Michelle SladeAssociate Editor

The U.S. Senate on Friday adopted an amendment to pendingtax legislation that if enacted would provide substantial taxbenefits to investors in start-up companies, including newbiotechnology companies.

The amendment was proposed by Sen. Dale Bumpers, D-Ark.,chairman of the Senate Small Business Committee, and Sen.Hank Brown, R-Colo., co-chairman of the CongressionalBiotechnology Caucus.

Supported and co-drafted by the The Industrial BiotechnologyAssociation (IBA) and other organizations, including theNational Venture Capital Association in Arlington, Va., theamendment, known as the seed capital provision, is part of atwo-part bill that would give a bigger tax break to compensatefor high-risk investments.

The bill would allow investors who buy stock in companieswith less than $5 million in capital a substantial tax benefit thelonger they hold their stock. If stock is held for five years, forexample, an investor would pay tax on only 50 percent ofcapital gains. The tax exclusion would increase for eachadditional year until at10 years the capital gain would be tax-free.

The second part of the bill is the venture capital provision forcompanies with less than $100 million of capital investment.Under this provision, investors would be able to claim a 50percent capital gains write-off if they hold their investment forfive years or longer.

Both provisions were included in a tax bill that was vetoed byPresident Bush in March. But Lisa Raines, the IBA's vicepresident of legislative and regulatory affairs, said she expectsthe Bush administration to respond favorably to the bill.

"The seed capital amendment is almost identical to a proposalin the president's new small business initiative of lastWednesday," she said.

The Senate is scheduled to vote on the complete tax bill today.It will then go to a conference committee for resolution ofdifferences between House and Senate bills later this week.

Sens. Bumpers and Brown said that if the seed capital provisionis enacted this year, they will seek enactment of the venturecapital provision as early as possible next year.

"Friday's announcement is the first step in getting the venturecapital provision enacted next year," said Raines. The IBA willurge both the House and Senate to include the seed billprovision in the tax bill, she said.

"Bush can claim victory on the capital gains issue by insistingthat this pass, which would revolutionize the financing of everysmall business in the U.S.," said a senate aide working on thebill. "He has endorsed this same proposal both for enterprisezones and across the board."

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