redesignating paragraphs (1) and (2) as subparagraphs (A) and (B) and moving such subparagraphs (as so redesignated) 2 ems to the right, (B) by striking conversion of other stock .—If any stock and inserting the following: conversion.— (1) Other stock If any stock , and (C) by adding at the end the following new paragraph: (2) Convertible debt instruments (A) In general If any stock in a corporation is acquired by the taxpayer, without recognition of gain, solely through the conversion of a qualified convertible debt instrument— (i) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and (ii) the stock so acquired shall be treated as having been held during the period during which the qualified convertible debt instrument was held. (B) Qualified convertible debt instrument For purposes of this paragraph, the term qualified convertible debt instrument means any bond or other evidence of indebtedness— (i) which is originally issued by the corporation to the taxpayer, (ii) the issuer of which— (I) from issuance until conversion, is a qualified small business, and (II) during substantially all of the taxpayer’s holding period of such bond or evidence of indebtedness, the corporation meets the active business requirements of subsection (e), and (iii) which is convertible into stock in the corporation. . (c) Gain exclusion allowed with respect to qualified small business stock in corporation (1) In general Section 1202(c) is amended— (A) by striking C corporation in paragraph (1) and inserting corporation , and (B) by striking and such corporation is a C corporation in paragraph (2)(A). (2) Qualified small business definition Section 1202(d)(1) is amended by striking which is a C corporation . (3) Clarification of aggregation rules applicable to S corporations Section 1202(d)(3) is amended by adding at the end the following new subparagraph: (C) Clarification with respect to S corporations Any determination of the members of a controlled group of corporations under