Department of the Treasury Contents

Internal Revenue Service Introduction .............................. 1

Empowerment Zones ....................... 3

Publication 954 Designated Zones ....................... 3

(Rev. January 2004) Empowerment Zone Employment Credit ....... 4

Cat. No. 20086A Increased Section 179 Deduction ............ 5

Rollover of Gain From Sale of

Empowerment Zone Assets ............. 7

Tax Incentives Increased Exclusion of Gain From

Qualified Small Business Stock .......... 7

Renewal Communities ...................... 8

for Distressed Designated Renewal Communities ........... 8

Renewal Community Employment Credit ...... 8

Communities Increased Section 179 Deduction ............ 9

Commercial Revitalization Deduction ......... 10

Capital Gain Exclusion .................... 11

Enterprise Communities ..................... 13

New York Liberty Zone ...................... 14

New York Liberty Zone Business

Employee Credit ..................... 14

Special Liberty Zone Depreciation

Allowance .......................... 15

Increased Section 179 Deduction ............ 16

New York Liberty Zone Leasehold

Improvement Property ................. 17

Extension of Replacement Period for

Involuntarily Converted Property .......... 17

New Markets Credit ........................ 17

Tax-Exempt Bond Financing ................. 21

Qualified Zone Academy Bonds .............. 23

Work Opportunity Credit .................... 24

Welfare-to-Work Credit ...................... 25

Indian Employment Credit ................... 26

Depreciation of Property

Used on Indian Reservations .............. 27

Capital Gain Exclusion

for DC Zone Assets ..................... 28

How To Get Tax Help ....................... 29

Index .................................... 32

Introduction

This publication is for business owners who want to find

out whether they qualify for certain tax incentives. These

incentives are intended to help empowerment zones, en- Get forms and other information terprise communities, renewal communities, and other disfaster and easier by: tressed communities. A distressed community is any area

whose poverty rate or other conditions cause any of these Internet • www.irs.gov or FTP • ftp.irs.gov tax incentives to apply. The requirements for each tax

FAX • 703–368–9694 (from your fax machine) incentive are different. The following paragraphs may

guide you in using this publication.
To find out whether your area has been designated an We respond to many letters by telephone. Therefore, it

empowerment zone read Designated Zones on page 3. To would be helpful if you would include your daytime phone

find out whether your area has been designated a renewal number, including the area code, in your correspondence.

community, read Designated Renewal Communities on

page 8. To find out whether your area has been designated Useful Items

an enterprise community, read Enterprise Communities on You may want to see: page 13.

If you know that your area has been designated as an Publication empowerment zone, enterprise community, or renewal

community, skip the sections on designated zones and ❏ 946 How To Depreciate Property

communities and begin by reading the first few paragraphs

of each of the other sections of the publication. Then, read Form (and Instructions)

the details of the sections that apply to you. ❏ 3800 General Business Credit If you know that your area has not been designated as a

zone or community, you should still read the first few ❏ 5884 Work Opportunity Credit

paragraphs of each section. Some of these incentives are ❏ 8844 Empowerment Zone and Renewal available in distressed communities that have not been Community Employment Credit designated as empowerment zones, enterprise communities, or renewal communities. Read the details of the sec- ❏ 8845 Indian Employment Credit

tions that apply to you. ❏ 8850 Pre-Screening Notice and Certification

Comments and suggestions. We welcome your com- Request for the Work Opportunity and

ments about this publication and your suggestions for Welfare-to-Work Credits

future editions. ❏ 8860 Qualified Zone Academy Bond Credit You can email us at *taxforms@irs.gov. Please put

“Publications Comment” on the subject line. ❏ 8861 Welfare-to-Work Credit

You can write to us at the following address: ❏ 8874 New Markets Credit

Internal Revenue Service ❏ 8884 New York Liberty Zone Business

Business Forms and Publications Branch Employee Credit

SE:W:CAR:MP:T:B

1111 Constitution Ave. NW

Washington, DC 20224

Page 2
Table 1. Tax Incentives for Distressed Communities

 Empowerment Enterprise Renewal

Zones Communities Communities

Type of Benefit (EZs) (ECs) (RCs)

Credits

EZ Employment Credit X

RC Employment Credit X

Work Opportunity Credit X X X

Welfare-to-Work Credit X X X

Indian Employment Credit X X X

New Markets Credit X X X

Deductions

Increased Section 179 Deduction X X

Commercial Revitalization Deduction X

Depreciation of Property Used on Indian Reservations X X X

Bond Financing

Enterprise Zone Facility Bonds X X

Qualified Zone Academy Bonds (QZABs) X X X

Capital Gains

Capital Gain Exclusion for RC and DC Zone Assets X*

Rollover of Gain from Sale of EZ Assets X

Increased Exclusion of Gain From Qualified Small X Business Stock

* Also applicable to District of Columbia Enterprise Zone.

• Fresno, CA

Empowerment Zones • Los Angeles, CA (city and county)

This section describes the areas that have been desig- • Santa Ana, CA

nated empowerment zones and explains the tax benefits • New Haven, CT

available to businesses in those zones. • Jacksonville, FL

Designated Zones • Miami/Dade County, FL

• Chicago, IL The following paragraphs describe current designations of

empowerment zones. The empowerment zone designa- • Gary/Hammond/East Chicago, IN

tions will generally remain in effect until the end of 2009. • Boston, MA

Urban areas. Parts of the following urban areas are em- • Baltimore, MD

powerment zones. You can find out if your business or an • Detroit, MI employee’s residence is located within an urban empowerment zone by using the RC/EZ/EC Address Locator at • Minneapolis, MN www.hud.gov/crlocator or by calling 1-800-998-9999. • St. Louis, MO/East St. Louis, IL

• Pulaski County, AR • Cumberland County, NJ

• Tucson, AZ

Page 3
• New York, NY Empowerment Zone Employment • Syracuse, NY Credit

• Yonkers, NY The empowerment zone employment credit provides busi-

• Cincinnati, OH nesses with an incentive to hire individuals who both live

and work in an empowerment zone. (An exception applies • Cleveland, OH to the Washington, DC empowerment zone. Individuals

• Columbus, OH who work in the Washington, DC empowerment zone may

live anywhere in the District of Columbia.) You can claim • Oklahoma City, OK the credit if you pay or incur “qualified zone wages” to a

• Philadelphia, PA/Camden, NJ “qualified zone employee.”

The credit is 20% of the qualified zone wages paid or • Columbia/Sumter, SC incurred during a calendar year. The amount of qualified

• Knoxville, TN zone wages you can use to figure the credit cannot be

more than $15,000 for each employee for each calendar • El Paso, TX year. As a result, the credit can be as much as $3,000

• San Antonio, TX (20% of $15,000) per qualified zone employee each year.

• Norfolk/Portsmouth, VA Qualified zone employee. A qualified zone employee is

• Huntington, WV/Ironton, OH any employee who meets both of the following tests.

1) The employee performs substantially all of his or her

Washington, DC. Under section 1400, parts of Washing- services for you within an empowerment zone and in

ton, DC, are treated as an empowerment zone. For details, your trade or business.

use the RC/EZ/EC Address Locator at www.hud.gov/ 2) While performing those services, the employee’s crlocator or see Notice 98-57, on page 9 of Internal main home is within that empowerment zone (for Revenue Bulletin 1998-47 at www.irs.gov/pub/irs-irbs/ services performed within the DC Zone, the irb98-47.pdf. employee’s main home may be anywhere within the

Rural areas. Parts of the following rural areas are em- District of Columbia).

powerment zones. You can find out if your business is Both full-time and part-time employees may qualify. located within a rural empowerment zone by using the RC/

EZ/EC Address Locator at www.hud.gov/crlocator or by Substantially all services performed within the zone.

calling 1-800-645-4712. You can use the pay-period method or the calendar-year

method to determine the period of time the employee has • Desert Communities, CA (part of Riverside County) performed services in the zone. For details, see section

• Southwest Georgia United, GA (part of Crisp County 1.1396–1 of the regulations.

and all of Dooly County) Nonqualified employees. The following individuals

• Southernmost Illinois Delta, IL (parts of Alexander are not qualified zone employees. For more details, see

and Johnson Counties and all of Pulaski County) the Form 8844 instructions.

• Kentucky Highlands, KY (part of Wayne County and 1) An individual you employ for less than 90 calendar all of Clinton and Jackson Counties) days. However, this 90-day requirement does not

• Aroostook County, ME (part of Aroostook County) apply in either of the following situations.

• Mid-Delta, MS (parts of Bolivar, Holmes, Hum- a) You terminate the employee because of misconphreys, Leflore, Sunflower, and Washington Coun- duct as determined under the state unemployties) ment compensation law that applies.

• Griggs-Steele, ND (part of Griggs County and all of b) The employee becomes disabled before the 90th

Steele County) day. However, if the disability ends before the

90th day, you must offer to reemploy the former • Oglala Sioux Tribe, SD (part of Jackson County and employee. all of Bennett and Shannon Counties)

• Middle Rio Grande FUTURO Communities, TX 2) Certain related taxpayers.

(parts of Dimmit, Maverick, Uvalde, and Zavala 3) Certain dependents. Counties)

4) Any 5% owner. • Rio Grande Valley, TX (parts of Cameron, Hidalgo,

Starr, and Willacy Counties) 5) An individual you employ at any:

a) Private or commercial golf course,

b) Country club,

Page 4
c) Massage parlor, salaries and wages and certain education and training

costs by the amount of your current year empowerment d) Hot tub facility, zone employment credit (before applying the tax liability

e) Suntan facility, limit).

f) Racetrack, or other facility used for gambling, or More information. For more information about the emg) Store whose principal business is the sale of alco- powerment zone employment credit, see Form 8844.

holic beverages for off-premise consumption.

Increased Section 179 Deduction

6) Any individual you employ in a farming trade or business if, at the close of the tax year, the sum of the Section 179 of the Internal Revenue Code allows you to

following amounts is more than $500,000. choose to deduct all or part of the cost of certain qualifying

property in the year you place it in service. You can do this a) The larger of the unadjusted bases or fair market instead of recovering the cost by taking depreciation de- value of the farm assets you own. ductions over a specified recovery period. There are limits,

b) The value of the farm assets you lease. however, on the amount you can deduct in a tax year.

You may be able to claim an increased section 179

deduction if your business qualifies as an “enterprise zone

Qualified zone wages. Qualified zone wages are any business.” The increase can be as much as $35,000. This

wages you pay or incur for services performed by an increased section 179 deduction applies to “qualified zone

employee while the employee is a qualified zone employee property” you place in service in an empowerment zone. (defined earlier). Wages are generally defined as wages

(excluding tips) subject to the Federal Unemployment Tax Enterprise zone business. For the increased section

Act (FUTA) without regard to the FUTA dollar limit. 179 deduction, a corporation, partnership, or sole proprieAlso treat as qualified zone wages certain training and torship is an enterprise zone business if all the following

education expenses you pay or incur on behalf of a quali- statements are true for the tax year.

fied zone employee.

1) Every trade or business of the corporation or partner- Effect of welfare-to-work, work opportunity, or New ship is the active conduct of a qualified business York Liberty Zone business employee credit. Qualified (defined later) within an empowerment zone. (This zone wages do not include any amount you take into rule does not apply to a sole proprietorship.) account in figuring the welfare-to-work credit, the work

opportunity credit, or the New York Liberty Zone business 2) At least 50% of its total gross income is from the

employee credit. In addition, you must reduce the $15,000 active conduct of a qualified business within a zone.

maximum qualified zone wages for each qualified zone 3) A substantial part of the use of its tangible property is employee by the amount of wages you use to figure any of within a zone. those credits for that employee.

4) A substantial part of its intangible property is used in

Fiscal year taxpayers. If you use a fiscal tax year, the the active conduct of the business.

amount of qualified zone wages you use to figure the credit 5) A substantial part of the employees’ services are is the amount paid or incurred during the calendar year that performed within a zone. ends during your tax year.

6) At least 35% of the employees are residents of an

Example. Your tax year begins on February 1 and ends empowerment zone. (This rule does not apply to

on January 31 of the next year. You use the cash method businesses in the DC Zone.)

of accounting and have one employee, whom you hired in 7) Less than 5% of the average of the total unadjusted March 2003 and pay $1,000 a month. You paid that em- bases of the property owned by the business is from: ployee qualified zone wages of $10,000 in calendar year

2003 and $1,000 in January 2004. When you figure your a) Nonqualified financial property (generally, debt, credit for the tax year ending January 31, 2004, you use stock, partnership interests, options, futures con- the $10,000 paid in 2003 but cannot use the $1,000 paid in tracts, forward contracts, warrants, notional princi- January 2004. That amount will be used to figure the credit pal contracts, and annuities), or on your next tax return. b) Collectibles not held primarily for sale to customClaiming the credit. Use Form 8844 to claim this credit. ers.

Although the empowerment zone employment credit is a

component of the general business credit, a special tax For a sole proprietorship, the term “employee” in (5) and

liability limit applies to this credit. Therefore, you figure the (6) includes the proprietor.

credit separately and never carry it to Form 3800, General Qualified business. A qualified business is generally Business Credit. any trade or business except one that consists primarily of

Effect on salary and wage deduction. In general, you the development or holding of intangibles for sale or limust reduce the deduction on your income tax return for cense.

