II 

112TH CONGRESS 

1ST SESSION S. 256 

To amend the Internal Revenue Code of 1986 to allow a credit against 

income tax for equity investments in small business concerns. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 2, 2011 

Mr. PRYOR 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 allow a 

credit against income tax for equity investments in small 

business concerns. 

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 ‘‘American Opportunity 

5 Act of 2011’’. 

6 SEC. 2. ANGEL INVESTMENT TAX CREDIT. 

7 (a) IN GENERAL.—Subpart B of part IV of sub8 chapter A of chapter 1 of the Internal Revenue Code of 

9 1986 is amended by adding at the end the following new 

10 section: 


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1 ‘‘SEC. 30E. ANGEL INVESTMENT TAX CREDIT. 

2 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be al3 lowed as a credit against the tax imposed by this chapter 

4 for the taxable year an amount equal to 25 percent of the 

5 qualified equity investments made by a qualified investor 

6 during the taxable year. 

7 ‘‘(b) QUALIFIED EQUITY INVESTMENT.—For pur8 poses of this section— 

9 ‘‘(1) IN GENERAL.—The term ‘qualified equity 

10 investment’ means any equity investment in a quali11 fied small business entity if— 

12 ‘‘(A) such investment is acquired by the 

13 taxpayer at its original issue (directly or 

14 through an underwriter) solely in exchange for 

15 cash, and 

16 ‘‘(B) such investment is designated for 

17 purposes of this section by the qualified small 

18 business entity. 

19 ‘‘(2) EQUITY INVESTMENT.—The term ‘equity 

20 investment’ means— 

21 ‘‘(A) any form of equity, including a gen22 eral or limited partnership interest, common 

23 stock, preferred stock (other than nonqualified 

24 preferred stock as defined in section 351(g)(2)), 

25 with or without voting rights, without regard to 

26 seniority position and whether or not convertVerDate Mar 15 2010 23:37 Feb 02, 2011 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S256.IS S256

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1 ible into common stock or any form of subordi2 nate or convertible debt, or both, with warrants 

3 or other means of equity conversion, and 

4 ‘‘(B) any capital interest in an entity 

5 which is a partnership. 

6 ‘‘(3) REDEMPTIONS.—A rule similar to the rule 

7 of section 1202(c)(3) shall apply for purposes of this 

8 subsection. 

9 ‘‘(c) QUALIFIED SMALL BUSINESS ENTITY.—For 

10 purposes of this section— 

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

12 business entity’ means any domestic corporation or 

13 partnership if such corporation or partnership— 

14 ‘‘(A) is a small business (as defined in sec15 tion 41(b)(3)(D)(iii)), 

16 ‘‘(B) has its headquarters in the United 

17 States, 

18 ‘‘(C) is engaged in a high technology trade 

19 or business related to— 

20 ‘‘(i) advanced materials, nanotechnol21 ogy, or precision manufacturing, 

22 ‘‘(ii) aerospace, aeronautics, or de23 fense, 

24 ‘‘(iii) biotechnology or pharma25 ceuticals, 


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1 ‘‘(iv) electronics, semiconductors, soft2 ware, or computer technology, 

3 ‘‘(v) energy, environment, or clean 

4 technologies, 

5 ‘‘(vi) forest products or agriculture, 

6 ‘‘(vii) information technology, commu7 nication technology, digital media, or 

8 photonics, 

9 ‘‘(viii) life sciences or medical 

10 sciences, 

11 ‘‘(ix) marine technology or aqua12 culture, 

13 ‘‘(x) transportation, or 

14 ‘‘(xi) any other high technology trade 

15 or business as determined by the Sec16 retary, 

17 ‘‘(D) has been in existence for less than 5 

18 years as of the date of the qualified equity in19 vestment, 

20 ‘‘(E) employs less than 100 full-time equiv21 alent employees as of the date of such invest22 ment, 

23 ‘‘(F) has more than 50 percent of the em24 ployees performing substantially all of their 


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1 services in the United States as of the date of 

2 such investment, and 

3 ‘‘(G) has equity investments designated for 

4 purposes of this paragraph. 

