Bill Details
S.695 - 119th Congress
Status
Latest action
2025-02-24 - Read twice and referred to the Committee on Finance.
Introduced Date
2025-02-24
Policy Area
Taxation
Committees
View committees (1)
Sponsors
5
0
0
AI Summary This summary was generated by AI from the bill text. AI can get information wrong.
This bill would make it easier for people to get tax breaks when they invest in certain small businesses. Right now, investors may exclude some profit from taxes only after holding the stock for more than 5 years. The bill would change that so the tax break starts after 3 years, with the amount excluded growing over time: 50% after 3 years, 75% after 4 years, and 100% after 5 years or more. It would also expand the rule in a few ways so more kinds of small business investments can qualify, including some investments tied to convertible debt and some ownership structures involving S corporations.
- Shorter holding period for tax benefits: stock held for at least 3 years could qualify for a partial exclusion, and stock held for 5 years or more could qualify for a full exclusion.
- Convertible debt countable: if an investor gets small business stock by converting certain qualified debt, the time the debt was held would count toward the holding period for the stock.
- Broader business coverage: the tax break would no longer be limited as tightly to C corporations, and the bill adds rules to make S corporation ownership count in some of the small business tests.
- Other tax rule changes: it would adjust related tax provisions so the gain exclusion works more cleanly and so some losses are not limited in the same way when the gain is already excluded.
Official Summaries
No summaries available
Current Full Text
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 695 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 695
To amend the Internal Revenue Code of 1986 to modify the exclusion for
gain from qualified small business stock.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
February 24, 2025
Mr. Cornyn 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 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 of 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 of 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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