I 
110TH CONGRESS 
1ST SESSION 
H. R. 578 
To amend the Internal Revenue Code of 1986 to allow a credit against 
income tax for qualified equity investments in certain small businesses. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 19, 2007 
Mr. POMEROY (for himself, Mr. MANZULLO, Mr. SOUDER, Mr. MOORE of 
Kansas, and Mr. BARTLETT of Maryland) 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 allow a 
credit against income tax for qualified equity investments 
in certain small businesses. 
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 ‘‘Access to Capital for 
Entrepreneurs Act of 2007’’. 
SEC. 2. EQUITY INVESTMENT IN SMALL BUSINESS TAX 
CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
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1986 (relating to business related credits) is amended by 
adding at the end the following new section: 
‘‘SEC. 45O. EQUITY INVESTMENT IN SMALL BUSINESS TAX 
CREDIT. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of a qualified investor, the equity investment 
in small business tax credit determined under this section 
for the taxable year is an amount equal to 25 percent of 
the amount of each qualified equity investment made by 
the qualified investor during the taxable year. 
‘‘(b) CREDIT AMOUNT.—For purposes of determining 
the small business tax credit under subsection (a)— 
‘‘(1) LIMITATION PER QUALIFIED INVESTOR.— 
The amount of qualified equity investments made by 
the qualified investor during the taxable year shall 
not exceed $500,000. 
‘‘(2) LIMITATION PER QUALIFIED SMALL BUSI-
NESS.—The amount of qualified equity investments 
made by the qualified investor in a qualified small 
business during the taxable year shall not exceed 
$250,000. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED INVESTOR.—The term ‘quali-
fied investor’ means— 
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‘‘(A) an individual who qualifies as an ac-
credited investor under rules and regulations 
prescribed by the Commissioner of the Securi-
ties and Exchange Commission, or 
‘‘(B) a partnership with respect to which 
all of the partners are individuals who qualify 
as accredited investors under rules and regula-
tions prescribed by the Commissioner of the Se-
curities and Exchange Commission. 
‘‘(2) QUALIFIED
EQUITY
INVESTMENT.—The 
term ‘qualified equity investment’ means the trans-
fer of cash or cash equivalents in exchange for stock 
or capital interest in a qualified small business. 
‘‘(3) QUALIFIED SMALL BUSINESS.—The term 
‘qualified small business’ means a private small busi-
ness concern (within the meaning of section 3 of the 
Small Business Act)— 
‘‘(A) that meets the applicable size stand-
ard (as in effect on January 1, 2005) estab-
lished by the Administrator of the Small Busi-
ness Administration pursuant to subsection 
(a)(2) of such section, and 
‘‘(B) has its principal place of business in 
the United States. 
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For purposes of this section, all members of the 
same controlled group of corporations (within the 
meaning of section 267(f)) and all persons under 
common control (within the meaning of section 
52(b)) shall be treated as 1 qualified small business. 
‘‘(d) ACTIVE BUSINESS REQUIREMENT.— 
‘‘(1) IN GENERAL.—Holding stock in a quali-
fied small business shall not be treated as a qualified 
equity investment unless, during substantially all of 
the qualified investor’s holding period for such stock, 
such qualified small business meets the active busi-
ness requirements of paragraph (2). 
‘‘(2) REQUIREMENTS.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the requirements of this paragraph 
are met by a qualified small business for any 
period if during such period at least 80 percent 
(by value) of the assets of such qualified small 
business are used by such qualified small busi-
ness in the active conduct of 1 or more quali-
fied trades or businesses. 
‘‘(B) SPECIAL RULE FOR CERTAIN ACTIVI-
TIES.—For purposes of subparagraph (A), if, in 
connection with any future qualified trade or 
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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, 
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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— 
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‘‘(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-
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ness. For purposes of the preceding sentence, 
the ownership of, dealing in, or renting of real 
property shall not be treated as the active con-
duct of a qualified trade or business. 
‘‘(G) COMPUTER SOFTWARE ROYALTIES.— 
For purposes of subparagraph (A), rights to 
computer software which produces active busi-
ness computer software royalties (within the 
meaning of section 543(d)(1)) shall be treated 
as an asset used in the active conduct of a 
trade or business. 
‘‘(e) CERTAIN PURCHASES BY QUALIFIED INVESTOR 
OF ITS OWN STOCK.— 
‘‘(1) REDEMPTIONS
FROM
QUALIFIED
INVES-
TOR OR RELATED PERSON.—Stock acquired by the 
qualified investor shall not be treated as a qualified 
equity investment if, at any time during the 4-year 
period beginning on the date 2 years before the 
issuance of such stock, the qualified small business 
issuing such stock purchased (directly or indirectly) 
any of its stock from the qualified investor or from 
a person related (within the meaning of section 
267(b) or 707(b)) to the qualified investor. 