Page 5
However, the rental to others of real property located in dollar limit is increased by the smaller of the following

an empowerment zone is a qualified business only if the amounts.

property is not residential rental property and at least 50%

of the gross rental income from the property is from enter- 1) The cost of that property.

prise zone businesses. 2) $35,000. The rental to others of tangible personal property is a

qualified business only if at least 50% of the rentals of the The following table shows these maximum dollar limits.

property are to enterprise zone businesses or zone re- Table 2. Maximum Dollar Limits sidents.

Also, a qualified business does not include any business listed earlier in item (5) or item (6) under Nonqualified Maximum employees in the Empowerment Zone Employment Credit Maximum Dollar Limit

section. For Tax Years Section 179 With Qualified

Beginning In: Dollar Limit Zone Property

Qualified zone property. For the increased section 179 2002 . . . . . . . . . . . . . . . . . . $ 24,000 $ 59,000 deduction, qualified zone property is any depreciable tan- 2003 .................. 100,000 135,000 gible property if all the following are true.

2004 .................. 102,000* 137,000*

1) You acquired the property after the zone designation 2005 .................. Inflation Inflation

took effect. Adjusted Adjusted

2) You did not acquire the property from a related per- *Inflation-adjusted amount for 2004

son or member of a controlled group of which you

are a member. For 2005, the total amount you can elect to deduct under section 179 will be increased to reflect 3) Your basis in the property is not determined either by an adjustment for inflation. The inflation-adjusted

TIP

its adjusted basis in the hands of the person from amount for 2004 is $102,000 (rounded to the nearest whom you acquired it or under the stepped-up basis multiple of $1,000). rules for property acquired from a decedent.

These maximum dollar limits are reduced if you go over 4) You were the first person to use the property in an the investment limit (discussed next) in any tax year. empowerment zone.

5) At least 85% of the property’s use is in an empower- Investment limit. For each dollar of your business cost

ment zone and in the active conduct of a qualified over the threshold amount ($400,000 for 2003) for section

trade or business in the zone. 179 property placed in service in a tax year, reduce the

maximum dollar limit by $1 (but not below zero). However, Buildings are qualified zone property, but they do not count only one-half of the cost of section 179 property that qualify for the section 179 deduction. Used property may is also qualified zone property when figuring the invest- be qualified zone property if it has not previously been

used within an empowerment zone. ment limit.

Special rule for substantially renovated property. Reduced dollar limit for cost exceeding the threshProperty will be treated as having met requirements (1) old amount. If the cost of your qualifying section 179

and (4) if you substantially renovate the property. You property placed in service in 2003 is over $400,000, you

substantially renovate property if, during any 24-month must reduce the dollar limit (but not below zero) by the

period beginning after the zone designation took effect, amount of cost over $400,000. If the cost of your section

your additions to the property’s basis are more than the 179 property placed in service during 2003 is $500,000 or

greater of the following amounts. more, you cannot take a section 179 deduction and you

cannot carry over the cost that is more than $500,000. 1) 100% of the adjusted basis of the property at the

beginning of the 24-month period. For 2005, the threshold amount used to figure

any reduction in the dollar limit will be increased 2) $5,000. to reflect an adjustment for inflation. The

TIP

inflation-adjusted amount for 2004 is $410,000 (rounded to

Section 179 deduction limits. There are limits on the the nearest multiple of $10,000).

amount you can deduct under section 179. The following

sections explain how these limits are increased for certain Example. In 2003, your enterprise zone business qualified zone property placed in service by an enterprise placed in service section 179 property that is qualified zone zone business. property costing $820,000. Because all of this property is

Maximum dollar limit. The total cost of section 179 qualified zone property, only $410,000 (one-half of its cost)

property that you can deduct for a tax year generally is used to figure the investment limit. Because $410,000 is

cannot be more than the maximum section 179 dollar limit. $10,000 more than $400,000, you must reduce the maxiHowever, if you place section 179 property that is qualified mum dollar limit by $10,000. Your maximum dollar limit for

zone property in service during the year, this maximum 2003 is $135,000. You can claim a section 179 deduction

Page 6
of $125,000 ($135,000 – $10,000) for 2003 (if your taxable 1) You acquired the stock or partnership interest income from trades or businesses is at least $125,000). after December 21, 2000, solely in exchange for

Recapture. The recapture rules of section 179 apply cash, from the corporation at its original issue

when qualified zone property is no longer used in an (directly or through an underwriter) or from the

empowerment zone by an enterprise zone business. partnership;

2) The business was an enterprise zone business (or More information. For more information about the sec- a new business being organized as an enterprise tion 179 deduction and the increased section 179 deduc- zone business) as of the time you acquired the tion (including the section 179 deduction for off-the-shelf stock or partnership interest; and computer software that is placed in service in 2003), see 3) The business qualified as an enterprise zone chapter 2 of Publication 946. Also, see sections 1397A, business during substantially all of the time during 1397C, and 1397D of the Internal Revenue Code. which you held the stock or partnership interest.

Rollover of Gain From Sale of

How to report. Report the entire gain realized from the Empowerment Zone Assets sale, as you otherwise would, without regard to the election. On Schedule D, line 8, enter “Section 1397B Rollover” If you sold a qualified empowerment zone asset that you in column (a) and enter as a loss in column (f) (and for 2003 held for more than one year, you may be able to elect to only, in column (g) for sales after May 5, 2003) the amount postpone part or all of the gain that you would otherwise of gain included on Schedule D that is not recognized. (If include on Schedule D. If you make the election, the gain you report the sale directly on Schedule D, line 8, use the on the sale generally is recognized only to the extent, if any line directly below the line on which you reported the sale.) that the amount realized on the sale exceeds the cost of

qualified empowerment zone assets (replacement property) you purchased during the 60-day period beginning on More information. For more information about rollover of

the date of the sale. The following rules apply. gain from empowerment zone assets, see section 1397B

of the Internal Revenue Code. • No portion of the cost of the replacement property

may be taken into account to the extent the cost is

taken into account to exclude gain on a different Increased Exclusion of Gain From

empowerment zone asset. Qualified Small Business Stock

• The replacement property must qualify as an em- Taxpayers other than corporations generally can exclude powerment zone asset with respect to the same em- from income 50% of their gain from the sale or trade of powerment zone as the asset sold. qualified small business stock held more than 5 years. If

• You must reduce the basis of the replacement prop- the stock is in a corporation that qualifies as an enterprise

erty by the amount of postponed gain. zone business (defined earlier under Increased Section

179 Deduction) during substantially all of the time you hold • This election does not apply to any gain (a) treated the stock, you can exclude 60% of your gain. as ordinary income or (b) attributable to real property, or an intangible asset, which is not an integral To claim this increased exclusion, you must have acpart of an enterprise zone business. quired the stock after December 21, 2000. Gain from

periods after 2014 will not qualify for the increased exclu- • The District of Columbia enterprise zone is not sion. treated as an empowerment zone for this purpose. The requirement that the corporation must qualify as an • The election is irrevocable without IRS consent. enterprise zone business during substantially all of the

time you hold the stock will still be met if the corporation

Qualified empowerment zone asset. ceased to qualify after the 5-year period beginning on the The following are date you acquired the stock. However, the gain that quali- qualified empowerment zone assets. fies for the 60% exclusion cannot be more than the gain • Tangible property, if you would have had if you had sold the stock on the date

1) You acquired the property after December 21, the corporation ceased to qualify.

2000, If you sell the stock after 2009, disregard the end of the

2) The original use of the property in the empowerment zone designation on December 31, 2009, in

empowerment zone began with you, and determining whether the corporation qualified as an enter3) Substantially all of the use of the property, during prise zone business during substantially all of the time you

substantially all of the time that you held it, was in held the stock.

your enterprise zone business; and For more information about this exclusion, including a

• Stock in a domestic corporation or a capital or profits definition of qualified small business stock, see chapter 4

 interest in a domestic partnership, if: of Publication 550, Investment Income and Expenses.

Page 7
• Schenectady, NY

Renewal Communities • Hamilton, OH

• Youngstown, OH This section describes the areas that have been designated renewal communities and explains the tax benefits • Philadelphia, PA

available to businesses in those renewal communities. • Charleston, SC

Designated Renewal Communities • Chattanooga, TN

• Memphis, TN The Secretary of Housing and Urban Development (HUD)

has designated the parts of the following areas as renewal • Corpus Christi, TX

communities. The designation will generally remain in ef- • El Paso County, TX fect until December 31, 2009. The designation may be

revoked if the state or local government modifies the • Burlington, VT

boundaries of the area or does not keep certain commit- • Tacoma, WA

ments. • Yakima, WA You can find out if a business or an employee’s residence is located within a renewal community by using the • Milwaukee, WI

RC/EZ/EC Address Locator at www.hud.gov/crlocator or

by calling HUD at 1-800-998-9999.

Renewal Community Employment • Greene-Sumter County, AL Credit • Mobile County, AL

The renewal community employment credit provides busi- • Southern Alabama

nesses with an incentive to hire individuals who both live • Los Angeles, CA and work in a renewal community. You can claim the credit

if you pay or incur “qualified wages” to a “qualified em- • Orange Grove, CA ployee.” The credit is for wages paid or incurred after 2001. • Parlier, CA The credit is 15% of the qualified wages paid or incurred

during a calendar year. The amount of qualified wages you • San Diego, CA can use to figure the credit cannot be more than $10,000 • San Francisco, CA for each employee for each calendar year. As a result, the

credit can be as much as $1,500 (15% of $10,000) per • Atlanta, GA qualified employee each year. • Chicago, IL

Qualified employee. A qualified employee is any em- • Eastern KY ployee who meets both of the following tests.

• Central Louisiana • The employee performs substantially all of his or her

• New Orleans, LA services for you within a renewal community and in

your trade or business. • Northern Louisiana

• While performing those services, the employee’s • Ouachita Parish, LA main home is within that renewal community.

• Lawrence, MA Both full-time and part-time employees may qualify.

• Lowell, MA Substantially all services performed within the re-

• Detroit, MI newal community. You can use the pay-period method

or the calendar-year method to determine the period of • Flint, MI time the employee has performed services in the renewal

• West Central Mississippi community. For details, see section 1.1396–1 of the regulations. • Turtle Mountain Band of Chippewa, ND

Nonqualified employees. Certain individuals cannot • Camden, NJ be qualified employees. For a list of those individuals, see

• Newark, NJ Nonqualified employees under Empowerment Zone Employment Credit, earlier. • Buffalo-Lackawanna, NY

• Jamestown, NY Qualified wages. Qualified wages are any wages you

pay or incur for services performed by an employee while • Niagara Falls, NY the employee is a qualified employee (defined earlier).

• Rochester, NY Wages are generally defined as wages (excluding tips)

Page 8
subject to the Federal Unemployment Tax Act (FUTA)

without regard to the FUTA dollar limit. 1) Every trade or business of the corporation or partnerAlso treat as qualified wages certain training and educa- ship is the active conduct of a qualified business

(defined later) within a renewal community. (This rule tion expenses you pay or incur on behalf of a qualified does not apply to a sole proprietorship.) employee.

Effect of welfare-to-work or work opportunity credit. 2) At least 50% of its total gross income is from the

Qualified wages do not include any amount you take into active conduct of a qualified business within a renewal community. account in figuring the welfare-to-work credit or the work

opportunity credit. In addition, you must reduce the 3) A substantial part of the use of its tangible property is $10,000 maximum qualified wages for each qualified em- within a renewal community. ployee by the amount of wages you use to figure either of 4) A substantial part of its intangible property is used in those credits for that employee. the active conduct of the business.

Fiscal year taxpayers. If you use a fiscal tax year, the 5) A substantial part of the employees’ services are amount of qualified wages you use to figure the credit is the performed within a renewal community. amount paid or incurred during the calendar year that ends

during the tax year. 6) At least 35% of the employees are residents of a

renewal community.

Example. Your tax year begins on February 1 and ends 7) Less than 5% of the average of the total unadjusted on January 31 of the next year. You use the cash method bases of the property owned by the business is from: of accounting and have one employee, whom you hired in

March 2003 and pay $500 a month. You pay that em- a) Nonqualified financial property (generally, debt,

ployee qualified wages of $5,000 in calendar year 2003 stock, partnership interests, options, futures conand $500 in January 2004. When you figure your credit for tracts, forward contracts, warrants, notional princithe tax year ending January 31, 2004, you use the $5,000 pal contracts, and annuities), or

paid in 2003 but cannot use the $500 paid in January 2004. b) Collectibles not held primarily for sale to custom- That amount will be used to figure the credit on your next ers. tax return.

Claiming the credit. Use Form 8844 to claim this credit. For a sole proprietorship the term “employee” in (5) and

Although the renewal community employment credit is a (6) includes the proprietor.

component of the general business credit, a special tax Qualified business. A qualified business is generally liability limit applies to this credit. Therefore, you figure the any trade or business except one that consists primarily of credit separately and never carry it to Form 8300, General the development or holding of intangibles for sale or li- Business Credit. cense.

Effect on salary and wage deduction. In general, you However, the rental to others of real property located in

must reduce the deductions on your income tax return for a renewal community is a qualified business only if the

salaries and wages and certain education and training property is not residential rental property (defined under

costs by the amount of your current year renewal commu- Commercial Revitalization Deduction, later) and at least

nity employment credit (before applying the tax liability 50% of the gross rental income from the property is from

limit). renewal community businesses.

The rental to others of tangible personal property is a

qualified business only if at least 50% of the rentals of the Increased Section 179 Deduction

property are to renewal community businesses or commuSection 179 of the Internal Revenue Code allows you to nity residents.

choose to deduct all or part of the cost of certain qualifying Also, a qualified business does not include any busiproperty in the year you place it in service. You can do this ness listed earlier in item (5) or item (6) under Nonqualified

instead of recovering the cost by taking depreciation de- employees in the Empowerment Zone Employment Credit

ductions over a specified recovery period. There are limits, section.

however, on the amount you can deduct in a tax year.

