I 
108TH CONGRESS 
1ST SESSION H. R. 1498
To amend the Internal Revenue Code of 1986 to provide that the tax on 
recognized built-in gain of an S corporation shall not apply to amounts 
reinvested in the business. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 27, 2003
Mr. RAMSTAD (for himself, Mr. CRANE, Mrs. JOHNSON of Connecticut, Mr. 
HERGER, Mr. CAMP, Mr. SAM JOHNSON of Texas, Mr. ENGLISH, Mr. 
WELLER, Mr. MCINNIS, Mr. FOLEY, Mr. BRADY of Texas, and Mr. COX) 
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 
that the tax on recognized built-in gain of an S corpora-
tion shall not apply to amounts reinvested in the busi-
ness.
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 ‘‘Small Business Oppor-
tunity and Growth Act of 2003’’.
SEC. 2. EXCEPTION FROM TAX ON RECOGNIZED BUILT-IN 
GAIN OF S CORPORATIONS. 
(a) IN GENERAL.—Section 1374 of the Internal Rev-
enue Code of 1986 (relating to tax imposed on certain 
built-in gains) is amended by redesignating subsection (e) 
as subsection (f) and by inserting after subsection (d) the 
following new subsection: 
‘‘(e) EXCEPTION FOR REINVESTED AMOUNTS.—
‘‘(1) IN GENERAL.—If an existing S corporation 
has a net recognized built-in gain for any taxable 
year in the recognition period (determined by taking 
into account only assets held on March 27, 2003) 
and elects the application of this subsection, the 
amount of such gain on which tax is imposed by 
subsection (a) shall not exceed the amount equal to 
the excess of—
‘‘(A) the amount realized on the disposi-
tion of those assets that resulted in such gain, 
over 
‘‘(B) the excess of—
‘‘(i) the aggregate qualified expendi-
tures made by the S corporation during 
the nonrecognition period, over 
‘‘(ii) the portion (if any) of such ex-
penditures previously taken into account 
under this subsection.
‘‘(C) amounts distributed to shareholders 
to the extent such amounts do not exceed the 
aggregate of such shareholders’ tax imposed by 
this chapter (and State and local taxes) on 
amounts attributable to the disposition of those 
assets that resulted in such net recognized 
built-in gain. 
Payments of principal as part of a refinancing of 
pre-effective date debt shall not be taken into ac-
count under subparagraph (B). 
‘‘(4) NONRECOGNITION PERIOD.—For purposes 
of this subsection, the term ‘nonrecognition period’ 
means, with respect to a taxable year for which an 
S corporation has a net recognized built-in gain, 
such taxable year and the succeeding taxable year. 
‘‘(5) PRE-EFFECTIVE
DATE
DEBT.—For pur-
poses of paragraph (2)(B), the term ‘pre-effective 
date debt’ means—
‘‘(A) debt incurred before March 27, 2003, 
and 
‘‘(B) debt incurred on or after such date to 
refinance debt described in subparagraph (A) 
(or refinanced indebtedness meeting the re-
quirements of this subparagraph) to the extent 
that (immediately after the refinancing) the
principal amount of the indebtedness resulting 
from the refinancing does not exceed the prin-
cipal amount of the refinanced indebtedness 
(immediately before the refinancing). 
‘‘(6) ANTI-ABUSE RULE.—Solely for purposes of 
determining the treatment of distributions to share-
holders under section 1368 during the recognition 
period—
‘‘(A) any increase in the accumulated ad-
justment account and shareholder basis by rea-
son of the disposition of those assets that re-
sulted in the net recognized built-in gain shall 
not exceed the amounts described in paragraph 
(2)(C), and 
‘‘(B) any increase in such account and 
shareholder basis which is not permitted under 
subparagraph (A) shall occur immediately after 
the recognition period. 
‘‘(7) EXISTING S CORPORATION.—The term ‘ex-
isting S corporation’ means any S corporation for 
which an election under section 1362 is filed before 
March 27, 2003.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning during 
or after the calendar year which includes the date of the
enactment of this Act but only with respect to built-in gain 
recognized after such date.
Æ