To amend the Internal Revenue Code of 1986 to promote freedom, fairness, and economic opportunity by establishing National Enterprise Zones to promote prosperity in economically depressed areas.

Summary: National Enterprise Zone Act of 2007 - Amends the Internal Revenue Code to direct the Secretary of the Treasury to designate areas in the United States and its possessions as National Enterprise Zones and to publish a list of such Zones. Requires a Zone to: (1) have more than 50,000 residents; (2) have a poverty rate of two times the national poverty rate; and (3) have an unemployment rate two times the national average.

Allows corporate and noncorporate taxpayers with taxable income from an active trade or business within such a Zone to elect a reduced alternative income tax in lieu of existing income and alternative minimum tax rates.

Requires the Secretary to study and report to Congress on the effectiveness of such program.

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``National 
Enterprise Zone Act of 2007''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. National Enterprise Zones.
Sec. 4. Study.
Sec. 5. Effective date.

SEC. 2. FINDINGS.

    The Congress finds that the establishment of a National Enterprise 
Zone program that offers a substantial tax incentive to corporations, 
including controlled foreign corporations in a possession of the United 
States, partnerships, and sole proprietorships conducting an active 
business within such zones and electing to participate will achieve--
            (1) a higher level of private sector economic activity 
        necessary to alleviate poverty and unemployment in economically 
        depressed regions of the United States, including the 
        possessions of the United States;
            (2) the removal of tax disincentives to do business in 
        economically depressed areas and thus promote economic growth, 
        development, employment, a higher standard of living and a 
        higher quality of life in economically depressed areas;
            (3) improved taxation of business investment in plant, 
        equipment and inventories in economically depressed areas, 
        encouraging businesses to operate in those areas; and
            (4) comparable tax treatment of businesses in economically 
        depressed areas in all parts of the United States and its 
        possessions, thereby promoting universal economic prosperity.

SEC. 3. NATIONAL ENTERPRISE ZONES.

    (a) In General.--Subchapter Y of chapter 1 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new part:

                 ``PART III--NATIONAL ENTERPRISE ZONES

``Sec. 1400U. National Enterprise Zone designation procedure.
``Sec. 1400U-1. National Enterprise Zone eligibility criteria.
``Sec. 1400U-2. Effect of National Enterprise Zone designation on 
                            individuals, estates and trusts conducting 
                            an active trade or business within a 
                            national enterprise zone.
``Sec. 1400U-3. National Enterprise Zone individual taxable income.
``Sec. 1400U-4. Effect of National Enterprise Zone designation on 
                            corporations.
``Sec. 1400U-5. National Enterprise Zone corporate taxable income.
``Sec. 1400U-6. Conduct of an active trade or business within a 
                            National Enterprise Zone by corporations, 
                            partnerships, and sole proprietors.
``Sec. 1400U-7. Definitions and special rules.

``SEC. 1400U. NATIONAL ENTERPRISE ZONE DESIGNATION PROCEDURE.

    ``(a) Designated Zone.--The Secretary shall designate the areas in 
the United States and possessions of the United States that meet the 
requirements of section 1400U-1 and publish a list of such designated 
zones.
    ``(b) Effective Date of Zone Designation.--The effective date of 
the designation of any zone as a National Enterprise Zone pursuant to 
this section shall be January 1 of the year following its designation.
    ``(c) Eligibility Review.--Between January 1 and April 30 of the 
year after the release of the decennial census, the Secretary shall 
undertake a review of each National Enterprise Zone designation whereby 
the Secretary shall determine whether the zone continues to meet the 
National Enterprise Zone Eligibility Criteria established by section 
1400U-1. If this review determines that a National Enterprise Zone no 
longer meets the National Enterprise Zone Eligibility Criteria 
established by section 1400U-1, then the Secretary shall revoke the 
designation effective at the end of the calendar year. Not later than 
June 30 after said determination, the Secretary shall issue a notice to 
all taxpayers making National Enterprise Zone elections with respect to 
said zone in the taxpayer's previous taxable year that the designation 
will be revoked at the end of the calendar year for said National 
Enterprise Zone. The Secretary shall publish the decennial eligibility 
review results for all National Enterprise Zones no later than June 30.
    ``(d) Effect of Revocation of Designation.--An electing taxpayer 
with respect to a National Enterprise Zone whose designation is revoked 
continues to qualify for the Individual or Corporate Alternative 
National Enterprise Zone tax under sections 1400U-2 and 1400U-4 until 
the end of the taxpayer's 12th taxable year following the year of zone 
designation revocation.