You may be able to claim an increased section 179 Qualified renewal property. This is any depreciable tandeduction if your business qualifies as a renewal commu- gible property if all the following are true.

nity business. The increase can be as much as $35,000.

This increased section 179 deduction applies to “qualified 1) You acquired the property after the renewal community designation is in effect. renewal property” you acquire after 2001 and before 2010

and place in service in a renewal community. 2) You did not acquire the property from a related person or member of a controlled group of which you Renewal community business. For the increased sec- are a member. tion 179 deduction, a corporation, partnership, or sole

proprietorship is a renewal community business if all the 3) Your basis in the property is not determined either by

following statements are true for the tax year. its adjusted basis in the hands of the person from

Page 9
whom you acquired it or under the stepped-up basis your qualified rehabilitation expenditures are more than

rules for property acquired from a decedent. the greater of the following amounts.

4) You were the first person to use the property in a 1) The adjusted basis of the building at the beginning of renewal community. the 24-month period, or at the beginning of your

holding period for the building, whichever is later. 5) At least 85% of the property’s use is in a renewal

community and in the active conduct of a qualified 2) $5,000. trade or business in the community.

Buildings are qualified renewal property, but they do not Qualified revitalization expenditure. This is a capital

qualify for the section 179 deduction. Used property may expenditure for depreciable property that is:

be qualified renewal property if it has not previously been

used within a renewal community. 1) Nonresidential real property, or

2) Section 1250 property that is functionally related and More information. See the earlier discussion of the in- subordinate to nonresidential real property. Section creased 179 deduction under Empowerment Zones for a 1250 property is depreciable real property that is not special rule for renovated property, the section 179 deduc- and never has been section 1245 property. Section tion limits, and the recapture rules, all of which also apply in 1245 property is defined in Publication 544, Sales renewal communities. That earlier discussion also tells and Other Dispositions of Assets. where to get additional information about the section 179

deduction. The total amount of qualified revitalization expenditures

for any qualified revitalization building cannot be more than

Commercial Revitalization Deduction the smaller of:

1) $10 million, or You can elect to treat qualified revitalization expenditures

chargeable to a capital account for any qualified revitaliza- 2) The commercial revitalization expenditure amount altion building in either of the following ways: located to the building by the commercial revitalization agency for the state in which the building is 1) Deduct half of the expenditures for the tax year the located.

building is placed in service, or

2) Amortize all the expenditures over a 120-month pe- Nonresidential real property. This is section 1250

riod beginning with the month the building is placed property that is not residential rental property or property

with a class life of less than 27.5 years. Residential rental in service.

property is any building or structure if 80% or more of the If you elect to take this deduction, you cannot take a gross rental income from it is rental income from dwelling depreciation deduction for the same expenditures. Claim- units.

ing this deduction enables you to recover half (or all) of

your qualified revitalization expenditures over a shorter Expenditures that do not qualify. The following do not

period of time than depreciation. The commercial revitali- count as revitalization expenditures.

zation deduction is also allowed for both regular tax and 1) The cost of acquiring a building that you substantially alternative minimum tax purposes. rehabilitate, to the extent that cost is more than 30% The election must be made by the due date (including of the total qualified revitalization expenses for the extensions) of your return for the tax year the building is building (not counting the cost of the building itself). placed in service. If you timely filed your return without

making the election, you can still make the election by filing 2) Expenditures you use to figure any allowable credit

an amended return within 6 months of the due date (ex- (such as the rehabilitation credit).

cluding extensions). Enter “Filed pursuant to section

301.9100-2” on the amended return. Once made, the elec- Allocation of revitalization expenditure amounts. tion may be revoked only with IRS consent. To do so, you Each state authorizes an agency to act as the community must submit a request for a letter ruling under the provi- revitalization agency. For a renewal community located sions of Rev. Proc. 2004-1 (or its successor). See Rev. within an Indian Reservation, the reservation governing Proc. 2004-1 on page 1 of Internal Revenue Bulletin body (as determined by the Department of the Interior) is 2004-1 at www.irs.gov/pub/irs-irbs/irb04-01.pdf. treated as a state for this purpose. A commercial revitalization agency may make the following types of allocations for Qualified revitalization building. This is a building and each qualified revitalization building. its structural components that you place in service in a

renewal community before 2010. If the building is new, the • An allocation made during the calendar year in

original use of the building must begin with you. If the which a qualified revitalization building is placed in

building is not new, you must substantially rehabilitate the service.

building and then place it in service. • A binding commitment to make an allocation of a

Substantially rehabilitated building. You substan- specified dollar amount to a qualified revitalization

tially rehabilitate a building if, during any 24-month period, building during the calendar year in which the buildPage 10
ing is placed in service. A binding commitment is • The address or specific location of each qualified

not, in and of itself, an allocation. revitalization building.

• A carryover allocation for a single-building project or • The date of the allocation of the expenditure amount.

a multi-building project. • The commercial revitalization expenditure amount

allocated to each qualified revitalization building on 1) You must place the building in service by the close that date. of the second calendar year following the calendar

year during which the allocation is made and • A certification under penalties of perjury by an au2) Your basis in the project of which the building is a thorized official of the commercial revitalization

part (as of the later of the date that is 6 months agency that the official has examined the document,

after the date the allocation was made or the end and to the best of the official’s knowledge and belief,

of the calendar year during which the allocation the information in the document is true, correct, and

was made) must be more than 10% of your complete. reasonably expected basis in the project (land and

depreciable property) as of the end of the second A carryover allocation document must include the follow- calendar year following the calendar year during ing additional information: which the allocation was made. Under an

exception that applies for allocations made after • The taxpayer’s reasonably expected basis in the

June 30, 2002, and before January 1, 2003, you project (land and depreciable property) as of the end

had until December 31, 2003, to meet this test. of the second calendar year following the calendar

year during which the allocation was made.

Dollar ceiling. Each state is allowed to allocate up to • The date that each qualified revitalization building is $12 million of commercial revitalization expenditure expected to be placed in service. amounts to each renewal community located within the

state for calendar years 2002 through 2009. For calendar

years after 2002, the $12 million ceiling for a renewal How to report the deduction. If you claim amortization,

report it in Part VI of Form 4562, Depreciation and Amorti- community may not be allocated, in whole or in part, to any zation. other renewal community. For a special rule that applies If you claim the deduction for half your expenditures, for 2002, see section 8.02 of Rev. Proc. 2003-38 on page report it on the applicable “Other deductions” or “Other 1020 of Internal Revenue Bulletin 2003-24 at expenses” line of your return. www.irs.gov/pub/irs-irbs/irb03-24.pdf. Allocations for If your commercial revitalization deduction is from a buildings placed in service during the allocation year and passive rental real estate activity, you must file Form 8582, carryover allocations both reduce the $12 million ceiling for Passive Activity Loss Limitations, to use the $25,000 spe- the calendar year during which the allocation is made. A cial allowance. You can claim the special allowance for the binding commitment does not reduce the $12 million ceil- commercial revitalization deduction regardless of your ad- ing until the year in which the actual allocation is made. justed gross income and even if you do not actively particiCarryforward. If a commercial revitalization agency pate in the rental real estate activity.

does not allocate all of the commercial revitalization ex- More information. For more information, see section penditure ceiling for a renewal community for any calendar 1400I of the Internal Revenue Code.

year after 2002, the unused ceiling amount may not be

carried forward to another year. For a special rule that Capital Gain Exclusion applies for 2002, see section 8.01 of Rev. Proc. 2003-38

on page 1020 of Internal Revenue Bulletin 2003-24 at If you hold a qualified community asset more than 5 years, www.irs.gov/pub/irs-irbs/irb03-24.pdf. you will not have to include any “qualified capital gain” from

Allocation document. An allocation is made when an its sale or exchange in your gross income. This exclusion

allocation document containing all of the required informa- applies to an interest in, or property of, certain businesses

operating in a renewal community. tion is completed, signed, and dated by an authorized

official of the commercial revitalization agency. The Qualified community asset. The following are qualified agency must send a copy of the allocation document to community assets. you no later than 60 days following the end of the calendar

year during which the allocation was made. 1) Qualified community stock.

The allocation document requires the following informa- 2) Qualified community partnership interest.

tion. 3) Qualified community business property.

• Name, address, and taxpayer identification number

of the commercial revitalization agency making the Qualified community stock. This is any stock in a U.S.

commercial revitalization expenditure. corporation, if all the following requirements are met. 

• The name, address, and taxpayer identification num- 1) You acquired the stock after 2001 and before 2010

ber of the taxpayer receiving the allocation. at its original issue solely in exchange for cash. (This

Page 11
requirement is also met if you acquired the stock at 2) You did not acquire the property from a related perany time from another person in whose hands it was son or member of a controlled group of which you

qualified community stock.) are a member.

2) The corporation was a renewal community business 3) Your basis in the property is not determined either by

(or was being organized as a renewal community its adjusted basis in the hands of the person from

business) at the time the stock was issued. whom you acquired it or under the stepped-up basis

rules for property acquired from a decedent. 3) The corporation qualified as a renewal community

business during substantially all of your holding pe- 4) You were the first person to use the property in the

renewal community. riod for the stock. (This requirement is also met if the

corporation ceased to qualify as a renewal commu- 5) Substantially all of the use of the property was in nity business after the 5-year period beginning on your renewal community business during substan- the date you acquired the stock. However, your qual- tially all of your holding period for that property. (This ified capital gain cannot be more than what it would requirement is also met if you stopped using the have been if you had sold the stock on the date the property in your renewal community business, or corporation ceased to qualify.) your business ceased to qualify as a renewal community business, after the 5-year period beginning Redemptions of stock. Stock will not qualify as quali- on the date you acquired the property. However,

fied community stock if the issuing corporation makes your qualified capital gain cannot be more than what

certain redemptions of its stock within 2 years before or 2 it would have been if you had sold the property on

years after the date the stock was issued. For details, see the date you stopped using it in your renewal comsections 1400F(b)(2)(B) and 1202(c)(3) of the Internal munity business or on the date your business

Revenue Code. ceased to qualify.)

Qualified community partnership interest. Special rule for substantially improved buildings. This is any Buildings (and land on which they are located) will be capital or profits interest in a U.S. partnership, if all the treated as having met requirements (1) and (4) if you following requirements are met. substantially improve the buildings before 2010. You substantially improve a building if, during any 24-month period 1) You acquired the partnership interest from the part- beginning after 2001, your additions to the basis of the nership after 2001 and before 2010 solely in ex- property are more than the greater of the following change for cash. amounts. 

2) The partnership was a renewal community business

(or was being organized as a renewal community 1) 100% of the adjusted basis of the property at the

business) at the time the partnership interest was beginning of the 24-month period.

acquired. 2) $5,000.

3) The partnership qualified as a renewal community

business during substantially all of your holding pe- Renewal community business. This term is defined earriod for the partnership interest. (This requirement is lier under Increased Section 179 Deduction.

also met if the partnership ceased to qualify as a

renewal community business after the 5-year period Qualified capital gain. This is generally any gain recogbeginning on the date you acquired the partnership nized on the sale or exchange of a capital asset or property

interest. However, your qualified capital gain cannot used in a trade or business as defined in section 1231(b) of

be more than what it would have been if you had the Internal Revenue Code (generally real property or

sold the partnership interest on the date the partner- depreciable personal property). Qualified capital gain

ship ceased to qualify.) does not include:

• Gain attributable to periods before 2002 or after Redemptions of partnership interest. A partnership 2014. interest will not qualify as a qualified community partnership interest if the partnership makes certain acquisitions • Ordinary (section 1245) gain. See chapter 3 in Publiof its partnership interests within 2 years before or 2 years cation 544, Sales and Other Dispositions of Assets.

after the date the partnership interest was issued. For • Section 1250 gain figured as if section 1250 applied details, see sections 1400F(b)(3), 1400F(b)(2)(B), and to all depreciation rather than the additional depreci- 1202(c)(3) of the Internal Revenue Code. ation.

• Gain attributable to real property or an intangible Qualified community business property. This is tangi- asset that is not an integral part of a renewal com- ble property that meets all the following requirements. munity business.

1) You acquired the property after 2001 and before • Gain attributable, directly or indirectly, in whole or in

2010. part, to a transaction with a related person. For the

Page 12
definition of a related person, see chapter 2 in Publi- • Muskegon, MI

cation 544. • Minneapolis, MN

• St. Paul, MN Other rules. Rules similar to certain rules in section 1202

of the Internal Revenue Code apply to interests in • Kansas City/Kansas City KS, MO

pass-through entities, certain tax-free transfers, contribu- • St. Louis, MO tions to capital after the original stock issuance date, and

short positions. • Jackson, MS

• Charlotte, NC More information. For more information, see section

1400F of the Internal Revenue Code. • Omaha, NE

• Manchester, NH

• Albuquerque, NM Enterprise Communities • Las Vegas, NV

There are currently 49 urban areas that were designated • Newburgh/Kingston, NY as urban enterprise communities by the Secretary of Housing and Urban Development (HUD) on December 21, • Akron, OH

1994. There are also currently 28 rural areas that were • Cleveland, OH designated as rural enterprise communities by the Secretary of Agriculture (USDA) on December 21, 1994. These • Columbus, OH

designations will remain in effect until the end of 2004. The • Oklahoma City, OK 20 additional rural enterprise communities designated by

USDA on December 24, 1998 (“Round II” enterprise com- • Portland, OR

munities) are not treated as enterprise communities for • Harrisburg, PA Federal tax purposes.

