I 

108TH CONGRESS 

1ST SESSION H. R. 1686

To reward the hard work and risk of individuals who choose to live in 

and help preserve America’s small, rural towns, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 9, 2003

Mr. CARSON of Oklahoma introduced the following bill; which was referred to 

the Committee on Ways and Means, and in addition to the Committees 

on Education and the Workforce, and Agriculture, for a period to be subsequently determined by the Speaker, in each case for consideration of 

such provisions as fall within the jurisdiction of the committee concerned 

A BILL

To reward the hard work and risk of individuals who choose 

to live in and help preserve America’s small, rural towns, 

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘New Homestead Economic Opportunity Act’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 
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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents for 

5 this Act is as follows:

Sec. 1. Short title; etc. 

TITLE I—NEW HOMESTEAD OPPORTUNITIES 

Sec. 101. Loans for leadership initiative. 

Sec. 102. Credit for certain rural homebuyers. 

Sec. 103. Capital loss deduction allowed with respect to sale or exchange of 

principal residence in certain rural areas. 

Sec. 104. Individual homestead accounts. 

TITLE II—INCENTIVES FOR MAIN STREET BUSINESSES 

Sec. 201. Rural investment tax credit. 

Sec. 202. Accelerated depreciation for rural investment property. 

TITLE III—NEW HOMESTEAD VENTURE CAPITAL FUND 

Sec. 301. New homestead venture capital fund.

6 TITLE I—NEW HOMESTEAD 

7 OPPORTUNITIES 

8 SEC. 101. LOANS FOR LEADERSHIP INITIATIVE. 

9 (a) DEFINITIONS.—In this section: 

10 (1) DEGREE.—The term ‘‘degree’’ means an as11 sociate’s or bachelor’s degree awarded by an institu12 tion of higher education. 

13 (2) INSTITUTION OF HIGHER EDUCATION.—The 

14 term ‘‘institution of higher education’’ has the 

15 meaning given the term in section 101 of the Higher 

16 Education Act of 1965 (20 U.S.C. 1001). 
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1 (3) QUALIFYING COUNTY.—The term ‘quali2 fying county’ means any county which—

3 (A) is outside a metropolitan statistical 

4 area (defined as such by the Office of Manage5 ment and Budget), and 

6 (B) during the 20-year period ending with 

7 the calendar year preceding the date of enact8 ment of this Act, has a net out-migration of in9 habitants from the county of at least 10 percent 

10 of the population of the county at the beginning 

11 of such period. 

12 (4) SECRETARY.—The term ‘‘Secretary’’ means 

13 the Secretary of Education. 

14 (b) PROGRAM.—

15 (1) IN GENERAL.—The Secretary shall carry 

16 out a program of assuming the obligation to repay, 

17 pursuant to subsection (c), a loan made, insured, or 

18 guaranteed under part B, D, or E of title IV of the 

19 Higher Education Act of 1965 (20 U.S.C. 1071 et 

20 seq., 20 U.S.C. 1087a et seq., and 20 U.S.C. 

21 1087aa et seq.), excluding loans made under section 

22 428B of such Act or comparable loans made under 

23 part D of such Act, for any borrower who—

24 (A) completes a degree; 

25 (B) resides in a qualifying county; and 
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1 (C) is employed in a qualifying county. 

2 (2) REGULATIONS.—The Secretary is author3 ized to prescribe such regulations as may be nec4 essary to carry out the provisions of this section. 

5 (c) LOAN REPAYMENT.—

6 (1) IN GENERAL.—The Secretary shall assume 

7 the obligation to repay, after each of the first 5 

8 years of the residency and employment described in 

9 subparagraphs (B) and (C) of subsection (b)(1) that 

10 occur after the date of enactment of this section, the 

11 percentage described in paragraph (2) of the total 

12 amount of all loans made to a student under the 

13 provisions of the Higher Education Act of 1965 as 

14 described in subsection (b)(1), up to a maximum 

15 amount of $3,000 each year. 

16 (2) PERCENTAGES.—The percentage of repay17 ment under paragraph (1) shall be—

18 (A) 7.5 percent of the total amount for 

19 each of the first and second years; 

20 (B) 10 percent of the total amount for 

21 each of the third and fourth years; and 

22 (C) 15 percent of the total amount for the 

23 fifth year.

24 (3) CONSTRUCTION.—Nothing in this section 

25 shall be construed to authorize the refunding of any 
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1 repayment of a loan made under part B, D, or E 

2 of title IV of the Higher Education Act of 1965. 

3 (4) INTEREST.—If a portion of a loan is repaid 

4 by the Secretary under this section for any year, the 

5 proportionate amount of interest on such loan which 

6 accrues for such year shall be repaid by the Sec7 retary so long as the total amount repaid by the 

8 Secretary in any 1 year does not exceed $3,000. 

9 (d) REPAYMENT TO ELIGIBLE LENDERS.—The Sec10 retary shall pay to each eligible lender or holder for each 

11 fiscal year an amount equal to the aggregate amount of 

12 loans which are subject to repayment pursuant to this sec13 tion for such year. 

14 (e) APPLICATION FOR REPAYMENT.—

15 (1) IN GENERAL.—An eligible borrower desiring 

16 loan repayment under this section shall submit a 

17 complete and accurate application to the Secretary 

18 at such time, in such manner, and containing such 

19 information as the Secretary may require. 

20 (2) CONDITIONS.—An eligible borrower may 

21 apply for loan repayment under this section after 

22 completing each year of qualifying residency and em23 ployment. The eligible borrower shall receive forbear24 ance while engaged in qualifying residency and em-
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1 ployment unless the borrower is in deferment while 

2 so engaged. 

3 (f) DEFINITION OF ELIGIBLE BORROWER.—In this 

4 section the term ‘‘eligible borrower’’ means any borrower 

5 who is not in default on any of the borrower’s student 

6 loans under part B, D, or E of title IV of the Higher 

7 Education Act of 1965. 

8 (g) AUTHORIZATION OF APPROPRIATIONS.—

9 (1) LOAN REPAYMENT.—There are authorized 

10 to be appropriated to carry out this section such 

11 sums as may be necessary for fiscal year 2003 and 

12 each of the 5 succeeding fiscal years. 

13 (2) PERKINS LOAN FUNDS.—There are author14 ized to be appropriated such sums as may be nec15 essary for fiscal year 2003 and each of the 5 suc16 ceeding fiscal years for Federal capital contributions 

17 to student loan funds established under part E of 

18 title IV of the Higher Education Act of 1965. 

19 (h) REPAYMENT EXCLUDED FROM GROSS IN20 COME.—Section 108(f)(1) (relating to student loans) is 

21 amended by inserting ‘‘or pursuant to section 101 of the 

22 New Homestead Economic Opportunity Act’’ after ‘‘em23 ployers’’.
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1 SEC. 102. CREDIT FOR CERTAIN RURAL HOMEBUYERS. 

2 (a) IN GENERAL.—Subpart A of part IV of sub3 chapter A of chapter 1 (relating to nonrefundable personal 

4 credits) is amended by inserting before section 26 the fol5 lowing: 

6 ‘‘SEC. 25C. PURCHASE OF RESIDENCES BY CERTAIN RURAL 

7 HOMEBUYERS. 

8 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in9 dividual who purchases a qualified residence in a quali10 fying county during any taxable year, there shall be al11 lowed as a credit against the tax imposed by this chapter 

12 for the taxable year an amount equal to the lesser of—

13 ‘‘(1) 10 percent of the purchase price of the 

14 residence, or 

15 ‘‘(2) $5,000. 

16 ‘‘(b) LIMITATIONS.—

17 ‘‘(1) LIMITATION BASED ON AMOUNT OF

18 TAX.—The credit allowed under subsection (a) for 

19 any taxable year shall not exceed the excess of—

20 ‘‘(A) the sum of the regular tax liability 

21 (as defined in section 26(b)) plus the tax im22 posed by section 55, over 

23 ‘‘(B) the sum of the credits allowable 

24 under this subpart (other than this section and 

25 section 23) and section 27 for the taxable year. 
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1 ‘‘(2) MARRIED INDIVIDUALS FILING JOINTLY.—

2 In the case of a husband and wife who file a joint 

3 return, the credit under this section is allowable only 

4 if the residence is a qualified residence with respect 

5 to both the husband and wife, and the amount speci6 fied under subsection (a)(2) shall apply to the joint 

7 return. 

8 ‘‘(3) MARRIED INDIVIDUALS FILING SEPA9 RATELY.—In the case of a married individual filing 

10 a separate return, subsection (a)(2) shall be applied 

11 by substituting ‘$2,500’ for ‘$5,000’. 

12 ‘‘(4) OTHER TAXPAYERS.—If 2 or more individ13 uals who are not married purchase a qualified resi14 dence, the amount of the credit allowed under sub15 section (a) shall be allocated among such individuals 

16 in such manner as the Secretary may prescribe, ex17 cept that the total amount of the credits allowed to 

18 all such individuals shall not exceed $5,000. 

19 ‘‘(c) DEFINITIONS.—For purposes of this section—

20 ‘‘(1) QUALIFIED RESIDENCE.—The term ‘quali21 fied residence’ has the same meaning as when used 

22 in section 163(h). 

23 ‘‘(2) QUALIFYING COUNTY.—The term ‘quali24 fying county’ means any county which—
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1 ‘‘(A) is outside a metropolitan statistical 

2 area (defined as such by the Office of Manage3 ment and Budget), and 

4 ‘‘(B) during the 20-year period ending 

5 with the calendar year preceding the date of the 

6 enactment of this section, has a net out-migra7 tion of inhabitants from the county of at least 

8 10 percent of the population of the county at 

9 the beginning of such period. 

10 ‘‘(3) PURCHASE AND PURCHASE PRICE.—The 

11 terms ‘purchase’ and ‘purchase price’ have the 

12 meanings provided by section 1400C(e). 

13 ‘‘(d) CARRYFORWARD OF UNUSED CREDIT.—If the 

14 credit allowable under subsection (a) for any taxable year 

15 exceeds the limitation imposed by subsection (b)(1) for 

16 such taxable year reduced by the sum of the credits allow17 able under this subpart (other than this section and sec18 tion 23), such excess shall be carried to the succeeding 

19 taxable year and added to the credit allowable under sub20 section (a) for such taxable year. 

21 ‘‘(e) REPORTING.—If the Secretary requires informa22 tion reporting under section 6045 by a person described 

23 in subsection (e)(2) thereof to verify the eligibility of tax24 payers for the credit allowable by this section, the excep25 tion provided by section 6045(e)(5) shall not apply.
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1 ‘‘(f) RECAPTURE OF CREDIT IN CASE OF CERTAIN

2 SALES.—

3 ‘‘(1) IN GENERAL.—Except as provided in para4 graph (5), if the taxpayer disposes of a qualified res5 idence with respect to the purchase of which a credit 

6 was allowed under subsection (a) at any time within 

7 5 years after the date the taxpayer acquired the 

8 property, then the tax imposed under this chapter 

9 for the taxable year in which the disposition occurs 

10 is increased by the credit recapture amount. 

11 ‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur12 poses of paragraph (1), the credit recapture amount 

13 is an amount equal to the sum of—

14 ‘‘(A) the applicable recapture percentage of 

15 the amount of the credit allowed to the tax16 payer under this section, plus 

17 ‘‘(B) interest at the overpayment rate es18 tablished under section 6621 on the amount de19 termined under subparagraph (A) for each 

20 prior taxable year for the period beginning on 

21 the due date for filing the return for the prior 

22 taxable year involved. 

23 No deduction shall be allowed under this chapter for 

24 interest described in subparagraph (B). 

