< Back to S. 368 (103rd Congress, 1993–1994)

Text of the Enterprise Capital Formation Act of 1993

This bill was introduced on February 16, 1993, in a previous session of Congress, but was not enacted. The text of the bill below is as of Feb 16, 1993 (Introduced).

Source: GPO

S 368 IS

103d CONGRESS

1st Session

S. 368

To amend the Internal Revenue Code of 1986 to provide a capital gains tax differential for individual and corporate taxpayers who make high-risk, long-term, growth-oriented venture and seed capital investments in startup and other small enterprises.

IN THE SENATE OF THE UNITED STATES

February 16 (legislative day, JANUARY 5), 1993

Mr. BUMPERS (for himself, Mr. BROWN, Mr. KERRY, Mr. LIEBERMAN, Mr. MACK, Mr. RIEGLE, Mr. WOFFORD, Mr. COATS, Mr. BOREN, Mr. DASCHLE, Mr. CRAIG, Mr. DODD, Mr. D’AMATO, Mr. PRYOR, Mr. DECONCINI, Mr. JOHNSTON, Mrs. FEINSTEIN, and Mr. KOHL) introduced the following bill; which was read twice and referred to the Committee on Finance


A BILL

To amend the Internal Revenue Code of 1986 to provide a capital gains tax differential for individual and corporate taxpayers who make high-risk, long-term, growth-oriented venture and seed capital investments in startup and other small enterprises.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) SHORT TITLE- This Act may be cited as the ‘Enterprise Capital Formation Act of 1993’.

    (b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

SEC. 2. EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK.

    (a) GENERAL RULE- Part I of subchapter P of chapter 1 (relating to capital gains and losses) is amended by adding at the end thereof the following new section:

‘SEC. 1202. EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK.

    ‘(a) EXCLUSION-

      ‘(1) IN GENERAL- Gross income shall not include the sum of--

        ‘(A) 50 percent of any gain from the sale or exchange of qualified small business stock (other than seed capital stock) held for more than 5 years, plus

        ‘(B) the amounts determined by applying the applicable percentages to the appropriate categories of gain from the sale or exchange of qualified small business stock which is seed capital stock held for more than 5 years.

      ‘(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the applicable percentage shall be computed as follows:

The applicable

‘In the case of:

percentage is:

5-year gain

50

6-year gain

60

7-year gain

70

8-year gain

80

9-year gain

90

10-year gain

100.

      ‘(3) CATEGORIES OF GAIN-

        ‘(A) 10-YEAR GAIN- The term ‘10-year gain’ means gain determined by taking into account only gain from qualified small business stock with a holding period of more than 10 years at the time of the sale or exchange.

        ‘(B) OTHER GAIN- The terms ‘5-, 6-, 7-, 8-, and 9-year gain’ mean the gain determined by taking into account only gain from qualified small business stock with a holding period of more than 5, 6, 7, 8, or 9 years but not more than 6, 7, 8, 9, or 10 years, respectively.

    ‘(b) QUALIFIED SMALL BUSINESS STOCK; SEED CAPITAL STOCK- For purposes of this section--

      ‘(1) IN GENERAL- Except as otherwise provided in this section, the term ‘qualified small business stock’ means any stock in a corporation which is originally issued on or after January 1, 1993, if--

        ‘(A) as of the date of issuance, such corporation is a qualified small business, and

        ‘(B) except as provided in subsections (e), (f), and (g), such stock is acquired by the taxpayer at its original issue (directly or through an underwriter)--

          ‘(i) in exchange for money or other property (not including stock), or

          ‘(ii) as compensation for services (other than services performed as an underwriter of such stock).

      ‘(2) ACTIVE BUSINESS REQUIREMENT- Stock in a corporation shall not be treated as qualified small business stock unless, during substantially all of the taxpayer’s holding period for such stock, such corporation meets the active business requirements of subsection (d).

      ‘(3) CERTAIN PURCHASES BY CORPORATION OF ITS OWN STOCK-

        ‘(A) IN GENERAL- Stock issued by a corporation shall not be treated as qualified small business stock if such corporation has purchased or purchases any of its stock within the 2-year period beginning 1 year before the date of the issuance of such stock.