‘‘(2) 
SIGNIFICANT
REDEMPTIONS.—Stock 
issued by a qualified small business to a qualified in-
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vestor shall not be treated as a qualified equity in-
vestment if, during the 2-year period beginning on 
the date 1 year before the issuance of such stock, 
such qualified small business made 1 or more pur-
chases of its stock with an aggregate value (as of the 
time of the respective purchases) exceeding 5 per-
cent of the aggregate value of all of its stock as of 
the beginning of such 2-year period. 
‘‘(3) 
TREATMENT
OF
CERTAIN
TRANS-
ACTIONS.—If any transaction is treated under sec-
tion 304(a) as a distribution in redemption of the 
stock of any qualified small business, for purposes of 
subparagraphs (A) and (B), such qualified small 
business shall be treated as purchasing an amount 
of its stock equal to the amount treated as such a 
distribution under section 304(a). 
‘‘(f) SPECIAL RULE FOR RELATED PARTIES.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under subsection (a) with respect to a qualified eq-
uity investment made by a qualified investor in a 
qualified small business that is a related party to the 
qualified investor. 
‘‘(2) RELATED PARTY.—For purposes of para-
graph (1), a person is a related party with respect 
to another person if such person bears a relationship 
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to such other person described in section 267(b) or 
707(b), or if such persons are engaged in trades or 
businesses under common control (within the mean-
ing of subsections (a) and (b) of section 52). 
‘‘(g) RECAPTURE OF CREDIT IN CERTAIN CASES.— 
‘‘(1) IN GENERAL.—If, at any time during the 
3-year period beginning on the date that the quali-
fied equity investment is made by the qualified in-
vestor, there is a recapture event with respect to 
such investment, then the tax imposed by this chap-
ter for the taxable year in which such event occurs 
shall be increased by the credit recapture amount. 
‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur-
poses of paragraph (1), the credit recapture amount 
is an amount equal to the sum of— 
‘‘(A) the aggregate decrease in the credits 
allowed to the taxpayer under section 38 for all 
prior taxable years which would have resulted if 
no credit had been determined under this sec-
tion with respect to such investment, plus 
‘‘(B) interest at the underpayment rate es-
tablished under section 6621 on the amount de-
termined under subparagraph (A) for each 
prior taxable year for the period beginning on 
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the due date for filing the return for the prior 
taxable year involved. 
No deduction shall be allowed under this chapter for 
interest described in subparagraph (B). 
‘‘(3) RECAPTURE
EVENT.—For purposes of 
paragraph (1), there is a recapture event with re-
spect to a qualified equity investment if such invest-
ment is sold, transferred, or exchanged by the quali-
fied investor, but only to the extent that such sale, 
transfer, or exchange is not the direct result of a 
complete or partial liquidation of the qualified small 
business in which such qualified equity investment is 
made. 
‘‘(4) SPECIAL RULES.— 
‘‘(A) TAX
BENEFIT
RULE.—The tax for 
the taxable year shall be increased under para-
graph (1) only with respect to credits allowed 
by reason of this section which were used to re-
duce tax liability. In the case of credits not so 
used to reduce tax liability, the carryforwards 
and carrybacks under section 39 shall be appro-
priately adjusted. 
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be 
treated as a tax imposed by this chapter for 
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purposes of determining the amount of any 
credit under this chapter or for purposes of sec-
tion 55. 
‘‘(h) BASIS REDUCTION.—The basis of any qualified 
equity investment shall be reduced by the amount of any 
credit determined under this section with respect to such 
investment. 
‘‘(i) REGULATIONS.— 
‘‘(1) IN
GENERAL.—The Secretary shall pre-
scribe such regulations as necessary to carry out the 
provisions of this section. 
‘‘(2) CERTIFICATION OF QUALIFIED EQUITY IN-
VESTMENT.—Such regulations shall require that a 
qualified investor— 
‘‘(A) certify that the small business in 
which the equity investment is made meets the 
requirements described in subsection (c)(3), and 
‘‘(B) include the name, address, and tax-
payer identification number of such small busi-
ness on the return claiming the credit under 
subsection (a). 
‘‘(j) TERMINATION.—This section shall not apply to 
qualified equity investments made in taxable years begin-
ning after December 31, 2011.’’. 
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(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 of such Code is 
amended by striking ‘‘and’’ at the end of paragraph (29), 
by striking the period at the end of paragraph (30) and 
inserting ‘‘, and’’, and by adding at the end the following 
new paragraph: 
‘‘(31) in the case of a taxpayer, the equity in-
vestment in small business tax credit determined 
under section 45O(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 45O. Equity investment in small business tax credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to qualified equity investments 
made after the date of the enactment of this Act. 
Æ 
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