Small Business R. & D. Incentive Act

Small Business R. & D. Incentive Act - Amends the Internal Revenue Code to limit the recognition of gain, for purposes of the tax on capital gains, from the sale of an equity interest in a qualified small business concern by providing that such gain shall be recognized only to the extent that it exceeds the cost of reinvesting in another such equity interest. Specifies that such reinvestment must be made within two years of the date of the sale of the small business interest.

Defines "qualified small business concern" as a trade or business whose research and experimental expenditures exceed three percent in each of three consecutive years or six percent of gross income for any taxable year. Reduces the basis of small business replacement property by the amount of gain which is not recognized under this Act.

Permits employees of a qualified small business concern to exercise stock options up to ten years after the date on which they are granted.

Provides for a 50 percent reduction of the tax on capital gains attributable to an interest in a qualified small business concern which is held by a taxpayer for at least five years.

Allows taxpayers to carryover capital losses attributable to investment in a qualified small business concern to each of the ten years following the year of such loss.

Grants tax-exempt status to a Reserve for the payment of research and experimental expenditures. Allows a limited income tax deduction for cash contributions to such Reserves. Permits the exclusion from gross income of distributions from tax-exempt research and experimental expenditure reserves which are applied to the research and experimental expenses of qualified small business concerns.

Increases from 15 to 100 the number of shareholders allowed in a subchapter S corporation. Allows such corporation to have other corporations as shareholders (previously limited to individuals as shareholders).

Removes the dollar limitation applicable to losses on small business stock for small businesses which qualify as small business concerns under the provisions of this Act.