Small Business Capital Formation and Inventory Simplification Tax Act of 1983

Small Business Capital Formation and Inventory Simplification Tax Act of 1983 - Amends the Internal Revenue Code to allow certain small business corporations an income tax deduction for dividends paid during the taxable year. Limits such deduction to $250,000. Requires that such dividends be paid in cash, be pro rata, and not be in redemption or liquidation.

Disallows such deductions for: (1) certain insurance companies; (2) regulated investment companies and real estate trusts; (3) certain domestic corporations with operations in Puerto Rico; (4) domestic international sales corporations; (5) cooperatives; and (6) certain service corporations.

Disallows such deductions for corporations which pay 20 percent or more of their dividends to tax-exempt organizations or certain trusts.

Eliminates the qualification requirement for the last-in, first-out (LIFO) method of accounting that a taxpayer use no inventory method for financial reporting or credit purposes other than the LIFO method.

Allows a taxpayer who adopts the LIFO method to spread increases in taxable income attributable to such change over a ten-year period.

Allows an election by small businesses which use the dollar method of pricing inventories under the LIFO method and which have average annual receipts of $4,000,000 or less for the three taxable years ending with the year of election to use one inventory pool for any trade or business. Permits a wholesaler or retailer who uses such method to elect the use of inventory pools based on the applicable Government price index categories for all items of inventory. Allows the use of such index categories in the pricing of inventories under such dollar-value methods.

Allows an election to use a link chain or index method to compute the LIFO value of dollar-value pool without regard to suitability or practicality of any other method.

Repeals the requirement, with respect to liquidation plans adopted after December 31, 1983, that a corporation inventorying goods under the LIFO method treat the LIFO recapture amount with respect to distributed inventory assets as ordinary income.

Allows an election by small businesses which are at least half- owned by active participants in the trade or business and which have average annual gross receipts of $1,500,000 or less for the three taxable years ending with the year of election to use the cash receipts and disbursements method of accounting without regard to any inventory requirements.

Increase to 80 percent the rate of the capital gains tax deduction for new issues of domestic corporate stock which are held by a taxpayer for at least five years.

Eliminates the dollar limitation on the amount of used property for which the investment tax credit is allowable.