Small Business Development Fund Act of 1997

Summary: Small Business Development Fund Act of 1997 - Amends the Internal Revenue Code to impose upon each individual who ha
s a 50
 percent strategy-based capital gains tax reduction (as defined in this Act) for the taxable year a tax equal to one percent of the strategy amount for that taxable year. Requires the Secretary of the Treasury to publish a list of applicable tax reduction strategies for the next calendar quarter.  Makes the above amendment effective only if a decrease in the maximum Federal capital gains tax rate is enacted during 1997. 
Amends Code provisions relating to the treatment of certain interests in corporations as stock or indebtedness to treat a corporate interest as stock if such interest:  (1) has a maximum weighted average maturity of over 40 years; or (2) is payable in stock of the issuer or a related person.  Requires an issuer to be treated as issuing an interest in stock if:  (1) the issuer is a corporation required to file annual financial statements with the Securities and Exchange Commission; (2) such statements do not characterize such interest as indebtedness; and (3) such interest has a maximum weighted average maturity of over 15 years.  Provides exceptions.  Makes such amendment effective only if no decrease in the maximum Federal capital gains tax rate is enacted during 1997. 
Establishes in the Treasury the Small Business Development Fund and appropriates to such Fund amounts equal to any taxes received as a result of amendments made by this Act.  Provides Fund assistance application requirements.  Allows the Fund to provide such financial assistance to credit unions, community development corporations, entities engaged in job creation or enterprise and commercial development, or financial institutions needing capital to begin or expand a small business activity in a low-income community.

SECTION 1. SHORT TITLE

    This Act may be referred to as the ``Small Business Development 
Fund Act of 1997''.

SEC. 2. TAX ON CAPITAL GAINS REDUCTION STRATEGY AMOUNT OR ALTERNATIVE 
              DENIAL OF INTEREST DEDUCTION ON CERTAIN DEBT INSTRUMENTS, 
              AND ESTABLISHMENT OF TRUST FUND TO RECEIVE TAX AMOUNTS.

    (a) Imposition of Tax If Decrease In Capital Gains Rate Enacted In 
1997.--
            (1) In general.--Part I of subchapter P of chapter 1 of the 
        Internal Revenue Code of 1986 (relating to treatment of capital 
        gains) is amended by adding at the end the following new 
        section:

``SEC. 1203. TAX ON CAPITAL GAINS REDUCTION STRATEGY AMOUNT.

    ``(a) In General.--There is hereby imposed, on each taxpayer which 
has a 50 percent strategy-based reduction for the taxable year, a tax 
equal to 1 percent of the capital gains reduction strategy amount for 
the taxable year.
    ``(b) 50 Percent Strategy-Based Reduction.--For purposes of this 
section, a taxpayer has a 50 percent strategy-based reduction for the 
taxable year if--
            ``(1) the amount of tax imposed by this title for the 
        taxable year on capital gains of the taxpayer is 50 percent or 
        less of,
            ``(2) the amount of tax which would have been imposed by 
        this title for the taxable year on capital gains of the 
        taxpayer but for the use of applicable tax reduction strategies 
        by the taxpayer (or by a party to a transaction with the 
        taxpayer or by a person related to the taxpayer or to such 
        party), as determined by the Secretary.
The Secretary shall make the determination required under paragraph (2) 
by reference to transactions which would have yielded substantially the 
same non-tax result. For purposes of this subsection, the amount of tax 
imposed by this title (or the amount described in paragraph (2) which 
would have been so imposed) which is attributable to capital gains 
shall be the amount determined by the Secretary pursuant to 
regulations.
    ``(c) Capital Gains Reduction Strategy Amount.--For purposes of 
this section, the term `capital gains reduction strategy amount' means 
the excess of--
            ``(1) the amount described in subsection (b)(2), over
            ``(2) the amount described in subsection (b)(1).
    ``(d) Applicable Tax Reduction Strategy.--For purposes of this 
section--
            ``(1) In general.--With respect to any transaction, the 
        term `applicable tax reduction strategy' means any product, 
        method, strategy, or action--
                    ``(A) generally used by taxpayers primarily for the 
                purpose of reducing the tax under this title on capital 
                gains, and
                    ``(B) identified by the Secretary, on a list 
                published under paragraph (2), as being an applicable 
                tax reduction strategy for purposes of the calendar 
                quarter in which such transaction occurs.
            ``(2) Quarterly listing.--Not less than once each calendar 
        quarter, the Secretary shall publish in the Federal Register a 
        list of applicable tax reduction strategies for purposes of the 
        next calendar quarter.''
            (2) Clerical amendment.--The table of sections for part I 
        of subchapter P of chapter 1 of such Code is amended by adding 
        at the end the following new item:

