pendent contractors under contract to such
entity are located in the United States.
For purposes of clause (iii), ownership interests
in entities controlled by such entity or directly
involved in the primary activity referred to in
clause (ii) with respect to such entity do not
constitute investment property, and the Sec-
retary may further define by regulation what
constitutes an incidental holding of investment
property.
‘‘(B) AGGREGATION
RULES.—All persons
treated as a single employer under subsection
(a) or (b) of section 52 shall be treated as one
person for purposes of subparagraph (A).
‘‘(C) SPECIAL RULES FOR DETERMINING
GROSS RECEIPTS.—The rules of subparagraphs
(B) and (C) of section 448(c)(3) shall apply for
purposes of subparagraph (A)(i).
‘‘(c) INAPPLICABILITY
TO CERTAIN GAIN.—Sub-
section (a) shall not apply to any of the following types
of gain:
‘‘(1) Gain from the sale or other disposition of
property received in lieu of salary, wages, or other
compensation for services performed by the tax-
payer, to the extent of the fair market value of the
property at the time of receipt by the taxpayer.
‘‘(2) Gain from the sale of property that is not
held for the production of income.
‘‘(3) Gain from investment property.
‘‘(4) Gain that is treated or characterized as or-
dinary income for purposes of this title.
‘‘(5) Gain, to the extent the gain is not recog-
nized under section 1044 or 1202, notwithstanding
that the gain is derived from the sale of expansion
shares.
‘‘(d) CERTAIN OTHER RULES TO APPLY.—Rules
similar to the rules of subsections (f), (g), (h), and (j)
of section 1202 (without regard to any 5-year holding pe-
riod requirement) shall apply for purposes of this section.
‘‘(e) PROHIBITION OF BASIS ADJUSTMENTS.—If gain
from any sale is not recognized by reason of subsection
(a), such gain shall not be applied to reduce the basis for
determining gain or loss of any eligible small business in-
vestment which is purchased by the taxpayer during the
12-month period described in subsection (a).
‘‘(f) STATUTE OF LIMITATIONS.—If any gain is real-
ized by the taxpayer on the sale or exchange of any eligible
small business investment and there is in effect an election
under subsection (a) with respect to such gain, then—
‘‘(1) the statutory period for the assessment of
any deficiency with respect to such gain shall not ex-
pire before the expiration of 3 years from the date
the Secretary is notified by the taxpayer (in such
manner as the Secretary may by regulations pre-
scribe) of—
‘‘(A) the taxpayer’s cost of purchasing the
eligible small business investment which the
taxpayer claims results in nonrecognition of any
part of such gain,
‘‘(B) the taxpayer’s intention not to pur-
chase any eligible small business investment
within the 12-month period described in sub-
section (a), or
‘‘(C) a failure to make such purchase with-
in such 12-month period, and
‘‘(2) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which
would otherwise prevent such assessment.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations to prevent
the avoidance of the purposes of this section through
splitups, shell corporations, partnerships, or otherwise.
‘‘(h) TERMINATION.—Subsection (a) shall not apply
to any taxable year beginning on or after January 1,
2003.’’
(b) REPORT BY SECRETARY.—Not later than Decem-
ber 31, 2001, the Secretary of the Treasury shall submit
to each House of the Congress a report detailing the ef-
fects of section 1045 of such Code, as added by this Act.
(c) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter O of chapter 1 of such Code
is amended by adding at the end the following new item:
‘‘Sec. 1045. Rollover of gain to small business investments.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to investments purchased after the
date of the date of the enactment of this Act, for taxable
years ending after such date and before January 1, 2003.
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