• Pittsburgh, PA

Urban areas. Parts of the following urban areas are enter- • Providence, RI prise communities. You can find out if your business or an

employee’s residence is located within an urban enterprise • Nashville/Davidson, TN

community by using the RC/EZ/EC Locator at • Dallas, TX www.hud.gov/crlocator. • El Paso, TX • Birmingham, AL • Houston, TX • Little Rock/Pulaski, AR • San Antonio, TX • Phoenix, AZ • Waco, TX • Oakland, CA • Ogden, UT • Denver, CO • Norfolk, VA • Bridgeport, CT • Seattle, WA • New Haven, CT • Huntington, WV • Washington, DC

• Wilmington, DE Rural areas. Parts of the following rural areas are enterprise communities. You can find out if your business or an • Miami/Dade, FL employee’s residence is located within an urban enterprise • Tampa, FL community by using the RC/EZ/EC Locator at

www.hud.gov/crlocator. • Albany, GA

• Des Moines, IA • Chambers County, AL

• East St. Louis, IL • East Arkansas, EC

• Springfield, IL • Mississippi County, AR

• Indianapolis, IN • Arizona Border Region, AZ

• Louisville, KY • Imperial County, CA

• Boston, MA • City of Watsonville, CA

• Springfield, MA • Jackson County, FL

Page 13
• Central Savannah River Area, GA ees during 2004. See What’s Hot in Tax Forms, Pubs,

and Other Tax Products at www.irs.gov/formspubs to • Crisp/Dooly, GA find out if this legislation was enacted.

• Northeast Louisiana Delta, LA The credit is 40% (25% for employees who worked for

you at least 120 hours but fewer than 400 hours) of the • Lake County, MI qualified wages for the year. The amount of the qualified • City of East Prairie, MO wages you can use to figure the credit cannot be more than

• North Delta Mississippi, MS $6,000 for each employee for each calendar year. As a

result, the credit can be as much as $2,400 (40% of • Halifax/Edgecombe/Wilson, NC $6,000) for each employee each year.

• Robeson County, NC Liberty Zone business employee. A Liberty Zone busi-

• La Jicarita, NM ness employee is generally any employee who performs

80% or more of his or her services: • Greater Portsmouth, OH

• Southeast Oklahoma, OK 1) In the Liberty Zone (defined earlier), or

• Josephine County, OR 2) Elsewhere in New York City for a business that relocated from the Liberty Zone due to the destruction or • City of Lock Haven, PA damage of its place of business by the September

• Williamsburg-Lake City, SC 11, 2001, terrorist attack.

• Beadle/Spink, SD Limit on number of employees located outside the

• Fayette/Haywood County, TN Liberty Zone. The number of employees described in (2)

above that are treated as Liberty Zone business employ- • Scott/McCreay Area, TN ees on any day is limited to the excess of:

• Accomack-Northampton, VA • The number of employees of the business on Sep-

• Lowe Yakima County Rural, WA tember 11, 2001, in the Liberty Zone, over

• Central Appalachia, WV • The number of Liberty Zone business employees

(determined without regard to employees described • McDowell County, WV in (2) above) of the business on the day to which the

limit is being applied.

Limit for large businesses. You cannot claim the New York Liberty Zone credit for any tax year in which you employed an average

of more than 200 employees on business days during the The tax incentives described below apply to the parts of tax year. New York City damaged in the terrorist attack on September 11, 2001. This area is referred to as the New York Qualified wages. Qualified wages are wages you pay or Liberty Zone. incur to a Liberty Zone business employee (defined earlier)

for work performed during 2002 or 2003. Wages are gener- Area defined. The New York Liberty Zone is the area ally defined as wages (excluding tips) subject to the Fed- located on or south of Canal Street, East Broadway (east eral Unemployment Tax Act (FUTA) without regard to the of its intersection with Canal Street), or Grand Street (east FUTA dollar limit, but not more than $6,000 each calendar of its intersection with East Broadway) in the Borough of year for each employee. Qualified wages for any employee Manhattan. must be reduced by the amount of any work supplementation payments you received under the Social Security Act.

New York Liberty Zone Business Nonqualified wages. See Form 8884 for a complete Employee Credit list of wages that do not qualify for the credit. Some of the

most common wages that do not qualify include wages you The New York Liberty Zone business employee credit is pay or incur to an employee who: part of the work opportunity credit (discussed later). You

can claim the credit if you pay or incur “qualified wages” to 1) Does not work for you at least for 120 hours, or a “Liberty Zone business employee.” The credit is for 2) Is your relative or dependent. wages paid or incurred to new and existing employees for

work performed during 2002 or 2003.

Claiming the credit. Use Form 8884 to claim this credit. This credit is set to expire for wages paid to

employees for work performed after 2003. How- Effect on work opportunity credit and CAUTION ever, at the time this publication was issued, welfare-to-work credit. Wages you use to figure this

!

Congress was considering legislation that would allow this credit cannot be used to figure the work opportunity credit

credit with respect to work performed by qualified employ- or welfare-to-work credit.

Page 14
Effect on salary and wage deduction. In general, you b) Placed in service date test.

must reduce the deduction on your income tax return for c) Substantial use test. salaries and wages by the amount of your current year

credit (before applying the tax liability limit). d) Original use test.

More information. For more information about this credit, 3) It is not excepted property (explained later under see Form 8884. Excepted property).

Special Liberty Zone Property described in 1(a), 1(b), 1(c), generally qualifies

for the special Liberty Zone depreciation allowance only if Depreciation Allowance it is used property. That is because, if it is new, it may

qualify instead for the special depreciation allowance de- You can take a special Liberty Zone depreciation allow- scribed earlier under Special depreciation allowance. ance for qualified Liberty Zone property you place in serv- However, property does not qualify for that special depre- ice during the tax year. The allowance is an additional 30% ciation allowance unless it is acquired and placed in serv- deduction and it applies for the year you place the property ice before 2005 (2006 in certain cases). Property in service. You can take the additional 30% deduction after acquired or placed in service at a later date may qualify any section 179 deduction and before you figure regular for the special Liberty Zone depreciation allowance, even depreciation under MACRS for the year you place the if new. property in service. To figure the depreciable basis, you

must first multiply the property’s cost or other basis by the Nonresidential real property and residential rental

percentage of business/investment use and then reduce property. This property is qualifying property only to the

that amount by any section 179 deduction and certain extent it rehabilitates real property damaged, or replaces

other deductions and credits for the property. real property destroyed or condemned, as a result of the

The allowance is deductible for both regular tax and terrorist attack of September 11, 2001. Property is treated

alternative minimum tax (AMT) purposes. There is no AMT as replacing destroyed or condemned property if, as part of

adjustment required for any depreciation figured on the an integrated plan, such property replaces real property

remaining basis of the property. included in a continuous area that includes real property

You can claim the allowance only for the year the destroyed or condemned.

property is placed in service. In the year you claim the For these purposes, real property is considered deallowance, you must reduce the basis of the property by stroyed (or condemned) only if an entire building or structhe allowance before figuring the regular depreciation de- ture was destroyed (or condemned) as a result of the

duction. terrorist attack. Otherwise, the property is considered damaged real property. For example, if certain structural com- Special depreciation allowance. A special 30% or 50% ponents of a building (such as walls, floors, or plumbing depreciation allowance is allowed for qualified property fixtures) are damaged or destroyed as a result of the placed in service after September 10, 2001, and before terrorist attack, but the building is not destroyed (or con- 2005 (2006 in certain cases), even if not in the Liberty demned), then only costs related to replacing the damaged Zone. If you place in service property that is eligible for that or destroyed structural components qualify for the special allowance, you cannot claim the special Liberty Zone de- Liberty Zone depreciation allowance. preciation allowance for the same property.

Qualified Liberty Zone property. Tests to be met. To qualify for the special Liberty Zone Property qualifies for depreciation allowance, your property must meet all of the the special Liberty Zone depreciation allowance if it meets following tests. all the following requirements.

Acquisition date test. You must have acquired the 1) It is one of the following types of property. property by purchase after September 10, 2001, and there

must not have been a binding written contract for the a) Property depreciated under MACRS with a recov- acquisition in effect before September 11, 2001. ery period of 20 years or less. Property you manufacture, construct, or produce for b) Water utility property. your own use meets this test if you began the manufacture,

construction, or production of the property after September c) Computer software that is not a section 197 intan- 10, 2001. gible as described in Publication 946. (The cost of

some computer software is treated as part of the Placed in service date test. Generally, the property cost of hardware and is depreciated under must be placed in service for use in your trade or business MACRS.) or for the production of income before 2007 (2010 in the

case of qualifying nonresidential real property and residen- d) Certain nonresidential real property and residen- tial rental property). tial rental property (defined later). If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after 2) It meets all the following tests (explained later under

Tests to be met the property was originally placed in service, the property ). is treated as placed in service no earlier than the date it is

a) Acquisition date test. used under the leaseback.

Page 15
Substantial use test. Substantially all (80% or more) Section 179 deduction limits. There are limits on the

use of the property must be in the Liberty Zone and in the amount you can deduct under section 179. The following

active conduct of your trade or business in the Liberty sections explain how these limits are increased for qualiZone. fied Liberty Zone property.

Original use test. The original use of the property in the Maximum dollar limit. The total cost of section 179

Liberty Zone must have begun with you after September property that you can deduct for a tax year generally

10, 2001. cannot be more than the maximum section 179 dollar limit.

Used property can be qualified Liberty Zone property if it However, if you place section 179 property that is qualified

has not previously been used within the Liberty Zone. Also, Liberty Zone property in service during the year, this maxiadditional capital expenditures you incurred after Septem- mum dollar limit is increased by the smaller of the following

ber 10, 2001, to recondition or rebuild your property meet amounts.

the original use test if the original use of the property in the

Liberty Zone began with you. 1) The cost of that property.

2) $35,000. Excepted property. The following property does not

qualify for the special Liberty Zone depreciation allowance. The following table shows these maximum dollar limits.

• Property eligible for the special depreciation allow- Table 3. Maximum Dollar Limits ance explained earlier under Special depreciation

allowance.

Maximum • Property required to be depreciated using the Alter- Maximum Dollar Limit native Depreciation System (ADS). This includes For Tax Years Section 179 With Qualified listed property used 50% or less in a qualified busi- Beginning In: Dollar Limit Zone Property

ness use. 2002 . . . . . . . . . . . . . . . . . . $ 24,000 $ 59,000

• Qualified New York Liberty Zone leasehold improve- 2003 .................. 100,000 135,000

ment property (defined later under New York Liberty 2004 .................. 102,000* 137,000*

Zone Leasehold Improvement Property).

2005 .................. Inflation Inflation

Adjusted Adjusted

Election not to claim the Liberty Zone allowance. You *Inflation-adjusted amount for 2004

can elect not to claim the special Liberty Zone depreciation

allowance for qualified property. If you make this election For 2005, the total amount you can elect to de- for any property, it applies to all property in the same duct under section 179 will be increased to reflect property class placed in service during the year. To make an adjustment for inflation. The inflation-adjusted

TIP

this election, attach a statement to your return indicating amount for 2004 is $102,000 (rounded to the nearest you elect not to claim the allowance and the class of multiple of $1,000). property for which you are making the election. These maximum dollar limits are reduced if you go over

More information. For more information, get Publication the investment limit (discussed next) in any tax year.

946.

Investment limit. For each dollar of your business cost

Increased Section 179 Deduction over the threshold amount ($400,000 for 2003) for section

179 property placed in service in a tax year, reduce the

Section 179 of the Internal Revenue Code allows you to maximum dollar limit by $1 (but not below zero). However,

choose to deduct all or part of the cost of certain qualifying count only one-half of the cost of section 179 property that

property in the year you place it in service. You can do this is also qualified Liberty Zone property when figuring the

instead of recovering the cost by taking depreciation de- investment limit.

ductions over a specified recovery period. There are limits, Reduced dollar limit for cost exceeding the thresh- however, on the amount you can deduct in a tax year. old amount. If the cost of your qualifying section 179 You may be able to claim an increased section 179 property placed in service in 2003 is over $400,000, you deduction if the property you place in service is qualified must reduce the dollar limit (but not below zero) by the Liberty Zone property. The increase can be as much as amount of cost over $400,000. If the cost of your section $35,000. 179 property placed in service during 2003 is $500,000 or

more, you cannot take a section 179 deduction and you Qualified Liberty Zone property. To qualify for the in- cannot carry over the cost that is more than $500,000. creased section 179 deduction, your property must be

qualified Liberty Zone property (described earlier under For 2005, the threshold amount used to figure

Special Liberty Zone Depreciation Allowance) that quali- any reduction in the dollar limit will be increased

fies for the section 179 deduction. For information on the to reflect an adjustment for inflation. The

TIP

requirements that must be met for property to qualify for inflation-adjusted amount for 2004 is $410,000 (rounded to

the section 179 deduction, see Publication 946. the nearest multiple of $10,000).

Page 16
Recapture. The recapture rules of section 179 apply binding commitment between related persons is not

when qualified Liberty Zone property is no longer used in treated as a lease.

the Liberty Zone. Related persons. For this purpose, the following are

related persons. More information. For more information about the section 179 deduction and the increased section 179 deduc- • Members of an affiliated group.

tion (including the section 179 deduction for off-the-shelf • The persons listed in items (1) through (9) under computer software that is placed in service in 2003), see Related persons in chapter 1 of Publication 946 (ex- chapter 2 of Publication 946. cept that “80% or more” should be substituted for

“more than 10%” each place it appears).

