I 

110TH CONGRESS 

1ST SESSION H. R. 126 

To amend the Internal Revenue Code of 1986 to allow loans from individual 

retirement plans for qualified small business capital assets. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 4, 2007 

Mr. FORTENBERRY 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 allow loans 

from individual retirement plans for qualified small business capital assets. 

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

3 SECTION 1. LOANS FROM INDIVIDUAL RETIREMENT PLANS 

4 FOR QUALIFIED SMALL BUSINESS CAPITAL 

5 ASSETS. 

6 (a) EXEMPTION FROM PROHIBITED TRANSACTION

7 RULES.—Section 4975 of the Internal Revenue Code of 

8 1986 (relating to tax on prohibited transactions) is 

9 amended by redesignating subsections (h) and (i) as subVerDate Aug 31 2005 07:33 Jan 10, 2007 Jkt 059200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H126.IH H126

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1 sections (i) and (j), respectively, and by inserting after 

2 subsection (g) the following new subsection: 

3 ‘‘(h) SPECIAL RULE FOR LOANS FOR QUALIFIED

4 SMALL BUSINESS CAPITAL ASSETS.— 

5 ‘‘(1) IN GENERAL.—The prohibitions provided 

6 in subsection (c) shall not apply to any qualified 

7 small business loan from an individual retirement 

8 plan to the individual for whose benefit the plan is 

9 maintained to the extent that such loan (when added 

10 to the outstanding balance of all other such loans) 

11 does exceed the lesser of— 

12 ‘‘(A) $50,000, reduced by the excess (if 

13 any) of— 

14 ‘‘(i) the highest outstanding balance 

15 of such loans during the 1-year period end16 ing on the day before the date on which 

17 such loan was made, over 

18 ‘‘(ii) the outstanding balance of such 

19 loans on the date on which such loan was 

20 made, or 

21 ‘‘(B) the greater of— 

22 ‘‘(i) one-half of the amount available 

23 for distribution under the plan, or 

24 ‘‘(ii) $10,000. 


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1 ‘‘(2) QUALIFIED SMALL BUSINESS LOAN.—For 

2 purposes of this subsection— 

3 ‘‘(A) IN GENERAL.—The term ‘qualified 

4 small business loan’ means a loan the proceeds 

5 of which are used by the individual for whose 

6 benefit the individual retirement plan is estab7 lished to acquire qualified small business capital 

8 assets. 

9 ‘‘(B) QUALIFIED SMALL BUSINESS CAP10 ITAL ASSETS.—The term ‘qualified small busi11 ness capital assets’ means— 

12 ‘‘(i) stock in a domestic corporation 

13 acquired by the taxpayer at its original 

14 issue, 

15 ‘‘(ii) any capital or profits interest in 

16 a domestic partnership acquired by the 

17 taxpayer from the partnership, and 

18 ‘‘(iii) tangible property acquired by 

19 the taxpayer substantially all of the use of 

20 which is in a trade or business of the tax21 payer, 

22 but only if the taxpayer is an active participant 

23 in such trade or business or, in the case of in24 terests in a corporation or partnership de25 scribed in clauses (i) and (ii), only if the taxVerDate Aug 31 2005 07:33 Jan 10, 2007 Jkt 059200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H126.IH H126

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1 payer is an active participant in a trade or busi2 ness of such corporation or partnership. 

3 ‘‘(3) REQUIREMENT THAT LOAN BE REPAYABLE

4 WITHIN 5 YEARS.—Paragraph (1) shall not apply to 

5 any loan unless such loan, by its terms, is required 

6 to be repaid within 5 years. 

7 ‘‘(4) REQUIREMENT OF LEVEL AMORTIZA8 TION.—Rules similar to the rules of section 

9 72(p)(2)(C) shall apply for purposes of this sub10 section.’’. 

11 (b) CONFORMING AMENDMENT.—Subsection (e) of 

12 section 408 of such Code (relating to tax treatment of ac13 counts and annuities) is amended by adding at the end 

14 the following new paragraph: 

15 ‘‘(7) EXCEPTION FOR LOANS FROM INDIVIDUAL

16 RETIREMENT PLANS FOR QUALIFIED SMALL BUSI17 NESS CAPITAL EXPENDITURES.—In the case of a 

18 qualified small business loan (as defined in section 

19 4975(h)(2)) from an individual retirement plan— 

20 ‘‘(A) such plan shall not fail to be treated 

21 as an individual retirement plan under para22 graph (2) or (3) solely because of such loan, 

23 and 

24 ‘‘(B) such loan shall not be treated as a 

25 distribution from such plan.’’. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to loans made after the date of 

3 the enactment of this Act. 

Æ 


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