Page:United States Statutes at Large Volume 102 Part 4.djvu/667

 PUBLIC LAW 100-647—NOV. 10, 1988

102 STAT. 3637

The requirement of clause (i)(I) that the principal be payable on 1 or more specified dates and the requirement of clause (i)(II) shall not apply to indebtedness payable on demand if such indebtedness is issued in return for cash to be used to meet normal business needs of the enterprise. "(D) SPECIAL RULE FOR STARTUP DEBT.—

"(i) IN GENERAL.—For purposes of this paragraph, the term 'qualified debt' includes any qualified startup debt. "(ii) QuAUFiED STARTUP DEBT.—For purposes of clause (i), the term 'qualified startup debt' means any indebtedness if— "(I) such indebtedness unconditionally requires the payment of a sum certain in money, "(II) such indebtedness was received in exchange for cash to be used in any enterprise involving the active conduct of a trade or business, "(III) the person to whom the indebtedness is owed has not at any time (whether before, on, or after the exchange referred to in subclause (II)) transferred any property (including goodwill) which was not cash to the enterprise or transferred customers or other business opportunities to the enterprise, "(IV) the person to whom the indebtedness is owed has not at any time (whether before, on, or after the exchange referred to in subclause (II)) held any interest in the enterprise (including an interest as an officer, director, or employee) which was not qualified startup debt, "(V) any person who (but for subparagraph (A)(i)) would have been an original transferee (as defined in paragraph (4)(C)) participates in the active management (as defined in section 2032A(e)(12)) of the enterprise, and "(VI) such indebtedness meets the requirements of clauses (v) and (vi) of subparagraph (C). "(8) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including such regulations as may be necessary or appropriate to prevent avoidance of the purposes of this subsection through distributions or otherwise." (d) TREATMENT OF SPOUSE.—Subparagraph (C) of section 2036(c)(3) of the 1986 Code is amended by striking out "An individual" and inserting in lieu thereof "Except as provided in regulations, an individual". (e) CLARIFICATION OF RETENTION TEST.—Subparagraph (B) of section 2036(c)(l) of the 1986 Code is amended by striking out "while" and all that follows down through the comma at the end of such subparagraph and inserting in lieu thereof "while retaining an interest in the income of, or rights in, the enterprise,". (f) RIGHT OF RECOVERY.—

(1) IN GENERAL.—Subchapter C of chapter 11 of the 1986 Code is amended by inserting after section 2207A the following new section:

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