A bill to amend the Internal Revenue Code of 1986 to increase and modify the exclusion relating to qualified small business stock and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Encouraging Investment in Small 
Business Act''.

SEC. 2. INCREASED EXCLUSION AND OTHER MODIFICATIONS APPLICABLE TO 
              QUALIFIED SMALL BUSINESS STOCK.

    (a) Increased Exclusion.--Section 1202(a) of the Internal Revenue 
Code of 1986 (relating to partial exclusion for gain from certain small 
business stock) is amended by striking ``50 percent'' each place it 
appears and inserting ``75 percent''.
    (b) Reduction in Holding Period.--
            (1) In general.--Section 1202(a) of the Internal Revenue 
        Code of 1986 is amended by striking ``5 years'' and inserting 
        ``3 years''.
            (2) Conforming amendments.--Subsections (g)(2)(A) and 
        (j)(1)(A) of section 1202 of such Code are each amended by 
        striking ``5 years'' and inserting ``3 years''.
    (c) Repeal of Minimum Tax Preference.--
            (1) In general.--Section 57(a) of the Internal Revenue Code 
        of 1986 (relating to items of tax preference) is amended by 
        striking paragraph (7).
            (2) Technical amendment.--Section 53(d)(1)(B)(ii)(II) of 
        such Code is amended by striking ``, (5), and (7)'' and 
        inserting ``and (5)''.
    (d) Other Modifications.--
            (1) Working capital limitation.--
                    (A) In general.--Section 1202(e)(6) of the Internal 
                Revenue Code of 1986 (relating to working capital) is 
                amended--
                            (i) in subparagraph (B), by striking ``2 
                        years'' and inserting ``5 years''; and
                            (ii) by striking ``2 years'' in the last 
                        sentence and inserting ``5 years''.
                    (B) Limitation on assets treated as used in active 
                conduct of business.--The second sentence of section 
                1202(e)(6) of such Code is amended by inserting 
                ``described in subparagraph (A)'' after ``of the 
                corporation''.
            (2) Exception from redemption rules where business 
        purpose.--Section 1202(c)(3) of such Code (relating to certain 
        purchases by corporation of its own stock) is amended by adding 
        at the end the following:
                    ``(D) Waiver where business purpose.--A purchase of 
                stock by the issuing corporation shall be disregarded 
                for purposes of subparagraph (B) if the issuing 
                corporation establishes that there was a business 
                purpose for such purchase and one of the principal 
                purposes of the purchase was not to avoid the 
                limitations of this section.''
    (e) Excluded Qualified Trade or Business.--Section 1202(e)(3) of 
the Internal Revenue Code of 1986 (relating to qualified trade or 
business) is amended--
            (1) by inserting ``, and is anticipated to continue to 
        be,'' before ``the reputation'' in subparagraph (A), and
            (2) by inserting ``but not including the business of 
        raising fish or any business involving biotechnology 
        applications'' after ``trees'' in subparagraph (C).
    (f) Increase in Cap on Eligible Gain for Joint Returns.--
            (1) In general.--Section 1202(b)(1)(A) of the Internal 
        Revenue Code of 1986 (relating to per-issuer limitations on 
        taxpayer's eligible gain) is amended by inserting 
        ``($20,000,000 in the case of a joint return)'' after 
        ``$10,000,000''.
            (2) Conforming amendment.--Section 1202(b)(3) of such Code 
        is amended by striking subparagraph (A) and redesignating 
        subparagraphs (B) and (C) as subparagraphs (A) and (B), 
        respectively.
    (g) Decrease in Capital Gains Rate.--
            (1) In general.--Subparagraph (A) of section 1(h)(5) of the 
        Internal Revenue Code of 1986 (relating to 28-percent gain) is 
        amended to read as follows:
                    ``(A) collectibles gain, over''.
            (2) Conforming amendments.--
                    (A) Section 1(h) of such Code is amended by 
                striking paragraph (8).
                    (B) Paragraph (9) of section 1(h) of such Code is 
                amended by striking ``, gain described in paragraph 
                (7)(A)(i), and section 1202 gain'' and inserting ``and 
                gain described in paragraph (7)(A)(i)''.
    (h) Increase in Rollover Period for Qualified Small Business 
Stock.--Subsections (a)(1) and (b)(3) of section 1045 of the Internal 
Revenue Code of 1986 (relating to rollover of gain from qualified small 
business stock to another qualified small business stock) are each 
amended by striking ``60-day'' and inserting ``180-day''.
    (i) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to stock issued 
        after the date of the enactment of this Act.
            (2) Special rule.--The amendments made by subsections (a) 
        and (d)(1) apply to stock issued after August 10, 1993.

Summary: Encouraging Investment in Small Business Act - Amends the Internal Revenue Code with respect to qualified small business (QSB) stock (section 1202) to: (1) increase the amount of gain excluded from the sale of such stock to 75 percent; (2) reduce the holding period applicable to such sale to three years; (3) exclude such gain from alternative minimum tax consideration; (4) increase the active business working capital requirement to five years; (5) permit a QSB to make specified purchases of its own stock without losing the gain exclusion if made for a business purpose; (6) exclude biotechnology and aquaculture businesses from QSB status; (7) increase the cap on eligible gain for joint returns to $20,000; (8) reduce the capital gains rate for such gains; and (9) increase the related rollover period to 180 days.