        ‘(B) EXCEPTION WHERE BUSINESS PURPOSE- Subparagraph (A) shall not apply where the issuing corporation establishes that there was a business purpose for the purchase of the stock and such purchase is not inconsistent with the purposes of this section. Except as provided in regulations, the preceding sentence shall not apply to any purchase which--

          ‘(i) is part of a transaction or series of transactions in which the corporation purchases not more than 5 percent (by vote or value) of the outstanding shares of the corporation, or

          ‘(ii) is a purchase by the corporation of convertible preferred stock of the corporation but only if such purchase is required by the terms of the stock being purchased.

        ‘(C) MEMBERS OF AFFILIATED GROUP- For purposes of this paragraph, the purchase of any stock of the issuing corporation by any corporation which, as of the time of the purchase, is a member of the same affiliated group (within the meaning of section 1504) as the issuing corporation shall be treated as a purchase by the issuing corporation of its stock.

      ‘(4) SEED CAPITAL STOCK- The term ‘seed capital stock’ means stock which is qualified small business stock in a qualified small business, as determined under subsection (c) by substituting ‘$5,000,000’ for ‘$100,000,000’ each place it appears in subsection (c)(1).

    ‘(c) QUALIFIED SMALL BUSINESS- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘qualified small business’ means any domestic corporation if--

        ‘(A) the aggregate capitalization of such corporation (or any predecessor thereof) at all times on or after January 1, 1993, and before the issuance did not exceed $100,000,000, and

        ‘(B) the aggregate capitalization of such corporation immediately after the issuance (determined by taking into account amounts to be received in the issuance) does not exceed $100,000,000.

      ‘(2) AGGREGATE CAPITALIZATION- For purposes of paragraph (1), the term ‘aggregate capitalization’ means the excess of--

        ‘(A) the amount of cash and the aggregate adjusted bases of other property held by the corporation, over

        ‘(B) the aggregate amount of the short-term indebtedness of the corporation.

      For purposes of the preceding sentence, the term ‘short-term indebtedness’ means any indebtedness which, when incurred, did not have a term in excess of 1 year.

      ‘(3) LOOK-THRU IN CASE OF SUBSIDIARIES- In determining whether a corporation meets the requirements of this subsection--

        ‘(A) stock and debt of any subsidiary (as defined in subsection (d)(4)(C)) held by such corporation shall be disregarded, and

        ‘(B) such corporation shall be treated as holding its ratable share of the assets of such subsidiary and as being liable for its ratable share of the indebtedness of such subsidiary.

      For purposes of subparagraph (B), a corporation’s ratable share shall be based on its share of the total combined voting power of the stock of the subsidiary.

      ‘(4) COST-OF-LIVING ADJUSTMENT- In the case of any taxable year beginning after 1993, each dollar amount contained in paragraph (1) and subsection (b)(4) shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, except that section 1(f)(3)(B) shall be applied by substituting ‘1992’ for ‘1989’.

    ‘(d) ACTIVE BUSINESS REQUIREMENT- For purposes of this section--

      ‘(1) IN GENERAL- For purposes of subsection (b)(2), the requirements of this subsection are met for any period if during such period--

        ‘(A) the corporation is engaged in the active conduct of a trade or business,

        ‘(B) substantially all of the assets of such corporation are used in the active conduct of a trade or business, and

        ‘(C) such corporation is an eligible corporation.

      ‘(2) SPECIAL RULE FOR CERTAIN ACTIVITIES- For purposes of paragraph (1), if, in connection with any future trade or business, a corporation is engaged in--

        ‘(A) startup activities described in section 195(c)(1)(A),

        ‘(B) activities resulting in the payment or incurring of expenditures which may be treated as research and experimental expenditures under section 174, or

        ‘(C) activities with respect to in-house research expenses described in section 41(b)(4),

      such corporation shall be treated with respect to such activities as engaged in (and assets used in such activities shall be treated as used in) the active conduct of a trade or business. Any determination under this paragraph shall be made without regard to whether a corporation has any gross income from such activities at the time of the determination.

