SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Investment 
Enhancement and Tax Relief Act''.

         TITLE I--SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM

SEC. 101. SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM.

    Title III of the Small Business Investment Act of 1958 (15 U.S.C. 
681 et seq.) is amended by adding at the end the following:

        ``PART D--SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM

``SEC. 399A. ESTABLISHMENT OF PROGRAM.

    ``The Administrator shall establish and carry out an early-stage 
investment program (hereinafter referred to in this part as the 
`program') to provide equity investment financing to support early-
stage small businesses in accordance with this part.

``SEC. 399B. ADMINISTRATION OF PROGRAM.

    ``The program shall be administered by the Administrator acting 
through the Associate Administrator described under section 201.

``SEC. 399C. APPLICATIONS.

    ``(a) In General.--Any existing or newly formed incorporated body, 
limited liability company, or limited partnership organized and 
chartered or otherwise existing under Federal or State law for the 
purpose of performing the functions and conducting the activities 
contemplated under the program and any manager of any small business 
investment company may submit to the Administrator an application to 
participate in the program.
    ``(b) Requirements for Application.--An application to participate 
in the program shall include the following:
            ``(1) A business plan describing how the applicant intends 
        to make successful venture capital investments in early-stage 
        small businesses and direct capital to small business concerns 
        in targeted industries or other business sectors.
            ``(2) Information regarding the relevant venture capital 
        investment qualifications and backgrounds of the individuals 
        responsible for the management of the applicant.
            ``(3) A description of the extent to which the applicant 
        meets the selection criteria under section 399D.
    ``(c) Applications From Managers of Small Business Investment 
Companies.--The Administrator shall establish an abbreviated 
application process for applicants that are managers of small business 
investment companies that are licensed under section 301 and that are 
applying to participate in the program. Such abbreviated process shall 
incorporate a presumption that such managers satisfactorily meet the 
selection criteria under paragraphs (3) and (5) of section 399D(b).

``SEC. 399D. SELECTION OF PARTICIPATING INVESTMENT COMPANIES.

    ``(a) In General.--Not later than 90 days after the date on which 
the Administrator receives an application from an applicant under 
section 399C, the Administrator shall make a determination to 
conditionally approve or disapprove such applicant to participate in 
the program and shall transmit such determination to the applicant in 
writing. A determination to conditionally approve an applicant shall 
identify all conditions necessary for a final approval and shall 
provide a period of not less than one year for satisfying such 
conditions.
    ``(b) Selection Criteria.--In making a determination under 
subsection (a), the Administrator shall consider each of the following:
            ``(1) The likelihood that the applicant will meet the goals 
        specified in the business plan of the applicant.
            ``(2) The likelihood that the investments of the applicant 
        will create or preserve jobs, both directly and indirectly.
            ``(3) The character and fitness of the management of the 
        applicant.
            ``(4) The experience and background of the management of 
        the applicant.
            ``(5) The extent to which the applicant will concentrate 
        investment activities on early-stage small businesses.
            ``(6) The likelihood that the applicant will achieve 
        profitability.
            ``(7) The experience of the management of the applicant 
        with respect to establishing a profitable investment track 
        record.
            ``(8) The extent to which the applicant will concentrate 
        investment activities on small business concerns in targeted 
        industries.
    ``(c) Final Approval.--For each applicant provided a conditional 
approval under subsection (a), the Administrator shall provide final 
approval to participate in the program not later than 90 days after the 
date the applicant satisfies the conditions specified by the 
Administrator under such subsection or, in the case of applicants whose 
partnership or management agreements conform to models approved by the 
Administrator, the Administrator shall provide final approval to 
participate in the program not later than 30 days after the date the 
applicant satisfies the conditions specified under such subsection. If 
an applicant provided conditional approval under subsection (a) fails 
to satisfy the conditions specified by the Administrator in the time 
period designated under such subsection, the Administrator shall revoke 
the conditional approval.

``SEC. 399E. EQUITY FINANCINGS.

    ``(a) In General.--The Administrator may make one or more equity 
financings to a participating investment company.
    ``(b) Equity Financing Amounts.--
            ``(1) Non-federal capital.--An equity financing made to a 
        participating investment company under the program may not be 
        in an amount that exceeds the amount of the capital of such 
        company that is not from a Federal source and that is available 
        for investment on or before the date on which an equity 
        financing is drawn upon. Such capital may include legally 
        binding commitments with respect to capital for investment.
            ``(2) Limitation on aggregate amount.--The aggregate amount 
        of all equity financings made to a participating investment 
        company under the program may not exceed $100,000,000.
    ``(c) Equity Financing Process.--In making an equity financing 
under the program, the Administrator shall commit an equity financing 
amount to a participating investment company and the amount of each 
such commitment shall remain available to be drawn upon by such 
company--
            ``(1) for new-named investments during the 5-year period 
        beginning on the date on which each such commitment is first 
        drawn upon; and
            ``(2) for follow-on investments and management fees during 
        the 10-year period beginning on the date on which each such 
        commitment is first drawn upon, with not more than 2 additional 
        1-year periods available at the discretion of the 
        Administrator.
    ``(d) Commitment of Funds.--The Administrator shall make 
commitments for equity financings not later than 2 years after the date 
funds are appropriated for the program.