25 ‘‘(3) APPLICABLE RECAPTURE PERCENTAGE.—
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1 ‘‘(A) IN GENERAL.—For purposes of this 

2 subsection, the applicable recapture percentage 

3 shall be determined from the following table:

The applicable 

recapture 

‘‘If the sale occurs in: percentage is: 

Year 1 ........................................................................ 100

Year 2 ........................................................................ 80

Year 3 ........................................................................ 60

Year 4 ........................................................................ 40

Year 5 ........................................................................ 20

Years 6 and thereafter .............................................. 0.

4 ‘‘(B) YEARS.—For purposes of subpara5 graph (A), year 1 shall begin on the first day 

6 of the taxable year in which the purchase of the 

7 qualified residence described in subsection (a) 

8 occurs. 

9 ‘‘(4) NO CREDITS AGAINST TAX.—Any increase 

10 in tax under this subsection shall not be treated as 

11 a tax imposed by this chapter for purposes of deter12 mining the amount of any credit under this chapter 

13 or for purposes of section 55. 

14 ‘‘(5) DEATH OF OWNER; CASUALTY LOSS; IN15 VOLUNTARY CONVERSION; ETC.—The provisions of 

16 paragraph (1) do not apply to—

17 ‘‘(A) a disposition of a qualified residence 

18 made on account of the death of any individual 

19 having a legal or equitable interest therein oc20 curring during the 5-year period to which ref21 erence is made under paragraph (1),
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1 ‘‘(B) a disposition of the old qualified resi2 dence if it is substantially or completely de3 stroyed by a casualty described in section 

4 165(c)(3) or compulsorily or involuntarily con5 verted (within the meaning of section 1033(a)), 

6 or 

7 ‘‘(C) a disposition pursuant to a settlement 

8 in a divorce or legal separation proceeding 

9 where the qualified residence is sold or the 

10 other spouse retains such residence. 

11 ‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub12 title, if a credit is allowed under this section with respect 

13 to the purchase of any residence, the basis of such resi14 dence shall be reduced by the amount of the credit so al15 lowed.’’. 

16 (b) CONFORMING AMENDMENTS.—

17 (1) Subsection (a) of section 1016 (relating to 

18 general rule for adjustments to basis) is amended by 

19 striking ‘‘and’’ at the end of paragraph (26), by 

20 striking the period at the end of paragraph (27) and 

21 inserting ‘‘, and’’, and by adding at the end the fol22 lowing new paragraph: 

23 ‘‘(28) in the case of a residence with respect to 

24 which a credit was allowed under section 25C, to the 

25 extent provided in section 25C(g).’’. 
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1 (2) Subsection (a) of section 1016 (relating to 

2 general rule for adjustments to basis), as amended 

3 by the Economic Growth and Tax Relief Reconcili4 ation Act of 2001, is amended by striking ‘‘and’’ at 

5 the end of paragraph (27), by striking the period at 

6 the end of paragraph (28) and inserting ‘‘, and’’, 

7 and by adding at the end the following: 

8 ‘‘(29) in the case of a residence with respect to 

9 which a credit was allowed under section 25C, to the 

10 extent provided in section 25C(g).’’. 

11 (3) Section 24(b)(3)(B), as added and amended 

12 by the Economic Growth and Tax Relief Reconcili13 ation Act of 2001, is amended by striking ‘‘23 and 

14 25B’’ and inserting ‘‘23, 25B, and 25C’’. 

15 (4) Section 25(e)(1)(C) is amended by striking 

16 ‘‘23 and 1400C’’ and by inserting ‘‘23, 25C, and 

17 1400C’’. 

18 (5) Section 25(e)(1)(C), as amended by the 

19 Economic Growth and Tax Relief Reconciliation Act 

20 of 2001, is amended by inserting ‘‘25C,’’ after 

21 ‘‘25B,’’. 

22 (6) Section 25B, as added by the Economic 

23 Growth and Tax Relief Reconciliation Act of 2001, 

24 is amended by striking ‘‘section 23’’ and inserting 

25 ‘‘sections 23 and 25C’’. 
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1 (7) Section 26(a)(1), as amended by the Eco2 nomic Growth and Tax Relief Reconciliation Act of 

3 2001, is amended by striking ‘‘and 25B’’ and insert4 ing ‘‘25B, and 25C’’. 

5 (8) Section 1400C(d) is amended by inserting 

6 ‘‘and section 25C’’ after ‘‘this section’’. 

7 (9) Section 1400C(d), as amended by the Eco8 nomic Growth and Tax Relief Reconciliation Act of 

9 2001, is amended by striking ‘‘and 25B’’ and insert10 ing ‘‘25B, and 25C’’. 

11 (10) The table of sections for subpart A of part 

12 IV of subchapter A of chapter 1 is amended by in13 serting before the item relating to section 26 the fol14 lowing:

‘‘Sec. 25C. Purchase of residences by certain rural homebuyers.’’.

15 (c) EFFECTIVE DATE.—

16 (1) IN GENERAL.—The amendments made by 

17 subsections (a) and (b)(10) shall apply to purchases 

18 after the date of the enactment of this Act, in tax19 able years ending after such date. 

20 (2) TEMPORARY CONFORMING AMENDMENTS.—

21 The amendments made by paragraphs (1), (4), and 

22 (8) of subsection (b) shall apply to taxable years 

23 ending before January 1, 2003. 

24 (3) PERMANENT CONFORMING AMENDMENTS.—

25 The amendments made by paragraphs (2), (3), (5), 
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1 (6), (7), and (9) of subsection (b) shall apply to tax2 able years beginning after December 31, 2002. 

3 SEC. 103. CAPITAL LOSS DEDUCTION ALLOWED WITH RE4 SPECT TO SALE OR EXCHANGE OF PRINCIPAL 

5 RESIDENCE IN CERTAIN RURAL AREAS. 

6 (a) IN GENERAL.—Subsection (c) of section 165 (re7 lating to limitation on losses of individuals) is amended—

8 (1) by striking ‘‘and’’ at the end of paragraph 

9 (2), 

10 (2) by striking the period at the end of para11 graph (3) and inserting ‘‘; and’’, and 

12 (3) by adding at the end the following: 

13 ‘‘(4) losses arising from the sale or exchange of 

14 the principal residence (within the meaning of sec15 tion 121) of the taxpayer located in a qualifying 

16 county (as defined in section 223(b)(2)), but only if 

17 the principal residence was acquired by the taxpayer 

18 after the date of enactment of this paragraph.’’. 

19 (b) CONFORMING AMENDMENT.—Section 67(b)(3) is 

20 amended by striking ‘‘paragraph (2) or (3)’’ and inserting 

21 ‘‘paragraph (2), (3), or (4)’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to sales and exchanges after the 

24 date of the enactment of this Act, in taxable years ending 

25 after such date.
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1 SEC. 104. INDIVIDUAL HOMESTEAD ACCOUNTS. 

2 (a) IN GENERAL.—Subchapter F of chapter 1 (relat3 ing to exempt organizations) is amended by adding at the 

4 end the following:

5 ‘‘PART IX—INDIVIDUAL HOMESTEAD ACCOUNTS

‘‘Sec. 530A. Individual homestead accounts.

6 ‘‘SEC. 530A. INDIVIDUAL HOMESTEAD ACCOUNTS. 

7 ‘‘(a) GENERAL RULE.—An individual homestead ac8 count shall be exempt from taxation under this subtitle. 

9 Notwithstanding the preceding sentence, any individual 

10 homestead account shall be subject to the taxes imposed 

11 by section 511 (relating to imposition of tax on unrelated 

12 business income of charitable, etc., organizations). 

13 ‘‘(b) INDIVIDUAL HOMESTEAD ACCOUNT.—For pur14 poses of this title, the term ‘individual homestead account’ 

15 means a trust created or organized in the United States 

16 for the exclusive benefit of a qualified individual or his 

17 beneficiaries, but only if the written governing instrument 

18 creating the trust meets the following requirements: 

19 ‘‘(1) Except in the case of a qualified rollover 

20 (as defined in subsection (f)(7))—

21 ‘‘(A) no contribution will be accepted un22 less it is in cash; 

23 ‘‘(B) contributions will not be accepted for 

24 the taxable year in excess of $2,500 (deter
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1 mined without regard to any contribution made 

2 under subsection (d)); and 

3 ‘‘(C) contributions will not be accepted for 

4 any taxable year following the fifth taxable year 

5 in which the qualified individual has contributed 

6 to any individual homestead account. 

7 ‘‘(2) The requirements of paragraphs (2) 

8 through (6) of section 408(a) are met. 

9 ‘‘(c) QUALIFIED INDIVIDUAL; QUALIFYING COUN10 TY.—For purposes of this section—

11 ‘‘(1) QUALIFIED INDIVIDUAL.—The term ‘quali12 fied individual’ means, for any taxable year, an indi13 vidual who is a bona fide resident of a qualifying 

14 county. 

15 ‘‘(2) QUALIFYING COUNTY.—The term ‘quali16 fying county’ means any county which—

17 ‘‘(A) is outside a metropolitan statistical 

18 area (defined as such by the Office of Manage19 ment and Budget), and 

20 ‘‘(B) during the 20-year period ending 

21 with the calendar year preceding the date of the 

22 enactment of this section, has a net out-migra23 tion of inhabitants from the county of at least 

24 10 percent of the population of the county at 

25 the beginning of such period. 
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1 ‘‘(d) MATCHING CONTRIBUTIONS TO INDIVIDUAL

2 HOMESTEAD ACCOUNTS.—

3 ‘‘(1) IN GENERAL.—Not less than once each 

4 taxable year, the Secretary shall deposit (to the ex5 tent provided in appropriation Acts) into an indi6 vidual Homestead account of each qualified indi7 vidual an amount equal to the applicable percentage 

8 of the sum of the amounts deposited into all of the 

9 individual homestead accounts of such individual 

10 during such taxable year (determined without regard 

11 to any amount contributed under this subsection). 

12 ‘‘(2) APPLICABLE PERCENTAGE.—(A) For pur13 poses of this subsection, the applicable percentage 

14 with respect to any qualified individual for any tax15 able year shall be determined in accordance with the 

16 following tables:

‘‘If modified adjusted gross 

income is: 

The applicable percentage is: 

$30,000 or less ......................................................................... 100

Over $30,000 but not over $60,000 ........................................ 50

Over $60,000 but not over $100,000 ...................................... 25

Over $100,000 ......................................................................... zero.

17 ‘‘(B) In the case of a head of household (as de18 fined in section 2(b)):

‘‘If modified adjusted gross 

income is: 

The applicable percentage is: 

$22,500 or less ......................................................................... 100

Over $22,500 but not over $45,000 ........................................ 50

Over $45,000 but not over $75,000 ........................................ 25

Over $75,000 ........................................................................... zero.

19 ‘‘(C) In the case of any other individual:
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‘‘If modified adjusted gross 

income is: 

The applicable percentage is: 

$15,000 or less ......................................................................... 100

Over $15,000 but not over $30,000 ........................................ 50

Over $30,000 but not over $50,000 ........................................ 25

Over $50,000 ........................................................................... zero.

1 For purposes of this paragraph, the term ‘modified 

2 adjusted gross income’ has the meaning given such 

3 term by section 86(b)(2). 

4 ‘‘(3) EXCLUSION FROM INCOME.—Except as 

5 otherwise provided in this section, gross income shall 

6 not include any amount deposited into an individual 

7 homestead account under paragraph (1). 

8 ‘‘(4) FORFEITURE OF MATCHING CONTRIBU9 TIONS IN THE CASE OF CERTAIN DISTRIBUTIONS.—

10 In the event of a distribution from an individual 

11 homestead account before the date described in sub12 section (f)(1)(A) (other than a distribution described 

13 in subsection (e)(2)(A)), the account holder shall 

14 forfeit the corresponding matching contributions and 

15 interest earned on the matching contributions, un16 less such distribution is recontributed to such ac17 count within 6 months of such distribution. 

