A bill to amend the Internal Revenue Code of 1986 to provide an investment credit to promote the availability of jet aircraft to underserved communities, to reduce the passenger tax rate on rural domestic flight segments, and for other purposes.

Summary: Amends the Internal Revenue Code (IRC) to provide for an underserved community jet access credit for an eligible small carrier equal to ten percent of the qualified investment in qualified regional jet aircraft.  Provides for a reduced passenger tax rate on rural domestic flights. 
Amends IRC provisions relating to complete liquidations of subsidiaries to provide that if a corporation receives a distribution from a regulated investment company or a real estate investment trust which is considered as being in complete liquidation of such company or trust, then, notwithstanding other specified IRC provisions, such corporation shall recognize and treat as a dividend from such company or trust an amount equal to the deduction for dividends paid allowable to such company or trust by reason of such distribution.

SECTION 1. TAX CREDIT FOR REGIONAL JET AIRCRAFT SERVING UNDERSERVED 
              COMMUNITIES.

    (a) Allowance of Credit.--
            (1) In general.--Section 46 of the Internal Revenue Code of 
        1986 (relating to amount of credit) is amended by striking 
        ``and'' at the end of paragraph (2), by striking the period at 
        the end of paragraph (3) and inserting ``, and'', and by 
        inserting after paragraph (3) the following new paragraph:
            ``(4) in the case of an eligible small air carrier, the 
        underserved community jet access credit.''
            (2) Underserved community jet access credit.--Section 48 of 
        such Code (relating to the energy credit and the reforestation 
        credit) is amended by adding after subsection (b) the following 
        new subsection:
    ``(c) Underserved Community Jet Access Credit.--
            ``(1) In general.--For purposes of section 46, the 
        underserved community jet access credit of an eligible small 
        air carrier for any taxable year is an amount equal to 10 
        percent of the qualified investment in any qualified regional 
        jet aircraft.
            ``(2) Eligible small air carrier.--For purposes of this 
        subsection and section 46--
                    ``(A) In general.--The term `eligible small air 
                carrier' means, with respect to any qualified regional 
                jet aircraft, an air carrier--
                            ``(i) to which part 121 of title 14, Code 
                        of Federal Regulations, applies, and
                            ``(ii) which has less than 10,000,000,000 
                        (10 billion) revenue passenger miles for the 
                        calendar year preceding the calendar year in 
                        which such aircraft is originally placed in 
                        service.
                    ``(B) Air carrier.--The term `air carrier' means 
                any air carrier holding a certificate of public 
                convenience and necessity issued by the Secretary of 
                Transportation under section 41102 of title 49, United 
                States Code.
                    ``(C) Start-up carriers.--If an air carrier has not 
                been in operation during the entire calendar year 
                described in subparagraph (A)(ii), the determination 
                under such subparagraph shall be made on the basis of a 
                reasonable estimate of revenue passenger miles for its 
                first full calendar year of operation.
                    ``(D) Aggregation.--All air carriers which are 
                treated as 1 employer under section 52 shall be treated 
                as 1 person for purposes of subparagraph (A)(ii).
            ``(3) Qualified regional jet aircraft.--For purposes of 
        this subsection, the term `qualified regional jet aircraft' 
        means a civil aircraft--
                    ``(A) which is originally placed in service by the 
                taxpayer,
                    ``(B) which is powered by jet propulsion and is 
                designed to have a maximum passenger seating capacity 
                of not less than 30 passengers and not more than 100 
                passengers, and
                    ``(C) at least 50 percent of the flight segments of 
                which during any 12-month period beginning on or after 
                the date the aircraft is originally placed in service 
                are between a hub airport (as defined in section 
                41731(a)(3) of title 49, United States Code, and an 
                underserved airport.
            ``(4) Underserved airport.--The term `underserved airport' 
        means, with respect to any qualified regional jet aircraft, an 
        airport which for the calendar year preceding the calendar year 
        in which such aircraft is originally placed in service had less 
        than 600,000 enplanements.
            ``(5) Qualified investment.--For purposes of paragraph (1), 
        the term `qualified investment' means, with respect to any 
        taxable year, the basis of any qualified regional jet aircraft 
        placed in service by the taxpayer during such taxable year.
            ``(6) Qualified progress expenditures.--
                    ``(A) Increase in qualified investment.--In the 
                case of a taxpayer who has made an election under 
                subparagraph (E), the amount of the qualified 
                investment of such taxpayer for the taxable year 
                (determined under paragraph (5) without regard to this 
                subsection) shall be increased by an amount equal to 
                the aggregate of each qualified progress expenditure 
                for the taxable year with respect to progress 
                expenditure property.
                    ``(B) Progress expenditure property defined.--For 
                purposes of this paragraph, the term `progress 
                expenditure property' means any property which is being 
                constructed for the taxpayer and which it is reasonable 
                to believe will qualify as a qualified regional jet 
                aircraft of the taxpayer when it is placed in service.
                    ``(C) Qualified progress expenditures defined.--For 
                purposes of this paragraph, the term `qualified 
                progress expenditures' means the amount paid during the 
                taxable year to another person for the construction of 
                such property.
                    ``(D) Only construction of aircraft to be taken 
                into account.--Construction shall be taken into account 
                only if, for purposes of this subpart, expenditures 
                therefor are properly chargeable to capital account 
                with respect to the qualified regional jet aircraft.
                    ``(E) Election.--An election under this paragraph 
                may be made at such time and in such manner as the 
                Secretary may by regulations prescribe. Such an 
                election shall apply to the taxable year for which made 
                and to all subsequent taxable years. Such an election, 
                once made, may not be revoked except with the consent 
                of the Secretary.
            ``(7) Coordination with other credits.--This subsection 
        shall not apply to any property with respect to which the 
        energy credit or the rehabilitation credit is allowed unless 
        the taxpayer elects to waive the application of such credits to 
        such property.
            ``(8) Special lease rules.--For purposes of section 
        50(d)(5), section 48(d) (as in effect on the day before the 
        date of the enactment of the Revenue Reconciliation Act of 
        1990) shall be applied for purposes of this section without 
        regard to paragraph (4)(B) thereof (relating to short-term 
        leases of property with class life of under 14 years).
            ``(9) Application.--This subsection shall apply to periods 
        after the date of the enactment of this subsection and before 
        January 1, 2009, under rules similar to the rules of section 
        48(m) (as in effect on the day before the date of the enactment 
        of the Revenue Reconciliation Act of 1990).''
            (3) Recapture.--Section 50(a) of such Code (relating to 
        recapture in the case of dispositions, etc.) is amended by 
        adding at the end the following new paragraph:
            ``(6) Special rules for aircraft credit.--
                    ``(A) In general.--For purposes of determining 
                whether a qualified regional jet aircraft ceases to be 
                investment credit property, an airport which was an 
                underserved airport as of the date such aircraft was 
                originally placed in service shall continue to be 
                treated as an underserved airport during any period 
                this subsection applies to the aircraft.
                    ``(B) Property ceases to qualify for progress 
                expenditures.--Rules similar to the rules of paragraph 
                (2) shall apply in the case of qualified progress 
                expenditures for a qualified regional jet aircraft 
                under section 48(c).''
            (4) Technical amendments.--
                    (A) Subparagraph (C) of section 49(a)(1) of such 
                Code is amended by striking ``and'' at the end of 
                clause (ii), by striking the period at the end of 
                clause (iii) and inserting ``, and'', and by adding at 
                the end the following new clause:
                            ``(iv) the portion of the basis of any 
                        qualified regional jet aircraft attributable to 
                        any qualified investment (as defined by section 
                        48(c)(5)).''
                    (B) Paragraph (4) of section 50(a) of such Code is 
                amended by striking ``and (2)'' and inserting ``, (2), 
                and (6)''.
                    (C)(i) The section heading for section 48 of such 
                Code is amended to read as follows:

