II 

109TH CONGRESS 

1ST SESSION S. 2111 

To amend the Internal Revenue Code of 1986 to provide a credit for small 

business employee training expenses, to increase the exclusion of capital 

gains from small business stocks, to extend expensing for small businesses, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 15, 2005 

Mr. BAYH 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 provide 

a credit for small business employee training expenses, 

to increase the exclusion of capital gains from small 

business stocks, to extend expensing for small businesses, 

and for other purposes. 

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 Business Growth 

5 Initiative Act of 2005’’. 
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1 SEC. 2. CREDIT FOR EMPLOYEE TRAINING EXPENSES OF 

2 SMALL BUSINESSES. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business related credits) is amended by 

6 adding at the end the following new section: 

7 ‘‘SEC. 45N. SMALL BUSINESS EMPLOYEE TRAINING EX8 PENSES. 

9 ‘‘(a) IN GENERAL.— 

10 ‘‘(1) ALLOWANCE OF CREDIT.—For purposes of 

11 section 38, in the case of an eligible small business 

12 employer, the small business employee training cred13 it determined under this section for the taxable year 

14 is an amount equal to so much of the qualified train15 ing expenses paid or incurred by the eligible small 

16 business employer with respect to qualified employ17 ees as exceeds the base amount. 

18 ‘‘(2) BASE AMOUNT.—For purposes of para19 graph (1)— 

20 ‘‘(A) IN GENERAL.—The base amount is 

21 an amount equal to the average amount of 

22 qualified training expenses paid or incurred by 

23 the eligible small business employer with re24 spect to all qualified employees for the 3 pre25 ceding taxable years. 
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1 ‘‘(B) SPECIAL RULE FOR NEW BUSI2 NESSES.— 

3 ‘‘(i) BUSINESSES WITH AT LEAST 1

4 TAXABLE YEAR.—In the case of an eligible 

5 small business employer which has at least 

6 1 full preceding taxable year but fewer 

7 than 3 preceding taxable years, the base 

8 amount shall be the amount of qualified 

9 training expenses paid or incurred by such 

10 employer with respect to all qualified em11 ployees during the preceding taxable year. 

12 ‘‘(ii) START-UP YEAR.—In the case of 

13 an eligible small business employer which 

14 does not have any full preceding taxable 

15 years, the base amount shall be zero. 

16 ‘‘(b) LIMITATIONS.— 

17 ‘‘(1) PER EMPLOYEE LIMITATION.—The 

18 amount of the credit allowed under subsection (a) 

19 for any taxable year with respect to any qualified 

20 employee shall not exceed $1,000 ($500 in the case 

21 of an eligible small business to which subsection 

22 (a)(2)(B)(ii) applies). 

23 ‘‘(2) NUMBER OF EMPLOYEES.—Not more than 

24 5 qualified employees may be taken into account 

25 under subsection (a) for any taxable year. 
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1 ‘‘(c) ELIGIBLE SMALL BUSINESS EMPLOYER.— 

2 ‘‘(1) IN GENERAL.—The term ‘eligible small 

3 business employer’ means, with respect to any cal4 endar year, an employer who employed an average of 

5 at least 2 but not more than 100 employees on busi6 ness days during the preceding taxable year. 

7 ‘‘(2) EXCEPTION.—Such term shall not include 

8 any employer who is a physician or whose principal 

9 business is providing legal, accounting, engineering, 

10 architectural, or similar services. 

11 ‘‘(d) QUALIFIED TRAINING EXPENSES.—For pur12 poses of this section, the term ‘qualified training expenses’ 

13 means expenses paid or incurred for the training of a 

14 qualified employee to a person who is an eligible provider 

15 of training services within the meaning of section 122 of 

16 the Workforce Investment Act of 1998. 

17 ‘‘(e) QUALIFIED EMPLOYEE.—For purposes of this 

18 section, the term ‘qualified employee’ means an individual 

19 who has been employed by the eligible small business em20 ployer on a full-time basis for at least 6 months and who 

21 is not any of the following: 

22 ‘‘(1) A highly compensated employee (within 

23 the meaning of section 414(q)). 

24 ‘‘(2) A physician or a veterinarian. 
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1 ‘‘(3) An individual participating in an appren2 ticeship or a specialty trade skills development pro3 gram associated with a specialty trade contractor as 

4 specified in subsection 238 of the North American 

5 Industry Classification System (as in effect on the 

6 date of the enactment of this section).’’. 