New York Liberty Zone Leasehold • An executor and a beneficiary of the same estate. Improvement Property

Qualified New York Liberty Zone leasehold improvement More information. For more information, see Publication

property is classified as 5-year property. This means that it 946.

is depreciated over a recovery period of 5 years. The

straight-line method must be used. Extension of Replacement Period Under ADS, the recovery period is 9 years. for Involuntarily Converted Property

Qualified New York Liberty Zone leasehold improve- The replacement period has been extended from 2 years

ment property. This is any qualified leasehold improve- to 5 years for certain property involuntarily converted in the ment property (as defined later) if all of the following Liberty Zone as a result of the terrorist attack on Septem- requirements are met. ber 11, 2001, but only if substantially all the use of the

replacement property is in New York City. • The improvement is to a building located in the New If you buy replacement property within the replacement York Liberty Zone (defined earlier). period, you may be able to postpone any gain you have

• The improvement is placed in service after Septem- had on the involuntary conversion.

ber 10, 2001, and before January 1, 2007. Replacement period. The replacement period ends 5 • No written binding contract for the improvement was years after the close of the first year in which any part of

in effect before September 11, 2001. your gain is realized.

More information. For more information about involunQualified leasehold improvement property. Generally, tary conversions, see Postponement of Gain in Publication

this is any improvement to an interior part of a building that 547, Casualties, Disasters, and Thefts. is nonresidential real property, provided all of the following

requirements are met.

• The improvement is made under or pursuant to a New Markets Credit

lease by the lessee (or any sublessee) or the lessor

of that part of the building. You can claim a tax credit for a qualified equity investment

in a qualified community development entity (CDE) made • That part of the building is to be occupied exclusively after April 19, 2001. This is called the new markets credit. by the lessee (or any sublessee) of that part.

Amount of credit. You claim the credit over a period of 7 • The improvement is placed in service more than 3 years until 2007. To find the amount of your credit each years after the date the building was first placed in year, multiply the amount you paid the qualified CDE for service. your qualified equity investment by a percentage. The

percentage is: However, a qualified leasehold improvement does not

include any improvement for which the expenditure is due • 5% for the year the investment is made and each of

to any of the following. the next 2 years, and

• The enlargement of the building. • 6% for each of the next 4 years.

• Any elevator or escalator. Thus, the credit can be up to 39% of your investment over

a 7-year period. • Any structural component benefiting a common

area. To claim the credit for a year, you must hold the qualified

equity investment on the credit allowance date for that • The internal structural framework of the building. year. The credit allowance date is the date you make the

initial investment and each of the next 6 anniversary dates. Generally, a binding commitment to enter into a lease is

treated as a lease and the parties to the commitment are How the new markets credit (NMC) works. Qualified

treated as the lessor and lessee. However, a lease or a CDEs apply to the U.S. Department of Treasury’s CommuPage 17
nity Development Financial Institutions (CDFI) Fund for an • Any equity investment in, or loan to, any qualified

allocation of the new markets credit. A CDE will seek CDE used to make other qualified low-income comtaxpayers to make qualifying equity investments in the munity investments.

CDE. The CDE will be required to use substantially all of

the qualified equity investments to make qualified low-in- Any equity investment in, or loan to, any CDE come community investments in qualified active low-in- may include a primary and second CDE to the come community businesses (QALICBs), discussed later. extent that the second CDE uses the proceeds of

TIP

After the CDE is awarded a tax credit allocation, the CDE is the investment or loan. For details on the requirements that authorized to allocate the tax credits to private equity apply to CDEs making investments through multiple tiers investors in the CDE. of CDEs, see Notice 2003-64 on page 646 of Internal

Revenue Bulletin 2003-39 at www.irs.gov/pub/irs-irbs/ Qualified CDE. A qualified CDE is any U.S. corporation or irb03-39.pdf. partnership that meets the following requirements.

QALICB. This is any corporation (including a nonprofit • Its primary mission is serving, or providing investment capital for, low-income communities or per- corporation), partnership, or sole proprietorship, if all the

following requirements are met for the tax year. sons.

• It maintains accountability to residents of low-income 1) At least 50% of its total gross income is from the

communities through their representation on any active conduct of a qualified business (defined next)

governing or advisory boards of the entity. within a low-income community.

• It is certified by the CDFI Fund of the Department of 2) At least 40% of the use of its tangible property

Treasury. (whether owned or leased) is within a low-income

community. Qualified CDEs also include specialized small business 3) At least 40% of its employees’ services are per- investment companies and community development finan- formed in a low-income community. cial institutions. For more information, see section

45D(c)(2) of the Internal Revenue Code. 4) Less than 5% of the average of the total unadjusted

bases of the property of the entity is from: Qualified equity investment. Generally, this is the cost

of any stock in a corporation or any capital interest in a a) Nonqualified financial property (generally, debt,

partnership if the following requirements are met. stock, partnership interests, options, futures contracts, forward contracts, warrants, notional princi- • The corporation or partnership is a qualified CDE pal contracts, and annuities), or (defined earlier).

b) Collectibles not held primarily for sale to custom- • You acquire the investment on the original issue ers in the ordinary course of its business. date for cash. The cash may be from borrowed

funds, including a nonrecourse loan. Also, a sole proprietorship that would qualify if it were

• At least 85% of the cash is used to make qualified separately incorporated is treated as a qualified active

low-income community business. low-income community investments (defined later),

or at least 85% of the entity’s total gross assets are Qualified business. This is generally any trade or busi- in qualified low-income community investments. The ness except one that consists primarily of developing or 85% requirement is reduced to 75% for the seventh holding intangibles for sale or license. However, the rental year of the 7-year credit period. to others of real property located in a low-income commu-

• The qualified CDE designates the investment as a nity is a qualified business only if the property is not

qualified equity investment on its books and records residential rental property and there are substantial imfor purposes of the new markets credit. provements located on the property. Also, a qualified business does not include any business listed earlier in item (5)

or item (6) under Nonqualified employees in the Empower- Qualified low-income community investment. Gener- ment Zone Employment Credit section. ally, this means one of the following.

Low-income community. A low-income community • Any capital or equity investment in, or loan to, any generally means any population census tract if any of the QALICB (defined below). following apply.

• The purchase from another qualified CDE of any • The poverty rate is at least 20%. loan made by that entity provided that it was a qualified low-income community investment at the time it • If the tract is not located within a metropolitan area,

made or sold the loan. the median family income is not more than 80% of

statewide median family income. • Providing financial advice about organizing or operating a business to QALICBs and residents of low-in- • If the tract is located within a metropolitan area, the

come communities. median family income is not more than 80% of the

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greater of the statewide median family income or the qualified equity investment is made for a credit allometropolitan area median family income. cation received under an allocation application submitted to the CDFI Fund under a Notice of Allocation

Availability (NOAA) published by the CDFI Fund in CDE designations of qualified equity investments. the Federal Register on or before the date the equity Generally, a qualified CDE can designate an equity invest- investment was made. If the entity in which the eq- ment as a qualified equity investment only if it applied for uity investment is made does not receive an alloca- and received a new markets credit allocation and entered

tion under that NOAA, the equity investment is not into an allocation agreement with the CDFI Fund before

eligible to be designated as a qualified equity invest- the investment was made.

ment under future NOAAs. For details, see Notice

Exceptions. An equity investment in an entity is eligible 2003-56, on page 396 of Internal Revenue Bulletin to be designated as a qualified equity investment if made 2003-34 at www.irs.gov/pub/irs-irbs/irb03-34.pdf. prior to an allocation agreement only if one of the following

applies. NMC Allocations. NMCs are allocated annually by the • The equity investment was made after April 19, CDFI Fund to CDEs under a competitive application pro- 2001, and the designation of the equity investment cess. The maximum amount of qualified equity invest- as a qualified equity investment is made for a credit ments designated by the qualified CDE cannot exceed the allocation received under an allocation application amount of the allocation received from the CDFI Fund. The timely submitted to the CDFI Fund no later than U.S. Department of Treasury awarded to 66 entities on August 29, 2002. For details, see Notice 2003-9 on March 14, 2003, the first $2.5 billion in tax credit allocations page 369 of Internal Revenue Bulletin 2003-5 at under the NMC program. These entities are listed in Table www.irs.gov/pub/irs-irbs/irb03-05.pdf. 4, below. For information about future NMC allocations,

• The equity investment was made after July 17, 2003, see the CDFI fund website at www.cdfifund.gov/proand the designation of the equity investment as a grams/nmtc.

Table 4. 2002 New Markets Credit Allocation Awardees

Name of Awardee City and State Credit Allocation

Alaska Growth Capital BIDCO, Inc. Anchorage, AK $5,000,000

Advantage Capital Community Development Fund, L.L. New Orleans, LA $110,000,000

ASB Community Development Corp Portsmouth, OH $2,000,000

Bethel New Life, Inc. Chicago, IL $4,000,000

Border Communities Capital Company, LLC Solana Beach, CA $50,000,000

Cahaba Community Development, LLC Birmingham, AL $40,000,000

Campus Partners for Community Urban Redevelopment Columbus, OH $35,000,000

CBSI Development Fund, Inc. New Albany, IN $3,000,000

Central Ohio Loan Services, Inc. Waverly, OH $6,000,000

CFBanc Corporation Washington, DC $73,000,000

Citizens Business Development Company, LLC Jackson, KY $3,000,000

Citizens Tri-County Development Corporation Dunlap, TN $1,000,000

Clearinghouse CDFI Lake Forest, CA $56,000,000

Cleveland New Markets Investment Fund LLC Cleveland, OH $15,000,000

CNC Development Foundation, Inc. Paintsville, KY $2,000,000

Coastal Enterprises, Inc. Wiscasset, ME $65,000,000

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Name of Awardee City and State Credit Allocation

Community Development Funding, LLC Clarksville, MD $25,000,000

Community Development New Markets I LLC Cleveland, OH $150,000,000

Community Economic Redevelopment Corporation Chicago, IL $6,000,000

Community Loan Fund of New Jersey, Inc. Trenton, NJ $15,000,000

Community Trust Community Development Corporation Pikeville, KY $7,000,000

Community Ventures Corporation, Inc. Lexington, KY $12,000,000

Delaware Community Investment Corporation (DCIC) Wilmington, DE $15,000,000

Eclypse Development Partners I LLC Atlanta, GA $22,000,000

Empowerment Reinvestment Fund, LLC New York City, NY $10,000,000

Enterprise Corporation of the Delta Jackson, MS $15,000,000

ESIC New Markets Partners Limited Partnership Columbia, MD $90,000,000

First State Development Corp. Union City, TN $7,000,000

Greater Jamaica Local Development Company, Inc. Jamaica, NY $21,000,000

GS New Markets Fund New York, NY $75,000,000

HEDC New Markets, Inc. New York, NY $30,000,000

Illinois Facilities Fund, The Chicago, IL $10,000,000

Impact Community Capital CDE, LLC San Francisco, CA $40,000,000

Impact Seven, Inc. Almena, WI $21,000,000

KHC New Markets CDE, LLC Series A Carlsbad, CA $134,000,000

LA Charter School New Markets CDE LLC Santa Monica, CA $36,000,000

Lenders for Community Development San Jose, CA $25,000,000

Liberty Bank and Trust Company New Orleans, LA $50,000,000

Local Initiatives Support Corporation (LISC) New York, NY $65,000,000

MetaFund Corporation Oklahoma City, OK $54,000,000

MHIC, LLC Boston, MA $25,000,000

Mid-City Community CDE, LLC Silver Spring, MD $36,000,000

National Community Capital Philadelphia, PA $8,000,000

National New Markets Tax Credit Fund, Inc. Minneapolis, MN $162,500,000

National Trust Community Investment Corporation Washington, DC $127,000,000

Neighborhood Bancorp National City, CA $5,000,000

New Markets Community Capital, LLC Los Angeles, CA $30,000,000

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Name of Awardee City and State Credit Allocation

Norfolk Redevelopment & Housing Authority Norfolk, VA $15,000,000

North Coast Community Development Corporation Lorain, OH $9,000,000

Northside Community Development Fund Pittsburgh, PA $500,000

Nuestra Development Fund Roxbury, MA $1,000,000

Ohio Community Development Finance Fund Columbus, OH $15,000,000

Paramount Community Development Fund, LLC Granville, OH $75,000,000

Phoenix Community Development and Investment Corporation Phoenix, AZ $170,000,000

Prince George’s Community Capital Corporation Largo, MD $10,000,000

REI New Markets Investment, LLC Durant, OK $80,000,000

Rural Community Assistance Corporation West Sacramento, CA $8,000,000

Self-Help Ventures Fund Durham, NC $75,000,000

Southeast Indiana Community Development Dillsboro, IN $3,000,000

Southern Appalachian Fund Oak Ridge, TN $2,000,000

The Association For Theater-Based Community Development Columbus, OH $6,000,000

Urban Development Fund, LLC Chicago, IL $15,000,000

Wachovia Community Development Enterprises, LLC Charlotte, NC $150,000,000

West Virginia Community Development Loan Fund, Inc. Barboursville, WV $4,000,000

WNC National Community Development Advisors, LLC Costa Mesa, CA $50,000,000

123 New Market Investors LLC Washington, DC $13,000,000

Recapture. The credit is recaptured if, within the 7-year 2) Certain land used for a related purpose (for example,

credit period, the CDE is no longer qualified, substantially land where the business is located and a parking lot

all of the proceeds of the investment are no longer used for for customers and employees).

a qualifying purpose, or the investment is redeemed. Tax-exempt bonds generally have lower interest rates than

conventional financing.