``SEC. 1400U-1. NATIONAL ENTERPRISE ZONE ELIGIBILITY CRITERIA.

    ``(a) National Enterprise Zone Eligibility Criteria.--A National 
Enterprise Zone must--
            ``(1) have greater than 50,000 residents;
            ``(2) have a poverty rate two times the national poverty 
        rate; and
            ``(3) have an unemployment rate 2 times the national 
        average unemployment rate.
    ``(b) No Overlap With Existing Zones of Different Type.--No part of 
a National Enterprise Zone may also be a part of an Empowerment Zone, 
Enterprise Community (Subchapter U zones), or District of Columbia 
Enterprise Zone (Subchapter W zones).

``SEC. 1400U-2. EFFECT OF NATIONAL ENTERPRISE ZONE DESIGNATION ON 
              INDIVIDUALS, ESTATES AND TRUSTS CONDUCTING AN ACTIVE 
              TRADE OR BUSINESS WITHIN A NATIONAL ENTERPRISE ZONE.

    ``(a) Individual Alternative National Enterprise Zone Tax.--In the 
case of a taxpayer other than a corporation, if, for any taxable year, 
the taxpayer has National Enterprise Zone individual taxable income, 
then, in lieu of any tax imposed by section 1 or section 55, the 
taxpayer may elect to pay a tax which shall consist of the sum of--
            ``(1) a tax computed on the taxpayer's taxable income 
        reduced by the amount of National Enterprise Zone tentative 
        individual taxable income (if greater than zero), at the rates 
        and in the manner as if this subsection had not been enacted, 
        plus
            ``(2) a tax of 12 percent of the National Enterprise Zone 
        individual taxable income.
    ``(b) Years for Which Election Is Effective.--An election under 
subsection (a) shall be effective for the three taxable years of the 
electing taxpayer following the year in which the election is made and 
for all succeeding taxable years of such taxpayer, unless--
            ``(1) the taxpayer ceases to have National Enterprise Zone 
        taxable income,
            ``(2) the taxpayer revokes the election (after the initial 
        three-year period), or
            ``(3) the period described in section 1400U(d) has expired.
    ``(c) Effect of Cessation of Business Operations in Zone During 
Initial Three-Year Period.--If a taxpayer has made an election under 
this section and if such election has been terminated or revoked under 
subsection (b)(1) due to cessation of business in the zone during any 
of the three years immediately after the year in which the election is 
made, such taxpayer shall be treated as having been subject to tax 
under chapter 1 at the otherwise applicable rate for individuals for 
the years the alternative National Enterprise Zone tax was applicable.
    ``(d) New Election Following Termination.--If a taxpayer has made 
an election under this section and if such election has been terminated 
or revoked under subsection (b), such taxpayer shall not be eligible to 
make an election under this section for any taxable year before the 3rd 
taxable year which begins after the 1st taxable year for which such 
termination is effective, unless the Secretary consents to such 
election.

``SEC. 1400U-3. NATIONAL ENTERPRISE ZONE INDIVIDUAL TAXABLE INCOME.

    ``(a) National Enterprise Zone Individual Tentative Taxable 
Income.--National Enterprise Zone tentative individual taxable income 
shall be equal to taxable income (as defined by section 63 without 
regard to section 179(e)) arising from the conduct of an active trade 
or business (as defined in section 1400U-6) within one or more National 
Enterprise Zones.
    ``(b) National Enterprise Zone Individual Taxable Income 
Adjustments.--National Enterprise Zone individual taxable income shall 
be equal to National Enterprise Zone individual tentative taxable 
income less--
            ``(1) expenditures made to acquire inventory property held 
        in a National Enterprise Zone, and
            ``(2) the amount, if any, the taxpayer elects to deduct 
        pursuant to section 179(e) that exceeds the limitations in 
        section 179(b).

``SEC. 1400U-4. EFFECT OF NATIONAL ENTERPRISE ZONE DESIGNATION ON 
              CORPORATIONS.

