To amend the Internal Revenue Code of 1986 to clarify the rules relating to lessee construction allowances and to contributions to the capital of retailers.

Summary: Amends the Internal Revenue Code, with respect to the exclusion from a lessee's gross income of qualified construction allowances for short-term leases, to require that in order to qualify for the exclusion the construction expenditure must occur before the end of the second taxable year after the allowance was received.Revises the exclusion from gross income (safe harbor) for certain contributions to the capital of a corporation to extend such exclusion to money or other property received by a retailer under specified conditions concerning length of business operation at a particular location and land and structure ownership at such location.Declares that a taxpayer shall be treated as owning the land if the taxpayer is the lessee of such land under a lease having a term of at least 30 years, and on which only nominal rent is required.Disallows any deduction or credit for, or by reason of, any amount received by the taxpayer which constitutes a contribution to capital.

SECTION 1. EXCLUSION FROM GROSS INCOME OF QUALIFIED LESSEE CONSTRUCTION 
              ALLOWANCES NOT LIMITED TO SHORT-TERM LEASES.

    (a) In General.--Subsection (a) of section 110 of the Internal 
Revenue Code of 1986 (relating to qualified lessee construction 
allowances for short term leases) is amended by striking the period at 
the end and inserting ``, and the amount expended meets the 
requirements of the expenditure rule. Paragraph (1) shall not apply if 
the lessee is a qualified retail business (as defined by section 
118(d)(3) without regard to the proximity requirement in subparagraph 
(A) thereof).''.
    (b) Expenditure Rule.--Section 110 of such Code is amended by 
redesignating subsections (b),(c), and (d) as subsections (c), (d), and 
(e), respectively, and by inserting after subsection (a) the following 
new subsection:
    ``(b) Expenditure Rule.--An expenditure meets the requirements of 
this subsection if the expenditure occurs before the end of the second 
taxable year after such amount was received.''.
    (c) Conforming Amendments.--
            (1) The section heading for section 110 of such Code is 
        amended by striking ``for short-term leases''.
            (2) The item relating to section 110 in the table of 
        sections for part III of subchapter B of chapter 1 of such Code 
        is amended by striking ``for short-term leases''.
    (d) Effective Date.--The amendments made by this section shall 
apply to leases entered into after the date of the enactment of this 
Act.

SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN CONTRIBUTIONS TO THE 
              CAPITAL OF CERTAIN RETAILERS.

    (a) In General.--Section 118 of the Internal Revenue Code of 1986 
(relating to contributions to the capital of a corporation) is amended 
by redesignating subsections (d) and (e) as subsections (e) and (f), 
respectively, and by inserting after subsection (c) the following new 
subsection:
    ``(d) Safe Harbor for Contributions to Certain Retailers.--
            ``(1) General rule.--For purposes of this section, the term 
        `contribution to the capital of the taxpayer' includes any 
        amount of money or other property received by the taxpayer if--
                    ``(A) the taxpayer has entered into an agreement to 
                operate (or cause to be operated) a qualified retail 
                business at a particular location for a period of at 
                least 15 years,
                    ``(B)(i) immediately after the receipt of such 
                money or other property, the taxpayer owns the land and 
                the structure to be used by the taxpayer in carrying on 
                a qualified retail business at such location, or
                    ``(ii) the taxpayer uses such amount to acquire 
                ownership of at least such land and structure,
                    ``(C) such amount meets the requirements of the 
                expenditure rule of paragraph (2), and
                    ``(D) the contributor of such amount does not hold 
                a beneficial interest in any property located on the 
                premises of such qualified retail business other than 
                de minimis amounts of property associated with the 
                operation of property adjacent to such premises.
            ``(2) Expenditure rule.--An amount meets the requirements 
        of this paragraph if--
                    ``(A) an amount equal to such amount is expended 
                for the acquisition of land or for acquisition or 
                construction of other property described in section 
                1231(b)--
                            ``(i) which was the purpose motivating the 
                        contribution, and
                            ``(ii) which is used predominantly in a 
                        qualified retail business at the location 
                        referred to in paragraph (1)(A),
                    ``(B) the expenditure referred to in subparagraph 
                (A) occurs before the end of the second taxable year 
                after the year in which such amount was received, and
                    ``(C) accurate records are kept of the amounts 
                contributed and expenditures made on the basis of the 
                project for which the contribution was made and on the 
                basis of the year of the contribution expenditure.
            ``(3) Definition of qualified retail business.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified retail business' 
                means a trade or business of selling tangible personal 
                property to the general public if the premises on which 
                such trade or business is conducted is in close 
                proximity to property that the contributor of the 
                amount referred to in paragraph (1) is developing or 
                operating for profit (or, in the case of a contributor 
                which is a governmental entity, is attempting to 
                revitalize).
                    ``(B) Services.--A trade or business shall not fail 
                to be treated as a qualified retail business by reason 
                of sales of services if such sales are incident to the 
                sale of tangible personal property or if the services 
                are de minimis in amount.
            ``(4) Special rules.--
                    ``(A) Leases.--For purposes of paragraph (1), 
                property shall be treated as owned by the taxpayer if 
                the taxpayer is the lessee of such property under a 
                lease having a term of at least 30 years and on which 
                only nominal rent is required.
                    ``(B) Controlled groups.--For purposes of this 
                subsection, all persons treated as a single employer 
                under subsection (a) or (b) of section 52 shall be 
                treated as one person.
            ``(5) Disallowance of deductions and credits; adjusted 
        basis.--Notwithstanding any other provision of this subtitle, 
        no deduction or credit shall be allowed for, or by reason of, 
        any amount received by the taxpayer which constitutes a 
        contribution to capital to which this subsection applies. The 
        adjusted basis of any property acquired with the contributions 
        to which this subsection applies shall be reduced by the amount 
        of the contributions to which this subsection applies.
            ``(6) Regulations.--The Secretary shall prescribe such 
        regulations are appropriate to prevent the abuse of the 
        purposes of the subsection, including regulations which 
        allocate income and deductions (or adjust the amount excludable 
        under this subsection) in cases in which--
                    ``(A) payments in excess of fair market value are 
                paid to the contributor by the taxpayer, or
                    ``(B) the contributor and the taxpayer are related 
                parties.''.
    (b) Conforming Amendment.--Subsection (e) of section 118 of such 
Code (as redesignated by subsection (a)) is amended by adding at the 
end the following flush sentence:
``Rules similar to the rules of the preceding sentence shall apply to 
any amount treated as a contribution to the capital of the taxpayer 
under subsection (d).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after the date of the enactment of this Act.