Claiming the credit. Use Form 8874 to claim this credit. Contact the appropriate state or local government

agency to find out if this type of financing is More information. For more information about the new available in your empowerment zone or enterTIP

markets credit, see section 45D of the Internal Revenue prise community. Code and the regulations under that section.

Enterprise zone business. For tax-exempt bond financing, a corporation, partnership, or sole proprietorship is

Tax-Exempt Bond Financing generally an enterprise zone business if all the following

statements are true for the tax year.

State or local governments can issue enterprise zone 1) Every trade or business of the corporation or partner- facility bonds (a type of exempt facility tax-exempt bond) to ship is the active conduct of a qualified business raise funds to provide an “enterprise zone business” with (defined later) within an empowerment zone or an “qualified zone property.” At least 95% of the net proceeds enterprise community. (This rule does not apply to a from the bond issue must be used to finance: sole proprietorship.)

1) Qualified zone property whose principal user is an 2) At least 50% (80% for bonds issued before August 6,

enterprise zone business, and 1997) of its total gross income is from the active

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conduct of a qualified business within a zone or com- Relaxed requirements during start-up period. For

munity. bonds issued after August 5, 1997, a business will be

treated as an enterprise zone business during a start-up 3) A substantial part of the use of its tangible property is period if both of the following apply. within a zone or community. (For bonds issued

before August 6, 1997, at least 85% of the use of its 1) It is reasonable, at the beginning of the start-up pe- tangible property must be within a zone or commu- riod, to expect the business to be an enterprise zone nity.) business by the end of the start-up period.

4) A substantial part of its intangible property is used in 2) The business makes bona fide efforts to be an enter- the active conduct of the business. (For bonds is- prise zone business. sued before August 6, 1997, at least 85% of its

intangible property must be used in, and exclusively The start-up period is the period that ends with the start

related to, the active conduct of the business.) of the first tax year beginning more than 2 years after the

later of the following two dates. 5) A substantial part of the employees’ services are

performed within a zone or community. (For bonds 1) The issue date of the bond issue financing the quali- issued before August 6, 1997, at least 85% of the fied zone property. employees’ services must be performed within a

zone or community.) 2) The date this property is first placed in service (or, if

earlier, the date that is 3 years after the issue date). 6) At least 35% of the employees are residents of an

empowerment zone or enterprise community. (This Requirements during and after testing period. For rule does not apply to businesses in the DC Zone.) bonds issued after August 5, 1997, a business that quali7) Less than 5% of the average of the total unadjusted fies as an enterprise zone business at the end of the

bases of the property owned by the business is from: start-up period must continue to qualify during a testing

period that ends 3 tax years after the start-up period ends. a) Nonqualified financial property (generally, debt, After the 3-year testing period, a business will continue stock, partnership interests, options, futures con- to be treated as an enterprise zone business as long as it tracts, forward contracts, warrants, notional princi- meets an employee residency requirement. To meet this pal contracts, and annuities), or requirement, at least 35% of its employees must be re- b) Collectibles not held primarily for sale to custom- sidents of an empowerment zone or enterprise community.

ers. However, the following businesses are not treated as enterprise zone businesses even if they meet the employee For a sole proprietorship, the term “employee” in (5) and residency requirement. (6) includes the proprietor. Also, a business located in a

zone or community that would qualify if it were separately 1) Any business that consists primarily of the developincorporated is treated as an enterprise zone business. ment or holding of intangibles for sale or license. For example, a business that is part of a national chain 2) Any business listed earlier in item (5) or item (6) could qualify, providing it would meet the definition of an under Nonqualified employees in the Empowerment enterprise zone business if it were separately incorpo- Zone Employment Credit section. rated.

Qualified business. A qualified business is generally A business in the DC Zone does not need to meet the

any trade or business except one that consists primarily of employee residency requirement to continue to be treated

as an enterprise zone business after the testing period. the development or holding of intangibles for sale or license.

Qualified zone property. For tax-exempt bond financing, However, the rental to others of real property located in qualified zone property is any depreciable real or tangible an empowerment zone or enterprise community is a quali- personal property if all the following are true. fied business only if the property is not residential rental

property and at least 50% of the gross rental income from 1) You acquired the property after the zone or commu- the property is from enterprise zone businesses. nity designation is in effect. The rental to others of tangible personal property is a

qualified business only if at least 50% of the rentals of the 2) You did not acquire the property from a related perproperty are to enterprise zone businesses or zone or son or member of a controlled group of which you

community residents. (For bonds issued before August 6, are a member.

1997, at least 85% of the rentals of the property must be to 3) Your basis in the property is not determined either by enterprise zone businesses or zone or community re- its adjusted basis in the hands of the person from sidents.) whom you acquired it or under the stepped-up basis Also, a qualified business does not include any busi- rules for property acquired from a decedent. ness listed earlier in item (5) or item (6) under Nonqualified

employees in the Empowerment Zone Employment Credit 4) You were the first person to use the property in an

section. empowerment zone or enterprise community.

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5) At least 85% of the property’s use is in an empower- More information. For more information, see section

ment zone or enterprise community and in the active 1394 of the Internal Revenue Code and the regulations

conduct of a qualified trade or business in the zone under that section.

or community.

Used property may be qualified zone property if it has not

previously been used within an empowerment zone or Qualified Zone

enterprise community. Academy Bonds Special rule for substantially renovated property.

Property will be treated as having met requirements (1) Beginning in 1998, state or local governments can issue and (4) if you substantially renovate the property. You qualified zone academy bonds to raise funds for the use of

substantially renovate property if, during any 24-month a “qualified zone academy.” However, these bonds require

period beginning after the zone or community designation a private business contribution. Certain banks, insurance

takes effect, your additions to the property’s basis are companies, and corporations actively engaged in the busimore than the greater of the following amounts. ness of lending money can receive a tax credit as an

incentive to hold these bonds. For more information about

1) 15% (100% for bonds issued before August 6, 1997) claiming the credit, see Form 8860.

of the adjusted basis of the property at the beginning The national qualified academy zone bond limit of the 24-month period. for 2003 was $400 million, but is zero for 2004

2) $5,000. (excluding any carryover limitation). However, at CAUTION

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the time this publication was issued, Congress was considSpecial rule for bonds issued after July 30, 1996. ering legislation that would establish a national limitation

Generally for bonds issued after July 30, 1996, property amount for 2004. See What’s Hot in Tax Forms, Pubs,

that you reasonably expect by exercising due diligence to and Other Tax Products at www.irs.gov/formspubs to

be qualified zone property by an initial testing date will be find out if this legislation was enacted.

treated as qualified zone property for the period before that Contact the appropriate state or local government date.

agency to find out if qualified zone academy The initial testing date is generally the date that is 18 bonds are available in your area.

TIP

months after the later of the following dates.

1) The issue date of the bond issue financing the quali- Qualified zone academy. A qualified zone academy is a fied zone property. public school (or academic program within a public school)

at the secondary level or below that meets certain require- 2) The date this property is first placed in service (or, if ments. It must be located in either an empowerment zone earlier, the date that is 3 years (5 years for certain or an enterprise community, or there must be a reasonable construction projects) after the issue date). expectation when the bonds are issued that at least 35% of

However, the issuer of the bonds can choose to use any the school’s students (or program’s participants) will be

earlier date that comes after the bond issue date as the eligible for free or reduced-cost lunches under the school

initial testing date. lunch program established under the National School

Lunch Act. A qualified zone academy must also meet other

Interest not deductible. No deduction will be allowed for requirements.

interest on any financing provided from a bond if the

interest accrues during the period beginning on the first Private business contribution requirement. Before

day of the calendar year in which either of the following qualified zone academy bonds can be issued, the local

occurs. educational agency (as defined in section 14101 of the

Elementary and Secondary Education Act of 1965) must

1) Substantially all of the facility that was financed obtain written commitments from private entities for qualiceases to be used in an empowerment zone or en- fied contributions with a present value (as of the bond

terprise community. issue date) of not less than 10% of the proceeds of the

bond issue. 2) The principal user of the facility ceases to be an

enterprise zone business. A qualified contribution is a contribution made with the

approval of the local educational agency of any property or This rule does not apply if the use of the facility ceases to service from the following list. qualify because of bankruptcy or the termination or revocation of the designation as an empowerment zone or enter- 1) Equipment for use in the qualified zone academy. prise community. 2) Technical assistance in developing curriculum or in In addition, interest will remain deductible if the issuer training teachers to promote appropriate market and principal user try in good faith to meet the require- driven technology in the classroom. ments and any failure is corrected within a reasonable

period after discovery. 3) Services of employees as volunteer mentors.

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4) Internships, field trips, or other educational opportu- The employee must meet the requirements explained in

nities outside the academy for students. the instructions to Form 8850.

5) Any other property or service specified by the local State certification required. An employee is not coneducational agency. sidered a targeted group employee without SESA certification. To receive certification, submit Form 8850 to your 6) A donation of cash is generally a qualified contribu- SESA. tion if it is to be used to buy any property or service You must either: described in this list.

1) Receive the certification by the day the individual

More information. For more information about qualified begins work, or

zone academy bonds, see section 1397E of the Internal 2) Do both of the following: Revenue Code and the regulations under that section.

a) Complete Form 8850 by the day you offer the

individual a job, and

Work Opportunity Credit b) Submit the form to your SESA by the 21st day

after the individual begins work.

The work opportunity credit provides businesses with an

incentive to hire individuals from groups that have a particularly high unemployment rate or other special employ- Qualified first-year wages. Qualified first-year wages

ment needs. Your business does not have to be in an are qualified wages you pay or incur for work performed by

empowerment zone, enterprise community, or renewal a targeted group employee during the 1-year period begincommunity to qualify for this credit. You can claim the ning on the date the individual begins work for you. Qualicredit if you pay or incur “qualified first-year wages” to a fied wages are generally wages (excluding tips) subject to

“targeted group employee.” the Federal Unemployment Tax Act (FUTA) without regard

to the FUTA dollar limit, but not more than $6,000 each tax The work opportunity credit includes New York Liberty year for each employee ($3,000 each tax year for a sum- Zone business employees. This part of the work opportu- mer youth employee). nity credit is called the New York Liberty Zone business If the work performed by the employee during more than employee credit. It has a different tax liability limit and is half of any pay period qualifies under FUTA as agricultural figured separately on Form 8884. For details, see New labor, the first $6,000 of that employee’s wages subject to York Liberty Zone Business Employee Credit, earlier. social security and Medicare taxes are qualified wages.

This credit is set to expire for individuals who For a special rule that applies to railroad employees, see

begin work for you after December 2003. How- section 51(h)(1)(B) of the Internal Revenue Code.

ever, at the time this publication was issued, CAUTION

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Nonqualified wages. See Form 5884 for a complete Congress was considering legislation that would allow this list of wages that do not qualify for the credit. Some of the credit with respect to employees who began work for you in most common wages that do not qualify include wages you 2004. See What’s Hot in Tax Forms, Pubs, and Other pay or incur to an employee who: Tax Products at www.irs.gov/formspubs to find out if

this legislation was enacted. 1) Has worked for you for more than 1 year,

2) Is your relative or dependent, Targeted group employee. A targeted group employee

is any employee who has been certified by your state 3) You rehired, or

employment security agency (SESA) as a: 4) Does not work for you for at least 120 hours.

1) Recipient of assistance under Temporary Assistance Successor employer. If you are a successor em- for Needy Families (TANF), ployer, the 1-year period begins on the date the employee 2) Veteran, first began work for the previous employer and any qualified first-year wages paid by the successor employer are 3) Ex-felon, reduced by the qualified first-year wages paid by the previ- 4) High-risk youth, age 18 to 24 who lives in an em- ous employer. You are a successor employer if you ac- powerment zone, enterprise community, or renewal quire substantially all of the property used in a trade or

community, business (or a separate unit thereof) of another employer

(previous employer) and immediately after the acquisition 5) Vocational rehabilitation referral, you employ in your trade or business an individual who 6) Summer youth employee, age 16 or 17 who lives in was employed immediately prior to the acquisition in the

an empowerment zone, enterprise community, or re- trade or business of the previous employer.

newal community,

Amount of credit. The following table shows the rate you 7) Food stamp recipient, or apply to qualified first-year wages you pay or incur each

8) Supplemental security income (SSI) recipient. tax year to a targeted group employee who works for you

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for the number of hours shown. The table also shows the Long-term family assistance recipient. A long-term

maximum credit you can claim each tax year for each family assistance recipient is an individual who has been

targeted group employee. certified by your state employment security agency

(SESA) as a member of a family that: Table 5. Rate and Maximum Credit Each Tax Year for

Each Targeted Group Employee 1) Has received assistance payments from Temporary

Assistance for Needy Families (TANF) for at least 18

consecutive months ending on the hiring date, Maximum

Qualified 2) Receives assistance payments from TANF for any

First-Year Maximum 18 months (whether or not consecutive) beginning Hours Worked For You Rate Wages Credit after August 5, 1997, and is hired not more than 2

At least 400 . . . . . . . . . . . . . . 40% $6,000* $2,400 years after the end of the earliest 18-month period,

Fewer than 400 but at least 120 25% 6,000* 1,500 or

3) Stops being eligible after August 5, 1997, for assis- *$3,000 for a summer youth employee

tance payments because federal or state law limits

the maximum period that assistance is payable, and

is hired not more than 2 years after that eligibility for Claiming the credit. Use Form 5884 to claim this credit. assistance ends.