    ``(a) Corporate Alternative National Enterprise Zone Tax.--In the 
case of a corporation (other than an S corporation), if for any taxable 
year, the taxpayer has National Enterprise Zone corporate taxable 
income, then, in lieu of any tax imposed by section 11 or section 55, 
the taxpayer may elect to pay a tax which shall consist of the sum of--
            ``(1) a tax computed on taxable income reduced by the 
        amount of National Enterprise Zone tentative corporate taxable 
        income (if greater than zero) at the rates and in the manner as 
        if this subsection had not been enacted, plus
            ``(2) a tax of 12 percent of the National Enterprise Zone 
        corporate taxable income.
    ``(b) Special Rule for Non-Domestic Corporations.--In the case of 
an electing corporation organized under the laws of a possession of the 
United States doing business in a National Enterprise Zone, this 
section shall apply as if such corporation were a domestic corporation 
subject to tax under this title.
    ``(c) Years for Which Election Is Effective.--An election under 
subsection (a) shall be effective for the three taxable years of the 
electing corporation following the year in which the election is made 
and for all succeeding taxable years of such corporation, unless--
            ``(1) the corporation ceases to have National Enterprise 
        Zone taxable income,
            ``(2) the corporation revokes the election, or
            ``(3) the period described in section 1400U(d) has expired.
    ``(d) Effect of Cessation of Business Operations in Zone During 
Initial Three-Year Period.--If a taxpayer has made an election under 
this section and if such election has been terminated or revoked under 
subsection (c)(1) due to cessation of business in the zone during any 
of the three years immediately after the year in which the election is 
made, such taxpayer shall be treated as having been subject to tax 
under chapter 1 at the otherwise applicable rate for domestic 
corporations for the years the alternative National Enterprise Zone tax 
was applicable.
    ``(e) New Election by National Enterprise Zone Corporation 
Following Termination.--If an electing corporation has made an election 
under this section and if such election has been terminated or revoked 
under subsection (c), such corporation (and any successor corporation) 
shall not be eligible to make an election under this section for any 
taxable year before the 3rd taxable year which begins after the 1st 
taxable year for which such termination is effective, unless the 
Secretary consents to such election.

``SEC. 1400U-5. NATIONAL ENTERPRISE ZONE CORPORATE TAXABLE INCOME.

    ``(a) In General.--National Enterprise Zone corporate tentative 
corporate taxable income shall be taxable income (without regard to 
section 179(e)) arising from the conduct of an active trade or business 
within one or more National Enterprise Zones.
    ``(b) Adjustments.--National Enterprise Zone corporate taxable 
income shall be equal to National Enterprise Zone corporate tentative 
taxable income less--
            ``(1) expenditures made to acquire inventory property held 
        in a National Enterprise Zone, and
            ``(2) the amount, if any, the taxpayer elects to deduct 
        pursuant to 179(e) that exceeds the limitations in section 
        179(b).

``SEC. 1400U-6. CONDUCT OF AN ACTIVE TRADE OR BUSINESS WITHIN A 
              NATIONAL ENTERPRISE ZONE BY CORPORATIONS, PARTNERSHIPS, 
              AND SOLE PROPRIETORS.

