A bill to amend the Internal Revenue Code of 1954 to provide long-term capital gain treatment for distribution of earnings with respect to certain small business participating debentures.

Amends the Internal Revenue Code to treat as long-term capital gain amounts actually paid to a taxpayer with respect to a small business participating debenture (SBPD) which constitute the distribution of a share of the earnings of the issuer.

Defines "small business participating debenture" (SBPD) as a written debt instrument issued by a qualified small business which: (1) is a general obligation of such business; (2) bears interest at not less than specified by the Secretary of the Treasury; (3) has a fixed maturity; (4) grants no voting or conversion rights in the business to the purchaser; and (5) provides for the payment of a share of the issuer's total earnings. Defines "qualified small business" as one: (1) whose equity capital does not exceed $10,000,000; (2) the face value of all of whose outstanding SBPD's does not exceed $1,000,000; and (3) which has no outstanding securities subject to regulation by the Securities and Exchange Commission.

Treats members of a controlled group of corporations as a single taxpayer. Denies capital gains treatment where the taxpayer is a "related party" to the SBPD issuer.

Treats losses on small business participating debentures as ordinary losses. Allows an interest expense deduction for interest and share-of-earnings payments made on such debentures.