I
105TH CONGRESS
1ST SESSION
H. R. 1647
To establish a Small Business Development Fund to promote economic revital-
ization and community development through investment in, and assist-
ance to, qualified women and minority business people.
IN THE HOUSE OF REPRESENTATIVES
MAY 15, 1997
Ms. WATERS (for herself, Mr. CUMMINGS, Mr. HILLIARD, Mr. JACKSON of Il-
linois, Ms. JACKSON-LEE of Texas, Ms. MCKINNEY, Mrs. MEEK of Flor-
ida, Mr. THOMPSON, Ms. BROWN of Florida, Mr. RUSH, Mr. TOWNS, Mr.
DIXON, Mr. STOKES, Mr. CONYERS, Mr. DELLUMS, Mr. RANGEL, Mrs.
CLAYTON, Ms. KILPATRICK, Mr. CLYBURN, Mr. FORD, Mr. DAVIS of Illi-
nois, Mr. OWENS, Mr. WATT of North Carolina, Mr. WYNN, Mr. SCOTT,
Mr. HASTINGS of Florida, Ms. CHRISTIAN-GREEN, Ms. CARSON, Ms.
NORTON, Mr. PAYNE, Mr. CLAY, Mr. JEFFERSON, Ms. EDDIE BERNICE
JOHNSON of Texas, Mr. FATTAH, Mr. LEWIS of Georgia, and Ms.
MILLENDER-MCDONALD) introduced the following bill; which was re-
ferred to the Committee on Ways and Means, and in addition to the
Committees on the Budget, and Small Business, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To establish a Small Business Development Fund to promote
economic revitalization and community development
through investment in, and assistance to, qualified
women and minority business people.
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 referred to as the ‘‘Small Business
Development Fund Act of 1997’’.
SEC. 2. TAX ON CAPITAL GAINS REDUCTION STRATEGY
AMOUNT OR ALTERNATIVE DENIAL OF IN-
TEREST DEDUCTION ON CERTAIN DEBT IN-
STRUMENTS, 
AND 
ESTABLISHMENT 
OF
TRUST FUND TO RECEIVE TAX AMOUNTS.
(a) IMPOSITION OF TAX IF DECREASE IN CAPITAL
GAINS RATE ENACTED IN 1997.—
(1) IN GENERAL.—Part I of subchapter P of
chapter 1 of the Internal Revenue Code of 1986 (re-
lating to treatment of capital gains) is amended by
adding at the end the following new section:
‘‘SEC. 1203. TAX ON CAPITAL GAINS REDUCTION STRATEGY
AMOUNT.
‘‘(a) IN GENERAL.—There is hereby imposed, on
each taxpayer which has a 50 percent strategy-based re-
duction for the taxable year, a tax equal to 1 percent of
the capital gains reduction strategy amount for the taxable
year.
‘‘(b) 50 PERCENT STRATEGY-BASED REDUCTION.—
For purposes of this section, a taxpayer has a 50 percent
strategy-based reduction for the taxable year if—
‘‘(1) the amount of tax imposed by this title for
the taxable year on capital gains of the taxpayer is
50 percent or less of,
‘‘(2) the amount of tax which would have been
imposed by this title for the taxable year on capital
gains of the taxpayer but for the use of applicable
tax reduction strategies by the taxpayer (or by a
party to a transaction with the taxpayer or by a per-
son related to the taxpayer or to such party), as de-
termined by the Secretary.
The Secretary shall make the determination required
under paragraph (2) by reference to transactions which
would have yielded substantially the same non-tax result.
For purposes of this subsection, the amount of tax im-
posed by this title (or the amount described in paragraph
(2) which would have been so imposed) which is attrib-
utable to capital gains shall be the amount determined by
the Secretary pursuant to regulations.
‘‘(c) 
CAPITAL
GAINS
REDUCTION
STRATEGY
AMOUNT.—For purposes of this section, the term ‘capital
gains reduction strategy amount’ means the excess of—
‘‘(1) the amount described in subsection (b)(2),
over
‘‘(2) the amount described in subsection (b)(1).
‘‘(d) APPLICABLE TAX REDUCTION STRATEGY.—For
purposes of this section—
‘‘(1) IN GENERAL.—With respect to any trans-
action, the term ‘applicable tax reduction strategy’
means any product, method, strategy, or action—
‘‘(A) generally used by taxpayers primarily
for the purpose of reducing the tax under this
title on capital gains, and
‘‘(B) identified by the Secretary, on a list
published under paragraph (2), as being an ap-
plicable tax reduction strategy for purposes of
the calendar quarter in which such transaction
occurs.
‘‘(2) QUARTERLY LISTING.—Not less than once
each calendar quarter, the Secretary shall publish in
the Federal Register a list of applicable tax reduc-
tion strategies for purposes of the next calendar
quarter.’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part I of subchapter P of chapter 1 of such
Code is amended by adding at the end the following
new item:
‘‘Sec. 1203. Tax on capital gains reduction strategy amount.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection—
(A) shall take effect only if a decrease in
the maximum Federal tax rate applicable to
capital gains of individuals is enacted in 1997,
and
(B) if the conditions of subparagraph (A)
are met, shall apply to taxable years beginning
after the date of the enactment of this Act.