      ‘(3) ELIGIBLE CORPORATION- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘eligible corporation’ means any domestic corporation; except that such term shall not include--

          ‘(i) any corporation predominantly engaged in a disqualified business,

          ‘(ii) any personal service corporation (within the meaning of section 269A(b)),

          ‘(iii) a DISC,

          ‘(iv) a corporation with respect to which an election under section 936 is in effect,

          ‘(v) any regulated investment company, real estate investment trust, or REMIC,

          ‘(vi) any cooperative, and

          ‘(vii) in the case of a corporate shareholder, any corporation which at any time was a subsidiary (as defined in paragraph (4)(C)) of such corporate shareholder.

        ‘(B) DISQUALIFIED BUSINESS- The term ‘disqualified business’ means--

          ‘(i) any banking, insurance, financing, or similar business,

          ‘(ii) any farming business (other than the business of raising or harvesting trees),

          ‘(iii) any business involving the production or extraction of products of a character with respect to which a deduction is allowable under section 613 or 613A, and

          ‘(iv) any business of franchising or operating a hotel, motel, or restaurant or similar business.

      ‘(4) STOCK IN OTHER CORPORATIONS-

        ‘(A) LOOK-THRU IN CASE OF SUBSIDIARIES- For purposes of this subsection, stock and debt in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary’s assets, and to conduct its ratable share of the subsidiary’s activities. For purposes of the preceding sentence, a corporation’s ratable share shall be based on its share of the total combined voting power of the stock of the subsidiary.

        ‘(B) PORTFOLIO STOCK OR SECURITIES- A corporation shall be treated as failing to meet the requirements of paragraph (1) for any period during which more than 10 percent of the value of its assets consists of stock or securities in other corporations which are not subsidiaries of such corporation (other than assets described in paragraph (5)).

        ‘(C) SUBSIDIARY- For purposes of this paragraph, a corporation shall be considered a subsidiary if the parent corporation owns more than 50 percent of the combined voting power of all classes of stock entitled to vote, or more than 50 percent in value of all outstanding stock, of such corporation.

      ‘(5) WORKING CAPITAL- For purposes of paragraph (1)(B), any assets which--

        ‘(A) are held for investment, and

        ‘(B) are to be used to finance future research and experimentation or working capital needs of the corporation,

      shall be treated as used in the active conduct of a trade or business.

      ‘(6) MAXIMUM REAL ESTATE HOLDINGS- A corporation shall be treated as failing to meet the requirements of paragraph (1) for any period during which more than 10 percent of the total value of its assets consists of real property which is not used (or to be used) in the active conduct of a trade or business. For purposes of the preceding sentence--

        ‘(A) the ownership of, dealing in, or renting of real property shall not be treated as the active conduct of a trade or business; and

        ‘(B) the total value of the assets and of any real property shall be reduced by all liabilities to which the property is subject.

      ‘(7) COMPUTER SOFTWARE ROYALTIES- For purposes of paragraph (1), rights to computer software which produces income described in section 543(d) shall be treated as an asset used in the active conduct of a trade or business.

      ‘(8) EXCEPTION FOR SMALL BUSINESS INVESTMENT COMPANIES- This subsection shall not apply to any small business investment company described in section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 682).

    ‘(e) STOCK ACQUIRED ON CONVERSION OF OTHER STOCK- If any stock is acquired through the conversion of other stock which is qualified small business stock in the hands of the taxpayer--

      ‘(1) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and

      ‘(2) the stock so acquired shall be treated as having been held during the period during which the converted stock was held.

    ‘(f) SPECIAL RULES FOR WARRANTS AND CERTAIN CONVERTIBLE INVESTMENTS- For purposes of this section--

      ‘(1) IN GENERAL- In the case of stock which is acquired by the taxpayer through the exercise of an applicable warrant, through the conversion of convertible debt, or in exchange for securities of the corporation in a transaction described in section 368--

        ‘(A) such stock shall be treated as acquired by the taxpayer at original issue,

        ‘(B) the holding period of such stock shall be treated for purposes of subsection (a) as including the period such warrant or debt was held by the taxpayer, or such security was outstanding, and

        ‘(C) such stock shall be treated as meeting the requirements of subsection (c) if such requirements were met at the time the warrant, debt, or security was acquired by the taxpayer.

