I

104TH CONGRESS

1ST SESSION H. R. 645

To amend the Internal Revenue Code of 1986 to provide for nonrecognition

of gain on the sale of eligible small business stock if the proceeds

of the sale are reinvested in other eligible small business stock.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 24, 1995

Mr. WYDEN (for himself, Mr. MATSUI, and Mr. SPRATT) 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 provide

for nonrecognition of gain on the sale of eligible small

business stock if the proceeds of the sale are reinvested

in other eligible 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 ‘‘Entrepreneurship Pro5 motion Act of 1995’’.
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1 SEC. 2. ROLLOVER OF GAIN FROM SALE OF ELIGIBLE

2 SMALL BUSINESS STOCK INTO OTHER ELIGI3 BLE SMALL BUSINESS STOCK.

4 (a) IN GENERAL.—Part III of subchapter O of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to

6 common nontaxable exchanges) is amended by adding at

7 the end the following new section:

8 ‘‘SEC. 1045. ROLLOVER OF GAIN FROM SALE OF ELIGIBLE

9 SMALL BUSINESS STOCK INTO OTHER ELIGI10 BLE SMALL BUSINESS STOCK.

11 ‘‘(a) NONRECOGNITION OF GAIN.—In the case of the

12 sale of any eligible small business stock with respect to

13 which the taxpayer elects the application of this section,

14 gain from such sale shall be recognized only to the extent

15 that the amount realized on such sale exceeds—

16 ‘‘(1) the cost of any other eligible small busi17 ness stock purchased (as defined by section

18 1043(b)(4)) by the taxpayer during the 18-month

19 period beginning on the date of such sale, reduced

20 by

21 ‘‘(2) any portion of such cost previously taken

22 into account under this section.

23 This section shall not apply to any gain which is treated

24 as ordinary income for purposes of this subtitle.

25 ‘‘(b) ELIGIBLE SMALL BUSINESS STOCK.—For pur26 poses of this section—
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this section, the term ‘eligible small busi3 ness stock’ means any stock in a C corporation if—

4 ‘‘(A) as of the date of issuance, such cor5 poration is an eligible small business, and

6 ‘‘(B) such stock is acquired by the tax7 payer at its original issue (directly or through

8 an underwriter) in exchange for money or other

9 property (not including stock).

10 ‘‘(2) ACTIVE BUSINESS REQUIREMENT.—Sub11 section (a) shall not apply to the sale of any eligible

12 small business stock unless, during substantially all

13 of the taxpayer’s holding period for such stock, the

14 corporation meets the active business requirements

15 of subsection (d) and such corporation is a C cor16 poration. For purposes of the preceding sentence, a

17 rule similar to the rule of section 1202(c)(2)(B)

18 shall apply.

19 ‘‘(3) SPECIAL RULE FOR STOCK ISSUED BY S

20 CORPORATIONS.—In the case of stock which, as of

21 the date of the sale to which subsection (a) applies,

22 is stock of an eligible small business but which, as

23 of the date of issuance, was not stock of an eligible

24 small business solely by reason of the fact that the

25 corporation was an S corporation—
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1 ‘‘(A) such stock shall be treated as meeting

2 the requirement of paragraph (1)(A), but

3 ‘‘(B) subsection (a) shall not apply to so

4 much of the gain which is attributable to the

5 period before such stock became stock of an eli6 gible small business.

7 ‘‘(4) CERTAIN PURCHASES BY CORPORATION OF

8 ITS OWN STOCK.—Rules similar to the rules of sec9 tion 1202(c)(3) shall apply for purposes of this sub10 section.

11 ‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of

12 this section, the term ‘eligible small business’ means any

13 domestic corporation which is a C corporation if the aggre14 gate annual gross receipts of such corporation (or any

15 predecessor thereof) for all taxable years ending before the

16 date of issuance did not exceed $20,000,000. For purposes

17 of the preceding sentence, rules similar to the rules of

18 paragraphs (2) and (3) of section 448(c) shall apply.

19 ‘‘(d) ACTIVE BUSINESS REQUIREMENT.—For pur20 poses of subsection (b)(2), the requirements of this sub21 section are met by a corporation for any period if during

22 such period—

23 ‘‘(1) at least 80 percent (by value) of the assets

24 of such corporation are used by such corporation in
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1 the active conduct of 1 or more trades or businesses,

2 and

3 ‘‘(2) such corporation is an eligible corporation

4 (as defined in section 1202(e)(4)).

5 For purposes of the preceding sentence, a rules similar

6 to the rules of paragraphs (2), (5), (6), (7) and (8) of

7 section 1202(e) shall apply.

8 ‘‘(e) BASIS ADJUSTMENTS.—If gain from any sale is

9 not recognized by reason of subsection (a), such gain shall

10 be applied to reduce (in the order acquired) the basis for

11 determining gain or loss of any eligible small business

12 stock purchased by the taxpayer during the 18-month pe13 riod described in subsection (a). This subsection shall not

14 apply for purposes of section 1202.

15 ‘‘(f) STATUTE OF LIMITATIONS.—If any gain is real16 ized by the taxpayer on any sale to which an election under

17 this section applies, then—

18 ‘‘(1) the statutory period for the assessment of

19 any deficiency with respect to such gain shall not ex20 pire before the expiration of 3 years from the date

21 the Secretary is notified by the taxpayer (in such

22 manner as the Secretary may by regulations pre23 scribe) of—

24 ‘‘(A) the taxpayer’s cost of purchasing any

25 eligible small business stock,
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1 ‘‘(B) the taxpayer’s intention not to pur2 chase such stock within the reinvestment pe3 riod, or

4 ‘‘(C) a failure to make such purchase with5 in the reinvestment period, and

6 ‘‘(2) such deficiency may be assessed before the

7 expiration of such 3-year period notwithstanding the

8 provisions of any law or rule of law which would oth9 erwise prevent such assessment.’’

10 (b) CONFORMING AMENDMENT.—Paragraph (24) of

11 section 1016(a) of such Code is amended—

12 (1) by striking ‘‘or 1044’’ and inserting ‘‘,

13 1044, or 1045’’, and

14 (2) by striking ‘‘or 1044(d)’’ and inserting ‘‘,

15 1044(d), or 1045(e)’’.

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

17 for part III of subchapter O of chapter 1 of such Code

18 is amended by adding at the end the following new item:

‘‘Sec. 1045. Rollover of gain from sale of eligible small business

stock into other eligible small business stock.’’

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

20 this section shall apply to sales on and after the date of

21 the enactment of this Act, in taxable years ending on and

22 after such date.

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