II

106TH CONGRESS

2D SESSION S. 3096

To amend the Internal Revenue Code of 1986 to increase and modify the

exclusion relating to qualified small business stock.

IN THE SENATE OF THE UNITED STATES

SEPTEMBER 22, 2000

Ms. COLLINS (for herself, Mr. CLELAND, and Mr. ROTH) 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 increase

and modify the exclusion relating 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 ‘‘Encouraging Invest5 ment in Small Business Act’’.

6 SEC. 2. INCREASED EXCLUSION AND OTHER MODIFICA7 TIONS APPLICABLE TO QUALIFIED SMALL

8 BUSINESS STOCK.

9 (a) INCREASED EXCLUSION.—
2

•S 3096 IS

1 (1) IN GENERAL.—Section 1202(a) of the In2 ternal Revenue Code of 1986 (relating to 50-percent

3 exclusion for gain from certain small business stock)

4 is amended—

5 (A) by striking ‘‘50 percent’’ and inserting

6 ‘‘75 percent’’, and

7 (B) by striking ‘‘50-PERCENT’’ in the

8 heading and inserting ‘‘75-PERCENT’’.

9 (2) CONFORMING AMENDMENTS.—

10 (A) The heading for section 1202 of such

11 Code is amended by striking ‘‘50-PERCENT’’

12 and inserting ‘‘75-PERCENT’’.

13 (B) The table of sections for part I of sub14 chapter P of chapter 1 of such Code is amended

15 by striking ‘‘50-percent’’ in the item relating to

16 section 1202 and inserting ‘‘75-percent’’.

17 (b) REDUCTION IN HOLDING PERIOD.—

18 (1) IN GENERAL.—Section 1202(a) of the In19 ternal Revenue Code of 1986 is amended by striking

20 ‘‘5 years’’ and inserting ‘‘3 years’’.

21 (2) CONFORMING AMENDMENTS.—Subsections

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

23 are each amended by striking ‘‘5 years’’ and insert24 ing ‘‘3 years’’.

25 (c) REPEAL OF MINIMUM TAX PREFERENCE.—
3

•S 3096 IS

1 (1) IN GENERAL.—Section 57(a) of the Internal

2 Revenue Code of 1986 (relating to items of tax pref3 erence) is amended by striking paragraph (7).

4 (2) TECHNICAL AMENDMENT.—Section

5 53(d)(1)(B)(ii)(II) of such Code is amended by

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

7 (d) OTHER MODIFICATIONS.—

8 (1) WORKING CAPITAL LIMITATION.—

9 (A) IN GENERAL.—Section 1202(e)(6) of

10 the Internal Revenue Code of 1986 (relating to

11 working capital) is amended—

12 (i) in subparagraph (B), by striking

13 ‘‘2 years’’ and inserting ‘‘5 years’’; and

14 (ii) by striking ‘‘2 years’’ in the last

15 sentence and inserting ‘‘5 years’’.

16 (B) LIMITATION ON ASSETS TREATED AS

17 USED IN ACTIVE CONDUCT OF BUSINESS.—The

18 second sentence of section 1202(e)(6) of such

19 Code is amended by inserting ‘‘described in

20 subparagraph (A)’’ after ‘‘of the corporation’’.

21 (2) EXCEPTION FROM REDEMPTION RULES

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

23 such Code (relating to certain purchases by corpora24 tion of its own stock) is amended by adding at the

25 end the following:
4

•S 3096 IS

1 ‘‘(D) WAIVER WHERE BUSINESS PUR2 POSE.—A purchase of stock by the issuing cor3 poration shall be disregarded for purposes of

4 subparagraph (B) if the issuing corporation es5 tablishes that there was a business purpose for

6 such purchase and one of the principal purposes

7 of the purchase was not to avoid the limitations

8 of this section.’’

9 (e) EXCLUDED QUALIFIED TRADE OR BUSINESS.—

10 Section 1202(e)(3) of the Internal Revenue Code of 1986

11 (relating to qualified trade or business) is amended—

12 (1) by inserting ‘‘, and is anticipated to con13 tinue to be,’’ before ‘‘the reputation’’ in subpara14 graph (A), and

15 (2) by inserting ‘‘but not including the business

16 of raising fish or any business involving bio17 technology applications’’ after ‘‘trees’’ in subpara18 graph (C).

19 (f) INCREASE IN CAP ON ELIGIBLE GAIN FOR JOINT

20 RETURNS.—

21 (1) IN GENERAL.—Section 1202(b)(1)(A) of the

22 Internal Revenue Code of 1986 (relating to per23 issuer limitations on taxpayer’s eligible gain) is

24 amended by inserting ‘‘($20,000,000 in the case of

25 a joint return)’’ after ‘‘$10,000,000’’.
5

•S 3096 IS

1 (2) CONFORMING AMENDMENT.—Section

2 1202(b)(3) of such Code is amended by striking sub3 paragraph (A) and redesignating subparagraphs (B)

4 and (C) as subparagraphs (A) and (B), respectively.

5 (g) EFFECTIVE DATES.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section

8 shall apply to stock issued after the date of the en9 actment of this Act.

10 (2) SPECIAL RULE.—The amendments made by

11 subsections (a) and (d)(1) apply to stock issued

12 after August 10, 1993.

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