5 ‘‘(2) DESIGNATION OF EQUITY INVEST6 MENTS.—For purposes of paragraph (1)(G), an eq7 uity investment shall not be treated as designated if 

8 such designation would result in the aggregate 

9 amount which may be taken into account under this 

10 section with respect to equity investments in such 

11 corporation or partnership exceeds— 

12 ‘‘(A) $10,000,000, taking into account the 

13 total amount of all qualified equity investments 

14 made by all taxpayers for the taxable year and 

15 all preceding taxable years, 

16 ‘‘(B) $2,000,000, taking into account the 

17 total amount of all qualified equity investments 

18 made by all taxpayers for such taxable year, 

19 and 

20 ‘‘(C) $1,000,000, taking into account the 

21 total amount of all qualified equity investments 

22 made by the taxpayer for such taxable year. 

23 ‘‘(d) QUALIFIED INVESTOR.—For purposes of this 

24 section— 


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1 ‘‘(1) IN GENERAL.—The term ‘qualified inves2 tor’ means an accredited investor, as defined by the 

3 Securities and Exchange Commission, investor net4 work, or investor fund who review new or proposed 

5 businesses for potential investment. 

6 ‘‘(2) INVESTOR NETWORK.—The term ‘investor 

7 network’ means a group of accredited investors orga8 nized for the sole purpose of making qualified equity 

9 investments. 

10 ‘‘(3) INVESTOR FUND.— 

11 ‘‘(A) IN GENERAL.—The term ‘investor 

12 fund’ means a corporation that for the applica13 ble taxable year is treated as an S corporation 

14 or a general partnership, limited partnership, 

15 limited liability partnership, trust, or limited li16 ability company and which for the applicable 

17 taxable year is not taxed as a corporation. 

18 ‘‘(B) ALLOCATION OF CREDIT.— 

19 ‘‘(i) IN GENERAL.—Except as pro20 vided in clause (ii), the credit allowed 

21 under subsection (a) shall be allocated to 

22 the shareholders or partners of the investor 

23 fund in proportion to their ownership in24 terest or as specified in the fund’s organi25 zational documents, except that tax-exempt 


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1 investors shall be allowed to transfer their 

2 interest to investors within the fund in ex3 change for future financial consideration. 

4 ‘‘(ii) SINGLE MEMBER LIMITED LI5 ABILITY COMPANY.—If the investor fund is 

6 a single member limited liability company 

7 that is disregarded as an entity separate 

8 from its owner, the credit allowed under 

9 subsection (a) may be claimed by such lim10 ited liability company’s owner, if such 

11 owner is a person subject to the tax under 

12 this title. 

13 ‘‘(4) EXCLUSION.—The term ‘qualified investor’ 

14 does not include— 

15 ‘‘(A) a person controlling at least 50 per16 cent of the qualified small business entity, 

17 ‘‘(B) an employee of such entity, or 

18 ‘‘(C) any bank, bank and trust company, 

19 insurance company, trust company, national 

20 bank, savings association or building and loan 

21 association for activities that are a part of its 

22 normal course of business. 

23 ‘‘(e) NATIONAL LIMITATION ON AMOUNT OF INVEST24 MENTS DESIGNATED.— 


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1 ‘‘(1) IN GENERAL.—There is an angel invest2 ment tax credit limitation of $500,000,000 for each 

3 of calendar years 2011 through 2015. 

4 ‘‘(2) ALLOCATION OF LIMITATION.—The limita5 tion under paragraph (1) shall be allocated by the 

6 Secretary among qualified small business entities se7 lected by the Secretary. 

8 ‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If 

9 the angel investment tax credit limitation for any 

10 calendar year exceeds the aggregate amount allo11 cated under paragraph (2) for such year, such limi12 tation for the succeeding calendar year shall be in13 creased by the amount of such excess. No amount 

14 may be carried under the preceding sentence to any 

15 calendar year after 2020. 

16 ‘‘(f) APPLICATION WITH OTHER CREDITS.— 

17 ‘‘(1) BUSINESS CREDIT TREATED AS PART OF

18 GENERAL BUSINESS CREDIT.—Except as provided in 

19 paragraph (2), the credit which would be allowed 

20 under subsection (a) for any taxable year (deter21 mined without regard to this subsection) shall be 

22 treated as a credit listed in section 38(b) for such 

23 taxable year (and not allowed under subsection (a)). 

