To amend the Internal Revenue Code of 1986 to allow a business credit for investments in rural microbusinesses.

Summary: Rural Microbusiness Investment Credit Act of 2010 - Amends the Internal Revenue Code to allow a business-related tax credit for 35% of new investment in a rural microbusiness. Imposes limits on such credit for businesses and individual taxpayers.

Defines: (1) "rural microbusiness" as a trade or business that employs not more than 5 full-time employees in a taxable year and is carried on in a distressed rural area; and (2) "distressed rural area" as an area that has lost at least 5% of its population over the last 10 years or 10% of its population over the last 20 years, that has a median family income below 85 % of the national median family income, that has a poverty rate that exceeds 12.5%, or where average unemployment in the preceding year exceeds 125% of the national average.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Rural Microbusiness Investment 
Credit Act of 2010''.

SEC. 2. RURAL MICROBUSINESS INVESTMENT CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45S. RURAL MICROBUSINESS INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
rural microbusiness investment credit determined under this section for 
any taxable year with respect to a rural microbusiness is equal to 35 
percent of the qualified new investments in the rural microbusiness for 
the taxable year.
    ``(b) Limitations.--
            ``(1) Per business limitations.--The amount allowed as a 
        credit under subsection (a) with respect to any rural 
        microbusiness for a taxable year shall not exceed--
                    ``(A) $10,000, reduced (but not below zero), by
                    ``(B) the amount allowed under subsection (a) to 
                the rural microbusiness for all preceding taxable 
                years.
            ``(2) Per taxpayer limitations.--The amount allowed as a 
        credit under subsection (a) with respect to any taxpayer with 
        respect to all rural microbusinesses of the taxpayer for a 
        taxable year shall not exceed--
                    ``(A) $10,000, reduced (but not below zero), by
                    ``(B) the amount allowed under subsection (a) to 
                the taxpayer with respect to rural microbusinesses for 
                all preceding taxable years.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified new investment.--The term `qualified new 
        investment' means the excess of--
                    ``(A) qualified expenditures paid or incurred for 
                the taxable year, over
                    ``(B) the greater of--
                            ``(i) qualified expenditures paid or 
                        incurred for the preceding taxable year, or
                            ``(ii) the average annual qualified 
                        expenditures paid or incurred over the 
                        preceding three taxable years.
        If the rural microbusiness was not in existence (or 
        expenditures relating to such microbusiness were not taken into 
        account under subsection (a)) for the entire 3-year period 
        referred to in subparagraph (B)(ii), such subparagraph shall be 
        applied on the basis of the period during which such entity (or 
        trade or business) was in existence or such expenditures taken 
        into account.
            ``(2) Qualified expenditures.--
                    ``(A) In general.--The term `qualified 
                expenditures' means any amount which is paid or 
                incurred with respect to a rural microbusiness which is 
                not described in subparagraph (B). Such term includes 
                costs for capital plant and equipment, inventory 
                expenses, and wages.
                    ``(B) Exception.--Such term does not include--
                            ``(i) any interest cost, or
                            ``(ii) the cost of any vehicle and costs 
                        associated with purchasing a vehicle.
            ``(3) Rural microbusiness.--
                    ``(A) In general.--The term `rural microbusiness' 
                means a trade or business carried on as a 
                proprietorship, partnership, trust (to the extent that 
                the trust is a pass-thru entity), S corporation, or 
                other pass-thru entity if--
                            ``(i) such trade or business is carried on 
                        in a distressed rural area for the first 
                        taxable year in which the credit under 
                        subsection (a) is allowable to the trade or 
                        business,
                            ``(ii) such trade or business meets the 
                        gross revenue test under subparagraph (C) for 
                        the first taxable year in which the credit 
                        under subsection (a) is allowable to the trade 
                        or business,
                            ``(iii) such trade or business employed not 
                        more than 5 full-time equivalent employees 
                        during the taxable year, and
                            ``(iv) in the case of a trade or business 
                        the majority of the activity of which is in 
                        agricultural production, each individual who is 
                        an owner, shareholder, or holds a capital 
                        interest, profits interests, or beneficial 
                        interests (as the case may be) in such trade or 
                        business is a first-time farmer (as defined in 
                        section 147(c)(2)(C)).
                All persons treated as a single employer under 
                subsection (a) or (b) or section 52 or subsection (m) 
                or (o) of section 414 shall be treated as a trade or 
                business for purposes of this subparagraph.
                    ``(B) Exceptions.--Such term shall not include--
                            ``(i) any trade or business which includes, 
                        in whole or in part, any private or commercial 
                        golf course, country club, massage parlor, hot 
                        tub facility, suntan facility, racetrack or 
                        other facility used for gambling, or any store 
                        the principal business of which is the sale of 
                        alcoholic beverages for consumption off 
                        premises, or
                            ``(ii) any trade or business with respect 
                        to which records are required under section 
                        2257 of title 18, United States Code, to be 
                        maintained with respect to any performer.
                    ``(C) Gross revenue test.--
                            ``(i) In general.--A trade or business 
                        meets the gross revenue test of this 
                        subparagraph for any taxable year if the 
                        average annual gross revenue of the trade or 
                        business for the 3-taxable year period ending 
                        with the taxable year does not exceed 
                        $1,000,000.
                            ``(ii) Aggregation rules.--All persons 
                        treated as a single employer under subsection 
                        (a) or (b) or section 52 or subsection (m) or 
                        (o) of section 414 shall be treated as a trade 