(b) DENIAL OF INTEREST DEDUCTION ON CERTAIN
DEBT INSTRUMENTS IF CAPITAL GAINS RATE DECREASE
NOT ENACTED IN 1997.—
(1) IN GENERAL.—Section 385 of such Code
(relating to treatment of certain interests in corpora-
tions as stock or indebtedness) is amended by add-
ing at the end the following new subsection:
‘‘(d) CERTAIN INTERESTS TREATED AS STOCK.—
‘‘(1) INTERESTS WITH OVER-40-YEAR MATURITY
OR PAYABLE IN STOCK.—
‘‘(A) IN GENERAL.—Notwithstanding sub-
section (c), for purposes of this title, an interest
in a corporation shall be treated as stock if
such interest—
‘‘(i) has a maximum weighted average
maturity of over 40 years, or
‘‘(ii) is payable in stock of the issuer
or a related person.
‘‘(B) WEIGHTED
AVERAGE
MATURITY.—
For purposes of subparagraph (A), in determin-
ing the weighted average maturity of an inter-
est, any right to extend or renew shall be treat-
ed as exercised, and any right to accelerate pay-
ment shall not be taken into account.
‘‘(C) PAYABLE IN STOCK.—For purposes
of subparagraph (A), an interest shall be treat-
ed as payable in stock if—
‘‘(i) a substantial portion of such in-
terest is mandatorily convertible, or con-
vertible at the issuer’s option, into stock of
the issuer or a related person,
‘‘(ii) a substantial portion of the prin-
cipal (or interest) associated with such in-
terest is required to be determined, or may
be determined at the option of the issuer
or a related person, by reference to the
value of stock of the issuer or a related
person, or
‘‘(iii) such interest is part of an ar-
rangement designed to result in the pay-
ment of such interest with stock of the is-
suer or a related person.
‘‘(2) CERTAIN INTERESTS NOT CLASSIFIED AS
INDEBTEDNESS IN SEC FILING.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (c), an issuer shall be treated as charac-
terizing an interest as stock (and subsection
(c)(2) shall not apply) if—
‘‘(i) such issuer is a corporation re-
quired to file annual financial statements
with the Securities and Exchange Commis-
sion,
‘‘(ii) such financial statements do not
characterize such interest as indebtedness,
and
‘‘(iii) such interest has a maximum
weighted average maturity of more than 15
years.
‘‘(B) SPECIAL
RULES.—For purposes of
this paragraph—
‘‘(i) CHARACTERIZATION
IN
FINAN-
CIAL STATEMENTS.—An interest shall not
be treated as characterized in a financial
statement solely by reason of footnotes or
other narrative disclosures.
‘‘(ii) CERTAIN
INTERESTS
TREATED
AS
CHARACTERIZED
IN
STATEMENT.—An
issuer will be treated as being described in
subparagraph (A)(ii) with respect to an in-
terest if—
‘‘(I) the issuer issues such inter-
est to a related person (other than a
corporation),
‘‘(II) such interest is not in-
cluded on the consolidated return
which includes the issuer and the
holder, and
‘‘(III) the holder (or any person
related to the issuer or the holder) is-
sues a related interest which is not
characterized as indebtedness on the
consolidated financial statement.
‘‘(iii) 
LEVERAGED
LEASES.—This
paragraph shall not apply with respect to
leveraged leases.
‘‘(3) EXCEPTIONS.—This subsection shall not
apply with respect to demand loans, redeemable
ground rents, or any other interest specified by the
Secretary by regulation.
‘‘(4) RELATED PERSON.—For purposes of this
subsection, persons shall be treated as related to
each other if the relationship between such persons
is described in section 267(b) or 707(b).’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection—
(A) shall take effect only if no decrease in
the maximum Federal tax rate applicable to
capital gains of individuals is enacted in 1997,
and
(B) if the conditions of subparagraph (A)
are met, shall apply to taxable years beginning
after the date of the enactment of this Act.
(c) SMALL BUSINESS DEVELOPMENT FUND.—
(1) IN GENERAL.—Subchapter A of chapter 98
of such Code (relating to establishment of trust
funds) is amended by adding at the end the follow-
ing new section:
‘‘SEC. 9512. SMALL BUSINESS DEVELOPMENT FUND.
‘‘(a) CREATION OF TRUST FUND.—There is estab-
lished in the Treasury of the United States a trust fund
to be known as the ‘Small Business Development Fund’,
consisting of such amounts as may be appropriated or
credited to such fund as provided in this section or section
9602(b).
‘‘(b) TRANSFERS TO TRUST FUND.—There are here-
by appropriated to the Small Business Development Fund
amounts equivalent to the taxes received in the Treasury
under section 1203 (relating to tax on capital gains reduc-
tion strategy amount) or 385(d), whichever is applicable.
‘‘(c) EXPENDITURES.—Amounts in the Small Busi-
ness Development Fund shall be available, as provided in
appropriation Acts, for purposes of the Small Business
Development Fund Act of 1997.’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for subchapter A of chapter 98 of such Code
is amended by adding at the end the following new
item:
‘‘Sec. 9512. Small Business Development Fund.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act.
SEC. 3. APPLICATION FOR ASSISTANCE
(a) FORM AND PROCEDURES.—An application for as-
sistance shall be submitted in such form and in accordance
with such procedures as established by the Secretary of
Commerce.
(b) MINIMUM REQUIREMENTS.—The Fund shall re-
quire an application to establish that the applicant is—
(1) a credit union,
(2) a community development corporation,
(3) an entity engaged in job creation or enter-
prise and commercial development, or
(4) a financial institution that needs capital to
begin or expand a small business activity in a low–
income community.
SEC. 4. ASSISTANCE PROVIDED BY THE FUND
The Fund may provide financial assistance to the en-
tities listed in section 4(b) through equity investments, de-
posits, credit union shares, loans, and grants.
SEC. 5. DEFINITION
The term ‘‘community development corporation’’ has
the meaning given such term in section 103(1) of the
Community Development Banking and Financial Institu-
tions Act of 1994 (12 USC 4702(1)).
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