(c)(3)(C) or 223(f)(5), as 
        the case may be, and as having been transferred to such account 
        or program, as the case may be, within 60 days of the 
        distribution.
    ``(d) Denial of Double Benefit.--The basis in any ownership 
interest with respect to the acquisition of which an amount was 
excluded from gross income under subsection (a) shall be reduced by an 
amount equal to the amount so excluded. The Secretary may prescribe 
such regulations as may be necessary to carry out the purposes of this 
subsection in the case of capital contributions to sole 
proprietorships.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 72(t) of such Code is amended 
        by adding at the end the following new subparagraph:
                    ``(H) Qualified capital distributions.--Any 
                distribution excludable from gross income under section 
                139F (relating to qualified capital distributions).''.
            (2) Subsection (a) of section 1016 of such Code is amended 
        by striking ``and'' at the end of paragraph (35), by striking 
        the period at the end of paragraph (36) and inserting ``, 
        and'', and by adding at the end the following new paragraph:
            ``(37) to the extent provided in section 139F(d).''.
    (c) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting before 
the item relating to section 140 the following new section:

``Sec. 139F. Qualified capital distributions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after the date of the enactment of this 
Act.