18 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.—

19 ‘‘(1) INCLUSION OF AMOUNTS IN GROSS IN20 COME.—Except as otherwise provided in this sub21 section, any amount paid or distributed out of an in22 dividual homestead account shall be includible in the 
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1 gross income of the payee or distributee, as the case 

2 may be, in the manner as provided in section 72. 

3 For purposes of the preceding sentence, distributions 

4 which are includable in gross income shall be treated 

5 as first attributable to amounts contributed under 

6 subsection (d) to the extent thereof. 

7 ‘‘(2) EXCLUSION OF CATASTROPHIC MEDICAL

8 EXPENSE DISTRIBUTIONS IN FIRST FIVE YEARS AND

9 QUALIFIED INDIVIDUAL HOMESTEAD DISTRIBUTIONS

10 THEREAFTER.—Paragraph (1) shall not apply to—

11 ‘‘(A) any distribution described in section 

12 72(t)(2)(B) before the date described in sub13 section (f)(1)(A), but only to the extent such 

14 distribution does not exceed the balance in the 

15 account as of the date of such distribution, re16 duced by any matching contribution under sub17 section (d), and 

18 ‘‘(B) any qualified individual homestead 

19 distribution. 

20 ‘‘(f) QUALIFIED INDIVIDUAL HOMESTEAD DISTRIBU21 TION.—For purposes of this section—

22 ‘‘(1) IN GENERAL.—The term ‘qualified indi23 vidual homestead distribution’ means any amount

24 paid or distributed out of an individual homestead 

25 account which would otherwise be includible in gross 
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1 income, to the extent that such payment or distribu2 tion—

3 ‘‘(A) is paid or distributed after the 5-tax4 able year period beginning with the first taxable 

5 year in which the qualified individual made a 

6 contribution to the individual homestead ac7 count (including any predecesser account), and 

8 ‘‘(B) is used exclusively to pay qualified in9 dividual homestead expenses for the qualified 

10 individual or the spouse or dependent (as de11 fined in section 152) of such individual. 

12 ‘‘(2) QUALIFIED INDIVIDUAL HOMESTEAD EX13 PENSES.—The term ‘qualified individual homestead 

14 expenses’ means any of the following: 

15 ‘‘(A) Qualified higher education expenses. 

16 ‘‘(B) Qualified first-time homebuyer costs. 

17 ‘‘(C) Qualified business capitalization 

18 costs. 

19 ‘‘(D) Qualified medical expenses. 

20 ‘‘(E) Qualified rollovers. 

21 ‘‘(3) QUALIFIED HIGHER EDUCATION EX22 PENSES.—

23 ‘‘(A) IN GENERAL.—The term ‘qualified 

24 higher education expenses’ has the meaning 

25 given such term by section 72(t)(7), determined 
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1 by treating postsecondary vocational edu2 cational schools as eligible educational institu3 tions. 

4 ‘‘(B) POSTSECONDARY VOCATIONAL EDU5 CATION SCHOOL.—The term ‘postsecondary vo6 cational educational school’ means an area vo7 cational education school (as defined in sub8 paragraph (C) or (D) of section 521(4) of the 

9 Carl D. Perkins Vocational and Applied Tech10 nology Education Act (20 U.S.C. 2471(4))) 

11 which is in any State (as defined in section 

12 521(33) of such Act), as such sections are in 

13 effect on the date of the enactment of this sec14 tion. 

15 ‘‘(C) COORDINATION WITH OTHER BENE16 FITS.—The amount of qualified higher edu17 cation expenses for any taxable year shall be re18 duced as provided in section 25A(g)(2). 

19 ‘‘(4) QUALIFIED FIRST-TIME HOMEBUYER

20 COSTS.—The term ‘qualified first-time homebuyer 

21 costs’ means qualified acquisition costs (as defined 

22 in section 72(t)(8) without regard to subparagraph 

23 (B) thereof) with respect to a principal residence 

24 (within the meaning of section 121) located in a 
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1 qualifying county for a qualified first-time home2 buyer (as defined in section 72(t)(8)). 

3 ‘‘(5) QUALIFIED BUSINESS CAPITALIZATION

4 COSTS.—

5 ‘‘(A) IN GENERAL.—The term ‘qualified 

6 business capitalization costs’ means qualified 

7 expenditures for the capitalization of a qualified 

8 business pursuant to a qualified plan. 

9 ‘‘(B) QUALIFIED EXPENDITURES.—The 

10 term ‘qualified expenditures’ means expendi11 tures included in a qualified plan, including 

12 capital, plant, equipment, working capital, and 

13 inventory expenses. 

14 ‘‘(C) QUALIFIED BUSINESS.—The term 

15 ‘qualified business’ means any trade or business 

16 located in a qualifying county other than any 

17 trade or business—

18 ‘‘(i) which consists of the operation of 

19 any facility described in section 

20 144(c)(6)(B), or 

21 ‘‘(ii) which contravenes any law. 

22 Rules similar to the rules under subsection (b) 

23 or (c) of section 1397C shall apply to any quali24 fied business under this section. 
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1 ‘‘(D) QUALIFIED PLAN.—The term ‘quali2 fied plan’ means a business plan which meets 

3 such requirements as the Secretary may specify. 

4 ‘‘(6) QUALIFIED MEDICAL EXPENSES.—The 

5 term ‘qualified medical expenses’ means any amount 

6 paid during the taxable year, not compensated for by 

7 insurance or otherwise, for medical care (as defined 

8 in section 213(d)) of the taxpayer, his spouse, or his 

9 dependent (as defined in section 152). 

10 ‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali11 fied rollover’ means any amount paid from an indi12 vidual homestead account of a taxpayer into another 

13 such account established for the benefit of— 

14 ‘‘(A) such taxpayer, or 

15 ‘‘(B) any qualified individual who is—

16 ‘‘(i) the spouse of such taxpayer, or 

17 ‘‘(ii) any dependent (as defined in sec18 tion 152) of the taxpayer. 

19 Rules similar to the rules of section 408(d)(3) shall 

20 apply for purposes of this paragraph. 

21 ‘‘(g) TAX TREATMENT OF ACCOUNTS.—

22 ‘‘(1) LOSS OF EXEMPTION IN CASE OF PROHIB23 ITED TRANSACTIONS.—For purposes of this section, 

24 rules similar to the rules of section 408(e) shall 

25 apply. 
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1 ‘‘(2) OTHER RULES TO APPLY.—Rules similar 

2 to the rules of paragraphs (4), (5), and (6) of sec3 tion 408(d) shall apply for purposes of this section. 

4 ‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.—

5 For purposes of this section—

6 ‘‘(1) ALL ACCOUNTS TREATED AS ONE AC7 COUNT.—All individual homestead accounts of a 

8 qualified individual shall be treated as 1 account. 

9 ‘‘(2) TIME WHEN CONTRIBUTIONS DEEMED

10 MADE.—A taxpayer shall be deemed to have made a 

11 contribution to an individual homestead account on 

12 the last day of the preceding taxable year if the con13 tribution is made on account of such taxable year 

14 and is made not later than the time prescribed by 

15 law for filing the return for such taxable year (not 

16 including extensions thereof). 

17 ‘‘(3) CUSTODIAL ACCOUNTS.—Rules similar to 

18 the rules of section 408(h) shall apply. 

19 ‘‘(4) REPORTS.—The trustee of an individual 

20 homestead account shall make such reports regard21 ing such account to the Secretary and to the indi22 vidual for whom the account is maintained with re23 spect to contributions (and the years to which they 

24 relate), distributions, and such other matters as the 
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1 Secretary may require under regulations. The re2 ports required by this paragraph—

3 ‘‘(A) shall be filed at such time and in 

4 such manner as the Secretary prescribes in 

5 such regulations; and 

6 ‘‘(B) shall be furnished to individuals—

7 ‘‘(i) not later than January 31 of the 

8 calendar year following the calendar year 

9 to which such reports relate; and 

10 ‘‘(ii) in such manner as the Secretary 

11 prescribes in such regulations. 

12 ‘‘(5) INVESTMENT IN COLLECTIBLES TREATED

13 AS DISTRIBUTIONS.—Rules similar to the rules of 

14 section 408(m) shall apply. 

15 ‘‘(i) DESIGNATION OF EARNED INCOME TAX CREDIT

16 PAYMENTS FOR DEPOSIT TO INDIVIDUAL HOMESTEAD

17 ACCOUNT.—

18 ‘‘(1) IN GENERAL.—With respect to the return 

19 of any qualified individual for the taxable year of the 

20 tax imposed by this chapter, such individual may 

21 designate that a specified portion (not less than $1) 

22 of any overpayment of tax for such taxable year

23 which is attributable to the earned income tax credit 

24 shall be deposited by the Secretary into an individual 

25 homestead account of such individual. The Secretary 
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1 shall so deposit such portion designated under this 

2 subsection. 

3 ‘‘(2) MANNER AND TIME OF DESIGNATION.—A 

4 designation under paragraph (1) may be made with 

5 respect to any taxable year—

6 ‘‘(A) at the time of filing the return of the 

7 tax imposed by this chapter for such taxable 

8 year, or 

9 ‘‘(B) at any other time (after the time of 

10 filing the return of the tax imposed by this 

11 chapter for such taxable year) specified in regu12 lations prescribed by the Secretary. 

13 Such designation shall be made in such manner as 

14 the Secretary prescribes by regulations. 

15 ‘‘(3) PORTION ATTRIBUTABLE TO EARNED IN16 COME TAX CREDIT.—For purposes of this sub17 section, an overpayment for any taxable year shall 

18 be treated as attributable to the earned income tax 

19 credit to the extent that such overpayment does not 

20 exceed the credit allowed to the taxpayer under sec21 tion 32 for such taxable year. 

22 ‘‘(4) OVERPAYMENTS TREATED AS RE23 FUNDED.—For purposes of this title, any portion of 

24 an overpayment of tax designated under paragraph 

25 (1) shall be treated as being refunded to the tax-
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1 payer as of the last date prescribed for filing the re2 turn of tax imposed by this chapter (determined 

3 without regard to extensions) or, if later, the date 

4 the return is filed. 

5 ‘‘(j) PENALTY FOR DISTRIBUTIONS NOT USED FOR

6 QUALIFIED INDIVIDUAL HOMESTEAD EXPENSES.—

7 ‘‘(1) IN GENERAL.—If any amount is distrib8 uted from an individual homestead account and is 

9 not used exclusively to pay qualified individual 

10 homestead expenses for the holder of the account or 

11 the spouse or dependent (as defined in section 152) 

12 of such holder, the tax imposed by this chapter for 

13 the taxable year of such distribution shall be in14 creased by 10 percent of such amount which is in15 cludible in gross income. For purposes of the pre16 ceding sentence, distributions which are includable 

17 in gross income shall be treated as first attributable 

18 to amounts contributed under subsection (d) to the 

19 extent thereof.

20 ‘‘(2) EXCEPTION FOR CERTAIN DISTRIBU21 TIONS.—Paragraph (1) shall not apply to distribu22 tions which are—

23 ‘‘(A) made on or after the date on which 

the account holder attains age 591 24 ⁄2, 
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1 ‘‘(B) made to a beneficiary (or the estate 

2 of the account holder) on or after the death of 

3 the account holder, 

4 ‘‘(C) attributable to the account holder’s 

5 being disabled within the meaning of section 

6 72(m)(7), or 

7 ‘‘(D) described in subsection (e)(2)(A). 

8 ‘‘(k) APPLICATION OF SECTION.—This section shall 

9 apply to amounts paid to an individual homestead account 

10 for any taxable year beginning after December 31, 2002.’’. 

11 (b) TAX ON EXCESS CONTRIBUTIONS.—

12 (1) TAX IMPOSED.—Subsection (a) of section 

13 4973 is amended by striking ‘‘or’’ at the end of 

14 paragraph (3), adding ‘‘or’’ at the end of paragraph 

15 (4), and inserting after paragraph (4) the following: 

16 ‘‘(5) an individual homestead account (within 

17 the meaning of section 530A(b)),’’. 

