Capital Formation Incentive Act of 1979

Capital Formation Incentive Act of 1979 - Amends the Internal Revenue Code to allow a corporation engaged in certain market making activities a deduction from gross income for additions to a reserve for gains for such activities during the taxable year. Defines "market making activities" as the purchase and sale of over-the-counter equity securities by a dealer in securities, or any specialist permitted to act as a dealer, who holds himself out as being willing to buy and sell over-the-counter equity securities for his own account on a regular or continuing basis. Limits eligible securities to over-the-counter equity securities of corporations which, on the last day of the taxable year of the taxpayer preceding the taxable year of the sale or exchange, had $25,000,000 or less of equity securities in such corporation outstanding.

Restricts the availability of such deduction to a reserve which has no more than $1,000,000 as of the close of the taxable year, after specified required adjustments. Prohibits any deduction if the amount of the additions to the reserve for the taxable year exceeds 30 percent of the fair market value of average monthly inventory positions carried for market making activities by the taxpayer during such year.