I

106TH CONGRESS

1ST SESSION H. R. 2331

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

exclusion relating to qualified small business stock and to provide that

the exclusion relating to incentive stock options will no longer be a

minimum tax preference.

IN THE HOUSE OF REPRESENTATIVES

JUNE 23, 1999

Ms. DUNN (for herself, Mr. MATSUI, Mr. DREIER, Ms. ESHOO, Mr. GOODLATTE, Mr. DOOLEY of California, Mr. DAVIS of Virginia, and Mr.

WELLER) 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 increase

and modify the exclusion relating to qualified small business stock and to provide that the exclusion relating

to incentive stock options will no longer be a minimum

tax preference.

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

3 SECTION 1. INCREASED EXCLUSION AND OTHER MODI4 FICATIONS APPLICABLE TO QUALIFIED

5 SMALL BUSINESS STOCK.

6 (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—

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

6 ‘‘100 percent’’, and

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

8 heading 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) The heading for section 1202 of such

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

22 and inserting ‘‘100-PERCENT’’.

23 (E) The table of sections for part I of sub24 chapter P of chapter 1 of such Code is amended
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1 by striking ‘‘50-percent’’ in the item relating to

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

3 (b) REDUCTION IN HOLDING PERIOD.—

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

5 1202 of such Code is amended by striking ‘‘5 years’’

6 and inserting ‘‘3 years’’.

7 (2) CONFORMING AMENDMENT.—Subsections

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

9 are each amended by striking ‘‘5 years’’ and insert10 ing ‘‘3 years’’.

11 (c) EXCLUSION AVAILABLE TO CORPORATIONS.—

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

13 1202 of such Code is amended by striking ‘‘other

14 than a corporation’’.

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

16 of section 1202 of such Code is amended by adding

17 at the end the following new paragraph:

18 ‘‘(4) STOCK HELD AMONG MEMBERS OF CON19 TROLLED GROUP NOT ELIGIBLE.—Stock of a mem20 ber of a parent-subsidiary controlled group (as de21 fined in subsection (d)(3)) shall not be treated as

22 qualified small business stock while held by another

23 member of such group.’’

24 (d) REPEAL OF MINIMUM TAX PREFERENCE.—
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1 (1) IN GENERAL.—Subsection (a) of section 57

2 of such Code (relating to items of tax preference) is

3 amended by striking paragraph (7).

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

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

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

7 (e) STOCK OF LARGER BUSINESSES ELIGIBLE FOR

8 EXCLUSION.—

9 (1) IN GENERAL.—Paragraph (1) of section

10 1202(d) of such Code (defining qualified small busi11 ness) is amended by striking ‘‘$50,000,000’’ each

12 place it appears and inserting ‘‘$300,000,000’’.

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

14 of such Code is amended by adding at the end the

15 following:

16 ‘‘(4) INFLATION ADJUSTMENT OF ASSET LIMI17 TATION.—In the case of stock issued in any calendar

18 year after 2000, the $300,000,000 amount con19 tained in paragraph (1) shall be increased by an

20 amount equal to—

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

22 ‘‘(B) the cost-of-living adjustment deter23 mined under section 1(f)(3) for the calendar

24 year in which the taxable year begins, deter25 mined by substituting ‘calendar year 1999’ for
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1 ‘calendar year 1992’ in subparagraph (B)

2 thereof.

3 If any amount as adjusted under the preceding sen4 tence is not a multiple of $10,000, such amount

5 shall be rounded to the nearest multiple of

6 $10,000.’’

7 (f) REPEAL OF PER-ISSUER LIMITATION.—Section

8 1202 of such Code is amended by striking subsection (b).

9 (g) OTHER MODIFICATIONS.—

10 (1) REPEAL OF WORKING CAPITAL LIMITA11 TION.—Section 1202(e)(6) of such Code (relating to

12 working capital) is amended—

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

14 years’’ and inserting ‘‘5 years’’; and

15 (B) by striking the last sentence.

16 (2) EXCEPTION FROM REDEMPTION RULES

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

18 such Code (relating to certain purchases by corpora19 tion of its own stock) is amended by adding at the

20 end the following:

21 ‘‘(D) WAIVER WHERE BUSINESS PUR22 POSE.—A purchase of stock by the issuing cor23 poration shall be disregarded for purposes of

24 subparagraph (B) if the issuing corporation es25 tablishes that there was a business purpose for
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1 such purchase and one of the principal purposes

2 of the purchase was not to avoid the limitations

3 of this section.’’

4 (h) QUALIFIED TRADE OR BUSINESS.—Section

5 1202(e)(3) of such Code (defining qualified trade or busi6 ness) is amended by inserting ‘‘and’’ at the end of sub7 paragraph (C), by striking ‘‘, and’’ at the end of subpara8 graph (D) and inserting a period, and by striking subpara9 graph (E).

10 (i) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section

13 apply to stock issued after the date of enactment of

14 this Act.

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

16 subsections (a), (c), (e), (f), and (g)(1) apply to

17 stock issued after August 10, 1993.

18 SEC. 2. REPEAL OF MINIMUM TAX PREFERENCE FOR EX19 CLUSION FOR INCENTIVE STOCK OPTIONS.

20 (a) IN GENERAL.—Subsection (b) of section 56 of the

21 Internal Revenue Code of 1986 is amended by striking

22 paragraph (3).

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

24 this section shall apply to options exercised in calendar
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1 years beginning after the date of the enactment of this

2 Act.

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