      ‘(2) ISSUE PRICE FOR CONVERTIBLE DEBT OR SECURITY- For purposes of subsection (c)(1), in the case of a debt instrument converted to stock, or stock issued in exchange for securities in a transaction described in section 368, such stock shall be treated as issued for an amount equal to the sum of--

        ‘(A) the principal amount of the debt or security as of the time of the conversion or exchange, and

        ‘(B) accrued but unpaid interest on such debt or security.

      ‘(3) APPLICABLE WARRANT- For purposes of this subsection, the term ‘applicable warrant’ means a warrant which--

        ‘(A) was granted in connection with the performance of services for the corporation granting it (or its parent or subsidiary), and

        ‘(B) by its terms is not transferable other than by will or the laws of descent or distribution.

    ‘(g) SPECIAL RULE FOR OPTIONS-

      ‘(1) IN GENERAL- For purposes of this section, in the case of stock which is acquired by the taxpayer through the exercise of an applicable option--

        ‘(A) such stock shall be treated as acquired by the taxpayer at original issue,

        ‘(B) such stock shall be treated as having been held during the period such option was held by the taxpayer, and

        ‘(C) such stock shall be treated as meeting the requirements of subsection (c) if such requirements were met at the time the option was granted.

      ‘(2) APPLICABLE OPTION- For purposes of this subsection, the term ‘applicable option’ means an option which--

        ‘(A) was granted in connection with the performance of services for the corporation granting it (or its parent or subsidiary), and

        ‘(B) by its terms is not transferable other than by will or the laws of descent or distribution.

    ‘(h) TREATMENT OF PASS-THRU ENTITIES-

      ‘(1) IN GENERAL- Any amount included in income by reason of holding an interest in a pass-thru entity shall be treated as gain described in subsection (a) if such amount meets the requirements of paragraph (2).

      ‘(2) REQUIREMENTS- An amount meets the requirements of this paragraph if--

        ‘(A) such amount is attributable to gain on the sale or exchange by the pass-thru entity of stock which is qualified small business stock in the hands of such entity and which was held by such entity for more than 5 years, and

        ‘(B) such amount is includible in the gross income of the taxpayer by reason of the holding of an interest in such entity which was held by the taxpayer on the date on which such pass-thru entity acquired such stock and at all times thereafter before the disposition of such stock by such pass-thru entity.

      ‘(3) LIMITATION BASED ON INTEREST ORIGINALLY HELD BY TAXPAYER- Paragraph (1) shall not apply to any amount to the extent such amount exceeds the amount to which paragraph (1) would have applied if such amount were determined by reference to the interest the taxpayer held in the pass-thru entity on the date the qualified small business stock was acquired.

      ‘(4) PASS-THRU ENTITY- For purposes of this subsection, the term ‘pass-thru entity’ means--

        ‘(A) any partnership,

        ‘(B) any S corporation,

        ‘(C) any regulated investment company, and

        ‘(D) any common trust fund.

    ‘(i) CERTAIN TAX-FREE AND OTHER TRANSFERS- For purposes of this section--

      ‘(1) IN GENERAL- In the case of a transfer of stock to which this subsection applies, the transferee shall be treated as--

        ‘(A) having acquired such stock in the same manner as the transferor, and

        ‘(B) having held such stock during any continuous period immediately preceding the transfer during which it was held (or treated as held under this subsection) by the transferor.

      ‘(2) TRANSFERS TO WHICH SUBSECTION APPLIES- This subsection shall apply to any transfer--

        ‘(A) by gift,

        ‘(B) at death,

        ‘(C) subject to the limitation of subsection (h)(3), from a partnership to a partner of stock with respect to which the requirements of subsection (h) are met at the time of the transfer (without regard to the 5-year holding requirement),

        ‘(D) to the extent that the basis of the property in the hands of the transferee is determined by reference to the basis of the property in the hands of the transferor by reason of section 334(b), but only if requirements similar to the requirements of subsection (h) are met with respect to the stock,

        ‘(E) of qualified small business stock for other qualified small business stock in a transaction described in section 351 or a reorganization described in section 368, or

        ‘(F) as a stock distribution of qualified small business stock in a transaction not subject to tax under section 305.

