Small Business Investment Act of 2023

Subjects: Taxation


<html><body><pre>[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 1243 Introduced in Senate (IS)]

&lt;DOC&gt;






118th CONGRESS
  1st Session
                                S. 1243

To amend the Internal Revenue Code of 1986 to modify the exclusion for 
               gain from qualified small business stock.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 20, 2023

  Mr. Cornyn 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 modify the exclusion for 
               gain from qualified small business stock.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Investment Act of 
2023''.

SEC. 2. PHASED INCREASE IN EXCLUSION FOR GAIN FROM QUALIFIED SMALL 
              BUSINESS STOCK.

    (a) In General.--Section 1202(a)(1) of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``50 percent'' and inserting ``the 
        applicable percentage'', and
            (2) by striking ``held for more than 5 years'' and 
        inserting ``held for at least 3 years''.
    (b) Applicable Percentage.--Section 1202(a) of such Code is amended 
by adding at the end the following new paragraph:
            ``(5) Applicable percentage.--Except as provided in 
        paragraphs (3) and (4), the applicable percentage under 
        paragraph (1) shall be determined under the following table:


 
                                                            Applicable
                  ``Years stock held:                      percentage:
 
3 years................................................              50%
4 years................................................              75%
5 years or more........................................          100%''.
 

    (c) Continued Treatment as Not Item of Tax Preference.--
            (1) In general.--Section 57(a)(7) of such Code is amended 
        by striking ``An amount'' and inserting ``In the case of stock 
        acquired on or before the date of the enactment of the Creating 
        Small Business Jobs Act of 2010, an amount''.
            (2) Conforming amendment.--Section 1202(a)(4) of such Code 
        is amended--
                    (A) by striking ``, and'' at the end of 
                subparagraph (B) and inserting a period, and
                    (B) by striking subparagraph (C).
    (d) Other Conforming Amendments.--
            (1) Section 1202(a)(4) of such Code is amended by inserting 
        ``and before the date of the enactment of the Small Business 
        Investment Act of 2023'' after ``Act of 2010''.
            (2) Paragraphs (3) and (4) of section 1202(a) of such Code 
        are each amended by inserting ``held for more than 5 years 
        and'' after ``In the case of qualified small business stock''.
            (3) Section 1202(a)(3)(A) of such Code is amended to read 
        as follows:
                    ``(A) the applicable percentage under paragraph (1) 
                shall be 75 percent, and''.
            (4) Section 1202(a)(4)(A) of such Code is amended to read 
        as follows:
                    ``(A) the applicable percentage under paragraph (1) 
                shall be 100 percent, and''.
            (5) Section 1202(b)(2) of such Code is amended by striking 
        ``more than 5 years'' and inserting ``at least 3 years''.
            (6) Section 1202(g)(2)(A) of such Code is amended by 
        striking ``more than 5 years'' and inserting ``at least 3 
        years''.
            (7) Section 1202(j)(1)(A) of such Code is amended by 
        striking ``more than 5 years'' and inserting ``at least 3 
        years''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to stock acquired 
        after the date of the enactment of this Act.
            (2) Continued treatment as not item of tax preference.--The 
        amendment made by subsection (c) shall take effect as if 
        included in the enactment of section 2011 of the Creating Small 
        Business Jobs Act of 2010.

SEC. 3. TACKING HOLDING PERIOD OF CONVERTIBLE DEBT INSTRUMENTS.

    (a) In General.--Section 1202(f) of the Internal Revenue Code of 
1986 is amended--
            (1) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B) and moving such subparagraphs (as so 
        redesignated) 2 ems to the right,
            (2) by striking ``Conversion of Other Stock.--If any 
        stock'' and inserting the following: ``Conversion.--
            ``(1) Other stock.--If any stock'', and
            (3) by adding at the end the following new paragraph:
            ``(2) Convertible debt instruments.--
                    ``(A) In general.--If any stock in a corporation is 
                acquired by the taxpayer, without recognition of gain, 
                solely through the conversion of a qualified 
                convertible debt instrument--
                            ``(i) the stock so acquired shall be 
                        treated as qualified small business stock in 
                        the hands of the taxpayer, and
                            ``(ii) the stock so acquired shall be 
                        treated as having been held during the period 
                        during which the qualified convertible debt 
                        instrument was held.
                    ``(B) Qualified convertible debt instrument.--For 
                purposes of this paragraph, the term `qualified 
                convertible debt instrument' means any bond or other 
                evidence of indebtedness--
                            ``(i) which is originally issued by the 
                        corporation to the taxpayer,
                            ``(ii) the issuer of which--
                                    ``(I) from issuance until 
                                conversion, is a qualified small 
                                business, and
                                    ``(II) during substantially all of 
                                the taxpayer's holding period of such 
                                bond or evidence of indebtedness, the 
                                corporation meets the active business 
                                requirements of subsection (e), and
                            ``(iii) which is convertible into stock in 
                        the corporation.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to debt instruments originally issued after the date of the 
enactment of this Act.

SEC. 4. GAIN EXCLUSION ALLOWED WITH RESPECT TO QUALIFIED SMALL BUSINESS 
              STOCK IN CORPORATION.

    (a) In General.--Section 1202(c) of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``C corporation'' in paragraphs (1) and 
        inserting ``corporation'', and
            (2) by striking ``and such corporation is a C corporation'' 
        in paragraph (2)(A).
    (b) Qualified Small Business Definition.--Section 1202(d)(1) of 
such Code is amended by striking ``which is a C corporation''.
    (c) Clarification of Aggregation Rules Applicable to S 
Corporations.--Section 1202(d)(3) of such Code is amended by adding at 
the end the following new subparagraph:
                    ``(C) Clarification with respect to s 
                corporations.--Any determination of the members of a 
                controlled group of corporations under this paragraph 
                shall include taking into account any stock ownership 
                in an S corporation.''.
    (d) Treatment of Passive Losses.--Section 469(g)(1) of such Code is 
amended by adding at the end the following new subparagraph:
                    ``(D) Certain dispositions of small business 
                stock.--In the case of a disposition any gain from 
                which is excluded from gross income under section 1202, 
                subparagraph (A) shall not apply.''.
    (e) Special Rules Relating to S Corporations.--Section 1202(e) of 
such Code is amended by adding at the end the following new paragraph:
            ``(9) Applied at s corporation level.--In the case of an S 
        corporation, the requirements of this subsection shall be 
        applied at the corporate level.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to stock acquired after the date of the enactment of this Act.
                                 &lt;all&gt;
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