``SEC. 399F. INVESTMENTS IN EARLY-STAGE SMALL BUSINESSES.

    ``(a) In General.--As a condition of receiving an equity financing 
under the program, a participating investment company shall make all of 
the investments of such company in small business concerns, of which at 
least 50 percent shall be early-stage small businesses.
    ``(b) Evaluation of Compliance.--With respect to an equity 
financing amount committed to a participating investment company under 
section 399E, the Administrator shall evaluate the compliance of such 
company with the requirements under this section if such company has 
drawn upon 50 percent of such commitment.

``SEC. 399G. PRO RATA INVESTMENT SHARES.

    ``Each investment made by a participating investment company under 
the program shall be treated as comprised of capital from equity 
financings under the program according to the ratio that capital from 
equity financings under the program bears to all capital available to 
such company for investment.

``SEC. 399H. EQUITY FINANCING INTEREST.

    ``(a) Equity Financing Interest.--
            ``(1) In general.--As a condition of receiving an equity 
        financing under the program, a participating investment company 
        shall convey an equity financing interest to the Administrator 
        in accordance with paragraph (2).
            ``(2) Effect of conveyance.--The equity financing interest 
        conveyed under paragraph (1) shall have all the rights and 
        attributes of other investors attributable to their interests 
        in the participating investment company, but shall not denote 
        control or voting rights to the Administrator. The equity 
        financing interest shall entitle the Administrator to a pro 
        rata portion of any distributions made by the participating 
        investment company equal to the percentage of capital in the 
        participating investment company that the equity financing 
        comprises. The Administrator shall receive distributions from 
        the participating investment company at the same times and in 
        the same amounts as any other investor in the company with a 
        similar interest. The investment company shall make allocations 
        of income, gain, loss, deduction, and credit to the 
        Administrator with respect to the equity financing interest as 
        if the Administrator were an investor.
    ``(b) Manager Profits.--As a condition of receiving an equity 
financing under the program, the manager profits interest payable to 
the managers of a participating investment company under the program 
shall not exceed 20 percent of profits, exclusive of any profits that 
may accrue as a result of the capital contributions of any such 
managers with respect to such company. Any excess of this amount, less 
taxes payable thereon, shall be returned by the managers and paid to 
the investors and the Administrator in proportion to the capital 
contributions and equity financings paid in. No manager profits 
interest (other than a tax distribution) shall be paid prior to the 
repayment to the investors and the Administrator of all contributed 
capital and equity financings made.
    ``(c) Distribution Requirements.--As a condition of receiving an 
equity financing under the program, a participating investment company 
shall make all distributions to all investors in cash and shall make 
distributions within a reasonable time after exiting investments, 
including following a public offering or market sale of underlying 
investments.

``SEC. 399I. FUND.

    ``There is hereby created within the Treasury a separate fund for 
equity financings which shall be available to the Administrator subject 
to annual appropriations as a revolving fund to be used for the 
purposes of the program. All amounts received by the Administrator, 
including any moneys, property, or assets derived by the Administrator 
from operations in connection with the program, shall be deposited in 
the fund. All expenses and payments, excluding administrative expenses, 
pursuant to the operations of the Administrator under the program shall 
be paid from the fund.

``SEC. 399J. APPLICATION OF OTHER SECTIONS.

    ``To the extent not inconsistent with requirements under this part, 
the Administrator may apply sections 309, 311, 312, 313, and 314 to 
activities under this part and an officer, director, employee, agent, 
or other participant in a participating investment company shall be 
subject to the requirements under such sections.

``SEC. 399K. ANNUAL REPORTING.

    ``The Administrator shall report on the performance of the program 
in the annual performance report of the Administration.

``SEC. 399L. DEFINITIONS.

    ``In this part, the following definitions apply:
            ``(1) Early-stage small business.--The term `early-stage 
        small business' means a small business concern that--
                    ``(A) is domiciled in a State; and
                    ``(B) has not generated gross annual sales revenues 
                exceeding $15,000,000 in any of the previous 3 years.
            ``(2) Participating investment company.--The term 
        `participating investment company' means an applicant approved 
        under section 399D to participate in the program.
            ``(3) Targeted industries.--The term `targeted industries' 
        means any of the following business sectors:
                    ``(A) Agricultural technology.
                    ``(B) Energy technology.
                    ``(C) Environmental technology.
                    ``(D) Life science.
                    ``(E) Information technology.
                    ``(F) Digital media.
                    ``(G) Clean technology.
                    ``(H) Defense technology.''.