18 (2) EXCESS CONTRIBUTIONS.—Section 4973 is 

19 amended by adding at the end the following: 

20 ‘‘(g) INDIVIDUAL HOMESTEAD ACCOUNTS.—For pur21 poses of this section, in the case of individual homestead 

22 accounts, the term ‘excess contributions’ means the sum 

23 of—

24 ‘‘(1) the excess (if any) of—
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•HR 1686 IH 

1 ‘‘(A) the amount contributed for the tax2 able year to the accounts (other than a quali3 fied rollover, as defined in section 530A(f)(7), 

4 or a contribution under section 530A(d)), over 

5 ‘‘(B) the amount allowable under section 

6 530A for such contributions; and 

7 ‘‘(2) the amount determined under this sub8 section for the preceding taxable year reduced by the 

9 sum of—

10 ‘‘(A) the distributions out of the accounts 

11 for the taxable year which were included in the 

12 gross income of the payee under section 

13 530A(e)(1); 

14 ‘‘(B) the distributions out of the accounts 

15 for the taxable year to which rules similar to 

16 the rules of section 408(d)(5) apply by reason 

17 of section 530A(g)(2); and 

18 ‘‘(C) the excess (if any) of the maximum 

19 amount allowable as a contribution under sec20 tion 530A for the taxable year over the amount 

21 contributed to the account for the taxable year 

22 (other than a contribution under section 

23 530A(d)). 

24 For purposes of this subsection, any contribution which 

25 is distributed from the individual homestead account in 
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1 a distribution to which rules similar to the rules of section 

2 408(d)(4) apply by reason of section 530A(g)(2) shall be 

3 treated as an amount not contributed.’’. 

4 (c) TAX ON PROHIBITED TRANSACTIONS.—Section 

5 4975 is amended—

6 (1) by adding at the end of subsection (c) the 

7 following: 

8 ‘‘(6) SPECIAL RULE FOR INDIVIDUAL HOME9 STEAD ACCOUNTS.—An individual for whose benefit 

10 an individual homestead account is established and 

11 any contributor to such account shall be exempt 

12 from the tax imposed by this section with respect to 

13 any transaction concerning such account (which 

14 would otherwise be taxable under this section) if, 

15 with respect to such transaction, the account ceases 

16 to be an individual homestead account by reason of 

17 the application of section 530A(g)(1) to such ac18 count.’’; and 

19 (2) in subsection (e)(1), by striking ‘‘or’’ at the 

20 end of subparagraph (E), by redesignating subpara21 graph (F) as subparagraph (G), and by inserting 

22 after subparagraph (E) the following: 

23 ‘‘(F) an individual homestead account de24 scribed in section 530A(b), or’’. 
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•HR 1686 IH 

1 (d) INFORMATION RELATING TO CERTAIN TRUSTS

2 AND ANNUITY PLANS.—Subsection (c) of section 6047 is 

3 amended—

4 (1) by inserting ‘‘or section 530A’’ after ‘‘sec5 tion 219’’; and 

6 (2) by inserting ‘‘, of any individual homestead 

7 account described in section 530A(b),’’, after ‘‘sec8 tion 408(a)’’. 

9 (e) INSPECTION OF APPLICATIONS FOR TAX EXEMP10 TION.—Clause (i) of section 6104(a)(1)(B) is amended by 

11 inserting ‘‘an individual homestead account described in 

12 section 530A(b),’’ after ‘‘section 408(a),’’. 

13 (f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

14 HOMESTEAD ACCOUNTS.—Paragraph (2) of section 

15 6693(a) is amended by striking ‘‘and’’ at the end of sub16 paragraph (C), by striking the period and inserting ‘‘, 

17 and’’ at the end of subparagraph (D), and by adding at 

18 the end the following: 

19 ‘‘(E) section 530A(h)(4) (relating to indi20 vidual homestead accounts).’’.

21 (g) CLERICAL AMENDMENT.—The table of parts for 

22 subchapter F of chapter 1 is amended by adding at the 

23 end the following:

‘‘Part IX. Individual homestead accounts.’’.
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1 TITLE II—INCENTIVES FOR MAIN 

2 STREET BUSINESSES 

3 SEC. 201. RURAL INVESTMENT TAX CREDIT. 

4 (a) IN GENERAL.—Subpart D of part IV of sub5 chapter A of chapter 1 (relating to business related cred6 its) is amended by adding at the end the following: 

7 ‘‘SEC. 42A. RURAL INVESTMENT CREDIT. 

8 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

9 amount of the rural investment credit determined under 

10 this section for any taxable year in the credit period shall 

11 be an amount equal to the applicable percentage of the 

12 eligible basis of each qualified rural investment building. 

13 ‘‘(b) APPLICABLE PERCENTAGE: 70 PERCENT

14 PRESENT VALUE CREDIT FOR NEW BUILDINGS; 30 PER15 CENT PRESENT VALUE CREDIT FOR EXISTING BUILD16 INGS.—For purposes of this section—

17 ‘‘(1) IN GENERAL.—The term ‘applicable per18 centage’ means the appropriate percentage pre19 scribed by the Secretary for the earlier of—

20 ‘‘(A) the first month of the credit period 

21 with respect to a rural investment building, or 

22 ‘‘(B) at the election of the taxpayer, the 

23 month in which the taxpayer and the rural in24 vestment credit agency enter into an agreement 

25 with respect to such building (which is binding 
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1 on such agency, the taxpayer, and all successors 

2 in interest) as to the rural investment credit 

3 dollar amount to be allocated to such building. 

4 A month may be elected under subparagraph (B) 

5 only if the election is made not later than the 5th 

6 day after the close of such month. Such an election, 

7 once made, shall be irrevocable. 

8 ‘‘(2) METHOD OF PRESCRIBING PERCENT9 AGES.—The percentages prescribed by the Secretary 

10 for any month shall be percentages which will yield 

11 over a 10-year period amounts of credit under sub12 section (a) which have a present value equal to—

13 ‘‘(A) 70 percent of the eligible basis of a 

14 new building, and 

15 ‘‘(B) 30 percent of the eligible basis of an 

16 existing building. 

17 ‘‘(3) METHOD OF DISCOUNTING.—The present 

18 value under paragraph (2) shall be determined—

19 ‘‘(A) as of the last day of the 1st year of 

20 the 10-year period referred to in paragraph (2),

21 ‘‘(B) by using a discount rate equal to 72 

22 percent of the average of the annual Federal 

23 mid-term rate and the annual Federal long24 term rate applicable under section 1274(d)(1) 

25 to the month applicable under subparagraph 
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•HR 1686 IH 

1 (A) or (B) of paragraph (1) and compounded 

2 annually, and 

3 ‘‘(C) by assuming that the credit allowable 

4 under this section for any year is received on 

5 the last day of such year. 

6 ‘‘(c) ELIGIBLE BASIS; QUALIFIED RURAL INVEST7 MENT BUILDING.—For purposes of this section—

8 ‘‘(1) ELIGIBLE BASIS.—

9 ‘‘(A) IN GENERAL.—The eligible basis of 

10 any qualified rural investment building for any 

11 taxable year shall be determined under rules 

12 similar to the rules under section 42(d), except 

13 that—

14 ‘‘(i) the determination of the adjusted 

15 basis of any building shall be made as of 

16 the beginning of the credit period, and 

17 ‘‘(ii) such basis shall include develop18 ment costs properly attributable to such 

19 building.

20 ‘‘(B) DEVELOPMENT COSTS.—For pur21 poses of subparagraph (A)(ii), the term ‘devel22 opment costs’ includes—

23 ‘‘(i) site preparation costs, 

24 ‘‘(ii) State and local impact fees, 

25 ‘‘(iii) reasonable development costs, 
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•HR 1686 IH 

1 ‘‘(iv) professional fees related to basis 

2 items, 

3 ‘‘(v) construction financing costs re4 lated to basis items other than land, and 

5 ‘‘(vi) on-site and adjacent improve6 ments required by State and local govern7 ments. 

8 ‘‘(2) QUALIFIED RURAL INVESTMENT BUILD9 ING.—The term ‘qualified rural investment building’ 

10 means any building which is part of a qualified rural 

11 investment project at all times during the period—

12 ‘‘(A) beginning on the 1st day in the com13 pliance period on which such building is part of 

14 such an investment project, and 

15 ‘‘(B) ending on the last day of the compli16 ance period with respect to such building. 

17 ‘‘(d) REHABILITATION EXPENDITURES TREATED AS

18 SEPARATE NEW BUILDING.—Rehabilitation expenditures 

19 paid or incurred by the taxpayer with respect to any build20 ing shall be treated for purposes of this section as a sepa21 rate new building under the rules of section 42(e). 

22 ‘‘(e) DEFINITION AND SPECIAL RULES RELATING TO

23 CREDIT PERIOD.—

24 ‘‘(1) CREDIT PERIOD DEFINED.—For purposes 

25 of this section, the term ‘credit period’ means, with 
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1 respect to any building, the period of 10 taxable 

2 years beginning with the taxable year in which the 

3 building is first placed in service. 

4 ‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT

5 PERIOD.—

6 ‘‘(A) IN GENERAL.—The credit allowable 

7 under subsection (a) with respect to any build8 ing for the 1st taxable year of the credit period 

9 shall be determined by multiplying such credit 

10 by the fraction—

11 ‘‘(i) the numerator of which is the 

12 number of full months of such year during 

13 which such building was in service, and 

14 ‘‘(ii) the denominator of which is 12. 

15 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL16 LOWED IN 11TH YEAR.—Any reduction by rea17 son of subparagraph (A) in the credit allowable 

18 (without regard to subparagraph (A)) for the 

19 1st taxable year of the credit period shall be al20 lowable under subsection (a) for the 1st taxable 

21 year following the credit period. 

22 ‘‘(3) CREDIT PERIOD FOR EXISTING BUILDINGS

23 NOT TO BEGIN BEFORE REHABILITATION CREDIT

24 ALLOWED.—The credit period for an existing build25 ing shall not begin before the 1st taxable year of the 
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•HR 1686 IH 

1 credit period for rehabilitation expenditures with re2 spect to the building. 

3 ‘‘(f) QUALIFIED RURAL INVESTMENT PROJECT; 

4 QUALIFYING COUNTY.—For purposes of this section—

5 ‘‘(1) QUALIFIED RURAL INVESTMENT

6 PROJECT.—The term ‘qualified rural investment 

7 project’ means any investment project of 1 or more 

8 qualified rural investment buildings located in a 

9 qualifying county (and, if necessary to the project, 

10 any contiguous county) and selected by the State ac11 cording to its qualified rural investment plan. 

12 ‘‘(2) QUALIFYING COUNTY.—The term ‘quali13 fying county’ means any county which—

14 ‘‘(A) is outside a metropolitan statistical 

15 area (defined as such by the Office of Manage16 ment and Budget), and 

17 ‘‘(B) during the 20-year period ending 

18 with the calendar year preceding the date of the 

19 enactment of this section, has a net out-migra20 tion of inhabitants from the county of at least 

21 10 percent of the population of the county at 

22 the beginning of such period. 

23 ‘‘(g) LIMITATION ON AGGREGATE CREDIT ALLOW24 ABLE WITH RESPECT TO INVESTMENT PROJECTS LO25 CATED IN A STATE.—
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1 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT

2 AMOUNT ALLOCATED TO BUILDING.—The amount of 

3 the credit determined under this section for any tax4 able year with respect to any building shall not ex5 ceed the rural investment credit dollar amount allo6 cated to such building under rules similar to the 

7 rules of section 42(h)(1). 

8 ‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY

9 TO ALL TAXABLE YEARS ENDING DURING OR AFTER

10 CREDIT ALLOCATION YEAR.—Any rural investment 

11 credit dollar amount allocated to any building for 

12 any calendar year—

13 ‘‘(A) shall apply to such building for all 

14 taxable years in the credit period ending during 

15 or after such calendar year, and 

16 ‘‘(B) shall reduce the aggregate rural in17 vestment credit dollar amount of the allocating 

18 agency only for such calendar year. 

