I
106TH CONGRESS
2D SESSION
H. R. 5455
To amend the Internal Revenue Code of 1986 to encourage investment in
small companies.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 12, 2000
Mr. GREENWOOD 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 encourage
investment in small companies.
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 Investment Tax
Relief Act of 2000’’.
SEC. 2. EXCLUSION FOR GAIN FROM STOCK OF SMALL,
PUBLICLY TRADED COMPANIES.
(a) IN GENERAL.—Part 1 of subchapter P of chapter
1 of the Internal Revenue Code of 1986 (relating to treat-
ment of capital gains) is amended by inserting after sec-
tion 1202 the following new section:
‘‘SEC. 1203. EXCLUSION FOR GAIN FROM STOCK OF SMALL,
PUBLICLY TRADED COMPANIES.
‘‘(a) GENERAL RULE.—In the case of a taxpayer
other than a corporation, gross income shall not include
any gain from the sale or exchange of section 1203 stock
held for more than 1 year.
‘‘(b) LIMITATION.—The amount excluded under sub-
section (a) for a taxable year may not exceed $100,000
($50,000 in the case of a separate return by a married
individual).
‘‘(c) 1203 STOCK.—For purposes of subsection (a),
the term ‘1203 stock’ means any stock—
‘‘(1) in a C corporation which is acquired after
the date of the enactment of this section if—
‘‘(A) as of the date of acquisition, such
corporation is a qualified small business, and
‘‘(B) except as provided in subsection (e),
such stock is acquired—
‘‘(i) in exchange for money or other
property, or
‘‘(ii) as compensation for services pro-
vided to such corporation (other than serv-
ices performed as an underwriter of such
stock), and
‘‘(2) which, at the time of sale or exchange giv-
ing rise to gain to be excluded under subsection (a),
is publicly traded on any established domestic na-
tional or regional stock exchange or stock market,
the Over the Counter Bulletin Board, or the Na-
tional Quotation Bureau.
For purposes of the preceding sentence, rules similar to
the rules of section 1202(c)(3) shall apply.
‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified small
business’ means any domestic corporation which is a
C corporation if the market capitalization of such
corporation (or any predecessor thereof), determined
with respect to the date of acquisition of stock, is
not more than $150,000,000.
‘‘(2) DETERMINATION OF MARKET CAPITALIZA-
TION.—For purposes of paragraph (1), market cap-
italization, with respect to the date of acquisition of
stock, shall be—
‘‘(A) the amount equal to—
‘‘(i) the closing price of a share of
stock in the corporation as of the end of
the reporting period ending immediately
before such date of acquisition, multiplied
by
‘‘(ii) the number of outstanding
shares of such stock in the corporation as
of the end of such period, or
‘‘(B) in the case that subparagraph (A)
does not apply, determined (by taking into ac-
count all facts and circumstances) on the basis
of the most recent amounts paid for each class
of stock in the corporation outstanding on the
date of the acquisition of the 1203 stock.
‘‘(3) REPORTING
PERIOD.—For purposes of
paragraph (2), the term ‘reporting period’ means the
period for which the most recent annual or quarterly
report is required to be filed with the Securities and
Exchange Commission under section 13(a)(2) of the
Securities Exchange Act of 1934 (15 U.S.C.
78m(a)(2), 78o(d)) or periodic information required
under section 15(d) of such Act (15 U.S.C. 78o(d)),
as the case may be.
‘‘(4) AGGREGATION RULES.—For purposes of
paragraph (1), rules similar to the rules of section
1202(d)(3) shall apply.
‘‘(e) ADDITIONAL RULES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, rules similar to the rules of subsections (f), (g),
(h), (i), (j), and (k) of section 1202 shall apply, ex-
cept that subsection (j)(1)(A) of section 1202 shall
be applied by substituting ‘1 year’ for ‘5 years’.
‘‘(2) QUALIFIED
SMALL
BUSINESS
STOCK.—
Sales and exchanges taken into account under sec-
tion 1202 shall not be taken into account under this
section.’’.
(b) CONFORMING AMENDMENTS.—
(1) The first sentence of section 642(c)(4) of
such Code is amended—
(A) by inserting ‘‘or 1203(a)’’ after
‘‘1202(a)’’, and
(B) by inserting ‘‘or 1203, as the case may
be’’ before the period at the end.
(2) Section 643(a)(3) of such Code is amended
by striking ‘‘section 1202’’ and inserting ‘‘sections
1202 and 1203’’.
(3) Section 691(c)(4) of such Code is amended
by inserting ‘‘1203,’’ after ‘‘1202,’’.
(4) Section 871(a)(2) of such Code is amended
by striking ‘‘section 1202’’ and inserting ‘‘sections
1202 and 1203’’.
(5) The second sentence of section 1044(d) of
such Code is amended by inserting ‘‘or 1203’’ before
the period at the end.
(6) Section 1202(b) of such Code is amended
by inserting at the end the following new subsection:
‘‘(4) SECTION
1203
STOCK.—Sales and ex-
changes taken into account under section 1203 shall
not be taken into account under this section.’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part 1 of subchapter P of chapter 1 of such Code is
amended by inserting after the item relating to section
1202 the following new item:
‘‘Sec. 1203. Exclusion for gain from stock of small, publicly trad-
ed companies.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to securities acquired after the
date of the enactment of this Act.
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