7 (b) CREDIT MADE PART OF GENERAL BUSINESS

8 CREDIT.—Section 38(b) of the Internal Revenue Code of 

9 1986 is amended by striking ‘‘and’’ at the end of para10 graph (25), by striking the period at the end of paragraph 

11 (26) and inserting ‘‘, plus’’, and by adding at the end the 

12 following new paragraph: 

13 ‘‘(27) the small business employee training 

14 credit determined under section 45N(a).’’. 

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

16 for subpart D of part IV of subchapter A of chapter 1 

17 of the Internal Revenue Code of 1986 is amended by add18 ing at the end the following new item: 

‘‘Sec. 45N. Small business employee training credit.’’. 

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

20 this section shall apply to expenditures incurred after De21 cember 31, 2005. 

22 SEC. 3. INCREASED EXCLUSION AND OTHER MODIFICA23 TIONS APPLICABLE TO QUALIFIED SMALL 

24 BUSINESS STOCK. 

25 (a) INCREASED EXCLUSION.— 
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1 (1) IN GENERAL.—Subsection (a) of section 

2 1202 of the Internal Revenue Code of 1986 (relating 

3 to 50-percent exclusion for gain from certain small 

4 business stock) is amended to read as follows: 

5 ‘‘(a) EXCLUSION.—Gross income shall not include 

6 any gain from the sale or exchange of qualified small busi7 ness stock held for more than 3 years.’’. 

8 (2) CONFORMING AMENDMENTS.— 

9 (A) Subparagraph (A) of section 1(h)(4) of 

10 such Code is amended to read as follows: 

11 ‘‘(A) collectibles gain, over’’. 

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

13 by striking paragraph (7). 

14 (C)(i) Section 1(h) of such Code is amend15 ed by redesignating paragraphs (8), (9), (10), 

16 (11), (12), and (13) as paragraphs (7), (8), (9), 

17 (10), (11), and (12), respectively. 

18 (ii) Sections 163(d)(4)(B), 854(b)(5), 

19 857(c)(2)(D) of such Code are each amended 

20 by striking ‘‘section 1(h)(11)(B)’’ and inserting 

21 ‘‘section 1(h)(10)(B)’’. 

22 (iii) The following sections in 301(f)(4) of 

23 such Code are each amended by striking ‘‘sec24 tion 1(h)(11)’’ and inserting ‘‘section 

25 1(h)(10)’’: 
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1 (I) Section 301(f)(4). 

2 (II) Section 306(a)(1)(D). 

3 (III) Section 584(c). 

4 (IV) Section702(a)(5). 

5 (V) Section 854(a). 

6 (VI) Section 854(b)(2). 

7 (iv) The heading of section 857(c)(2) is 

8 amended by striking ‘‘1(h)(11)’’ and inserting 

9 ‘‘1(h)(10)’’. 

10 (D) Subsection (c) of section 1202 of such 

11 Code is amended by adding at the end the fol12 lowing new paragraph: 

13 ‘‘(4) STOCK HELD AMONG MEMBERS OF CON14 TROLLED GROUP NOT ELIGIBLE.—Stock of a mem15 ber of a parent-subsidiary controlled group (as de16 fined in subsection (d)(3)) shall not be treated as 

17 qualified small business stock while held by another 

18 member of such group.’’. 

19 (E) Subsections (g)(2)(A) and (j)(1)(A) of 

20 section 1202 of such Code are each amended by 

21 striking ‘‘5 years’’ and inserting ‘‘3 years’’. 

22 (F) The heading for section 1202 of such 

23 Code is amended by striking ‘‘PARTIAL’’. 

24 (G) The table of sections for part I of sub25 chapter P of chapter 1 of such Code is amended 
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1 by striking ‘‘Partial exclusion’’ in the item re2 lating to section 1202 and inserting ‘‘Exclu3 sion’’. 

4 (b) REPEAL OF MINIMUM TAX PREFERENCE.— 

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

6 of the Internal Revenue Code of 1986 (relating to 

7 items of tax preference) is amended by striking 

8 paragraph (7). 