19 ‘‘(3) RURAL INVESTMENT CREDIT DOLLAR

20 AMOUNT FOR AGENCIES.—

21 ‘‘(A) IN GENERAL.—The aggregate rural 

22 investment credit dollar amount which a rural 

23 investment credit agency may allocate for any 

24 calendar year is the portion of the State rural 

25 investment credit ceiling allocated under this 
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1 paragraph for such calendar year to such agen2 cy. 

3 ‘‘(B) STATE CEILING INITIALLY ALLO4 CATED TO STATE RURAL INVESTMENT CREDIT

5 AGENCIES.—Except as provided in subpara6 graphs (D) and (E), the State rural investment 

7 credit ceiling for each calendar year shall be al8 located to the rural investment credit agency of 

9 such State. If there is more than 1 rural invest10 ment credit agency of a State, all such agencies 

11 shall be treated as a single agency. 

12 ‘‘(C) STATE RURAL INVESTMENT CREDIT

13 CEILING.—The State rural investment credit 

14 ceiling applicable to any State and any calendar 

15 year shall be an amount equal to the sum of—

16 ‘‘(i) the unused State rural investment 

17 credit ceiling (if any) of such State for the 

18 preceding calendar year,

19 ‘‘(ii) $1,000,000 for each qualifying 

20 county in the State, 

21 ‘‘(iii) the amount of State rural in22 vestment credit ceiling returned in the cal23 endar year, plus 
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1 ‘‘(iv) the amount (if any) allocated 

2 under subparagraph (D) to such State by 

3 the Secretary. 

4 For purposes of clause (i), the unused State 

5 rural investment credit ceiling for any calendar 

6 year is the excess (if any) of the sum of the 

7 amounts described in clauses (ii) through (iv) 

8 over the aggregate rural investment credit dol9 lar amount allocated for such year. For pur10 poses of clause (iii), the amount of State rural 

11 investment credit ceiling returned in the cal12 endar year equals the rural investment credit 

13 dollar amount previously allocated within the 

14 State to any investment project which fails to 

15 meet the 10 percent test under section 

16 42(h)(1)(E)(ii) on a date after the close of the 

17 calendar year in which the allocation was made 

18 or which does not become a qualified rural in19 vestment project within the period required by 

20 this section or the terms of the allocation or to 

21 any investment project with respect to which an 

22 allocation is canceled by mutual consent of the 

23 rural investment credit agency and the alloca24 tion recipient. 
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•HR 1686 IH 

1 ‘‘(D) UNUSED RURAL INVESTMENT CREDIT

2 CARRYOVERS ALLOCATED AMONG CERTAIN

3 STATES.—

4 ‘‘(i) IN GENERAL.—The unused rural 

5 investment credit carryover of a State for 

6 any calendar year shall be assigned to the 

7 Secretary for allocation among qualified 

8 States for the succeeding calendar year. 

9 ‘‘(ii) UNUSED RURAL INVESTMENT

10 CREDIT CARRYOVER.—For purposes of this 

11 subparagraph, the unused rural investment 

12 credit carryover of a State for any calendar 

13 year is the excess (if any) of the unused 

14 State rural investment credit ceiling for 

15 such year (as defined in subparagraph 

16 (C)(i)) over the excess (if any) of—

17 ‘‘(I) the unused State rural in18 vestment credit ceiling for the year 

19 preceding such year, over 

20 ‘‘(II) the aggregate rural invest21 ment credit dollar amount allocated 

22 for such year. 

23 ‘‘(iii) FORMULA FOR ALLOCATION OF

24 UNUSED RURAL INVESTMENT CREDIT

25 CARRYOVERS AMONG QUALIFIED
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•HR 1686 IH 

1 STATES.—The amount allocated under this 

2 subparagraph to a qualified State for any 

3 calendar year shall be the amount deter4 mined by the Secretary to bear the same 

5 ratio to the aggregate unused rural invest6 ment credit carryovers of all States for the 

7 preceding calendar year as such State’s 

8 population for the calendar year bears to 

9 the population of all qualified States for 

10 the calendar year. For purposes of the pre11 ceding sentence, population shall be deter12 mined in accordance with section 146(j). 

13 ‘‘(iv) QUALIFIED STATE.—For pur14 poses of this subparagraph, the term 

15 ‘qualified State’ means, with respect to a 

16 calendar year, any State—

17 ‘‘(I) which allocated its entire 

18 State rural investment credit ceiling 

19 for the preceding calendar year, and 

20 ‘‘(II) for which a request is made 

21 (not later than May 1 of the calendar 

22 year) to receive an allocation under 

23 clause (iii). 

24 ‘‘(E) STATE MAY PROVIDE FOR DIF25 FERENT ALLOCATION.—Rules similar to the 
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•HR 1686 IH 

1 rules of section 146(e) (other than paragraph 

2 (2)(B) thereof) shall apply for purposes of this 

3 paragraph. 

4 ‘‘(F) POPULATION.—For purposes of this 

5 paragraph, population shall be determined in 

6 accordance with section 146(j). 

7 ‘‘(G) COST-OF-LIVING ADJUSTMENT.—

8 ‘‘(i) IN GENERAL.—In the case of a 

9 calendar year after 2003, the $1,000,000 

10 amount in subparagraph (C) shall be in11 creased by an amount equal to—

12 ‘‘(I) such dollar amount, multi13 plied by 

14 ‘‘(II) the cost-of-living adjust15 ment determined under section 

16 1(f )(3) for such calendar year by sub17 stituting ‘calendar year 2002’ for ‘cal18 endar year 1992’ in subparagraph (B) 

19 thereof. 

20 ‘‘(ii) ROUNDING.—Any increase under 

21 clause (i) which is not a multiple of $5,000 

22 shall be rounded to the next lowest mul23 tiple of $5,000. 
45

•HR 1686 IH 

1 ‘‘(4) PORTION OF STATE CEILING SET-ASIDE

2 FOR CERTAIN INVESTMENT PROJECTS INVOLVING

3 QUALIFIED NONPROFIT ORGANIZATIONS.—

4 ‘‘(A) IN GENERAL.—At least 10 percent of 

5 the State rural investment credit ceiling for any 

6 State for any calendar year shall be allocated to 

7 qualified rural investment projects described in 

8 subparagraph (B). 

9 ‘‘(B) INVESTMENT PROJECTS INVOLVING

10 QUALIFIED NONPROFIT ORGANIZATIONS.—For 

11 purposes of subparagraph (A), a qualified rural 

12 investment project is described in this subpara13 graph if a qualified nonprofit organization is to 

14 materially participate (within the meaning of 

15 section 469(h)) in the development and oper16 ation of the investment project throughout the 

17 compliance period. 

18 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA19 TION.—For purposes of this paragraph, the 

20 term ‘qualified nonprofit organization’ means 

21 any organization if—

22 ‘‘(i) such organization is described in 

23 any paragraph of section 501(c) and is ex24 empt from tax under section 501(a), 
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•HR 1686 IH 

1 ‘‘(ii) such organization is determined 

2 by the State rural investment credit agency 

3 not to be affiliated with or controlled by a 

4 for-profit organization; and 

5 ‘‘(iii) 1 of the exempt purposes of 

6 such organization includes the fostering of 

7 rural investment. 

8 ‘‘(D) TREATMENT OF CERTAIN SUBSIDI9 ARIES.—

10 ‘‘(i) IN GENERAL.—For purposes of 

11 this paragraph, a qualified nonprofit orga12 nization shall be treated as satisfying the 

13 ownership and material participation test 

14 of subparagraph (B) if any qualified cor15 poration in which such organization holds 

16 stock satisfies such test. 

17 ‘‘(ii) QUALIFIED CORPORATION.—For 

18 purposes of clause (i), the term ‘qualified 

19 corporation’ means any corporation if 100 

20 percent of the stock of such corporation is 

21 held by 1 or more qualified nonprofit orga22 nizations at all times during the period 

23 such corporation is in existence. 

24 ‘‘(E) STATE MAY NOT OVERRIDE SET25 ASIDE.—Nothing in subparagraph (F) of para-
47

•HR 1686 IH 

1 graph (3) shall be construed to permit a State 

2 not to comply with subparagraph (A) of this 

3 paragraph. 

4 ‘‘(F) CREDITS FOR QUALIFIED NONPROFIT

5 ORGANIZATIONS.—

6 ‘‘(i) ALLOWANCE OF CREDIT.—Any 

7 credit which would be allowable under sub8 section (a) with respect to a qualified rural 

9 investment building of a qualified nonprofit 

10 organization if such organization were not 

11 exempt from tax under this chapter shall 

12 be treated as a credit allowable under sub13 part C to such organization. 

14 ‘‘(ii) USE OF CREDIT.—A qualified 

15 nonprofit organization may assign, trade, 

16 sell, or otherwise transfer any credit allow17 able to such organization under subpara18 graph (A) to any taxpayer. 

19 ‘‘(iii) CREDIT NOT INCOME.—A trans20 fer under subparagraph (B) of any credit 

21 allowable under subparagraph (A) shall not 

22 result in income for purposes of section 

23 511. 

24 ‘‘(5) SPECIAL RULES.—
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1 ‘‘(A) BUILDING MUST BE LOCATED WITH2 IN JURISDICTION OF CREDIT AGENCY.—A rural 

3 investment credit agency may allocate its aggre4 gate rural investment credit dollar amount only 

5 to buildings located in the jurisdiction of the 

6 governmental unit of which such agency is a 

7 part. 

8 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

9 LIMIT.—If the aggregate rural investment cred10 it dollar amounts allocated by a rural invest11 ment credit agency for any calendar year exceed 

12 the portion of the State rural investment credit 

13 ceiling allocated to such agency for such cal14 endar year, the rural investment credit dollar 

15 amounts so allocated shall be reduced (to the 

16 extent of such excess) for buildings in the re17 verse of the order in which the allocations of 

18 such amounts were made. 

19 ‘‘(C) CREDIT REDUCED IF ALLOCATED

20 CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT

21 WHICH WOULD BE ALLOWABLE WITHOUT RE22 GARD TO SALES CONVENTION, ETC.—

23 ‘‘(i) IN GENERAL.—The amount of 

24 the credit determined under this section 

25 with respect to any building shall not ex-
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•HR 1686 IH 

1 ceed the clause (ii) percentage of the 

2 amount of the credit which would (but for 

3 this subparagraph) be determined under 

4 this section with respect to such building. 

5 ‘‘(ii) DETERMINATION OF PERCENT6 AGE.—For purposes of clause (i), the 

7 clause (ii) percentage with respect to any 

8 building is the percentage which—

9 ‘‘(I) the rural investment credit 

10 dollar amount allocated to such build11 ing bears to 

12 ‘‘(II) the credit amount deter13 mined in accordance with clause (iii). 

14 ‘‘(iii) DETERMINATION OF CREDIT

15 AMOUNT.—The credit amount determined 

16 in accordance with this clause is the 

17 amount of the credit which would (but for 

18 this subparagraph) be determined under 

19 this section with respect to the building if 

20 this section were applied without regard to 

21 paragraph (2)(A) of subsection (e). 

22 ‘‘(D) RURAL INVESTMENT CREDIT AGENCY

23 TO SPECIFY APPLICABLE PERCENTAGE AND

24 MAXIMUM ELIGIBLE BASIS.—In allocating a 

25 rural investment credit dollar amount to any 
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1 building, the rural investment credit agency 

2 shall specify the applicable percentage and the 

3 maximum eligible basis which may be taken 

4 into account under this section with respect to 

5 such building. The applicable percentage and 

6 maximum eligible basis so specified shall not ex7 ceed the applicable percentage and eligible basis 

8 determined under this section without regard to 

9 this subsection. 