Effect on salary and wage deduction. In general, you

must reduce the deduction on your income tax return for State certification required. An individual is not consalaries and wages by the amount of your current year sidered a long-term family assistance recipient without

work opportunity credit (before applying the tax liability SESA certification. To receive certification, submit Form

limit). 8850 to your SESA.

You must either: Effect on empowerment zone and renewal community employment credits. Wages you use to claim the 1) Receive the certification by the day the individual work opportunity credit cannot be used to figure the em- begins work, or powerment zone or renewal community employment credits. In addition, they reduce the maximum wage amount 2) Do both of the following:

you can use to figure either of those credits. a) Complete Form 8850 by the day you offer the Effect of welfare-to-work credit. You cannot claim individual a job, and both the work opportunity credit and the welfare-to-work b) Submit the form to your SESA by the 21st day credit for the same employee during the same tax year. after the individual begins work. Effect on New York Liberty Zone business employee

credit. Wages you use to claim the work opportunity credit

cannot be used to figure the New York Liberty Zone busi- Qualified wages. Qualified wages are generally wages ness employee credit. (excluding tips) subject to the Federal Unemployment Tax

Act (FUTA) without regard to the FUTA dollar limit, but not More information. For more information about the work more than $10,000 each tax year for each employee.

opportunity credit, see Form 5884. If the work performed by the employee during more than

half of any pay period qualifies under FUTA as agricultural

labor, the first $10,000 of that employee’s wages subject to Welfare-to-Work Credit social security and Medicare taxes are qualified wages.

For a special rule that applies to railroad employees, see

The welfare-to-work credit provides businesses with an section 51A(b)(5)(C) of the Internal Revenue Code.

incentive to hire long-term family assistance recipients. For this credit, qualified wages also generally include

Your business does not have to be in an empowerment the following amounts paid or incurred by the employer

zone, enterprise community, or renewal community to that are normally excludable from the employee’s gross

qualify for this credit. You can claim the credit if you pay or income.

incur “qualified wages” during the first 2 years of employment to a “long-term family assistance recipient.” 1) Amounts received for medical care under accident

and health plans. This credit is set to expire for individuals who

begin work for you after December 2003. How- 2) Employer-provided coverage under accident and

ever, at the time this publication was issued, health plans. CAUTION

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Congress was considering legislation that would allow this 3) Certain amounts excludable under an educational credit with respect to employees who began work for you in assistance program. 2004. See What’s Hot in Tax Forms, Pubs, and Other

Tax Products at www.irs.gov/formspubs to find out if 4) Amounts excludable under a dependent care assisthis legislation was enacted. tance program.

Page 25
Nonqualified wages. See Form 8861 for a complete salaries and wages by the amount of your current year

list of wages that do not qualify for the credit. Some of the welfare-to-work credit (before applying the tax liability

most common wages that do not qualify include wages you limit).

pay or incur to an employee who: Effect on empowerment zone and renewal community employment credits. Wages you use to claim the 1) Has worked for you for more than 2 years, welfare-to-work credit cannot be used to figure the em- 2) Is your relative or dependent, or powerment zone or renewal community employment cred3) Does not either: its. In addition, they reduce the maximum wage amount

you can use to figure either of those credits.

a) Work for you for at least 180 days, or Effect of work opportunity credit. You cannot claim

b) Complete at least 400 hours of service. both the welfare-to-work credit and the work opportunity

credit for the same employee during the same tax year.

Amount of credit. The following table shows the rate you Effect of New York Liberty Zone business employee

credit. You cannot claim both the welfare-to-work credit apply to the qualified wages you pay or incur during each and the New York Liberty Zone business employee credit year of employment. The table also shows the maximum for the same employee during the same tax year. credit you can claim each tax year for each qualified

employee. More information. For more information about the

Table 6. Rate and Maximum Credit Each Tax Year for welfare-to-work credit, see Form 8861.

Each Long-Term Family Assistance Recipient

Maximum

Qualified Maximum Indian Employment Credit Rate Wages Credit

Qualified first-year wages 35% $10,000 $3,500 The Indian employment credit provides businesses with an

Qualified second-year 50% $10,000 $5,000 incentive to hire certain individuals who live on or near an

wages .............. Indian reservation. Your business does not have to be in

an empowerment zone, enterprise community, or renewal

community to qualify for this credit. You can claim the Qualified first-year wages. Qualified first-year wages credit if you pay or incur “qualified wages” to a “qualified are qualified wages you pay or incur for work performed by employee.” a long-term family assistance recipient during the 1-year

period beginning on the date the individual begins work for At the time this publication was printed, this credit

you. was set to expire for tax years beginning after

2004. CAUTION

!

Qualified second-year wages. Qualified second-year

wages are qualified wages you pay or incur for work

performed by a long-term family assistance recipient dur- Qualified employee. A qualified employee, for any tax

ing the 1-year period beginning on the day after the last period, is any employee who meets all the following tests.

day of the first-year wage period.

1) The employee is an enrolled member of an Indian Successor employer. If you are a successor em- tribe or the spouse of an enrolled member of an ployer, the 1-year period for qualified first-year wages Indian tribe. begins on the date the employee first began work for the

previous employer. The 1-year period for qualified 2) The employee performs substantially all of his or her

second-year wages begins on the day after the last day of services for you within an Indian reservation.

that first-year wage period. Any qualified first-year wages 3) While performing those services, the employee has paid by the successor employer are reduced by the quali- his or her main home on or near that reservation. fied first-year wages paid by the previous employer. Also,

any qualified second-year wages paid by the successor Also, more than 50% of the wages you pay or incur to the

employer are reduced by the qualified second-year wages employee during the year must be for services performed

paid by the previous employer. You are a successor em- in your trade or business.

ployer if you acquire substantially all of the property used in Nonqualified employees. The following individuals a trade or business (or a separate unit thereof) of another are not qualified employees. employer (previous employer) and immediately after the

acquisition you employ in your trade or business an individ- 1) Any employee to whom you pay or incur wages (in- ual who was employed immediately prior to the acquisition cluding wages for services outside an Indian reser- in the trade or business of the previous employer. vation) at a rate that would cause you to pay the

employee more than the wage limit if the rate applied Claiming the credit. Use Form 8861 to claim this credit. for an entire year. (The wage limit was $35,000 for

Effect on salary and wage deduction. In general, you 2003 but may be adjusted for inflation for tax years

must reduce the deduction on your income tax return for beginning after 2003.)

Page 26
2) Certain related taxpayers. More information. For more information about the Indian

employment credit, see Form 8845. 3) Certain dependents.

4) Any 5% owner.

5) Any individual who performs services involving cer- Depreciation of Property

tain gaming activities. Used on Indian Reservations 6) Any individual who performs services in a building

housing certain gaming activities. Depreciation is a loss in the value of property over the time

the property is being used. You can get back your cost of

Qualified wages. Qualified wages are any wages you certain property by taking deductions for depreciation. This

includes the cost of certain buildings and equipment you pay or incur for services performed by an employee while use in your business. the employee is a qualified employee (defined earlier).

Wages are generally defined as wages (excluding tips) Special depreciation rules apply to qualified property

subject to the Federal Unemployment Tax Act (FUTA) that you place in service on an Indian reservation after

without regard to the FUTA dollar limit. 1993 and before 2005. These special rules allow you to

use shorter recovery periods to figure your depreciation Also treat as qualified wages any qualified employee deduction for qualified property. As a result, your deduction health insurance costs you pay or incur on behalf of a is larger. Your business does not have to use the property qualified employee. However, do not include any amount in an empowerment zone, enterprise community, or re- you pay or incur for health insurance under a salary reduc- newal community to use these special rules. tion arrangement.

The total amount of qualified wages (including qualified The special depreciation rules that apply to qualiemployee health insurance costs) you can use to figure the fied Indian reservation property is set to expire for

credit cannot be more than $20,000 for each employee property placed in service after 2004. However, CAUTION

!

each tax year. at the time this publication was issued, Congress was

considering legislation that would apply the special rules Effect of work opportunity credit. Qualified wages do for property placed in service in 2005. See What’s Hot in not include any amount you pay or incur for work per- Tax Forms, Pubs, and Other Tax Products at formed by a qualified employee during the 1-year period www.irs.gov/formspubs to find out if this legislation was beginning on the date the individual begins work for you, if enacted you use any part of these wages to claim the work opportunity credit. Qualified property. Property eligible for the shorter recovery periods is 3-, 5-, 7-, 10-, 15-, and 20-year property Amount of credit. In most cases, the credit is 20% of the and nonresidential real property. You must use this prop- excess of your current year qualified wages and qualified erty predominantly in the active conduct of a trade or employee health insurance costs over the sum of the business within an Indian reservation. Real property you corresponding amounts you paid or incurred during calen- rent to others that is located on an Indian reservation is

dar year 1993. also eligible for the shorter recovery periods.

The following property is not qualified property. Claiming the credit. Use Form 8845 to claim this credit.

Effect on salary and wage deduction. In general, you 1) Property used or located outside an Indian reservamust reduce the deductions on your income tax return for tion on a regular basis, other than qualified infrasalaries and wages and health insurance costs by the structure property.

amount of your current year Indian employment credit 2) Property acquired directly or indirectly from certain (before applying the tax liability limit). related persons.

Early termination of employee. Generally, if you ter- 3) Property placed in service for purposes of con- minate a qualified employee sooner than 1 year after the ducting or housing certain gaming activities. date of initial employment, you cannot claim a credit for 4) Any property you must depreciate under the Alterna- that employee for the tax year the employment is termi- tive Depreciation System (ADS). nated. Also, you may have to recapture credits allowed in

earlier years. Qualified infrastructure property. Item (1) above These rules do not apply in the following situations. does not apply to qualified infrastructure property located

• The employee voluntarily quits. outside the reservation that is used to connect with qualified infrastructure property within the reservation. • The employee is terminated because of misconduct. Qualified infrastructure property is property that meets • The employee becomes disabled. However, if the all the following requirements.

disability ends before the end of the first year of

employment, you must offer reemployment to the 1) It is qualified property, as defined earlier (except that

former employee. it is outside the reservation).

Page 27
2) It benefits the tribal infrastructure. another person in whose hands it was DC Zone

business stock.) 3) It is available to the general public.

2) The corporation was a DC Zone business (or was 4) It is placed in service in connection with the active being organized as a DC Zone business) at the time conduct of a trade or business within a reservation. the stock was issued.

Infrastructure property includes, but is not limited to, roads, 3) The corporation qualified as a DC Zone business power lines, water systems, railroad spurs, and communi- during substantially all of your holding period for the cations facilities. stock. (This requirement is also met if the corporation

Recovery periods. The following table shows the shorter ceased to qualify as a DC Zone business after the

recovery periods you can use to depreciate qualified prop- 5-year period beginning on the date you acquired the

erty. stock. However, your qualified capital gain cannot be

more than what it would have been if you had sold

Table 7. Recovery Periods for Qualified Property the stock on the date the corporation ceased to qualify.)

Recovery Redemptions of business stock. Stock will not qualify Property Class Period as DC Zone business stock if the issuing corporation

3-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 years makes certain redemptions of its stock within 2 years

5-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 years before or 2 years after the date the stock was issued. For

7-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 years details, see sections 1400B(b)(2)(B) and 1202(c)(3) of the

Internal Revenue Code. 10-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 years

15-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 years DC Zone partnership interest. A DC Zone partnership

20-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 years interest is any capital or profits interest in a U.S. partnership that is originally issued after 1997, if all the following Nonresidential real property . . . . . . . . . . . . . . . . . . . . 22 years

requirements are met. 

More information. For more information about deprecia- 1) You acquired the partnership interest from the parttion, including the special rules that apply to property used nership before 2004 in exchange for cash. (This reon Indian reservations, see Publication 946. quirement is also met if you acquired the partnership

interest at any time from another person in whose

hands it was a DC Zone partnership interest.)

Capital Gain Exclusion for 2) The partnership was a DC Zone business (or was

being organized as a DC Zone business) at the time DC Zone Assets the partnership interest was acquired.

If you hold a District of Columbia Enterprise Zone (DC 3) The partnership qualified as a DC Zone business

Zone) asset more than 5 years, you will not have to include during substantially all of your holding period for the

any “qualified capital gain” from its sale or exchange in partnership interest. (This requirement is also met if

your gross income. This exclusion applies to an interest in, the partnership ceased to qualify as a DC Zone busior property of, certain businesses operating in the District ness after the 5-year period beginning on the date

of Columbia. you acquired the partnership interest. However, your

qualified capital gain cannot be more than what it DC Zone asset. A DC Zone asset is any of the following. would have been if you had sold the partnership

interest on the date the partnership ceased to qual- • DC Zone business stock.

ify.) • DC Zone partnership interest.

Redemptions of partnership interest. A partnership • DC Zone business property. interest will not qualify as a DC Zone partnership interest if

the partnership makes certain acquisitions of its partner- In determining whether any property is a DC Zone ship interests within 2 years before or 2 years after the date asset, continue to treat the DC Zone as an em- the partnership interest was issued. For details, see sec- powerment zone for years after 2003. tions 1400B(b)(3), 1400B(b)(2)(B), and 1202(c)(3) of the CAUTION

!

Internal Revenue Code.

DC Zone business stock. DC Zone business stock is any

stock in a U.S. corporation that is originally issued after DC Zone business property. DC Zone business prop1997, if all the following requirements are met. erty is tangible property acquired after 1997 that meets all

the following requirements. 