      ‘(3) CERTAIN RULES MADE APPLICABLE- In the case of distributions or transactions described in subparagraph (E) or (F) of section 368(a)(1), rules similar to the rules of section 1244(d)(2) shall apply for purposes of this section.

      ‘(4) INCORPORATIONS AND REORGANIZATIONS INVOLVING NONQUALIFIED STOCK-

        ‘(A) IN GENERAL- In the case of a transaction described in section 351 or a reorganization described in section 368, if qualified small business stock is transferred for other stock, such transfer shall be treated as a transfer to which this subsection applies solely with respect to the person receiving such other stock.

        ‘(B) LIMITATION- This section shall apply to the sale or exchange of stock treated as qualified small business stock by reason of subparagraph (A) only to the extent of the gain (if any) which would have been recognized at the time of the transfer described in subparagraph (A) if section 351 or 368 had not applied at such time.

        ‘(C) SUCCESSIVE APPLICATION- For purposes of this paragraph, stock treated as qualified small business stock under subparagraph (A) shall be so treated for subsequent transactions or reorganizations, except that the limitation of subparagraph (B) shall be applied as of the time of the first transfer to which subparagraph (A) applied.

        ‘(D) CONTROL TEST- Except in the case of a transaction described in section 368, this paragraph shall apply only if, immediately after the transaction, the corporation issuing the stock owns directly or indirectly stock representing control (within the meaning of section 368(c)) of the corporation whose stock was transferred.

    ‘(j) BASIS RULES-

      ‘(1) STOCK EXCHANGED FOR PROPERTY- For purposes of this section, in the case where the taxpayer transfers property (other than money or stock) to a corporation in exchange for stock in such corporation--

        ‘(A) such stock shall be treated as having been acquired by the taxpayer on the date of such exchange, and

        ‘(B) the basis of such stock in the hands of the taxpayer shall in no event be less than the fair market value of the property exchanged.

      Notwithstanding subparagraph (B), for purposes of subsection (c)(1), the adjusted basis to the corporation of the property received shall be the fair market value of such property at the time of the determination.

      ‘(2) BASIS OF S CORPORATION STOCK- For purposes of determining the amount of gain to which this section applies, the adjusted basis of stock in an S corporation shall in no event be less than its adjusted basis determined without regard to any adjustment to the basis of such stock under section 1367.

    ‘(k) APPLICATION OF TAX INCENTIVE TO CURRENT STOCK HOLDINGS OF INVESTORS-

      ‘(1) IN GENERAL- If--

        ‘(A) a taxpayer holds any stock on December 31, 1992, which, at the time it was issued, would have been treated as qualified small business stock if such determination had been made without regard to the time such stock was issued, and

        ‘(B) the value of such stock on December 31, 1992 exceeds its adjusted basis,

      the taxpayer may elect to treat such stock as having been sold on such date for an amount equal to its value on such date (and as having been reacquired on such date for an amount equal to such value). The gain attributable to such sale shall be treated as realized and recognized or accrued (and the holding period of the reacquired stock shall be treated as beginning) on December 31, 1992. For purposes of applying this section, the requirement of subsection (b)(1) that the stock must have been issued on or after January 1, 1993, shall not apply.

      ‘(2) ELECTION- An election under paragraph (1) with respect to any stock shall be made in such manner as the Secretary may prescribe. Such an election, once made with respect to any stock, shall be irrevocable.

    ‘(l) REGULATIONS- The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations to prevent the avoidance of the purposes of this section through split-ups or otherwise.’.

    (b) MAXIMUM 14 PERCENT TAX RATE-

      (1) INDIVIDUALS- Section 1(h) is amended to read as follows:

    ‘(h) MAXIMUM CAPITAL GAINS RATE-

      ‘(1) IN GENERAL- If a taxpayer has a net capital gain for any taxable year, then the tax imposed by this section shall not exceed the sum of--

        ‘(A) a tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of--

          ‘(i) taxable income reduced by the amount of the net capital gain, or

          ‘(ii) the amount of taxable income taxed at a rate below 28 percent, plus

        ‘(B) a tax of 28 percent of the amount of taxable income in excess of the amount determined under subparagraph (A).