10 ‘‘(6) OTHER DEFINITIONS.—For purposes of 

11 this subsection—

12 ‘‘(A) RURAL INVESTMENT CREDIT AGEN13 CY.—The term ‘rural investment credit agency’ 

14 means any agency authorized to carry out this 

15 subsection. 

16 ‘‘(B) POSSESSIONS TREATED AS

17 STATES.—The term ‘State’ includes a posses18 sion of the United States. 

19 ‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur20 poses of this section—

21 ‘‘(1) COMPLIANCE PERIOD.—The term ‘compli22 ance period’ means, with respect to any building, the 

23 period of 10 taxable years beginning with the 1st

24 taxable year of the credit period with respect there25 to. 
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1 ‘‘(2) NEW BUILDING.—The term ‘new building’ 

2 means a building the original use of which begins 

3 with the taxpayer. 

4 ‘‘(3) EXISTING BUILDING.—The term ‘existing 

5 building’ means any building which is not a new 

6 building. 

7 ‘‘(4) APPLICATION TO ESTATES AND TRUSTS.—

8 In the case of an estate or trust, the amount of the 

9 credit determined under subsection (a) and any in10 crease in tax under subsection (i) shall be appor11 tioned between the estate or trust and the bene12 ficiaries on the basis of the income of the estate or 

13 trust allocable to each. 

14 ‘‘(i) RECAPTURE OF CREDIT.—If—

15 ‘‘(1) as of the close of any taxable year in the 

16 compliance period, the amount of the eligible basis 

17 of any building with respect to the taxpayer is less 

18 than 

19 ‘‘(2) the amount of such basis as of the close 

20 of the preceding taxable year, 

21 then the taxpayer’s tax under this chapter for the taxable 

22 year shall be increased by the credit recapture amount de23 termined under rules similar to the rules of section 42(j). 

24 ‘‘(j) CERTIFICATIONS AND OTHER REPORTS TO SEC25 RETARY.—
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1 ‘‘(1) CERTIFICATION WITH RESPECT TO 1ST

2 YEAR OF CREDIT PERIOD.—Following the close of 

3 the 1st taxable year in the credit period with respect 

4 to any qualified rural investment building, the tax5 payer shall certify to the Secretary (at such time 

6 and in such form and in such manner as the Sec7 retary prescribes)—

8 ‘‘(A) the taxable year, and calendar year, 

9 in which such building was first placed in serv10 ice, 

11 ‘‘(B) the eligible basis of such building as 

12 of the beginning of the credit period, 

13 ‘‘(C) the maximum applicable percentage 

14 and eligible basis permitted to be taken into ac15 count by the appropriate rural investment cred16 it agency under subsection (g), 

17 ‘‘(D) the election made under subsection 

18 (f) with respect to the qualified rural invest19 ment project of which such building is a part, 

20 and 

21 ‘‘(E) such other information as the Sec22 retary may require. 

23 In the case of a failure to make the certification re24 quired by the preceding sentence on the date pre25 scribed therefor, unless it is shown that such failure 
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1 is due to reasonable cause and not to willful neglect, 

2 no credit shall be allowable by reason of subsection 

3 (a) with respect to such building for any taxable 

4 year ending before such certification is made. 

5 ‘‘(2) ANNUAL REPORTS TO THE SECRETARY.—

6 The Secretary may require taxpayers to submit an 

7 information return (at such time and in such form 

8 and manner as the Secretary prescribes) for each 

9 taxable year setting forth—

10 ‘‘(A) the eligible basis for the taxable year 

11 of each qualified rural investment building of 

12 the taxpayer, 

13 ‘‘(B) the information described in para14 graph (1)(C) for the taxable year, and 

15 ‘‘(C) such other information as the Sec16 retary may require. 

17 The penalty under section 6652(j) shall apply to any 

18 failure to submit the return required by the Sec19 retary under the preceding sentence on the date pre20 scribed therefor. 

21 ‘‘(3) ANNUAL REPORTS FROM RURAL INVEST22 MENT CREDIT AGENCIES.—Each agency which allo23 cates any rural investment credit amount to any 

24 building for any calendar year shall submit to the 

25 Secretary (at such time and in such manner as the 
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1 Secretary shall prescribe) an annual report speci2 fying—

3 ‘‘(A) the amount of rural investment credit 

4 amount allocated to each building for such year, 

5 ‘‘(B) sufficient information to identify each 

6 such building and the taxpayer with respect 

7 thereto, and 

8 ‘‘(C) such other information as the Sec9 retary may require. 

10 The penalty under section 6652(j) shall apply to any 

11 failure to submit the report required by the pre12 ceding sentence on the date prescribed therefor. 

13 ‘‘(k) RESPONSIBILITIES OF RURAL INVESTMENT

14 CREDIT AGENCIES.—

15 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT

16 AMONG INVESTMENT PROJECTS.—

17 ‘‘(A) IN GENERAL.—Notwithstanding any 

18 other provision of this section, the rural invest19 ment credit dollar amount with respect to any 

20 building shall be zero unless—

21 ‘‘(i) such amount was allocated pursu22 ant to a qualified rural investment plan of 

23 the agency which is approved by the gov24 ernmental unit (in accordance with rules 

25 similar to the rules of section 147(f)(2) 
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1 (other than subparagraph (B)(ii) thereof)) 

2 of which such agency is a part, 

3 ‘‘(ii) such agency notifies the chief ex4 ecutive officer (or the equivalent) of the 

5 local jurisdiction within which the building 

6 is located of such investment project and 

7 provides such individual a reasonable op8 portunity to comment on the investment 

9 project, 

10 ‘‘(iii) a comprehensive market study 

11 of the development needs of individuals in 

12 the qualifying county to be served by the 

13 investment project is conducted before the 

14 credit allocation is made and at the devel15 oper’s expense by a disinterested party who 

16 is approved by such agency, and 

17 ‘‘(iv) a written explanation is available 

18 to the general public for any allocation of 

19 a rural investment credit dollar amount 

20 which is not made in accordance with es21 tablished priorities and selection criteria of 

22 the rural investment credit agency. 

23 ‘‘(B) QUALIFIED RURAL INVESTMENT

24 PLAN.—For purposes of this section, the term 
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1 ‘qualified rural investment plan’ means any 

2 plan—

3 ‘‘(i) which sets forth selection criteria 

4 to be used to determine priorities of the 

5 rural investment credit agency which are 

6 appropriate to qualifying counties, 

7 ‘‘(ii) which also gives preference in al8 locating rural investment credit dollar 

9 amounts among selected investment 

10 projects to—

11 ‘‘(I) investment projects that tar12 get those small rural counties with 

13 consistently high rates of net out-mi14 gration, 

15 ‘‘(II) investment projects that 

16 link the economic development and job 

17 creation efforts of 2 or more small 

18 rural counties with high rates of net 

19 out-migration, and 

20 ‘‘(III) investment projects that 

21 link the economic development and job

22 creation efforts of 1 or more small 

23 rural counties in the State with high 

24 rates of net out-migration to related 
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1 efforts in regions of such State experi2 encing economic growth, and 

3 ‘‘(iii) which provides a procedure that 

4 the agency (or an agent or other private 

5 contractor of such agency) will follow in 

6 monitoring for noncompliance with the 

7 provisions of this section and in notifying 

8 the Internal Revenue Service of such non9 compliance which such agency becomes 

10 aware of and in monitoring for noncompli11 ance through regular site visits. 

12 ‘‘(C) CERTAIN SELECTION CRITERIA MUST

13 BE USED.—The selection criteria set forth in a 

14 qualified rural investment plan must include—

15 ‘‘(i) investment project location, 

16 ‘‘(ii) technology and transportation in17 frastructure needs, and 

18 ‘‘(iii) private development trends. 

19 ‘‘(2) CREDIT ALLOCATED TO BUILDING NOT TO

20 EXCEED AMOUNT NECESSARY TO ASSURE INVEST21 MENT PROJECT FEASIBILITY.—

22 ‘‘(A) IN GENERAL.—The rural investment 

23 credit dollar amount allocated to an investment 

24 project shall not exceed the amount the rural 

25 investment credit agency determines is nec-
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1 essary for the financial feasibility of the invest2 ment project and its viability as a qualified 

3 rural investment project throughout the compli4 ance period. 

5 ‘‘(B) AGENCY EVALUATION.—In making 

6 the determination under subparagraph (A), the 

7 rural investment credit agency shall consider—

8 ‘‘(i) the sources and uses of funds and 

9 the total financing planned for the invest10 ment project, 

11 ‘‘(ii) any proceeds or receipts expected 

12 to be generated by reason of tax benefits, 

13 ‘‘(iii) the percentage of the rural in14 vestment credit dollar amount used for in15 vestment project costs other than the cost 

16 of intermediaries, and 

17 ‘‘(iv) the reasonableness of the devel18 opmental and operational costs of the in19 vestment project. 

20 Clause (iii) shall not be applied so as to impede 

21 the development of investment projects in hard22 to-develop areas. 

23 ‘‘(C) DETERMINATION MADE WHEN CRED24 IT AMOUNT APPLIED FOR AND WHEN BUILDING

25 PLACED IN SERVICE.—
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1 ‘‘(i) IN GENERAL.—A determination 

2 under subparagraph (A) shall be made as 

3 of each of the following times: 

4 ‘‘(I) The application for the rural 

5 investment credit dollar amount. 

6 ‘‘(II) The allocation of the rural 

7 investment credit dollar amount. 

8 ‘‘(III) The date the building is 

9 first placed in service. 

10 ‘‘(ii) CERTIFICATION AS TO AMOUNT

11 OF OTHER SUBSIDIES.—Prior to each de12 termination under clause (i), the taxpayer 

13 shall certify to the rural investment credit 

14 agency the full extent of all Federal, State, 

15 and local subsidies which apply (or which 

16 the taxpayer expects to apply) with respect 

17 to the building. 

18 ‘‘(l) REGULATIONS.—The Secretary shall prescribe 

19 such regulations as may be necessary or appropriate to 

20 carry out the purposes of this section, including regula21 tions—

22 ‘‘(1) dealing with—

23 ‘‘(A) investment projects which include 

24 more than 1 building or only a portion of a 

25 building, and 
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1 ‘‘(B) buildings which are sold in portions, 

2 ‘‘(2) providing for the application of this section 

3 to short taxable years, 

4 ‘‘(3) preventing the avoidance of the rules of 

5 this section, and 

6 ‘‘(4) providing the opportunity for rural invest7 ment credit agencies to correct administrative errors 

8 and omissions with respect to allocations and record 

9 keeping within a reasonable period after their dis10 covery, taking into account the availability of regula11 tions and other administrative guidance from the 

12 Secretary.’’. 

13 (b) CURRENT YEAR BUSINESS CREDIT CALCULA14 TION.—Section 38(b) (relating to current year business 

15 credit) is amended by striking ‘‘plus’’ at the end of para16 graph (14), by striking the period at the end of paragraph 

17 (15) and inserting ‘‘, plus’’, and by adding at the end the 

18 following: 

19 ‘‘(16) the rural investment credit determined 

20 under section 42A(a).’’. 

21 (c) LIMITATION ON CARRYBACK.—Subsection (d) of 

22 section 39 (relating to carryback and carryforward of un23 used credits) is amended by adding at the end the fol24 lowing: 
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1 ‘‘(11) NO CARRYBACK OF RURAL INVESTMENT

2 CREDIT BEFORE EFFECTIVE DATE.—No amount of 

3 unused business credit available under section 42A 

4 may be carried back to a taxable year ending the 

5 date of the enactment of this paragraph.’’. 

6 (d) CONFORMING AMENDMENTS.—

7 (1) Section 55(c)(1) is amended by inserting 

8 ‘‘or subsection (i) or (j) of section 42A’’ after ‘‘sec9 tion 42’’. 

