119-hr1199

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1199 Introduced in House

    (IH) ]

<DOC>

119th CONGRESS
 1st Session
 H. R. 1199

To amend the Internal Revenue Code of 1986 to modify the exclusion for 
 gain from qualified small business stock.

_______________________________________________________________________

 IN THE HOUSE OF REPRESENTATIVES

 February 11, 2025

 Mr. Kustoff 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 for 
 gain from qualified 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 ``Small Business Investment Act of 
2025''.

SEC. 2. PHASED INCREASE IN EXCLUSION FOR GAIN FROM QUALIFIED SMALL 
 BUSINESS STOCK.

    (a) In General.--

Section 1202

    (a)

    (1) of the Internal Revenue Code of 
1986 is amended--

    (1) by striking ``50 percent'' and inserting ``the 
 applicable percentage'', and

    (2) by striking ``held for more than 5 years'' and 
 inserting ``held for at least 3 years''.

    (b) Applicable Percentage.--

Section 1202

    (a) of such Code is amended 
by adding at the end the following new paragraph:
 ``

    (5) Applicable percentage.--Except as provided in 
 paragraphs

    (3) and

    (4) , the applicable percentage under 
 paragraph

    (1) shall be determined under the following table:

 Applicable
 ``Years stock held: percentage:
 
3 years................................................ 50%
4 years................................................ 75%
5 years or more........................................ 100%''.
            (c) Continued Treatment as Not Item of Tax Preference.--

    (1) In general.--

Section 57

    (a)

    (7) of such Code is amended 
 by striking ``An amount'' and inserting ``In the case of stock 
 acquired on or before the date of the enactment of the Creating 
 Small Business Jobs Act of 2010, an amount''.

    (2) Conforming amendment.--

Section 1202

    (a)

    (4) of such Code 
 is amended--
        (A) by striking ``, and'' at the end of 
 subparagraph
        (B) and inserting a period, and
        (B) by striking subparagraph
            (C) .
            (d) Other Conforming Amendments.--

    (1) Section 1202

    (a)

    (4) of such Code is amended by inserting 
 ``and before the date of the enactment of the Small Business 
 Investment Act of 2025'' after ``Act of 2010''.

    (2) Paragraphs

    (3) and

    (4) of 

section 1202

    (a) of such Code 
 are each amended by inserting ``held for more than 5 years 
 and'' after ``In the case of qualified small business stock''.

    (3) Section 1202

    (a)

    (3)
        (A) of such Code is amended to read 
 as follows:
 ``
        (A) the applicable percentage under paragraph

    (1) shall be 75 percent, and'',

    (4) Section 1202

    (a)

    (4)
        (A) of such Code is amended to read 
 as follows:
 ``
        (A) the applicable percentage under paragraph

    (1) shall be 100 percent, and''.

    (5) Section 1202

    (b)

    (2) of such Code is amended by striking 
 ``more than 5 years'' and inserting ``at least 3 years''.

    (6) Section 1202

    (g)

    (2)
        (A) of such Code is amended by 
 striking ``more than 5 years'' and inserting ``at least 3 
 years''.

    (7) Section 1202

    (j)

    (1)
        (A) of such Code is amended by 
 striking ``more than 5 years'' and inserting ``at least 3 
 years''.

    (e) Effective Date.--

    (1) In general.--Except as provided in paragraph

    (2) , the 
 amendments made by this section shall apply to stock acquired 
 after the date of the enactment of this Act.

    (2) Continued treatment as not item of tax preference.--The 
 amendment made by subsection
            (c) shall take effect as if 
 included in the enactment of 

section 2011 the Creating Small 
 Business Jobs Act of 2010.

SEC. 3. TACKING HOLDING PERIOD OF CONVERTIBLE DEBT INSTRUMENTS.

    (a) In General.--

Section 1202

    (f) of the Internal Revenue Code of 
1986 is amended--

    (1) by redesignating paragraphs

    (1) and

    (2) as 
 subparagraphs
        (A) and
        (B) and moving such subparagraphs (as so 
 redesignated) 2 ems to the right,

    (2) by striking ``Conversion of Other Stock.--If any 
 stock'' and inserting the following: ``Conversion.--
 ``

    (1) Other stock.--If any stock'', and

    (3) by adding at the end the following new paragraph:
 ``

    (2) Convertible debt instruments.--
 ``
        (A) In general.--If any stock in a corporation is 
 acquired by the taxpayer, without recognition of gain, 
 solely through the conversion of a qualified 
 convertible debt instrument--
 ``
            (i) the stock so acquired shall be 
 treated as qualified small business stock in 
 the hands of the taxpayer, and
 ``
            (ii) the stock so acquired shall be 
 treated as having been held during the period 
 during which the qualified convertible debt 
 instrument was held.
 ``
        (B) Qualified convertible debt instrument.--For 
 purposes of this paragraph, the term `qualified 
 convertible debt instrument' means any bond or other 
 evidence of indebtedness--
 ``
            (i) which is originally issued by the 
 corporation to the taxpayer,
 ``
            (ii) the issuer of which--
 ``
            (I) from issuance until 
 conversion, is a qualified small 
 business, and
 ``
            (II) during substantially all of 
 the taxpayer's holding period of such 
 bond or evidence of indebtedness, the 
 corporation meets the active business 
 requirements of subsection

    (e) , and
 ``
            (iii) which is convertible into stock in 
 the corporation.''.

    (b) Effective Date.--The amendments made by this section shall 
apply to debt instruments originally issued after the date of the 
enactment of this Act.

SEC. 4. GAIN EXCLUSION ALLOWED WITH RESPECT TO QUALIFIED SMALL BUSINESS 
 STOCK IN CORPORATION.

    (a) In General.--

Section 1202
            (c) of the Internal Revenue Code of 
1986 is amended--

    (1) by striking ``C corporation'' in paragraphs

    (1) and 
 inserting ``corporation'', and

    (2) by striking ``and such corporation is a C corporation'' 
 in paragraph

    (2)
        (A) .

    (b) Qualified Small Business 

=== Definition. ===
-

Section 1202
            (d) (1) of 
such Code is amended by striking ``which is a C corporation''.
            (c) Clarification of Aggregation Rules Applicable to S 
Corporations.--

Section 1202
            (d) (3) of such Code is amended by adding at 
the end the following new subparagraph:
 ``
            (C) Clarification with respect to S 
 corporations.--Any determination of the members of a 
 controlled group of corporations under this paragraph 
 shall include taking into account any stock ownership 
 in an S corporation.''.
            (d) Treatment of Passive Losses.--

Section 469

    (g)

    (1) of such Code is 
amended by adding at the end the following new subparagraph:
 ``
            (D) Certain dispositions of small business 
 stock.--In the case a disposition any gain from which 
 is excluded from gross income under 

section 1202, 
 subparagraph
        (A) shall not apply.''.

    (e) Special Rules Relating to S Corporations.--

Section 1202

    (e) of 
such Code is amended by adding at the end the following new paragraph:
 ``

    (9) Applied at S corporation level.--In the case of an S 
 corporation, the requirements of this subsection shall be 
 applied at the corporate level.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to stock acquired after the date of the enactment of this Act.
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