Small Business Investment Act of 1980

Small Business Investment Act of 1980 - Amends the Internal Revenue Code to increase from 15 to 25 the maximum number of shareholders a subchapter S corporation may have.

Ends the requirement that an employer furnish a W-2 wage report upon termination to any employee whose employment is terminated before the close of the calendar year. Requires issuance of such interim report only upon timely request by such employee, and then within 30 days after receipt of such request.

Applies long-term capital gains treatment to amounts actually paid to a taxpayer in respect of a small business participating debenture, 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 the business; (2) bears interest at not less than the rate prescribed 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 earnings. Limits "qualified small business" to one (whether or not incorporated): (1) whose equity capital does not exceed $25,000,000; (2) the face value of all of whose outstanding SBPDs 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 companies as a single taxpayer. Denies capital gains treatment where the taxpayer is "related" to the SBPD-issuing company, having at least a ten percent interest in it.

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

Creates a category of incentive stock options for employees, who would not be required to pay tax at the time such an option is exercised and would receive capital gains treatment on the proceeds of any subsequent sale of such stock. Denies the employer any deduction with respect to such stock either at the time of option exercise or at the time of subsequent sale.

Requires the issuance of any such option, with shareholder approval, at 100 percent of fair market value. Accepts any stock later determined to be undervalued if issued with a good faith effort to make such issue at not less than fair market value. Allows exercise of such option up to ten years after issuance, and in any sequence.

Limits long-term capital gain treatment to the sale of incentive stock held by the employee at least two years after the grant of the option and one year after exercise. Subjects any such stock sold within two years after option grant to ordinary income treatment.

Requires an employee to remain an employee continuously from grant to exercise. Prohibits the employee from owning more than ten percent of the voting power or value of the stock of the company unless the option price is at least 110 percent of fair market value.

Increases from $150,000 to $250,000 ($200,000 for 1981) the minimum credit against the accumulated earnings tax for corporations.

Increases the cost of used equipment eligible for the investment tax credit: (1) in general, from $100,000 to $200,000 ($150,000 for 1981); and (2) for a married individual filing a separate return, from $50,000 to $100,000 ($75,000 for 1981).

Permits a taxpayer who is required to change his or her method of accounting pursuant to Revenue Ruling 80-60 (inventory valuation) and Revenue Procedure 80-5 to effect such change only for taxable years beginning after December 31, 1979.

Exempts from the excise taxes on gasoline, diesel, and special motor fuels any such fuels used in connection with intercity, local, and school buses.

Allows a taxpayer to elect not to recognize a certain amount of gain from the sale of small business stock, if the proceeds of such sale are used to purchase other small business stock within 18 months. Limits recognition to that portion of any gain in excess of the cost of such other stock. Requires the reduction of the basis of any such subsequently purchased stock by the amount of gain not recognized. Limits small business stock to stock in businesses whose equity capital does not exceed $15,000,000.

Reduces corporate tax rates to the following structure: (1) 15 percent of taxable income not exceeding $50,000; (2) 30 percent of such income between $50,000 and $100,000; (3) 45 percent of income over $100,000. Prescribes transitional rates for the period December 31, 1980, through December 31, 1981.