10 (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and 

11 (k)(1) of section 469 are each amended by inserting 

12 ‘‘or 42A’’ after ‘‘section 42’’. 

13 (3) Section 772(a) is amended by striking 

14 ‘‘and’’ at the end of paragraph (10), by redesig15 nating paragraph (11) as paragraph (12), and by in16 serting after paragraph (10) the following: 

17 ‘‘(11) the rural investment credit determined 

18 under section 42A, and’’.

19 (4) Section 774(b)(4) is amended by inserting 

20 ‘‘, 42A(i),’’ after ‘‘section 42(j)’’. 

21 (e) CLERICAL AMENDMENT.—The table of sections 

22 for subpart D of part IV of subchapter A of chapter 1 

23 is amended by inserting after the item relating to section 

24 42 the following:

‘‘Sec. 42A. Rural investment credit.’’.
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1 (f) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to expenditures made in taxable 

3 years beginning after December 31, 2002. 

4 SEC. 202. ACCELERATED DEPRECIATION FOR RURAL IN5 VESTMENT PROPERTY. 

6 (a) IN GENERAL.—Section 168 is amended by adding 

7 at the end the following: 

8 ‘‘(k) PROPERTY IN RURAL INVESTMENT

9 PROJECTS.—

10 ‘‘(1) IN GENERAL.—For purposes of subsection 

11 (a), the applicable recovery period for qualified rural 

12 investment property shall be determined in accord13 ance with the table contained in paragraph (2) in 

14 lieu of the table contained in subsection (c). 

15 ‘‘(2) APPLICABLE RECOVERY PERIOD FOR

16 RURAL INVESTMENT PROPERTY.—For purposes of 

17 paragraph (1)—

The applicable 

‘‘In the case of: recovery period is: 

3-year property ................................................................. 2 years

5-year property ................................................................. 3 years

7-year property ................................................................. 4 years

10-year property ............................................................... 6 years

15-year property ............................................................... 9 years

20-year property ............................................................... 12 years

Nonresidential real property ............................................ 22 years.

18 ‘‘(3) DEDUCTION ALLOWED IN COMPUTING

19 MINIMUM TAX.—For purposes of determining alter20 native minimum taxable income under section 55, 

21 the deduction under subsection (a) for property to 
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1 which paragraph (1) applies shall be determined 

2 under this section without regard to any adjustment 

3 under section 56. 

4 ‘‘(4) QUALIFIED RURAL INVESTMENT PROP5 ERTY DEFINED.—For purposes of this subsection—

6 ‘‘(A) IN GENERAL.—The term ‘qualified 

7 rural investment property’ means property 

8 which is property described in the table in para9 graph (2) and which is—

10 ‘‘(i) used by the taxpayer predomi11 nantly in the active conduct of a trade or 

12 business within a qualified rural invest13 ment project, 

14 ‘‘(ii) not used or located outside the 

15 qualified rural investment project on a reg16 ular basis, 

17 ‘‘(iii) not acquired (directly or indi18 rectly) by the taxpayer from a person who 

19 is related to the taxpayer (within the 

20 meaning of section 465(b)(3)(C)), and 

21 ‘‘(iv) not property (or any portion 

22 thereof) placed in service for purposes of 

23 operating any facility described in section 

24 144(c)(6)(B). 
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1 ‘‘(B) EXCEPTION FOR ALTERNATIVE DE2 PRECIATION PROPERTY.—The term ‘qualified 

3 rural investment property’ does not include any 

4 property to which the alternative depreciation 

5 system under subsection (g) applies, deter6 mined—

7 ‘‘(i) without regard to subsection 

8 (g)(7) (relating to election to use alter9 native depreciation system), and 

10 ‘‘(ii) after the application of section 

11 280F(b) (relating to listed property with 

12 limited business use). 

13 ‘‘(C) SPECIAL RULE FOR INFRASTRUCTURE

14 INVESTMENT.—

15 ‘‘(i) IN GENERAL.—Subparagraph 

16 (A)(ii) shall not apply to qualified infra17 structure property located outside of the 

18 qualified rural investment project if the 

19 purpose of such property is to connect with 

20 qualified infrastructure property located 

21 within such project. 

22 ‘‘(ii) QUALIFIED INFRASTRUCTURE

23 PROPERTY.—For purposes of this subpara24 graph, the term ‘qualified infrastructure 

25 property’ means qualified rural investment 
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1 property (determined without regard to 

2 subparagraph (A)(ii)) which—

3 ‘‘(I) benefits the qualifying coun4 ty infrastructure, 

5 ‘‘(II) is available to the general 

6 public, and 

7 ‘‘(III) is placed in service in con8 nection with the taxpayer’s active con9 duct of a trade or business within a 

10 qualified rural investment project. 

11 Such term includes, but is not limited to, 

12 roads, power lines, water systems, railroad 

13 spurs, and communications facilities.

14 ‘‘(5) DEFINITIONS.—For purposes of this sub15 section, any term used in this section which is used 

16 in section 42A shall have the meaning given such 

17 term by section 42A.’’. 

18 (b) EFFECTIVE DATE.—The amendment made by 

19 this section shall apply to property placed in service after 

20 December 31, 2002. 
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1 TITLE III—NEW HOMESTEAD 

2 VENTURE CAPITAL FUND 

3 SEC. 301. NEW HOMESTEAD VENTURE CAPITAL FUND. 

4 The Consolidated Farm and Rural Development Act 

5 (7 U.S.C. 1921 et seq.) is amended by adding at the end 

6 the following: 

7 ‘‘Subtitle G—New Homestead 

8 Venture Capital Fund 

9 ‘‘SEC. 383A. SHORT TITLE. 

10 ‘‘This subtitle may be cited as the ‘New Homestead 

11 Venture Capital Fund Act’. 

12 ‘‘SEC. 383B. DEFINITIONS. 

13 ‘‘In this subtitle: 

14 ‘‘(1) AUTHORIZED PRIVATE INVESTOR.—The 

15 term ‘authorized private investor’ means an indi16 vidual, legal entity, or affiliate or subsidiary of an 

17 individual or legal entity that—

18 ‘‘(A) is eligible to receive a loan guarantee 

19 under this title; 

20 ‘‘(B) is eligible to receive a loan guarantee 

21 under the Rural Electrification Act of 1936 (7 

22 U.S.C. 901 et seq.);

23 ‘‘(C) is created under the National Con24 sumer Cooperative Bank Act (12 U.S.C. 3011 

25 et seq.); 
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1 ‘‘(D) is an insured depository institution 

2 subject to section 383D(b)(2); 

3 ‘‘(E) is a Farm Credit System institution 

4 described in section 1.2(a) of the Farm Credit 

5 Act of 1971 (12 U.S.C. 2002(a)); or 

6 ‘‘(F) is determined by the Board to be an 

7 appropriate investor in the Fund. 

8 ‘‘(2) BOARD.—The term ‘Board’ means the 

9 board of directors of the Fund established under 

10 section 383F. 

11 ‘‘(3) FUND.—The term ‘Fund’ means the New 

12 Homestead Venture Capital Fund established under 

13 section 383C. 

14 ‘‘(4) GROUP OF SIMILAR AUTHORIZED PRIVATE

15 INVESTORS.—The term ‘group of similar authorized 

16 private investors’ means any 1 of the following: 

17 ‘‘(A) Insured depository institutions with 

18 total assets of more than $250,000,000. 

19 ‘‘(B) Insured depository institutions with 

20 total assets equal to or less than $250,000,000.

21 ‘‘(C) Farm Credit System institutions de22 scribed in section 1.2(a) of the Farm Credit Act 

23 of 1971 (12 U.S.C. 2002(a)). 

24 ‘‘(D) Cooperative financial institutions 

25 (other than Farm Credit System institutions). 
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1 ‘‘(E) Authorized private investors, other 

2 than those described in subparagraphs (A) 

3 through (D). 

4 ‘‘(F) Other nonprofit organizations, includ5 ing credit unions. 

6 ‘‘(5) INSURED DEPOSITORY INSTITUTION.—The 

7 term ‘insured depository institution’ means any bank 

8 or savings association the deposits of which are in9 sured under the Federal Deposit Insurance Act (12 

10 U.S.C. 1811 et seq.). 

11 ‘‘(6) QUALIFYING COUNTY.—The term ‘quali12 fying county’ means any county that—

13 ‘‘(A) is located outside a metropolitan sta14 tistical area (as defined by the Office of Man15 agement and Budget); and 

16 ‘‘(B) during the 20-year period ending 

17 with the fiscal year preceding the applicable fis18 cal year for which assistance is made available 

19 under section 383E, has a net outmigration of 

20 inhabitants from the county of at least 10 per21 cent of the population of the county at the be22 ginning of the period. 

23 ‘‘(7) RURAL BUSINESS.—The term ‘rural busi24 ness’ means a rural cooperative, a value-added agri-
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1 cultural enterprise, or any other enterprise that is or 

2 will be located in a qualifying county. 

3 ‘‘SEC. 383C. ESTABLISHMENT OF THE FUND. 

4 ‘‘(a) IN GENERAL.—

5 ‘‘(1) AUTHORITY TO ESTABLISH.—Upon certifi6 cation by the Secretary that, to the maximum extent 

7 practicable, the parties proposing to establish a fund 

8 provide a broad representation of all of the groups 

9 of similar authorized private investors described in 

10 subparagraphs (A) through (F) of section 383B(4), 

11 the parties so certified may establish, a non-Federal 

12 entity under State law, to purchase shares of, and 

13 manage a fund to be known as the ‘New Homestead 

14 Venture Capital Fund’, to generate and provide eq15 uity capital to rural businesses. 

16 ‘‘(2) OWNERSHIP.—

17 ‘‘(A) IN GENERAL.—To the maximum ex18 tent practicable, equity ownership of the Fund 

19 shall be distributed among authorized private 

20 investors representing all of the groups of simi21 lar authorized private investors described in 

22 subparagraphs (A) through (F) of section 

23 383B(4). 

24 ‘‘(B) EXCLUSION OF GROUPS.—No group 

25 of similar authorized private investors shall be 
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1 excluded from equity ownership of the Fund 

2 during any period during which the Fund is in 

3 existence if an authorized private investor rep4 resentative of the group is able and willing to 

5 invest in the Fund. 

6 ‘‘(b) PURPOSE.—The purpose of the Fund is to 

7 strengthen the economies of qualifying counties by—

8 ‘‘(1) making needed investments in qualifying 

9 counties to reverse the devastating impact of chronic 

10 outmigration and to help the qualifying counties re11 build and grow; 

12 ‘‘(2) providing equity funding for existing and 

13 startup rural businesses with high potential for job 

14 creation that are or will be located in qualifying 

15 counties; 

16 ‘‘(3) offering the funding described in para17 graph (2) to rural businesses, many of which have 

18 difficulty obtaining equity capital; 

19 ‘‘(4) authorizing use of the funding described in 

20 paragraph (2) only after State and local govern21 ments match a significant portion of the funding; 

22 ‘‘(5) requiring a portion of the funding de23 scribed in paragraph (2) to be used for technical and 

24 other similar assistance to rural businesses; and 
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1 ‘‘(6) providing incentives to greater participa2 tion by authorized private investors through provi3 sion of guarantees of up to 60 percent of the invest4 ments of the authorized private investors in quali5 fying counties. 

6 ‘‘(c) ARTICLES OF INCORPORATION AND BY-LAWS.—

7 The articles of incorporation and by-laws of the Fund shall 

8 set forth purposes of the Fund that are consistent with 

9 the purposes described in subsection (b). 

10 ‘‘SEC. 383D. INVESTMENT IN THE FUND. 

11 ‘‘(a) IN GENERAL.—The Secretary shall—

12 ‘‘(1) subject to subsection (b)(1), make avail13 able to the Fund $200,000,000 for each of fiscal 

14 years 2003 through 2012; 

15 ‘‘(2) subject to subsection (c), guarantee a por16 tion of each investment made by an authorized pri17 vate investor in the Fund; and 

18 ‘‘(3) subject to subsection (d), guarantee the re19 payment of principal of, and accrued interest on, de20 bentures issued by the Fund to authorized private 

21 investors. 

