I
103D CONGRESS
2D SESSION
H. R. 5201
To amend the Internal Revenue Code of 1986 to provide for nonrecognition
of gain on the sale of eligible small business stock if the proceeds
of the sale are reinvested in other eligible small business stock.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 6, 1994
Mr. WYDEN 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
for nonrecognition of gain on the sale of eligible small
business stock if the proceeds of the sale are reinvested
in other eligible 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 ‘‘Entrepreneurship Pro-
motion Act of 1994’’.
SEC. 2. ROLLOVER OF GAIN FROM SALE OF ELIGIBLE
SMALL BUSINESS STOCK INTO OTHER ELIGI-
BLE SMALL BUSINESS STOCK.
(a) IN GENERAL.—Part III of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
common nontaxable exchanges) is amended by adding at
the end the following new section:
‘‘SEC. 1045. ROLLOVER OF GAIN FROM SALE OF ELIGIBLE
SMALL BUSINESS STOCK INTO OTHER ELIGI-
BLE SMALL BUSINESS STOCK.
‘‘(a) NONRECOGNITION OF GAIN.—In the case of the
sale of any eligible small business stock with respect to
which the taxpayer elects the application of this section,
gain from such sale shall be recognized only to the extent
that the amount realized on such sale exceeds—
‘‘(1) the cost of any other eligible small busi-
ness stock purchased (as defined by section
1043(b)(4)) by the taxpayer during the 18-month
period beginning on the date of such sale, reduced
by
‘‘(2) any portion of such cost previously taken
into account under this section.
This section shall not apply to any gain which is treated
as ordinary income for purposes of this subtitle.
‘‘(b) ELIGIBLE SMALL BUSINESS STOCK.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘eligible small busi-
ness stock’ means any stock in a C corporation if—
‘‘(A) as of the date of issuance, such cor-
poration is an eligible small business, and
‘‘(B) such stock is acquired by the tax-
payer at its original issue (directly or through
an underwriter) in exchange for money or other
property (not including stock).
‘‘(2) ACTIVE
BUSINESS
REQUIREMENT.—Sub-
section (a) shall not apply to the sale of any eligible
small business stock unless, during substantially all
of the taxpayer’s holding period for such stock, the
corporation meets the active business requirements
of subsection (d) and such corporation is a C cor-
poration. For purposes of the preceding sentence, a
rule similar to the rule of section 1202(c)(2)(B)
shall apply.
‘‘(3) SPECIAL RULE FOR STOCK ISSUED BY S
CORPORATIONS.—In the case of stock which, as of
the date of the sale to which subsection (a) applies,
is stock of an eligible small business but which, as
of the date of issuance, was not stock of an eligible
small business solely by reason of the fact that the
corporation was an S corporation—
‘‘(A) such stock shall be treated as meeting
the requirement of paragraph (1)(A), but
‘‘(B) subsection (a) shall not apply to so
much of the gain which is attributable to the
period before such stock became stock of an eli-
gible small business.
‘‘(4) CERTAIN PURCHASES BY CORPORATION OF
ITS OWN STOCK.—Rules similar to the rules of sec-
tion 1202(c)(3) shall apply for purposes of this sub-
section.
‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of
this section, the term ‘eligible small business’ means any
domestic corporation which is a C corporation if the aggre-
gate annual gross receipts of such corporation (or any
predecessor thereof) for all taxable years ending before the
date of issuance did not exceed $20,000,000. For purposes
of the preceding sentence, rules similar to the rules of
paragraphs (2) and (3) of section 448(c) shall apply.
‘‘(d) ACTIVE BUSINESS REQUIREMENT.—For pur-
poses of subsection (b)(2), the requirements of this sub-
section are met by a corporation for any period if during
such period—
‘‘(1) at least 80 percent (by value) of the assets
of such corporation are used by such corporation in
the active conduct of 1 or more trades or businesses,
and
‘‘(2) such corporation is an eligible corporation
(as defined in section 1202(e)(4)).
For purposes of the preceding sentence, a rules similar
to the rules of paragraphs (2), (5), (6), (7) and (8) of
section 1202(e) shall apply.
‘‘(e) BASIS ADJUSTMENTS.—If gain from any sale is
not recognized by reason of subsection (a), such gain shall
be applied to reduce (in the order acquired) the basis for
determining gain or loss of any eligible small business
stock purchased by the taxpayer during the 18-month pe-
riod described in subsection (a). This subsection shall not
apply for purposes of section 1202.
‘‘(f) STATUTE OF LIMITATIONS.—If any gain is real-
ized by the taxpayer on any sale to which an election under
this section applies, 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 any
eligible small business stock,
‘‘(B) the taxpayer’s intention not to pur-
chase such stock within the reinvestment pe-
riod, or
‘‘(C) a failure to make such purchase with-
in the reinvestment period, and
‘‘(2) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any law or rule of law which would oth-
erwise prevent such assessment.’’
(b) CONFORMING AMENDMENT.—Paragraph (24) of
section 1016(a) of such Code is amended—
(1) by striking ‘‘or 1044’’ and inserting ‘‘,
1044, or 1045’’, and
(2) by striking ‘‘or 1044(d)’’ and inserting ‘‘,
1044(d), or 1045(e)’’.
(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 from sale of eligible small business
stock into other eligible small business stock.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales on and after the date of
the enactment of this Act, in taxable years ending on and
after such date.
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