24 ‘‘(2) PERSONAL CREDIT.— 


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1 ‘‘(A) IN GENERAL.—In the case of an indi2 vidual who elects the application of this para3 graph, for purposes of this title, the credit al4 lowed under subsection (a) for any taxable year 

5 (determined after application of paragraph (1)) 

6 shall be treated as a credit allowable under sub7 part A for such taxable year. 

8 ‘‘(B) LIMITATION BASED ON AMOUNT OF

9 TAX.—In the case of a taxable year to which 

10 section 26(a)(2) does not apply, the credit al11 lowed under subpart A for any taxable year (de12 termined after application of paragraph (1)) by 

13 reason of subparagraph (A) shall not exceed the 

14 excess of— 

15 ‘‘(i) the sum of the regular tax liabil16 ity (as defined in section 26(b)) plus the 

17 tax imposed by section 55, over 

18 ‘‘(ii) the sum of the credits allowable 

19 under subpart A (other than this section) 

20 and section 27 for the taxable year. 

21 ‘‘(C) CARRYFORWARD OF UNUSED CRED22 IT.—If the credit allowable under subsection (a) 

23 by reason of subparagraph (A) exceeds the limi24 tation imposed by section 26(a)(1) or subpara25 graph (B), whichever is applicable, for such taxVerDate Mar 15 2010 23:37 Feb 02, 2011 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S256.IS S256

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1 able year, reduced by the sum of the credits al2 lowable under subpart A (other than this sec3 tion) for such taxable year, such excess shall be 

4 carried to each of the succeeding 20 taxable 

5 years to the extent that such unused credit may 

6 not be taken into account under subsection (a) 

7 by reason of subparagraph (A) for a prior tax8 able year because of such limitation. 

9 ‘‘(g) SPECIAL RULES.— 

10 ‘‘(1) RELATED PARTIES.—For purposes of this 

11 section— 

12 ‘‘(A) IN GENERAL.—All related persons 

13 shall be treated as 1 person. 

14 ‘‘(B) RELATED PERSONS.—A person shall 

15 be treated as related to another person if the 

16 relationship between such persons would result 

17 in the disallowance of losses under section 267 

18 or 707(b). 

19 ‘‘(2) BASIS.—For purposes of this subtitle, the 

20 basis of any investment with respect to which a cred21 it is allowable under this section shall be reduced by 

22 the amount of such credit so allowed. This sub23 section shall not apply for purposes of sections 1202, 

24 1397B, and 1400B. 


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1 ‘‘(3) RECAPTURE.—The Secretary shall, by reg2 ulations, provide for recapturing the benefit of any 

3 credit allowable under subsection (a) with respect to 

4 any qualified equity investment which is held by the 

5 taxpayer less than 3 years, except that no benefit 

6 shall be recaptured in the case of— 

7 ‘‘(A) transfer of such investment by reason 

8 of the death of the taxpayer, 

9 ‘‘(B) transfer between spouses, 

10 ‘‘(C) transfer incident to the divorce (as 

11 defined in section 1041) of such taxpayer, or 

12 ‘‘(D) a transaction to which section 381(a) 

13 applies (relating to certain acquisitions of the 

14 assets of one corporation by another corpora15 tion). 

16 ‘‘(h) REGULATIONS.—The Secretary shall prescribe 

17 such regulations as may be appropriate to carry out this 

18 section, including regulations— 

19 ‘‘(1) which prevent the abuse of the purposes of 

20 this section, 

21 ‘‘(2) which impose appropriate reporting re22 quirements, and 

23 ‘‘(3) which apply the provisions of this section 

24 to newly formed entities.’’. 


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1 (b) CREDIT MADE PART OF GENERAL BUSINESS

2 CREDIT.—Subsection (b) of section 38 of the Internal 

3 Revenue Code of 1986 is amended— 

4 (1) in paragraph (35), by striking ‘‘plus’’; 

5 (2) in paragraph (36), by striking the period at 

6 the end and inserting ‘‘, plus’’; and 

7 (3) by adding at the end the following new 

8 paragraph: 

9 ‘‘(37) the portion of the angel investment tax 

10 credit to which section 30E(f)(1) applies.’’. 

11 (c) CONFORMING AMENDMENTS.— 

12 (1) Section 1016(a) of the Internal Revenue 

13 Code of 1986 is amended by striking ‘‘and’’ at the 

14 end of paragraph (36), by striking the period at the 

15 end of paragraph (37) and inserting ‘‘, and’’, and by 

16 inserting after paragraph (37) the following new 

17 paragraph: 

18 ‘‘(38) to the extent provided in section 

19 30E(g)(2).’’. 