                        or business for purposes of clause (i).
                            ``(iii) Special rules for entities not in 
                        existence for entire 3-year period, etc.--Rules 
                        similar to the rules of subparagraphs (A), (B), 
                        and (D) of section 448(c)(3) shall apply for 
                        purposes of this subparagraph.
                    ``(D) Self-employed individuals.--For purposes of 
                this paragraph, if, with respect to a trade or 
                business, an individual is treated as an employee under 
                section 401(c), such individual shall be treated as an 
                employee of such trade or business for purposes of the 
                preceding sentence.
                    ``(E) Full-time equivalent employee.--For purposes 
                of this paragraph--
                            ``(i) In general.--The term `full-time 
                        equivalent employee' means a number of 
                        employees equal to the number determined by 
                        dividing--
                                    ``(I) the total number of hours of 
                                service for which wages were paid by 
                                the employer to employees during the 
                                taxable year, by
                                    ``(II) 2,080.
                        Such number shall be rounded to the next lowest 
                        whole number if not otherwise a whole number.
                            ``(ii) Excess hours not counted.--If an 
                        employee works in excess of 2,080 hours of 
                        service during any taxable year, such excess 
                        shall not be taken into account under clause 
                        (i).
                            ``(iii) Hours of service.--The Secretary, 
                        in consultation with the Secretary of Labor, 
                        shall prescribe such regulations, rules, and 
                        guidance as may be necessary to determine the 
                        hours of service of an employee, including 
                        rules for the application of this paragraph to 
                        employees who are not compensated on an hourly 
                        basis.
            ``(4) Distressed rural area.--
                    ``(A) In general.--The term `distressed rural area' 
                means any area in the United States--
                            ``(i) that has lost at least 5 percent of 
                        its population over the last 10 years,
                            ``(ii) that lost at least 10 percent if its 
                        population over the last 20 years,
                            ``(iii) that has median family income below 
                        85 percent of the national median family 
                        income,
                            ``(iv) that has a poverty rate that exceeds 
                        12.5 percent, or
                            ``(v) where average unemployment in the 
                        preceding year exceeds 125 percent of the 
                        national average.
                    ``(B) Exception.--Such term does not include any 
                area which is--
                            ``(i) a city or town that has a population 
                        of more than 50,000 inhabitants, or
                            ``(ii) an urbanized area contiguous and 
                        adjacent to a city or town described in clause 
                        (i).
                    ``(C) Relevant sources of information.--In 
                determining whether an area is a distressed rural area 
                under subparagraph (A) or (B), such determination shall 
                be made in accordance with the most recent information 
                from the Bureau of the Census, the Bureau of Labor 
                Statistics, or other government entity with relevant 
                information.
            ``(5) Related persons.--A person shall be treated as 
        related to another person if the relationship between such 
        persons would result in the disallowance of losses under 
        section 267 or 707(b) (but, in applying section 267 (b) and (c) 
        for purposes of this section, paragraph (4) of section 267(c) 
        shall be treated as providing that the family of an individual 
        shall include only his spouse, ancestors, and lineal 
        descendants).
    ``(d) Material Participation.--No amount shall be allowed as a 
credit under subsection (a) to a taxpayer unless that taxpayer 
materially participates in the qualified rural microbusiness with 
respect to which the qualified expenditure is paid or incurred. For 
purposes of the preceding sentence, material participation shall be 
determined under rules similar to the rules of section 469(h).
    ``(e) Denial of Double Benefit.--No deduction or credit shall be 
allowed under any other provision of this chapter for any amount taken 
into account in determining the credit under this section.
    ``(f) Other Rules.--
            ``(1) Married couple must file joint return.--Rules similar 
        to the rules of paragraphs (2), (3), and (4) of section 21(e) 
        shall apply for purposes of this section.
            ``(2) Denial of credit to dependents.--No credit shall be 
        allowed under this section to any individual with respect to 
        whom a deduction is allowed under section 151 is allowable to 
        another taxpayer for a taxable year beginning in the calendar 
        year in which such individual's calendar year begins.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) of such Code (defining current year business credit) is amended 
by striking ``plus'' at the end of paragraph (35), by striking the 
period at the end of paragraph (36) and inserting ``, plus'', and by 
adding at the end the following new paragraph:
            ``(37) the rural microbusiness investment credit determined 
        under section 45R(a).''.
    (c) Carryover of Unused Credit.--Subsection (a) of section 39 of 
such Code is amended by adding at the end the following new paragraph:
            ``(4) 5-year carryback for rural microbusiness investment 
        credit.--Notwithstanding subsection (d), in the case of the 
        rural microbusiness investment credit--
                    ``(A) this section shall be applied separately from 
                the business credit and the marginal oil and gas well 
                production credit (other than the rural microbusiness 
                investment credit),
                    ``(B) paragraph (1) shall be applied by 
                substituting `each of the 5 taxable years' for `the 
                taxable year' in subparagraph (A) thereof, and
                    ``(C) paragraph (2) shall be applied--
                            ``(i) by substituting `25 taxable years' 
                        for `21 taxable years' in subparagraph (A) 
                        thereof, and
                            ``(ii) by substituting `24 taxable years' 
                        for `20 taxable years' in subparagraph (B) 
                        thereof.''.
    (d) Conforming Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

``Sec. 45S. Rural microbusiness investment credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenditures made in taxable years beginning after the date of 
the enactment of this Act.