      ‘(2) SPECIAL RULE WHERE TAXPAYER HAS QUALIFIED SMALL BUSINESS NET CAPITAL OR SEED CAPITAL GAIN-

        ‘(A) IN GENERAL- If a taxpayer has gain for any taxable year attributable to the sale or exchange of any qualified small business stock held for more than 5 years, then the tax imposed by this section shall not exceed the lesser of--

          ‘(i) the amount determined under paragraph (1), or

          ‘(ii) the sum of--

            ‘(I) the amount determined under paragraph (1) without taking into account gain or loss from qualified small business stock held for more than 5 years for purposes of subparagraphs (A) and (B) thereof, plus

            ‘(II) 14 percent of the net capital gain determined by only taking into account such gain or loss.

        ‘(B) DEFINITION- For purposes of this paragraph, the term ‘qualified small business stock’ has the meaning given such term by section 1202.’.

      (2) CORPORATIONS- Section 1201(a) is amended--

        (A) by inserting ‘or the corporation has gain from the sale or exchange of any qualified small business stock held for more than 5 years’ before ‘, then’, and

        (B) by striking paragraph (2) and inserting:

      ‘(2) a tax equal to the sum of--

        ‘(A) 34 percent of the sum of the net capital gain, determined by not taking into account any gain or loss from the sale or exchange of any qualified small business stock held for more than 5 years, plus

        ‘(B) 17 percent of the net capital gain determined by only taking into account such gain or loss.

    For purposes of this subsection, the term ‘qualified small business stock’ has the meaning given such term by section 1202.’.

    (c) MINIMUM TAX TREATMENT-

      (1) IN GENERAL- Subsection (a) of section 57 (relating to items of tax preference) is amended by adding at the end thereof the following new paragraph:

      ‘(8) EXCLUSION FOR GAINS ON SALE OF VENTURE CAPITAL SMALL BUSINESS STOCK- An amount equal to the amount excluded from gross income for the taxable year under section 1202(a)(1)(A) (relating to exclusion of gain on small business stock other than seed capital stock).’.

      (2) CONFORMING AMENDMENT- Subclause (II) of section 53(d)(2)(B)(ii) is amended by striking ‘and (6)’ and inserting ‘(6), and (8)’.

    (d) LOSSES ON SMALL BUSINESS STOCK- Section 1244(c)(3)(A) is amended by striking ‘$1,000,000’ and inserting ‘$5,000,000 (adjusted at the same time and manner as under section 1202(c)(4))’.

    (e) CONFORMING AMENDMENTS-

      (1)(A) Section 172(d)(2) (relating to modifications with respect to net operating loss deduction) is amended to read as follows:

      ‘(2) CAPITAL GAINS AND LOSSES OF TAXPAYERS OTHER THAN CORPORATIONS- In the case of a taxpayer other than a corporation--

        ‘(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and

        ‘(B) the exclusion provided by section 1202 shall not be allowed.’.

      (B) Subparagraph (B) of section 172(d)(4) is amended by inserting ‘, (2)(B),’ after ‘paragraph (1)’.

      (2) Paragraph (4) of section 642(c) is amended to read as follows:

      ‘(4) ADJUSTMENTS- To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain described in section 1202(a), proper adjustment shall be made for any exclusion allowable to the estate or trust under section 1202. In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income).’.

      (3) Paragraph (3) of section 643(a) is amended by adding at the end thereof the following new sentence: ‘The exclusion under section 1202 shall not be taken into account.’.

      (4) Paragraph (4) of section 691(c) is amended by striking ‘1201, and 1211’ and inserting ‘1201, 1202, and 1211, and for purposes of section 57(a)(8)’.

      (5) The second sentence of paragraph (2) of section 871(a) is amended by inserting ‘such gains and losses shall be determined without regard to section 1202 and’ after ‘except that’.

      (6) The table of sections for part I of subchapter P of chapter 1 is amended by adding after the item relating to section 1201 the following new item:

‘Sec. 1202. Exclusion for gain from certain small business stock.’.

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to stock issued (or treated as issued) on or after January 1, 1993.