I

106TH CONGRESS

2D SESSION H. R. 5455

To amend the Internal Revenue Code of 1986 to encourage investment in

small companies.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 12, 2000

Mr. GREENWOOD introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to encourage

investment in small companies.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Small Investment Tax

5 Relief Act of 2000’’.

6 SEC. 2. EXCLUSION FOR GAIN FROM STOCK OF SMALL,

7 PUBLICLY TRADED COMPANIES.

8 (a) IN GENERAL.—Part 1 of subchapter P of chapter

9 1 of the Internal Revenue Code of 1986 (relating to treat-
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1 ment of capital gains) is amended by inserting after sec2 tion 1202 the following new section:

3 ‘‘SEC. 1203. EXCLUSION FOR GAIN FROM STOCK OF SMALL,

4 PUBLICLY TRADED COMPANIES.

5 ‘‘(a) GENERAL RULE.—In the case of a taxpayer

6 other than a corporation, gross income shall not include

7 any gain from the sale or exchange of section 1203 stock

8 held for more than 1 year.

9 ‘‘(b) LIMITATION.—The amount excluded under sub10 section (a) for a taxable year may not exceed $100,000

11 ($50,000 in the case of a separate return by a married

12 individual).

13 ‘‘(c) 1203 STOCK.—For purposes of subsection (a),

14 the term ‘1203 stock’ means any stock—

15 ‘‘(1) in a C corporation which is acquired after

16 the date of the enactment of this section if—

17 ‘‘(A) as of the date of acquisition, such

18 corporation is a qualified small business, and

19 ‘‘(B) except as provided in subsection (e),

20 such stock is acquired—

21 ‘‘(i) in exchange for money or other

22 property, or

23 ‘‘(ii) as compensation for services pro24 vided to such corporation (other than serv-
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1 ices performed as an underwriter of such

2 stock), and

3 ‘‘(2) which, at the time of sale or exchange giv4 ing rise to gain to be excluded under subsection (a),

5 is publicly traded on any established domestic na6 tional or regional stock exchange or stock market,

7 the Over the Counter Bulletin Board, or the Na8 tional Quotation Bureau.

9 For purposes of the preceding sentence, rules similar to

10 the rules of section 1202(c)(3) shall apply.

11 ‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of

12 this section—

13 ‘‘(1) IN GENERAL.—The term ‘qualified small

14 business’ means any domestic corporation which is a

15 C corporation if the market capitalization of such

16 corporation (or any predecessor thereof), determined

17 with respect to the date of acquisition of stock, is

18 not more than $150,000,000.

19 ‘‘(2) DETERMINATION OF MARKET CAPITALIZA20 TION.—For purposes of paragraph (1), market cap21 italization, with respect to the date of acquisition of

22 stock, shall be—

23 ‘‘(A) the amount equal to—

24 ‘‘(i) the closing price of a share of

25 stock in the corporation as of the end of
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1 the reporting period ending immediately

2 before such date of acquisition, multiplied

3 by

4 ‘‘(ii) the number of outstanding

5 shares of such stock in the corporation as

6 of the end of such period, or

7 ‘‘(B) in the case that subparagraph (A)

8 does not apply, determined (by taking into ac9 count all facts and circumstances) on the basis

10 of the most recent amounts paid for each class

11 of stock in the corporation outstanding on the

12 date of the acquisition of the 1203 stock.

13 ‘‘(3) REPORTING PERIOD.—For purposes of

14 paragraph (2), the term ‘reporting period’ means the

15 period for which the most recent annual or quarterly

16 report is required to be filed with the Securities and

17 Exchange Commission under section 13(a)(2) of the

18 Securities Exchange Act of 1934 (15 U.S.C.

19 78m(a)(2), 78o(d)) or periodic information required

20 under section 15(d) of such Act (15 U.S.C. 78o(d)),

21 as the case may be.

22 ‘‘(4) AGGREGATION RULES.—For purposes of

23 paragraph (1), rules similar to the rules of section

24 1202(d)(3) shall apply.

25 ‘‘(e) ADDITIONAL RULES.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, rules similar to the rules of subsections (f), (g),

3 (h), (i), (j), and (k) of section 1202 shall apply, ex4 cept that subsection (j)(1)(A) of section 1202 shall

5 be applied by substituting ‘1 year’ for ‘5 years’.

6 ‘‘(2) QUALIFIED SMALL BUSINESS STOCK.—

7 Sales and exchanges taken into account under sec8 tion 1202 shall not be taken into account under this

9 section.’’.

10 (b) CONFORMING AMENDMENTS.—

11 (1) The first sentence of section 642(c)(4) of

12 such Code is amended—

13 (A) by inserting ‘‘or 1203(a)’’ after

14 ‘‘1202(a)’’, and

15 (B) by inserting ‘‘or 1203, as the case may

16 be’’ before the period at the end.

17 (2) Section 643(a)(3) of such Code is amended

18 by striking ‘‘section 1202’’ and inserting ‘‘sections

19 1202 and 1203’’.

20 (3) Section 691(c)(4) of such Code is amended

21 by inserting ‘‘1203,’’ after ‘‘1202,’’.

22 (4) Section 871(a)(2) of such Code is amended

23 by striking ‘‘section 1202’’ and inserting ‘‘sections

24 1202 and 1203’’.
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1 (5) The second sentence of section 1044(d) of

2 such Code is amended by inserting ‘‘or 1203’’ before

3 the period at the end.

4 (6) Section 1202(b) of such Code is amended

5 by inserting at the end the following new subsection:

6 ‘‘(4) SECTION 1203 STOCK.—Sales and ex7 changes taken into account under section 1203 shall

8 not be taken into account under this section.’’.

9 (c) CLERICAL AMENDMENT.—The table of sections

10 for part 1 of subchapter P of chapter 1 of such Code is

11 amended by inserting after the item relating to section

12 1202 the following new item:

‘‘Sec. 1203. Exclusion for gain from stock of small, publicly traded companies.’’.

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to securities acquired after the

15 date of the enactment of this Act.

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