A bill to amend the Internal Revenue Code of 1954 to provide tax incentives for the issuance of 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 which constitute the distribution of a share of 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 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.

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