                              ``Sec. 1203. Tax on capital gains 
                                        reduction strategy amount.''
            (3) Effective date.--The amendments made by this 
        subsection--
                    (A) shall take effect only if a decrease in the 
                maximum Federal tax rate applicable to capital gains of 
                individuals is enacted in 1997, and
                    (B) if the conditions of subparagraph (A) are met, 
                shall apply to taxable years beginning after the date 
                of the enactment of this Act.
    (b) Denial of Interest Deduction On Certain Debt Instruments If 
Capital Gains Rate Decrease Not Enacted In 1997.--
            (1) In general.--Section 385 of such Code (relating to 
        treatment of certain interests in corporations as stock or 
        indebtedness) is amended by adding at the end the following new 
        subsection:
    ``(d) Certain Interests Treated as Stock.--
            ``(1) Interests with over-40-year maturity or payable in 
        stock.--
                    ``(A) In general.--Notwithstanding subsection (c), 
                for purposes of this title, an interest in a 
                corporation shall be treated as stock if such 
                interest--
                            ``(i) has a maximum weighted average 
                        maturity of over 40 years, or
                            ``(ii) is payable in stock of the issuer or 
                        a related person.
                    ``(B) Weighted average maturity.--For purposes of 
                subparagraph (A), in determining the weighted average 
                maturity of an interest, any right to extend or renew 
                shall be treated as exercised, and any right to 
                accelerate payment shall not be taken into account.
                    ``(C) Payable in stock.--For purposes of 
                subparagraph (A), an interest shall be treated as 
                payable in stock if--
                            ``(i) a substantial portion of such 
                        interest is mandatorily convertible, or 
                        convertible at the issuer's option, into stock 
                        of the issuer or a related person,
                            ``(ii) a substantial portion of the 
                        principal (or interest) associated with such 
                        interest is required to be determined, or may 
                        be determined at the option of the issuer or a 
                        related person, by reference to the value of 
                        stock of the issuer or a related person, or
                            ``(iii) such interest is part of an 
                        arrangement designed to result in the payment 
                        of such interest with stock of the issuer or a 
                        related person.
            ``(2) Certain interests not classified as indebtedness in 
        sec filing.--
                    ``(A) In general.--For purposes of subsection (c), 
                an issuer shall be treated as characterizing an 
                interest as stock (and subsection (c)(2) shall not 
                apply) if--
                            ``(i) such issuer is a corporation required 
                        to file annual financial statements with the 
                        Securities and Exchange Commission,
                            ``(ii) such financial statements do not 
                        characterize such interest as indebtedness, and
                            ``(iii) such interest has a maximum 
                        weighted average maturity of more than 15 
                        years.
                    ``(B) Special rules.--For purposes of this 
                paragraph--
                            ``(i) Characterization in financial 
                        statements.--An interest shall not be treated 
                        as characterized in a financial statement 
                        solely by reason of footnotes or other 
                        narrative disclosures.
                            ``(ii) Certain interests treated as 
                        characterized in statement.--An issuer will be 
                        treated as being described in subparagraph 
                        (A)(ii) with respect to an interest if--
                                    ``(I) the issuer issues such 
                                interest to a related person (other 
                                than a corporation),
                                    ``(II) such interest is not 
                                included on the consolidated return 
                                which includes the issuer and the 
                                holder, and
                                    ``(III) the holder (or any person 
                                related to the issuer or the holder) 
                                issues a related interest which is not 
                                characterized as indebtedness on the 
                                consolidated financial statement.
                            ``(iii) Leveraged leases.--This paragraph 
                        shall not apply with respect to leveraged 
                        leases.
            ``(3) Exceptions.--This subsection shall not apply with 
        respect to demand loans, redeemable ground rents, or any other 
        interest specified by the Secretary by regulation.
            ``(4) Related person.--For purposes of this subsection, 
        persons shall be treated as related to each other if the 
        relationship between such persons is described in section 
        267(b) or 707(b).''
            (2) Effective date.--The amendment made by this 
        subsection--
                    (A) shall take effect only if no decrease in the 
                maximum Federal tax rate applicable to capital gains of 
                individuals is enacted in 1997, and
                    (B) if the conditions of subparagraph (A) are met, 
                shall apply to taxable years beginning after the date 
                of the enactment of this Act.
    (c) Small Business Development Fund.--
            (1) In general.--Subchapter A of chapter 98 of such Code 
        (relating to establishment of trust funds) is amended by adding 
        at the end the following new section:

``SEC. 9512. SMALL BUSINESS DEVELOPMENT FUND.

    ``(a) Creation of Trust Fund.--There is established in the Treasury 
of the United States a trust fund to be known as the `Small Business 
Development Fund', consisting of such amounts as may be appropriated or 
credited to such fund as provided in this section or section 9602(b).
    ``(b) Transfers to Trust Fund.--There are hereby appropriated to 
the Small Business Development Fund amounts equivalent to the taxes 
received in the Treasury under section 1203 (relating to tax on capital 
gains reduction strategy amount) or 385(d), whichever is applicable.
    ``(c) Expenditures.--Amounts in the Small Business Development Fund 
shall be available, as provided in appropriation Acts, for purposes of 
the Small Business Development Fund Act of 1997.''
            (2) Clerical amendment.--The table of sections for 
        subchapter A of chapter 98 of such Code is amended by adding at 
        the end the following new item:

                              ``Sec. 9512. Small Business Development 
                                        Fund.''
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.

SEC. 3. APPLICATION FOR ASSISTANCE

    (a) Form and Procedures.--An application for assistance shall be 
submitted in such form and in accordance with such procedures as 
established by the Secretary of Commerce.
    (b) Minimum Requirements.--The Fund shall require an application to 
establish that the applicant is--
            (1) a credit union,
            (2) a community development corporation,
            (3) an entity engaged in job creation or enterprise and 
        commercial development, or
            (4) a financial institution that needs capital to begin or 
        expand a small business activity in a low-income community.

SEC. 4. ASSISTANCE PROVIDED BY THE FUND

    The Fund may provide financial assistance to the entities listed in 
section 4(b) through equity investments, deposits, credit union shares, 
loans, and grants.

SEC. 5. DEFINITION

    The term ``community development corporation'' has the meaning 
given such term in section 103(1) of the Community Development Banking 
and Financial Institutions Act of 1994 (12 USC 4702(1)).