22 ‘‘(b) NON-FEDERAL FUNDS.—

23 ‘‘(1) IN GENERAL.—Under subsection (a)(1), 

24 the Secretary shall make an amount available to the 

25 Fund for a fiscal year only after—
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1 ‘‘(A) at least $50,000,000 has been in2 vested in the Fund for the fiscal year by au3 thorized private investors in accordance with 

4 this subtitle and the terms and conditions set 

5 forth in the by-laws of the Fund; and 

6 ‘‘(B) at least $50,000,000 has been in7 vested in the Fund for the fiscal year by State 

8 and local governments. 

9 ‘‘(2) INSURED DEPOSITORY INSTITUTIONS.—

10 ‘‘(A) IN GENERAL.—Subject to subpara11 graphs (B) and (C)—

12 ‘‘(i) an insured depository institution 

13 may be an authorized private investor in 

14 the Fund; and 

15 ‘‘(ii) an investment in the Fund may 

16 be considered to be part of the record of 

17 an institution in meeting the credit needs 

18 of the community in which the institution 

19 is located under any applicable Federal 

20 law. 

21 ‘‘(B) INVESTMENT LIMIT.—The total in22 vestment in the Fund of an insured depository

23 institution shall not exceed 5 percent of the in24 stitution’s capital and surplus. 
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1 ‘‘(C) REGULATORY AUTHORITY.—An ap2 propriate Federal banking agency may, by regu3 lation or order, impose on any insured deposi4 tory institution investing in the Fund, any safe5 guard, limitation, or condition (including an in6 vestment limit that is lower than the investment 

7 limit under subparagraph (B)) that the Federal 

8 banking agency considers to be appropriate to 

9 ensure that the institution operates—

10 ‘‘(i) in a financially sound manner; 

11 and 

12 ‘‘(ii) in compliance with all applicable 

13 law. 

14 ‘‘(c) GUARANTEE OF PRIVATE INVESTMENTS.—

15 ‘‘(1) IN GENERAL.—The Secretary shall guar16 antee, under terms and conditions determined by the 

17 Secretary—

18 ‘‘(A) except as provided in subparagraph 

19 (B), 40 percent of any loss of the principal of 

20 each investment made by an authorized private 

21 investor in the Fund; and 

22 ‘‘(B) 60 percent of any loss of the prin23 cipal of each investment made by an authorized 

24 private investor in the Fund if the investment 
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1 is used for a manufacturing or high-technology 

2 business. 

3 ‘‘(2) MAXIMUM TOTAL GUARANTEE.—The ag4 gregate potential liability of the Secretary with re5 spect to all guarantees under paragraph (1) shall 

6 not apply to more than $500,000,000 in private in7 vestments in the Fund. 

8 ‘‘(3) REDEMPTION OF GUARANTEE.—

9 ‘‘(A) DATE.—An authorized private inves10 tor in the Fund may redeem a guarantee under 

11 paragraph (1), with respect to the total invest12 ments in the Fund and the total losses of the 

13 authorized private investor as of the date of re14 demption—

15 ‘‘(i) on the date that is 5 years after 

16 the date of the initial investment of the au17 thorized private investor; or 

18 ‘‘(ii) annually thereafter. 

19 ‘‘(B) EFFECT OF REDEMPTION.—On re20 demption of a guarantee under subparagraph 

21 (A)—

22 ‘‘(i) the shares in the Fund of the au23 thorized private investor shall be redeemed; 

24 and 
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1 ‘‘(ii) the authorized private investor 

2 shall be prohibited from making any future 

3 investment in the Fund. 

4 ‘‘(d) DEBENTURES.—

5 ‘‘(1) IN GENERAL.—The Fund may, at the dis6 cretion of the Board, raise additional capital through 

7 the issuance of debentures and through other means 

8 determined to be appropriate by the Board. 

9 ‘‘(2) GUARANTEE OF DEBT BY SECRETARY.—

10 ‘‘(A) IN GENERAL.—The Secretary shall 

11 guarantee 100 percent of the principal of, and 

12 accrued interest on, debentures issued by the 

13 Fund that are approved by the Secretary. 

14 ‘‘(B) MAXIMUM DEBT GUARANTEED BY

15 SECRETARY.—The outstanding value of deben16 tures issued by the Fund and guaranteed by 

17 the Secretary shall not exceed the lesser of—

18 ‘‘(i) the amount equal to twice the 

19 value of the assets held by the Fund; or 

20 ‘‘(ii) $500,000,000. 

21 ‘‘(C) RECAPTURE OF GUARANTEE PAY22 MENTS.—If the Secretary makes a payment on 

23 a debenture issued by the Fund as a result of 

24 a guarantee of the Secretary under this para-
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1 graph, the Secretary shall have priority over 

2 other creditors for repayment of the debenture. 

3 ‘‘(3) AUTHORIZED PRIVATE INVESTORS.—An 

4 authorized private investor may purchase debentures 

5 issued by the Fund. 

6 ‘‘SEC. 383E. INVESTMENTS AND OTHER ACTIVITIES OF THE 

7 FUND. 

8 ‘‘(a) INVESTMENTS.—

9 ‘‘(1) IN GENERAL.—

10 ‘‘(A) TYPES.—Subject to subparagraphs 

11 (B) and (C), the Fund may—

12 ‘‘(i) make equity investments in a 

13 rural business that meets the requirements 

14 of paragraph (6) and such other require15 ments as the Board may establish; and 

16 ‘‘(ii) extend credit to such rural busi17 ness in—

18 ‘‘(I) the form of mezzanine debt, 

19 convertible debt, or subordinated debt; 

20 or 

21 ‘‘(II) any other form of near-eq22 uity debt. 

23 ‘‘(B) LIMITATIONS ON EQUITY INVEST24 MENTS.—After the initial equity investment in 

25 a rural business described in subparagraph
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1 (A)(i), the Fund may not make additional eq2 uity investments in such rural business if the 

3 additional equity investments would result in 

4 the Fund owning more than 30 percent of the 

5 equity of such rural business. 

6 ‘‘(C) LIMITATION ON NONEQUITY INVEST7 MENTS.—Except in the case of a project to as8 sist a rural cooperative, the total amount of 

9 nonequity investments described in subpara10 graph (A)(ii) that may be provided by the Fund 

11 shall not exceed 20 percent of the total invest12 ments of the Fund in the project. 

13 ‘‘(2) PROCEDURES.—The Fund shall implement 

14 procedures to ensure that—

15 ‘‘(A) the financing arrangements of the 

16 Fund meet the Fund’s primary focus of pro17 viding equity capital; and 

18 ‘‘(B) the Fund does not compete with con19 ventional sources of credit. 

20 ‘‘(3) DIVERSITY OF PROJECTS.—The Fund—

21 ‘‘(A) shall seek to make equity investments 

22 in a variety of viable projects for rural busi23 nesses, with a significant share of invest24 ments—
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1 ‘‘(i) in manufacturing or high-tech2 nology businesses of diverse sizes; 

3 ‘‘(ii) in smaller projects in rural com4 munities of diverse sizes; and 

5 ‘‘(iii) in cooperative and noncoopera6 tive businesses; and 

7 ‘‘(B) shall be managed in a manner that 

8 diversifies the risks to the Fund among a vari9 ety of projects. 

10 ‘‘(4) LIMITATION ON RURAL BUSINESSES AS11 SISTED.—The Fund shall not invest in any rural 

12 business that—

13 ‘‘(A) is primarily retail in nature (as deter14 mined by the Board), other than a purchasing 

15 cooperative, or 

16 ‘‘(B) consists of the operation of any facil17 ity described in section 144(c)(6)(B). 

18 ‘‘(5) INTEREST RATE LIMITATIONS.—Returns 

19 on investments in and by the Fund, and returns on 

20 the extension of credit by participants in projects as21 sisted by the Fund, shall not be subject to any State 

22 or Federal law establishing a maximum allowable in23 terest rate. 

24 ‘‘(6) REQUIREMENTS FOR RECIPIENTS.—
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1 ‘‘(A) OTHER INVESTMENTS.—Any recipi2 ent of amounts from the Fund shall make or 

3 obtain a significant investment from a source of 

4 capital other than the Fund. 

5 ‘‘(B) SPONSORSHIP.—To be considered for 

6 an equity investment from the Fund, a rural 

7 business investment project shall be sponsored 

8 by a regional, State, or local sponsoring or en9 dorsing organization such as—

10 ‘‘(i) a financial institution; 

11 ‘‘(ii) a development organization; or 

12 ‘‘(iii) any other established entity en13 gaging or assisting in rural business devel14 opment, including a rural cooperative. 

15 ‘‘(b) TECHNICAL ASSISTANCE.—The Board shall use 

16 not less than 2 percent of capital provided by the Federal 

17 Government to provide technical assistance to rural busi18 nesses seeking an equity investment from the Fund. 

19 ‘‘(c) ANNUAL AUDIT.—

20 ‘‘(1) IN GENERAL.—The Board shall authorize 

21 an annual audit of the financial statements of the 

22 Fund by a nationally recognized auditing firm using 

23 generally accepted accounting procedures. 
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1 ‘‘(2) AVAILABILITY OF AUDIT RESULTS.—The 

2 results of the audit required by paragraph (1) shall 

3 be made available to investors in the Fund. 

4 ‘‘(d) ANNUAL REPORT.—The Board shall prepare 

5 and make available to the public an annual report that—

6 ‘‘(1) describes the projects funded with amounts 

7 from the Fund; 

8 ‘‘(2) specifies the recipients of amounts from 

9 the Fund; 

10 ‘‘(3) specifies the co-investors in all projects 

11 that receive amounts from the Fund; and 

12 ‘‘(4) meets the reporting requirements, if any, 

13 of the State under the law of which the Fund is es14 tablished. 

15 ‘‘(e) OTHER AUTHORITIES.—

16 ‘‘(1) IN GENERAL.—The Board may exercise 

17 such other authorities as are necessary to carry out 

18 this subtitle. 

19 ‘‘(2) OVERSIGHT.—The Secretary shall enter 

20 into a contract with the Administrator of the Small 

21 Business Administration under which the Adminis22 trator of the Small Business Administration shall be 

23 responsible for the routine duties of the Secretary in 

24 regard to the Fund. 
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1 ‘‘SEC. 383F. GOVERNANCE OF THE FUND. 

2 ‘‘(a) IN GENERAL.—The Fund shall be governed by 

3 a board of directors that represents all of the authorized 

4 private investors in the Fund and the Federal Government 

5 and that consists of—

6 ‘‘(1) a designee of the Secretary; 

7 ‘‘(2) 2 members who are appointed by the Sec8 retary and are not Federal employees, including—

9 ‘‘(A) 1 member with expertise in venture 

10 capital investment; and 

11 ‘‘(B) 1 member with expertise in coopera12 tive development; 

13 ‘‘(3) 1 member who is appointed by the Sec14 retary and is a State government representative 

15 from among States with the highest rates of out16 migration from qualifying counties; and 

17 ‘‘(4) 7 members who are elected by the author18 ized private investors with investments in the Fund, 

19 of whom not less than 1 member shall be a rural 

20 community banker from an insured depository insti21 tution with total assets equal to or less than 

22 $250,000,000 with an investment in the Fund. 

23 ‘‘(b) LIMITATION ON VOTING CONTROL.—No indi24 vidual investor or group of similar authorized private in25 vestors may control more than 25 percent of the votes on 

26 the Board. 
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1 ‘‘SEC. 383G. AUTHORIZATION OF APPROPRIATIONS. 

2 ‘‘There are authorized to be appropriated such sums 

3 as are necessary to carry out this subtitle.’’.

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