II

107TH CONGRESS

1ST SESSION S. 1134

To amend the Internal Revenue Code of 1986 to modify the rules applicable

to qualified small business stock.

IN THE SENATE OF THE UNITED STATES

JUNE 28, 2001

Mr. LIEBERMAN (for himself and Mr. HATCH) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to modify

the rules applicable to qualified small business stock.

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 ‘‘Venture Capital Gains

5 and Growth Act of 2001’’.

6 SEC. 2. MODIFICATIONS APPLICABLE TO QUALIFIED SMALL

7 BUSINESS STOCK.

8 (a) REPEAL OF MINIMUM TAX PREFERENCE.—

9 (1) IN GENERAL.—Subsection (a) of section 57

10 of the Internal Revenue Code of 1986 (relating to
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1 items of tax preference) is amended by striking

2 paragraph (7).

3 (2) TECHNICAL AMENDMENT.—Subclause (II)

4 of section 53(d)(1)(B)(ii) of such Code is amended

5 by striking ‘‘, (5), and (7)’’ and inserting ‘‘and (5)’’.

6 (b) INCREASE IN ROLLOVER PERIOD FOR QUALIFIED

7 SMALL BUSINESS STOCK.—Subsections (a)(1) and (b)(3)

8 of section 1045 of the Internal Revenue Code of 1986 (re9 lating to rollover of gain from qualified small business

10 stock to another qualified small business stock) are each

11 amended by striking ‘‘60-day’’ and inserting ‘‘180-day’’.

12 (c) REDUCTION IN HOLDING PERIOD.—

13 (1) IN GENERAL.—Subsection (a) of section

14 1202 of the Internal Revenue Code of 1986 (relating

15 to partial exclusion for gains from certain small

16 business stock) is amended by striking ‘‘5 years’’

17 and inserting ‘‘3 years’’.

18 (2) CONFORMING AMENDMENT.—Subsections

19 (g)(2)(A) and (j)(1)(A) of section 1202 of such Code

20 are each amended by striking ‘‘5 years’’ and insert21 ing ‘‘3 years’’.

22 (d) REPEAL OF PER-ISSUER LIMITATION.—Section

23 1202(b) of the Internal Revenue Code of 1986 (relating

24 to per-issuer limitations on taxpayer’s eligible gain) is re25 pealed.
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1 (e) QUALIFIED TRADE OR BUSINESS.—Section

2 1202(e)(3) of the Internal Revenue Code of 1986 (relating

3 to qualified trade or business) is amended by inserting ‘‘,

4 and is anticipated to continue to be,’’ before ‘‘the reputa5 tion’’ in subparagraph (A).

6 (f) OTHER MODIFICATIONS.—

7 (1) REPEAL OF WORKING CAPITAL LIMITA8 TION.—Section 1202(e)(6) of the Internal Revenue

9 Code of 1986 (relating to working capital) is

10 amended—

11 (A) in subparagraph (B), by striking ‘‘2

12 years’’ and inserting ‘‘5 years’’; and

13 (B) by striking the last sentence.

14 (2) EXCEPTION FROM REDEMPTION RULES

15 WHERE BUSINESS PURPOSE.—Section 1202(c)(3) of

16 such Code (relating to certain purchases by corpora17 tion of its own stock) is amended by adding at the

18 end the following new subparagraph:

19 ‘‘(D) WAIVER WHERE BUSINESS PUR20 POSE.—A purchase of stock by the issuing cor21 poration shall be disregarded for purposes of

22 subparagraph (B) if the issuing corporation es23 tablishes that there was a business purpose for

24 such purchase and one of the principal purposes
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1 of the purchase was not to avoid the limitations

2 of this section.’’.

3 (g) INCREASED EXCLUSION.—

4 (1) IN GENERAL.—Subsection (a) of section

5 1202 of the Internal Revenue Code of 1986 (relating

6 to 50-percent exclusion for gain from certain small

7 business stock) is amended by striking ‘‘50 percent’’

8 and inserting ‘‘100 percent’’.

9 (2) CONFORMING AMENDMENTS.—

10 (A) Subparagraph (A) of section 1(h)(5) of

11 such Code is amended to read as follows:

12 ‘‘(A) collectibles gain, over’’.

13 (B) Section 1(h) of such Code is amended

14 by striking paragraph (8).

15 (C) Paragraph (9) of section 1(h) of such

16 Code is amended by striking ‘‘, gain described

17 in paragraph (7)(A)(i), and section 1202 gain’’

18 and inserting ‘‘and gain described in paragraph

19 (7)(A)(i)’’.

20 (D) Section 1(h) of such Code is amended

21 by redesignating paragraphs (9) (as amended

22 by subparagraph (C)), (10), (11), and (12) as

23 paragraphs (8), (9), (10), and (11), respec24 tively.
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1 (E) The heading for section 1202 of such

2 Code is amended by striking ‘‘PARTIAL’’ and

3 inserting ‘‘100-PERCENT’’.

4 (F) The table of sections for part I of sub5 chapter P of chapter 1 of such Code is amended

6 by striking ‘‘Partial’’ in the item relating to

7 section 1202 and inserting ‘‘100-percent’’.

8 (h) EXCLUSION AVAILABLE TO CORPORATIONS.—

9 (1) IN GENERAL.—Subsection (a) of section

10 1202 of the Internal Revenue Code of 1986 (relating

11 to partial exclusion for gains from certain small

12 business stock) is amended by striking ‘‘other than

13 a corporation’’.

14 (2) TECHNICAL AMENDMENT.—Subsection (c)

15 of section 1202 of such Code is amended by adding

16 at the end the following new paragraph:

17 ‘‘(4) STOCK HELD AMONG MEMBERS OF CON18 TROLLED GROUP NOT ELIGIBLE.—Stock of a mem19 ber of a parent-subsidiary controlled group (as de20 fined in subsection (d)(3)) shall not be treated as

21 qualified small business stock while held by another

22 member of such group.’’.

23 (i) STOCK OF LARGER BUSINESSES ELIGIBLE FOR

24 EXCLUSION.—
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1 (1) IN GENERAL.—Paragraph (1) of section

2 1202(d) of the Internal Revenue Code of 1986 (de3 fining qualified small business) is amended by strik4 ing ‘‘$50,000,000’’ each place it appears and insert5 ing ‘‘$300,000,000’’.

6 (2) INFLATION ADJUSTMENT.—Section 1202(d)

7 of such Code (defining qualified small business) is

8 amended by adding at the end the following:

9 ‘‘(4) INFLATION ADJUSTMENT OF ASSET LIMI10 TATION.—In the case of stock issued in any calendar

11 year after 2002, the $300,000,000 amount con12 tained in paragraph (1) shall be increased by an

13 amount equal to—

14 ‘‘(A) such dollar amount, multiplied by

15 ‘‘(B) the cost-of-living adjustment deter16 mined under section 1(f)(3) for the calendar

17 year in which the taxable year begins, deter18 mined by substituting ‘calendar year 2001’ for

19 ‘calendar year 1992’ in subparagraph (B)

20 thereof.

21 If any amount as adjusted under the preceding sen22 tence is not a multiple of $10,000, such amount

23 shall be rounded to the nearest multiple of

24 $10,000.’’.
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1 (j) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to stock issued after the date of

3 the enactment of this Act.

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