    ``(a) Active Trade or Business.--For purposes of this part, the 
conduct of active trade or business means the conduct of a trade or 
business that derives no more than 25 percent of its gross income from 
passive activities (as defined by section 469).
    ``(b) Income and Expenses Within a National Enterprise Zone.--For 
purposes of this part--
            ``(1) Gross income.--Gross income from within a National 
        Enterprise Zone shall mean--
                    ``(A) compensation for labor or services performed 
                by the electing corporation, partnership, or sole 
                proprietor within a National Enterprise Zone;
                    ``(B) rentals or royalties from property located in 
                a National Enterprise Zone;
                    ``(C) gains, profits, and income derived from the 
                sale of inventory property held within a National 
                Enterprise Zone; and
                    ``(D) income from the sale of property that is 
                produced, created, fabricated, manufactured, extracted, 
                processed, cured, aged, grown or harvested within the 
                National Enterprise Zone.
            ``(2) Expenses.--Expenses shall be allocated and 
        apportioned to the income producing activities to which they 
        are related. Expenses which are not allocable or apportioned to 
        any specific income producing activities shall be allocated on 
        the basis of gross income such that the ratio of the expense 
        allocated to the National Enterprise Zone is the same as the 
        ratio of gross income within the National Enterprise Zone to 
        all gross income within the United States and a possession of 
        the United States of the taxpayer or controlled group (in the 
        case of a corporation that is a member of a controlled group of 
        corporations as defined in section 1563(a)).
    ``(c) Alternative Formulary Method.--
            ``(1) In general.--A corporation (or controlled group in 
        the case of a corporation that is a member of a controlled 
        group of corporations (as defined in section 1563(a))), 
        partnership, or sole proprietor that so elects, in a form and 
        manner prescribed by the Secretary, may determine the share of 
        its income, expense, and other items attributable to the 
        conduct of an active trade or business within a National 
        Enterprise Zone by multiplying its apportionment ratio by the 
        amount of the income, expense, and other items for purposes of 
        determining its National Enterprise Zone corporate taxable 
        income.
            ``(2) Apportionment ratio.--The apportionment ratio shall 
        be the ratio of--
                    ``(A) the sum of the remaining basis in depreciable 
                property held in a National Enterprise Zone for the 
                entire taxable year, of the inventory property held in 
                a National Enterprise Zone at the end of the taxable 
                year, and of the compensation paid to National 
                Enterprise Zone-based employees during the taxable 
                year, and
                    ``(B) the sum of the remaining basis in depreciable 
                property held in the United States and its possessions 
                for the entire taxable year, of the inventory property 
                held in the United States and its possessions at the 
                end of the taxable year, and of the compensation paid 
                to employees within the United States and its 
                possessions during the taxable year.
            ``(3) Mandatory use of alternative formulary method.--If a 
        taxpayer--
                    ``(A) derives greater than 10 percent of its gross 
                income from sales to related parties (as defined in 
                section 1313(c)), or
                    ``(B) expenses attributable to purchases from 
                related parties (as defined in section 1313(c)) account 
                for greater than 10 percent of its expenses, then said 
                taxpayer shall use the alternative formulary method.

``SEC. 1400U-7. DEFINITIONS AND SPECIAL RULES.

    ``For purposes of this part--
            ``(1) Possession of the united states.--The term 
        `possession of the United States' means the Virgin Islands, 
        Guam, American Samoa, the Commonwealth of Puerto Rico, and the 
        Commonwealth of the Northern Mariana Islands.
            ``(2) Inventory.--
                    ``(A) Inventory property.--The term `inventory 
                property' means property described in section 
                1221(a)(1) and any expenditures that were capitalized 
                pursuant to section 263A.
                    ``(B) No double counting.--The deduction afforded 
                by section 1400U-3(b)(1) is in lieu of the deduction 
                provided upon the sale of inventory property.
            ``(3) Special rule.--For purposes of a corporation making 
        an election under this part, section 7701(a)(4) shall include 
        an electing corporation organized under the laws of a 
        possession of the United States and section 7701(a)(5) shall 
        not apply.''.
    (b) Conforming Amendments.--Section 179 of the Internal Revenue 
Code of 1986 is amended by inserting at the end the following new 
subsection:
    ``(e) No Limitation on Amount in National Enterprise Zones.--
            ``(1) In general.--The limitations of subsection (b) shall 
        not apply with respect to property placed in service in a 
        National Enterprise Zone.
            ``(2) Property removed from national enterprise zone.--
        Property expensed pursuant to this section that is removed from 
        service within a National Enterprise Zone but not disposed of 
        by the taxpayer shall be treated as if it had been, as of the 
        date of the removal, disposed of by the taxpayer and 
        repurchased by the taxpayer at a price equal to what its 
        remaining basis would have been if the election under this 
        section had not been exercised with respect to the property.''.
    (c) Clerical Amendment.--The table of parts for subchapter Y of 
chapter 1 of such Code is amended by inserting after the item relating 
to part II the following new item:

               ``Part III. National Enterprise Zones.''.

SEC. 4. STUDY.

    The Secretary shall undertake a study of the National Enterprise 
Zone program established by this Act to determine its effectiveness in 
promoting economic growth and reducing poverty in the designated zone 
areas. The study shall be submitted to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of the 
Senate no later than December 31, 2012.

SEC. 5. EFFECTIVE DATE.

    The amendments made by this Act shall apply to taxable years 
beginning after December 31, 2007.