I
104TH CONGRESS
1ST SESSION
H. R. 1918
To amend the Internal Revenue Code of 1986 to modify the exclusion of
gain on certain small business stock.
IN THE HOUSE OF REPRESENTATIVES
JUNE 22, 1995
Mr. MATSUI (for himself and Mr. ENGLISH of Pennsylvania) 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 modify
the exclusion of gain on certain small business stock.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Enterprise Capital
Formation Act of 1995’’.
SEC. 2. FINDINGS.
The Congress hereby finds that—
(1) investments in small business venture cap-
ital stock should be encouraged because of both the
special risks and the social and economic benefits as-
sociated with such investments,
(2) the exclusion from income of gain on small
business venture capital stock is an important incen-
tive for individuals and corporations to invest in
such stock, and
(3) tax incentives for investments in capital as-
sets in general should be supplemented with an ef-
fective tax incentive for investments in small busi-
ness venture capital stock.
SEC. 3. MODIFICATIONS TO EXCLUSION OF GAIN ON CER-
TAIN SMALL BUSINESS STOCK.
(a) INCREASE IN EXCLUSION.—Subsection (a) of sec-
tion 1202 of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘50 percent’’ and inserting ‘‘75 percent’’.
(b) EXCLUSION AVAILABLE TO CORPORATIONS.—
(1) IN
GENERAL.—Subsection (a) of section
1202 of such Code is amended by striking ‘‘other
than a corporation’’.
(2) TECHNICAL AMENDMENT.—Subsection (c)
of section 1202 of such Code is amended by adding
at the end the following new paragraph:
‘‘(4) STOCK HELD AMONG MEMBERS OF CON-
TROLLED GROUP NOT ELIGIBLE.—Stock of a mem-
ber of a parent-subsidiary controlled group (as de-
fined in subsection (d)(3)) shall not be treated as
qualified small business stock while held by another
member of such group.’’
(c) REPEAL OF MINIMUM TAX PREFERENCE.—
(1) IN GENERAL.—Subsection (a) of section 57
of such Code is amended by striking paragraph (7).
(2) TECHNICAL AMENDMENT.—Subclause (II)
of section 53(d)(1)(B)(ii) of such Code is amended
by striking ‘‘, (5), and (7)’’ and inserting ‘‘and (5)’’.
(d) STOCK OF LARGER BUSINESSES ELIGIBLE FOR
EXCLUSION.—
(1) Paragraph (1) of section 1202(d) of such
Code is amended by striking ‘‘$50,000,000’’ each
place it appears and inserting ‘‘$100,000,000’’.
(2) Subsection (d) of section 1202 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(4) INFLATION ADJUSTMENT OF ASSET LIMI-
TATION.—In the case of stock issued in any calendar
year after 1996, the $100,000,000 amount con-
tained in paragraph (1) shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1995’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of
$10,000.’’
(e) REPEAL OF PER-ISSUER LIMITATION.—Section
1202 of such Code is amended by striking subsection (b).
(f) OTHER MODIFICATIONS.—
(1) REPEAL
OF
WORKING
CAPITAL
LIMITA-
TION.—Paragraph (6) of section 1202(e) of such
Code is amended—
(A) by striking ‘‘within 2 years’’ in sub-
paragraph (B), and
(B) by striking the last sentence.
(2) EXCEPTION
FROM
REDEMPTION
RULES
WHERE BUSINESS PURPOSE.—Paragraph (3) of sec-
tion 1202(c) of such Code is amended by adding at
the end the following new subparagraph:
‘‘(D) WAIVER
WHERE
BUSINESS
PUR-
POSE.—A purchase of stock by the issuing cor-
poration shall be disregarded for purposes of
subparagraphs (A) and (B) if the issuing cor-
poration establishes that there was a business
purpose for such purchase and such purchase is
not inconsistent with the purposes of this sec-
tion.’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after December 31,
1994.
(h) ELECTION TO APPLY AMENDMENTS TO STOCK
ISSUED AFTER AUGUST 10, 1993.—
(1) IN GENERAL.—The amendments made by
this section shall apply to any qualified stock issued
after August 10, 1993, if the taxpayer elects to
apply such amendments with respect to such stock.
(2) QUALIFIED STOCK.—For purposes of para-
graph (1), the term ‘‘qualified stock’’ means stock—
(A) which is held by the taxpayer on De-
cember 31, 1994, and
(B) which was not qualified small business
stock (as defined section 1202(c) of the Inter-
nal Revenue Code of 1986) when issued but
which would be qualified small business stock
(as so defined) if the amendments made by this
section applied to stock issued after August 10,
1993.
(3) RECOGNITION OF GAIN.—For purposes of
the Internal Revenue Code of 1986—
(A) IN GENERAL.—Any qualified stock to
which the election under paragraph (1) applies
shall be treated—
(i) as having been sold on January 1,
1995, for an amount equal to its fair mar-
ket value on such date, and
(ii) as having been reacquired on such
date for an amount equal to such fair mar-
ket value.
The preceding sentence shall not apply for pur-
poses of determining whether the stock is quali-
fied small business stock (as so defined).
(B) TREATMENT OF GAIN OR LOSS.—
(i) Any gain resulting from subpara-
graph (A) shall be treated as received or
accrued on January 1, 1995, and shall be
recognized notwithstanding any provision
of the Internal Revenue Code of 1986.
(ii) Any loss resulting from subpara-
graph (A) shall not be allowed for any tax-
able year.
(4) ELECTION.—An election under paragraph
(1) shall be made in such manner as the Secretary