S.695 - Small Business Investment Act of 2025 (119th Congress)
Summary
S.695, the Small Business Investment Act of 2025, aims to amend the Internal Revenue Code of 1986 to modify the exclusion for gain from qualified small business stock. The bill proposes a phased increase in the exclusion percentage for gains from qualified small business stock, reducing the holding period requirement, and allowing gain exclusion for stock in any corporation, not just C corporations. It also addresses the tacking of holding periods for convertible debt instruments and clarifies aggregation rules for S corporations.
Expected Effects
The likely effect of this bill is to incentivize investment in small businesses by making it more attractive for investors to realize gains. By reducing the holding period and increasing the exclusion percentage, investors may be more willing to provide capital to small businesses. The changes related to convertible debt and S corporations could further streamline investment processes and encourage broader participation.
Potential Benefits
- Increased Investment in Small Businesses: The phased increase in exclusion and reduced holding period will likely attract more investment.
- Simplified Investment Process: Tacking holding periods for convertible debt instruments simplifies investment.
- Broader Eligibility: Allowing gain exclusion for stock in any corporation expands the scope of eligible businesses.
- Clarified Rules for S Corporations: Clarification of aggregation rules provides more certainty for investors in S corporations.
- Potential for Job Creation: Increased investment in small businesses can lead to job creation and economic growth.
Most Benefited Areas:
Potential Disadvantages
- Potential Revenue Loss: Increased exclusion could reduce government tax revenue.
- Complexity: The phased approach may introduce complexity in tax calculations.
- Risk of Abuse: Looser regulations could create opportunities for tax avoidance.
- Uneven Distribution: Benefits may disproportionately favor high-income investors.
- Limited Impact on Struggling Businesses: The bill primarily benefits investors, not necessarily the businesses themselves.
Most Disadvantaged Areas:
Constitutional Alignment
The bill appears to align with the spirit of promoting the general welfare (Preamble) by aiming to stimulate economic activity through small business investment. Congress has the power to lay and collect taxes, duties, imposts, and excises (Article I, Section 8), and to make all laws which shall be necessary and proper for carrying into execution the foregoing powers (Article I, Section 8). The modifications to the tax code fall under these enumerated powers.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).