H.R. 1918 (104th): Enterprise Capital Formation Act of 1995

104th Congress, 1995–1996. Text as of Jun 22, 1995 (Introduced).

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HR 1918 IH

104th CONGRESS

1st Session

H. R. 1918

To amend the Internal Revenue Code of 1986 to modify the exclusion of gain on certain small business stock.

IN THE HOUSE OF REPRESENTATIVES

June 22, 1995

Mr. MATSUI (for himself and Mr. ENGLISH of Pennsylvania) 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 modify the exclusion of gain on certain small business stock.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ‘Enterprise Capital Formation Act of 1995’.

SEC. 2. FINDINGS.

    The Congress hereby finds that--

      (1) investments in small business venture capital stock should be encouraged because of both the special risks and the social and economic benefits associated with such investments,

      (2) the exclusion from income of gain on small business venture capital stock is an important incentive for individuals and corporations to invest in such stock, and

      (3) tax incentives for investments in capital assets in general should be supplemented with an effective tax incentive for investments in small business venture capital stock.

SEC. 3. MODIFICATIONS TO EXCLUSION OF GAIN ON CERTAIN SMALL BUSINESS STOCK.

    (a) INCREASE IN EXCLUSION- Subsection (a) of section 1202 of the Internal Revenue Code of 1986 is amended by striking ‘50 percent’ and inserting ‘75 percent’.

    (b) EXCLUSION AVAILABLE TO CORPORATIONS-

      (1) IN GENERAL- Subsection (a) of section 1202 of such Code is amended by striking ‘other than a corporation’.

      (2) TECHNICAL AMENDMENT- Subsection (c) of section 1202 of such Code is amended by adding at the end the following new paragraph:

      ‘(4) STOCK HELD AMONG MEMBERS OF CONTROLLED GROUP NOT ELIGIBLE- Stock of a member of a parent-subsidiary controlled group (as defined in subsection (d)(3)) shall not be treated as qualified small business stock while held by another member of such group.’

    (c) REPEAL OF MINIMUM TAX PREFERENCE-

      (1) IN GENERAL- Subsection (a) of section 57 of such Code is amended by striking paragraph (7).

      (2) TECHNICAL AMENDMENT- Subclause (II) of section 53(d)(1)(B)(ii) of such Code is amended by striking ‘, (5), and (7)’ and inserting ‘and (5)’.

    (d) STOCK OF LARGER BUSINESSES ELIGIBLE FOR EXCLUSION-

      (1) Paragraph (1) of section 1202(d) of such Code is amended by striking ‘$50,000,000’ each place it appears and inserting ‘$100,000,000’.

      (2) Subsection (d) of section 1202 of such Code is amended by adding at the end the following new paragraph:

      ‘(4) INFLATION ADJUSTMENT OF ASSET LIMITATION- In the case of stock issued in any calendar year after 1996, the $100,000,000 amount contained in paragraph (1) shall be increased by an amount equal to--

        ‘(A) such dollar amount, multiplied by

        ‘(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar

year in which the taxable year begins, determined by substituting ‘calendar year 1995’ for ‘calendar year 1992’ in subparagraph (B) thereof.

      If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.’

    (e) REPEAL OF PER-ISSUER LIMITATION- Section 1202 of such Code is amended by striking subsection (b).

    (f) OTHER MODIFICATIONS-

      (1) REPEAL OF WORKING CAPITAL LIMITATION- Paragraph (6) of section 1202(e) of such Code is amended--

        (A) by striking ‘within 2 years’ in subparagraph (B), and

        (B) by striking the last sentence.

      (2) EXCEPTION FROM REDEMPTION RULES WHERE BUSINESS PURPOSE- Paragraph (3) of section 1202(c) of such Code is amended by adding at the end the following new subparagraph:

        ‘(D) WAIVER WHERE BUSINESS PURPOSE- A purchase of stock by the issuing corporation shall be disregarded for purposes of subparagraphs (A) and (B) if the issuing corporation establishes that there was a business purpose for such purchase and such purchase is not inconsistent with the purposes of this section.’

    (g) EFFECTIVE DATE- The amendments made by this section shall apply to stock issued after December 31, 1994.

    (h) ELECTION TO APPLY AMENDMENTS TO STOCK ISSUED AFTER AUGUST 10, 1993-

      (1) IN GENERAL- The amendments made by this section shall apply to any qualified stock issued after August 10, 1993, if the taxpayer elects to apply such amendments with respect to such stock.

      (2) QUALIFIED STOCK- For purposes of paragraph (1), the term ‘qualified stock’ means stock--

        (A) which is held by the taxpayer on December 31, 1994, and

        (B) which was not qualified small business stock (as defined section 1202(c) of the Internal Revenue Code of 1986) when issued but which would be qualified small business stock (as so defined) if the amendments made by this section applied to stock issued after August 10, 1993.

      (3) RECOGNITION OF GAIN- For purposes of the Internal Revenue Code of 1986--

        (A) IN GENERAL- Any qualified stock to which the election under paragraph (1) applies shall be treated--

          (i) as having been sold on January 1, 1995, for an amount equal to its fair market value on such date, and

          (ii) as having been reacquired on such date for an amount equal to such fair market value.

        The preceding sentence shall not apply for purposes of determining whether the stock is qualified small business stock (as so defined).

        (B) TREATMENT OF GAIN OR LOSS-

          (i) Any gain resulting from subparagraph (A) shall be treated as received or accrued on January 1, 1995, and shall be recognized notwithstanding any provision of the Internal Revenue Code of 1986.

          (ii) Any loss resulting from subparagraph (A) shall not be allowed for any taxable year.

      (4) ELECTION- An election under paragraph (1) shall be made in such manner as the Secretary may prescribe and shall specify the stock for which such election is made. Such an election, once made with respect to any stock, shall be irrevocable.