Public Benefit Bonds Innovative Financing Act

Summary: Public Benefit Bonds Innovative Financing Act - Amends the Internal Revenue Code to provide for the tax treatment of distributions from qualified retirement plans investing in public benefit bonds.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Public Benefit Bonds Innovative 
Financing Act''.

SEC. 2. TAX TREATMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS 
              INVESTING IN PUBLIC BENEFIT BONDS.

    (a) In General.--Section 72 of the Internal Revenue Code of 1986 
(relating to annuities; certain proceeds of endowment and life 
insurance contracts) is amended by redesignating subsection (w) as 
subsection (x) and by inserting after subsection (v) the following new 
subsection:
    ``(w) Treatment of Distribution From Qualified Retirement Plans 
Investing in Public Benefit Bonds.--
            ``(1) In general.--In the case of any qualified retirement 
        plan which receives directly or indirectly any interest on any 
        public benefit bond (including any payments in respect thereof 
        made by a surety or guarantor) for purposes of applying this 
        section to any distribution from such plan, the distributee's 
        investment in the contract shall be treated as including such 
        distributee's allocable share of such interest under the terms 
        of the qualified retirement plan, and any such distribution 
        shall be treated as a distribution described in subsection 
        (e)(2)(B) in which the distribution is allocable first to the 
        investment in the contract attributable to such interest.
            ``(2) Treatment of installments.--In the case of a 
        distribution to be made over more than one calendar year, the 
        amount of public benefit bond interest to be taken into account 
        with respect to a given calendar year shall be the aggregate 
        amount of such interest allocable to the distributee as of the 
        end of the prior calendar year. With respect to the final 
        calendar year, the amount of public benefit bond interest to be 
        taken into account shall include the amount of such interest 
        received by the plan during such year that is allocable to the 
        plan participant with respect to whom the distribution is made.
            ``(3) Public benefit bond.--The term `public benefit bond' 
        means any obligation issued after the date of the enactment of 
        this subsection if--
                    ``(i) 95 percent or more of the net proceeds of 
                such obligation are used in connection with the 
                financing or refinancing of 1 or more infrastructure 
                facilities,
                    ``(ii) such obligation has received a published 
                rating, and
                    ``(iii) the development of such infrastructure 
                facilities have been or will be undertaken by a 
                governmental entity or public-private partnership,
        as such terms are defined in paragraph (7).
            ``(4) Legend required.--No obligation shall be a public 
        benefit bond for purposes of this subsection unless it is 
        designated as intended to be a public benefit bond on the date 
        of issuance and bears a legend to such effect.
            ``(5) Qualified retirement plan.--For purposes of this 
        subsection, the term `qualified retirement plan' means--
                    ``(A) a qualified retirement plan (as defined in 
                section 4974(c)), and
                    ``(B) an eligible deferred compensation plan (as 
                defined in section 457(b)).
            ``(6) Treatment of dividends from mutual funds.--
                    ``(A) In general.--For purposes of this subsection, 
                in the case of any dividend (other than a dividend 
                described in section 854(a)) received from a regulated 
                investment company which meets the requirements of 
                section 852 for the taxable year in which it paid the 
                dividend--
                            ``(i) the entire amount of such dividend 
                        shall be treated as interest on a public 
                        benefit bond if the aggregate interest on such 
                        bonds received by such company during the 
                        taxable year equals or exceeds 75 percent of 
                        its gross income, or
                            ``(ii) if clause (i) does not apply, a 
                        portion of such dividend shall be treated as 
                        interest on a public benefit bond based on the 
                        portion of the company's gross income which 
                        consists of such interest.
                    ``(B) Notice to shareholders.--The amount of any 
                distribution by a regulated investment company which 
                may be taken into account as interest on a public 
                benefit bond for purposes of this section shall not 
                exceed the amount so designated by the company in a 
                written notice to its shareholders mailed not later 
                than 45 days after the close of its taxable year.
                    ``(C) Gross income.--For purposes of this section, 
                the term `gross income' does not include gain from the 
                sale or other disposition of stock or securities.
            ``(7) Definitions.--In this section, the following 
        definitions apply:
                    ``(A) Entity.--The term `entity' means an 
                individual, corporation, partnership, joint venture, 
                trust or governmental entity or instrumentality.
                    ``(B) Infrastructure facility.--The term 
                `infrastructure facility' means a road, highway, 
                bridge, tunnel, airport, mass transportation vehicle or 
                system, passenger rail vehicle or system, intermodal 
                transportation facility, waterway, commercial port, 
                drinking or waste water treatment facility, solid waste 
                disposal facility, pollution control system, hazardous 
                waste facility, federally designated national 
                information highway facility, school, and any ancillary 
                facility which forms a part of any such facility or is 
                reasonably related to such facility, whether owned, 
                leased or operated by a public entity or a private 
                entity or by a combination of such entities, and the 
                financing or refinancing of the development of which 
                is, or will be, supported in whole or in part by user 
                fees or other dedicated revenue sources.
                    ``(C) Public-private partnership.--The term 
                `public-private partnership' means any entity--
                            ``(i) which is undertaking the development 
                        of all or part of any infrastructure facility--
                                    ``(I) pursuant to requirements 
                                established in 1 or more contracts 
                                between such entity and a State or an 
                                instrumentality of a State, or
                                    ``(II) the activities of which with 
                                respect to such facility are subject to 
                                regulation by a State or any 
                                instrumentality of a State, and
                            ``(ii) which owns, leases, or operates, or 
                        will own, lease, or operate, such 
                        infrastructure facility in whole or in part, 
                        and at least 1 of the participants in such 
                        entity is a nongovernmental entity.''.
    (b) Conforming Amendment.--Subsection (w) of section 72 of the 
Internal Revenue Code of 1986 is amended by adding the following new 
paragraph:
            ``(4) Treatment of qualifying public benefit bond 
        interest.--For purposes of subsections (c)(1)(A) and (c)(2)(A), 
        the total amount of public benefit bond interest described in 
        subsection (w) with respect to a participant in a qualified 
        retirement plan (determined without reference to the annuity 
        starting date) shall be treated as an investment in the 
        contract.''.
    (c) Effective Date.--The amendments made this section shall apply 
to distributions after the date of the enactment of this Act.