                  TITLE II--SMALL BUSINESS INVESTMENT

SEC. 201. TAX CREDIT FOR SMALL BUSINESS INVESTMENT.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25D the 
following new section:

``SEC. 25E. SMALL BUSINESS INVESTMENT.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter an amount 
equal to 20 percent of the amount paid or incurred for qualified small 
business investments during the taxable year.
    ``(b) Limitation.--With respect to any qualified small business 
investment in any corporation or partnership, the amount paid or 
incurred by any taxpayer which is taken into account under subsection 
(a) shall not exceed $250,000 ($500,000 in the case of a joint return), 
reduced by the amount taken into account under such subsection with 
respect to investments by the taxpayer in such corporation or 
partnership for all prior taxable years.
    ``(c) Qualified Small Business Investment.--For purposes of this 
section--
            ``(1) In general.--The term `qualified small business 
        investment' means any small business stock and any small 
        business partnership interest.
            ``(2) Small business stock.--The term `small business 
        stock' means any stock in a domestic corporation acquired by 
        the taxpayer at its original issue (directly or through an 
        underwriter) solely in exchange for cash, if--
                    ``(A) such corporation is an eligible small 
                business (as defined in section 41(b)(3)(D)(ii));
                    ``(B) such corporation is engaged primarily in the 
                trade or business of manufacturing, processing, 
                assembling, or researching and developing products or 
                in the trade or business of agriculture, technology, or 
                life science;
                    ``(C) such corporation has been in existence for 
                less than 5 years as of such acquisition;
                    ``(D) such corporation has fewer than 75 employees 
                as of such acquisition;
                    ``(E) more than 50 percent of the corporation's 
                employees perform substantially all of their services 
                in the United States as of such acquisition; and
                    ``(F) such stock is designated by the corporation 
                for purposes of this paragraph.
        For purposes of subparagraph (E), stock shall not be treated as 
        designated if such designation would result in the aggregate 
        amount which may be taken into account under this section with 
        respect to stock issued by such corporation to exceed $750,000, 
        taking into account all taxpayers for all taxable years.
            ``(3) Small business partnership interest.--The term `small 
        business partnership interest' means any capital or profits 
        interest in a domestic partnership acquired by the taxpayer 
        from the partnership solely in exchange for cash, if--
                    ``(A) such partnership is an eligible small 
                business (as defined in section 41(b)(3)(D)(ii));
                    ``(B) such partnership is engaged primarily in the 
                trade or business of manufacturing, processing, 
                assembling, or researching and developing products or 
                in the trade or business of agriculture, technology, or 
                life science;
                    ``(C) such partnership has been in existence for 
                less than 5 years as of such acquisition;
                    ``(D) such partnership has fewer than 75 employees 
                as of such acquisition;
                    ``(E) more than 50 percent of the partnership's 
                employees perform substantially all of their services 
                in the United States as of such acquisition; and
                    ``(F) such capital or profits interest is 
                designated by partnership for purposes of this 
                paragraph.
        For purposes of subparagraph (E), a capital or profits interest 
        shall not be treated as designated if such designation would 
        result in the aggregate amount which may be taken into account 
        under this section with respect to interests in such 
        partnership to exceed $750,000, taking into account all 
        taxpayers for all taxable years.
    ``(d) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under this 
subpart (other than this section), such excess shall be carried to the 
succeeding taxable year and added to the credit allowable under this 
section. Such excess shall not be taken into account under this 
subsection for such succeeding taxable year or any taxable year 
succeeding such year.''.
    (b) Clerical Amendment.--The table of sections of such subpart is 
amended by inserting after the item relating to section 25D the 
following new item:

``Sec. 25E. Small business investment.''.
    (c) Report to Congress.--The Secretary of the Treasury shall 
conduct a study and report to Congress on the effectiveness of the 
credit allowed under section 25E of the Internal Revenue Code of 1986 
(as added by this section), and similar State tax credits, in providing 
incentives for investment in qualified small businesses. There are 
authorized to be appropriated $500,000 to carry out the purposes of 
this subsection.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
Small Business Investment Enhancement and Tax Relief Act - Amends the Small Business Investment Act of 1958 to direct the Administrator of the Small Business Administration (SBA) to establish and carry out an early-stage investment program (program) to provide, through participating investment companies, equity financing to support early-stage businesses (gross annual sales of $15 million or less in any of the previous three years). Outlines investment company application requirements and selection procedures. Allows the Administrator to make one or more equity financings to a participating company, with a limit of $100 million to any one company. Requires the company to make all of their investments in small businesses, of which at least 50% shall be early-stage small businesses. Establishes in the Treasury a separate fund for equity financings under the program. Amends the Internal Revenue Code to provide a small business investment tax credit of 20% of the amount paid or incurred for small business investments. Directs the Secretary of the Treasury to conduct a study of the effectiveness of the tax credit in providing incentives for investment in small businesses.
Small Business Investment Enhancement and Tax Relief Act