20 (2) Section 24(b)(3)(B) of such Code is amend21 ed by striking ‘‘and 30D’’ and inserting ‘‘30D, and 

22 30E’’. 

23 (3) Section 25(e)(1)(C)(ii) of such Code is 

24 amended by inserting ‘‘30E,’’ after ‘‘30D,’’. 


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1 (4) Section 25A(i)(5)(B) of such Code is 

2 amended by striking ‘‘and 30D’’ and inserting ‘‘, 

3 30D, and 30E’’. 

4 (5) Section 25A(i)(5) of such Code is amended 

5 by inserting ‘‘30E,’’ after ‘‘30D,’’. 

6 (6) Section 25B(g)(2) of such Code is amended 

7 by striking ‘‘and 30D’’ and inserting ‘‘30D, and 

8 30E’’. 

9 (7) Section 26(a)(1) of such Code is amended 

10 by striking ‘‘and 30D’’ and inserting ‘‘30D, and 

11 30E’’. 

12 (8) Section 30(c)(2)(B)(ii) of such Code is 

13 amended by striking ‘‘and 30D’’ and inserting ‘‘, 

14 30D, and 30E’’. 

15 (9) Section 30B(g)(2)(B)(ii) of such Code is 

16 amended by striking ‘‘and 30D’’ and inserting 

17 ‘‘30D, and 30E’’. 

18 (10) Section 30D(d)(2)(B)(ii) of such Code is 

19 amended by striking ‘‘and 25D’’ and inserting ‘‘, 

20 25D, and 30E’’. 

21 (11) Section 904(i) of such Code is amended by 

22 striking ‘‘and 30D’’ and inserting ‘‘30D, and 30E’’. 

23 (12) Section 1400C(d)(2) of such Code is 

24 amended by striking ‘‘and 30D’’ and inserting 

25 ‘‘30D, and 30E’’. 


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1 (d) CLERICAL AMENDMENT.—The table of sections 

2 for subpart B of part IV of subchapter A of chapter 1 

3 of the Internal Revenue Code of 1986 is amended by add4 ing at the end the following new item: 

‘‘Sec. 30E. Angel investment tax credit.’’. 

5 (e) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to investments made after Decem7 ber 31, 2010, in taxable years ending after such date. 

8 (f) REGULATIONS ON ALLOCATION OF NATIONAL

9 LIMITATION.—Not later than 120 days after the date of 

10 the enactment of this Act, the Secretary of the Treasury 

11 or the Secretary’s delegate shall prescribe regulations 

12 which specify— 

13 (1) how small business entities shall apply for 

14 an allocation under section 30E(e)(2) of the Internal 

15 Revenue Code of 1986, as added by this section, 

16 (2) the competitive procedure through which 

17 such allocations are made, 

18 (3) the criteria for determining an allocation to 

19 a small business entity, including— 

20 (A) whether the small business entity is lo21 cated in a State that is historically underserved 

22 by angel investors and venture capital investors, 

23 (B) whether the small business entity has 

24 received an angel investment tax credit, or its 


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1 equivalent, from the State in which the small 

2 business entity is located and registered, 

3 (C) whether small business entities in 

4 low-, medium-, and high-population density 

5 States are receiving allocations, and 

6 (D) whether the small business entity has 

7 been awarded a Small Business Innovative Re8 search or Small Business Technology Transfer 

9 grant from a Federal agency, 

10 (4) the actions that such Secretary or delegate 

11 shall take to ensure that such allocations are prop12 erly made to qualified small business entities, and 

13 (5) the actions that such Secretary or delegate 

14 shall take to ensure that angel investment tax cred15 its are allocated and issued to the taxpayer. 

16 (g) AUDIT AND REPORT.—Not later than January 

17 31, 2014, the Comptroller General of the United States, 

18 pursuant to an audit of the angel investment tax credit 

19 program established under section 30E of the Internal 

20 Revenue Code of 1986 (as added by subsection (a)), shall 

21 report to Congress on such program, including all quali22 fied small business entities that receive an allocation of 

23 an angel investment credit under such section. 

Æ 


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