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 repeal the limitation of such exclusion to short-term leases (thus extending the exclusion to allowances under any lease of retail space). 
Revises the exclusion from gross income (safe harbor) for certain contributions to the capital of retailers.  Extends such exclusion to any amount of money or other property received by the taxpayer if: (1) 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; (2) immediately after the receipt of such money or other property, the taxpayer owns (or uses such amount to acquire ownership of at least) the land the taxpayer will use in carrying on the business at that location; and (3) an amount equal to such amount is expended within two taxable years (expenditure rule) for the acquisition of land or for acquisition or construction of other property used in the trade or business which was the purpose motivating the contribution, and which is used predominantly in a qualified retail business at the location. 
Declares that the 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, the expenditure which constitutes such a contribution to capital.

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

    (a) In General.--Paragraph (1) of section 110(a) of the Internal 
Revenue Code of 1986 (relating to qualified lessee construction 
allowances for short-term leases) is amended to read as follows:
            ``(1) under a lease of retail space, and''.
    (b) Conforming Amendments.--
            (1) Section 110(c) of such Code is amended by striking 
        paragraph (2) and by redesignating paragraph (3) as paragraph 
        (2).
            (2) The section heading for section 110 of such Code is 
        amended by striking ``for short-term leases''.
            (3) 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''.
    (c) 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 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 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 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
                    ``(C) such amount meets the requirements of the 
                expenditure rule of paragraph (2).
            ``(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.
                    ``(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 of land.--For purposes of paragraph 
                (1)(B)(i), the taxpayer shall be treated as owning the 
                land referred to in such paragraph 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.
                    ``(B) Controlled groups.--For purposes of this 
                subsection, all taxpayers treated as a single employer 
                under subsection (a) or (b) of section 52 shall be 
                treated as 1 taxpayer.
            ``(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, 
        the expenditure 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.''
    (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.