1) You acquired the stock before 2004 at its original

issue solely in exchange for cash. (This requirement 1) You acquired the property before 2004. (This reis also met if you acquired the stock at any time from quirement is also met if you acquired the property at

Page 28
any time from another person in whose hands it was Qualified capital gain. Qualified capital gain is any gain

DC Zone business property.) recognized on the sale or exchange of a DC Zone asset

that is a capital asset or property used in a trade or 2) You did not acquire the property from a related per- business as defined in section 1231(b) of the Internal son or member of a controlled group of which you Revenue Code (generally real property or depreciable are a member. personal property). But it does not include any of the

3) Your basis in the property is not determined either by following gains.

its adjusted basis in the hands of the person from • Gain attributable to periods before 1998 or after whom you acquired it or under the stepped-up basis 2008. rules for property acquired from a decedent. • Ordinary (section 1245) gain. See chapter 3 in Publi- 4) You were the first person to use the property in the cation 544, Sales and Other Dispositions of Assets. DC Zone. (This requirement is also met if you acquired the property from another person in whose • Section 1250 gain figured as if section 1250 applied

to all depreciation rather than the additional depreci- hands it was DC Zone business property.) ation. See chapter 3 in Publication 544. 5) Substantially all of the use of the property was in • Gain attributable to real property or an intangible your DC Zone business during substantially all of asset that is not an integral part of a DC Zone busi- your holding period for that property. (This require- ness. ment is also met if you stopped using the property in

your DC Zone business, or your business ceased to • Gain attributable, directly or indirectly, in whole or in

qualify as a DC Zone business, after the 5-year pe- part, to a transaction with a related person. For the

riod beginning on the date you acquired the property. definition of a related person, see chapter 2 in PubliHowever, your qualified capital gain cannot be more cation 544.

than what it would have been if you had sold the

property on the date you stopped using the property Other rules. Rules similar to certain rules in section 1202

in your DC Zone business or on the date your busi- of the Internal Revenue Code apply to interests in ness ceased to qualify.) pass-through entities, certain tax-free transfers, contributions to capital after the original stock issuance date, and Special rule for substantially improved buildings. short positions. Buildings (and land on which they are located) will be

treated as having met requirements (1) and (4) if you

substantially improve the buildings before 2004. You sub- How To Get Tax Help stantially improve a building if, during any 24-month period

beginning after 1997, your additions to the basis of the You can get help with unresolved tax issues, order free property are more than the greater of the following publications and forms, ask tax questions, and get more amounts. information from the IRS in several ways. By selecting the

method that is best for you, you will have quick and easy 1) 100% of the adjusted basis of the property at the access to tax help. beginning of the 24-month period.

2) $5,000. Contacting your Taxpayer Advocate. If you have attempted to deal with an IRS problem unsuccessfully, you

should contact your Taxpayer Advocate. DC Zone business. A DC Zone business for this capital The Taxpayer Advocate independently represents your gains exclusion is an enterprise zone business as defined interests and concerns within the IRS by protecting your earlier under Increased Section 179 Deduction in the dis- rights and resolving problems that have not been fixed cussion of empowerment zones, with the following excep- through normal channels. While Taxpayer Advocates can- tions. not change the tax law or make a technical tax decision,

they can clear up problems that resulted from previous • The 35% employee residence requirement listed in contacts and ensure that your case is given a complete item (6) does not apply. and impartial review.

• The 50% of gross income requirement listed in item To contact your Taxpayer Advocate:

(2) is increased to 80%. • Call the Taxpayer Advocate toll free at • No area other than the DC Zone can be treated as 1–877–777–4778.

an empowerment zone or enterprise community. • Call, write, or fax the Taxpayer Advocate office in

For this purpose, the DC Zone is treated as including all your area.

census tracts in the District of Columbia with a poverty rate • Call 1–800–829–4059 if you are a of at least 10% as determined by the 1990 census. See TTY/TDD user. Notice 98-57, on page 9 of Internal Revenue Bulletin

1998-47 at www.irs.gov/pub/irs-irbs/irb98-47.pdf. • Visit the website at www.irs.gov/advocate.

Page 29
For more information, see Publication 1546, The Tax- • Asking tax questions. Call the IRS with your tax

payer Advocate Service of the IRS. questions at 1–800–829–1040.

Free tax services. To find out what services are avail- • Solving problems. You can get face-to-face help

able, get Publication 910, Guide to Free Tax Services. solving tax problems every business day in IRS Tax- It

contains a list of free tax publications and an index of tax payer Assistance Centers. An employee can explain

topics. It also describes other free tax information services, IRS letters, request adjustments to your account, or

help you set up a payment plan. Call your local including tax education and assistance programs and a list

of TeleTax topics. Taxpayer Assistance Center for an appointment. To

find the number, go to www.irs.gov or look in the Internet. You can access the IRS website 24 phone book under “United States Government, Inter- hours a day, 7 days a week, at www.irs.gov to: nal Revenue Service.”

• TTY/TDD equipment. If you have access to TTY/ • E-file. Access commercial tax preparation and e-file TDD equipment, call 1–800–829– 4059 to ask tax services available for free to eligible taxpayers. or account questions or to order forms and publica-

• Check the amount of advance child tax credit pay- tions.

ments you received in 2003. • TeleTax topics. Call 1–800–829–4477 to listen to

• Check the status of your 2003 refund. Click on pre-recorded messages covering various tax topics.

“Where’s My Refund.” Be sure to wait at least 6 • Refund information. If you would like to check the weeks from the date you filed your return (3 weeks if status of your 2003 refund, call 1–800–829 4477 for you filed electronically) and have your 2003 tax re- automated refund information and follow the re- turn available because you will need to know your corded instructions or call 1–800–829–1954. Be filing status and the exact whole dollar amount of sure to wait at least 6 weeks from the date you filed your refund. your return (3 weeks if you filed electronically) and • Download forms, instructions, and publications. have your 2003 tax return available because you will

• Order IRS products online. need to know your filing status and the exact whole

dollar amount of your refund. • See answers to frequently asked tax questions.

• Search publications online by topic or keyword. Evaluating the quality of our telephone services. To

• Figure your withholding allowances using our Form ensure that IRS representatives give accurate, courteous,

W-4 calculator. and professional answers, we use several methods to

evaluate the quality of our telephone services. One method • Send us comments or request help by email. is for a second IRS representative to sometimes listen in

• Sign up to receive local and national tax news by on or record telephone calls. Another is to ask some callers

email. to complete a short survey at the end of the call.

• Get information on starting and operating a small Walk-in. Many products and services are avail- business.

able on a walk-in basis.

You can also reach us using File Transfer Protocol at

ftp.irs.gov. • Products. You can walk in to many post offices,

libraries, and IRS offices to pick up certain forms, Fax. You can get over 100 of the most requested instructions, and publications. Some IRS offices, li- forms and instructions 24 hours a day, 7 days a braries, grocery stores, copy centers, city and county week, by fax. Just call 703–368–9694 from your government offices, credit unions, and office supply fax machine. Follow the directions from the prompts. When stores have a collection of products available to print you order forms, enter the catalog number for the form you from a CD-ROM or photocopy from reproducible need. The items you request will be faxed to you. proofs. Also, some IRS offices and libraries have the For help with transmission problems, call Internal Revenue Code, regulations, Internal Reve- 703–487–4608. nue Bulletins, and Cumulative Bulletins available for Long-distance charges may apply. research purposes.

Phone. Many services are available by phone. • Services. You can walk in to your local Taxpayer

Assistance Center every business day to ask tax

questions or get help with a tax problem. An em-

• Ordering forms, instructions, and publications. Call ployee can explain IRS letters, request adjustments

1–800–829–3676 to order current-year forms, in- to your account, or help you set up a payment plan.

structions, and publications and prior-year forms and You can set up an appointment by calling your local

instructions. You should receive your order within 10 Center and, at the prompt, leaving a message redays. questing Everyday Tax Solutions help. A representaPage 30
tive will call you back within 2 business days to • Prior-year forms and instructions.

schedule an in-person appointment at your conve- • Frequently requested tax forms that may be filled in nience. To find the number, go to www.irs.gov or electronically, printed out for submission, and saved look in the phone book under “United States Govern- for recordkeeping. ment, Internal Revenue Service.”

• Internal Revenue Bulletins.

Mail. You can send your order for forms, instructions, and publications to the Distribution Center Buy the CD-ROM from National Technical Information

nearest to you and receive a response within 10 Service (NTIS) on the Internet at www.irs.gov/cdorders

workdays after your request is received. Use the address for $22 (no handling fee) or call 1–877–233–6767 toll free

that applies to your part of the country. to buy the CD-ROM for $22 (plus a $5 handling fee). The

first release is available in early January and the final • Western part of U.S.: release is available in late February. Western Area Distribution Center

Rancho Cordova, CA 95743–0001 CD-ROM for small businesses. IRS Publication

3207, Small Business Resource Guide, is a must • Central part of U.S.: for every small business owner or any taxpayer Central Area Distribution Center

about to start a business. This handy, interactive CD con- P.O. Box 8903

tains all the business tax forms, instructions and publica- Bloomington, IL 61702–8903 tions needed to successfully manage a business. In • Eastern part of U.S. and foreign addresses: addition, the CD provides an abundance of other helpful Eastern Area Distribution Center information, such as how to prepare a business plan, P.O. Box 85074 finding financing for your business, and much more. The Richmond, VA 23261–5074 design of the CD makes finding information easy and quick

and incorporates file formats and browsers that can be run

CD-ROM for tax products. You can order IRS on virtually any desktop or laptop computer.

Publication 1796, Federal Tax Products on It is available in early April. You can get a free copy by CD-ROM, and obtain: calling 1–800–829–3676 or by visiting the website at

www.irs.gov/smallbiz. • Current-year forms, instructions, and publications.

Page 31
To help us develop a more useful index, please let us know if you have ideas for index entries.

Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A Enterprise zone business: Special depreciation

Assistance (See Tax help) Increased section 179 allowance . . . . . . . . . . . . . . . 15

deduction ................5

B Tax-exempt bond financing . . . . 21 P

Bonds: Exclusion of gain: Publications (See Tax help) DC Zone assets . . . . . . . . . . . . 28 Qualified zone academy . . . . . . 23 Renewal community assets . . . . 11 Tax-exempt financing . . . . . . . . 21 Q Small business stock ..........7 Qualified zone academy

C bonds . . . . . . . . . . . . . . . . . . . 23 F Capital gains: Qualified zone property: Fiscal year taxpayers . . . . . . . . 5, 9 DC Zone assets . . . . . . . . . . . . 28 Increased section 179

Form: Empowerment zone assets .....7 deduction ................6

Renewal community assets . . . . 11 5884 . . . . . . . . . . . . . . . . . . . . . 25 Tax-exempt bond financing . . . . 22

8844 . . . . . . . . . . . . . . . . . . . . 5, 9 Comments ..................2 8845 . . . . . . . . . . . . . . . . . . . . . 27 Commercial revitalization R 8850 .................. 24, 25 deduction . . . . . . . . . . . . . . . . 10 Renewal Communities .........8 8860 . . . . . . . . . . . . . . . . . . . . . 23 Credits: Renewal community 8861 . . . . . . . . . . . . . . . . . . . . . 26

Empowerment zone employment credit ..........8 8874 . . . . . . . . . . . . . . . . . . . . . 21

employment ...............4 8884 . . . . . . . . . . . . . . . . . . . . . 14 Replacement period

Indian employment . . . . . . . . . . 26 extension . . . . . . . . . . . . . . . . . 17 Free tax services . . . . . . . . . . . . 29 Liberty zone business

employee . . . . . . . . . . . . . . . 14 H S New markets . . . . . . . . . . . . . . . 17

Help Section 179, increased Renewal community (See Tax help) deduction . . . . . . . . . . . . 5, 9, 16 employment ...............8 Special Liberty Zone Welfare-to-work . . . . . . . . . . . . 25 I depreciation allowance, Work opportunity . . . . . . . . . . . . 24 Increased section 179 election not to claim . . . . . . . . 16 deduction . . . . . . . . . . . . 5, 9, 16 Stock: D Indian employment credit . . . . . 26 DC Zone business . . . . . . . . . . 28

DC Zone asset . . . . . . . . . . . . . . 28 Indian reservations, Qualified community . . . . . . . . . 11

Deductions: depreciation rules . . . . . . . . . . 27 Qualified small business .......7

Commercial revitalization . . . . . 10 Suggestions .................2

Depreciation of property used L

on Indian reservations . . . . . . 27 Long-term family assistance T Increased section 179 . . . . 5, 9, 16 recipient . . . . . . . . . . . . . . . . . 25 Tax help . . . . . . . . . . . . . . . . . . . 29 Depreciation: Tax-exempt bond financing . . . . 21 Special Liberty Zone M Taxpayer Advocate . . . . . . . . . . . 29 depreciation allowance . . . . . 15 More information (See Tax help) TTY/TDD information . . . . . . . . . 29

E

Empowerment zone assets .....7

N W

Empowerment zone New markets credit . . . . . . . . . . . 17 Welfare-to-work credit . . . . . . . . 25

employment credit ..........4 New York Liberty Zone . . . . . . . . 14 Work opportunity credit . . . . . . . 24

Business employee credit . . . . . 14 Empowerment zones ..........3 Defined . . . . . . . . . . . . . . . . . . . 14 ■

Enterprise Communities . . . . . . 13 Leasehold improvement

property . . . . . . . . . . . . . . . . . 17

Page 32