A bill to amend the Internal Revenue Code of 1954 to provide for the nonrecognition of gain of the proceeds from the sale of incentive stock if those proceeds are reinvested in such stock, and for an increase in basis for incentive stock held for certain period.

Amends the Internal Revenue Code to limit the recognition of gain from the sale of small business stock to the amount by which the gain from such sale exceeds the cost of small business stock purchased by the taxpayer within 18 months after the date of the sale.

Defines "small business stock" as common or preferred stock of a domestic corporation which does not have passive income (e.g., rents, royalties, interest, etc.) for a taxable year in excess of 20 percent of its gross receipts, and which has equity capital not in excess of $25,000,000. Limits nonrecognition treatment to stock held by the taxpayer for more than 12 months.

Provides for the reduction of the basis of the small business stock purchased by the taxpayer by the amount of gain which is not recognized due to the application of this Act. Provides for a three year statute of limitations for the assessment of tax deficiencies with respect to the gain from the sale of small business stock.