business, a qualified small business is engaged 
in— 
‘‘(i) start-up activities described in 
section 195(c)(1)(A), 
‘‘(ii) activities resulting in the pay-
ment or incurring of expenditures which 
may be treated as research and experi-
mental expenditures under section 174, or 
‘‘(iii) activities with respect to in- 
house research expenses described in sec-
tion 41(b)(4), 
assets used in such activities shall be treated as 
used in the active conduct of a qualified trade 
or business. Any determination under this sub-
paragraph shall be made without regard to 
whether a qualified small business has any 
gross income from such activities at the time of 
the determination. 
‘‘(C) QUALIFIED TRADE OR BUSINESS.— 
For purposes of this paragraph, the term 
‘qualified trade or business’ is as defined in sec-
tion 1202(e)(3). 
‘‘(D) STOCK IN OTHER ENTITIES.— 
‘‘(i) LOOK-THRU IN CASE OF SUBSIDI-
ARIES.—For purposes of this subsection, 
VerDate Aug 31 2005 
09:14 Apr 28, 2006
Jkt 049200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H5198.IH
H5198
cprice-sewell on PROD1PC66 with BILLS
stock and debt in any subsidiary entity 
shall be disregarded and the parent quali-
fied small business shall be deemed to own 
its ratable share of the subsidiary’s assets, 
and to conduct its ratable share of the sub-
sidiary’s activities. 
‘‘(ii) PORTFOLIO STOCK OR SECURI-
TIES.—A qualified small business shall be 
treated as failing to meet the requirements 
of subparagraph (A) for any period during 
which more than 10 percent of the value of 
its assets (in excess of liabilities) consists 
of stock or securities in other entities 
which are not subsidiaries of such qualified 
small business other than assets described 
in subparagraph (E)). 
‘‘(iii) SUBSIDIARY.—For purposes of 
this subparagraph, an entity shall be con-
sidered a subsidiary if the parent owns 
more than 50 percent of the combined vot-
ing power of all classes of stock entitled to 
vote, or more than 50 percent in value of 
all outstanding stock, of such entity. 
‘‘(E) WORKING CAPITAL.—For purposes of 
subparagraph (A), any assets which— 
VerDate Aug 31 2005 
09:14 Apr 28, 2006
Jkt 049200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H5198.IH
H5198
cprice-sewell on PROD1PC66 with BILLS
‘‘(i) are held as a part of the reason-
ably required working capital needs of a 
qualified trade or business of the qualified 
small business, or 
‘‘(ii) are held for investment and are 
reasonably expected to be used within 2 
years to finance research and experimen-
tation in a qualified trade or business or 
increases in working capital needs of a 
qualified trade or business, 
shall be treated as used in the active conduct of 
a qualified trade or business. For periods after 
the qualified small business has been in exist-
ence for at least 2 years, in no event may more 
than 50 percent of the assets of the qualified 
small business qualify as used in the active con-
duct of a qualified trade or business by reason 
of this subparagraph. 
‘‘(F) MAXIMUM
REAL
ESTATE
HOLD-
INGS.—A qualified small business shall not be 
treated as meeting the requirements of subpara-
graph (A) for any period during which more 
than 10 percent of the total value of its assets 
consists of real property which is not used in 
the active conduct of a qualified trade or busi-
VerDate Aug 31 2005 
09:14 Apr 28, 2006
Jkt 049200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H5198.IH
H5198
cprice-sewell on PROD1PC66 with BILLS