``SEC. 48. OTHER CREDITS.''

                    (ii) The table of sections for subpart E of part IV 
                of subchapter A of chapter 1 of such Code is amended by 
                striking the item relating to section 48 and inserting 
                the following new item:

                              ``Sec. 48. Other credits.''
            (5) Effective date.--The amendments made by this subsection 
        shall apply to periods after the date of the enactment of this 
        Act, under rules similar to the rules of section 48(m) of the 
        Internal Revenue Code of 1986 (as in effect on the day before 
        the date of the enactment of the Revenue Reconciliation Act of 
        1990.
    (b) Reduced Passenger Tax Rate on Rural Domestic Flight Segments.--
Section 4261(e)(1)(C) of such Code (relating to segments to and from 
rural airports) is amended to read as follows:
                    ``(C) Reduction in general tax rate.--
                            ``(i) In general.--The tax imposed by 
                        subsection (a) shall apply to any domestic 
                        segment beginning or ending at an airport which 
                        is a rural airport for the calendar year in 
                        which such segment begins or ends (as the case 
                        may be) at the rate determined by the Secretary 
                        under clause (ii) for such year in lieu of the 
                        rate otherwise applicable under subsection (a).
                            ``(ii) Determination of rate.--The rate 
                        determined by the Secretary under this clause 
                        for each calendar year shall equal the rate of 
                        tax otherwise applicable under subsection (a) 
                        reduced by an amount which reflects the net 
                        amount of the increase in revenues to the 
Treasury for such year resulting from the amendments made by 
subsections (a) and (c) of section ____ of the Wendell H. Ford National 
Air Transportation System Improvement Act of 1998.
                            ``(iii) Transportation involving multiple 
                        segments.--In the case of transportation 
                        involving more than 1 domestic segment at least 
                        1 of which does not begin or end at a rural 
                        airport, the rate applicable by reason of 
                        clause (i) shall be applied by taking into 
                        account only an amount which bears the same 
                        ratio to the amount paid for such 
                        transportation as the number of specified miles 
                        in domestic segments which begin or end at a 
                        rural airport bears to the total number of 
                        specified miles in such transportation.''.
    (c) Treatment of Certain Deductible Liquidating Distributions of 
Regulated Investment Companies and Real Estate Investment Trusts.--
            (1) In general.--Section 332 of the Internal Revenue Code 
        of 1986 (relating to complete liquidations of subsidiaries) is 
        amended by adding at the end the following new subsection:
    ``(c) Deductible Liquidating Distributions of Regulated Investment 
Companies and Real Estate Investment Trusts.--If a corporation receives 
a distribution from a regulated investment company or a real estate 
investment trust which is considered under subsection (b) as being in 
complete liquidation of such company or trust, then, notwithstanding 
any other provision of this chapter, such corporation shall recognize 
and treat as a dividend from such company or trust an amount equal to 
the deduction for dividends paid allowable to such company or trust by 
reason of such distribution.''.
            (2) Conforming amendments.--
                    (A) The material preceding paragraph (1) of section 
                332(b) of such Code is amended by striking ``subsection 
                (a)'' and inserting ``this section''.
                    (B) Paragraph (1) of section 334(b) of such Code is 
                amended by striking ``section 332(a)'' and inserting 
                ``section 332''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to distributions after May 21, 1998.