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

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

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

12 (c) REPEAL OF PER-ISSUER LIMITATION.—Section 

13 1202(b) of the Internal Revenue Code of 1986 (relating 

14 to per-issuer limitations on taxpayer’s eligible gain) is re15 pealed. 

16 (d) OTHER MODIFICATIONS.— 

17 (1) REPEAL OF WORKING CAPITAL LIMITA18 TION.—Section 1202(e)(6) of the Internal Revenue 

19 Code of 1986 (relating to working capital) is amend20 ed— 

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

22 years’’ and inserting ‘‘5 years’’; and 

23 (B) by striking the last sentence. 

24 (2) EXCEPTION FROM REDEMPTION RULES

25 WHERE BUSINESS PURPOSE.—Section 1202(c)(3) of 
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1 such Code (relating to certain purchases by corpora2 tion of its own stock) is amended by adding at the 

3 end the following new subparagraph: 

4 ‘‘(D) WAIVER WHERE BUSINESS PUR5 POSE.—A purchase of stock by the issuing cor6 poration shall be disregarded for purposes of 

7 subparagraph (B) if the issuing corporation es8 tablishes that there was a business purpose for 

9 such purchase and one of the principal purposes 

10 of the purchase was not to avoid the limitations 

11 of this section.’’. 

12 (e) QUALIFIED TRADE OR BUSINESS.—Section 

13 1202(e)(3) of the Internal Revenue Code of 1986 (defin14 ing qualified trade or business) is amended by inserting 

15 ‘‘and’’ at the end of subparagraph (C), by striking ‘‘, and’’ 

16 at the end of subparagraph (D) and inserting a period, 

17 and by striking subparagraph (E). 

18 (f) EFFECTIVE DATES.—The amendments made by 

19 this section apply to stock issued after December 31, 

20 2005. 

21 SEC. 4. EXTENSION OF INCREASED EXPENSING FOR SMALL 

22 BUSINESS. 

23 Subsections (b), (c), and (d) of section 179 are each 

24 amended by striking ‘‘2008’’ each place it appears and 

25 inserting ‘‘2011’’. 
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1 SEC. 5. SBIR AND STTR PROGRAM EXPENDITURES. 

2 (a) SBIR PROGRAM EXPENDITURES.—Section 

3 9(f)(1) of the Small Business Act (15 U.S.C. 638(f)(1)) 

4 is amended by striking subparagraphs (A) through (C) 

5 and inserting the following: 

6 ‘‘(A) not less than 2.5 percent of such 

7 budget in fiscal year 2006; 

8 ‘‘(B) not less than 3.0 percent of such 

9 budget in fiscal year 2007; 

10 ‘‘(C) not less than 3.5 percent of such 

11 budget in fiscal year 2008; 

12 ‘‘(D) not less than 4.0 percent of such 

13 budget in fiscal year 2009; 

14 ‘‘(E) not less than 4.5 percent of such 

15 budget in fiscal year 2010; and 

16 ‘‘(F) not less than 5.0 percent of such 

17 budget in fiscal year 2011 and each fiscal year 

18 thereafter,’’. 

19 (b) STTR PROGRAM EXPENDITURES.—Section 

20 9(n)(1)(B) of the Small Business Act (15 U.S.C. 

21 638(n)(1)(B)) is amended by striking clauses (i) and (ii) 

22 and inserting the following: 

23 ‘‘(i) not less than 0.3 percent in fiscal 

24 year 2006; 

25 ‘‘(ii) not less than 0.36 percent in fis26 cal year 2007; 
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1 ‘‘(iii) not less than 0.42 percent in fis2 cal year 2008; 

3 ‘‘(iv) not less than 0.48 percent in fis4 cal year 2009; 

5 ‘‘(v) not less than 0.54 percent in fis6 cal year 2010; 

7 ‘‘(vi) not less than 0.6 percent in fis8 cal year 2011 and each fiscal year there9 after.’’. 

10 SEC. 6. EXPANSION OF CREDIT FOR SMALL EMPLOYER 

11 PENSION PLAN STARTUP COSTS. 

12 (a) IN GENERAL.—Paragraph (1) of section 45E(b) 

13 of the Internal Revenue Code of 1986 is amended by strik14 ing ‘‘$500’’ and inserting ‘‘$1,000’’. 

15 (b) EFFECTIVE DATE.—The amendment made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2005. 

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