II

107TH CONGRESS

1ST SESSION S. 1081

To amend the Internal Revenue Code of 1986 to allow a business credit

for the development of low-to-moderate income housing for home ownership, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 21, 2001

Mr. TORRICELLI (for himself and Mr. DAYTON) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to allow a

business credit for the development of low-to-moderate

income housing for home ownership, and for other purposes.

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

3 SECTION 1. SHORT TITLE; ETC.

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

5 ‘‘Low-to-Moderate Income Home Ownership Tax Credit

6 Act’’.

7 (b) TABLE OF CONTENTS.—The table of contents for

8 this Act is as follows:
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Sec. 1. Short title; etc.

Sec. 2. Credit for low-to-moderate income housing for home ownership.

Sec. 3. Partial exclusion of gain from sale of low-to-moderate income housing.

Sec. 4. Expansion of rehabilitation credit.

1 SEC. 2. CREDIT FOR LOW-TO-MODERATE INCOME HOUSING

2 FOR HOME OWNERSHIP.

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of

5 1986 (relating to business related credits) is amended by

6 adding at the end the following:

7 ‘‘SEC. 42A. LOW-TO-MODERATE INCOME HOME OWNERSHIP

8 CREDIT.

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

10 amount of the home ownership credit determined under

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

12 be an amount equal to the applicable percentage of the

13 qualified basis of each qualified low-to-moderate income

14 building.

15 ‘‘(b) APPLICABLE PERCENTAGE: 70 PERCENT

16 PRESENT VALUE CREDIT FOR NEW BUILDINGS; 30 PER17 CENT PRESENT VALUE CREDIT FOR EXISTING BUILD18 INGS.—For purposes of this section—

19 ‘‘(1) IN GENERAL.—The term ‘applicable per20 centage’ means the appropriate percentage pre21 scribed by the Secretary for the earlier of—
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1 ‘‘(A) the first month of the credit period

2 with respect to a low-to-moderate income build3 ing, or

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

5 month in which the taxpayer and the housing

6 credit agency enter into an agreement with re7 spect to such building (which is binding on such

8 agency, the taxpayer, and all successors in in9 terest) as to the housing credit dollar amount

10 to be allocated to such building.

11 A month may be elected under subparagraph (B)

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

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

14 once made, shall be irrevocable.

15 ‘‘(2) METHOD OF PRESCRIBING PERCENT16 AGES.—The percentages prescribed by the Secretary

17 for any month shall be percentages which will yield

18 over a 10-year period amounts of credit under sub19 section (a) which have a present value equal to—

20 ‘‘(A) 70 percent of the qualified basis of a

21 new building, and

22 ‘‘(B) 30 percent of the qualified basis of

23 an existing building.

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

25 value under paragraph (2) shall be determined—
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1 ‘‘(A) as of the last day of the 1st year of

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

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

4 percent of the average of the annual Federal

5 mid-term rate and the annual Federal long6 term rate applicable under section 1274(d)(1)

7 to the month applicable under subparagraph

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

9 annually, and

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

11 under this section for any year is received on

12 the last day of such year.

13 ‘‘(c) QUALIFIED BASIS; ELIGIBLE BASIS; QUALIFIED

14 LOW-TO-MODERATE INCOME BUILDING.—For purposes

15 of this section—

16 ‘‘(1) QUALIFIED BASIS.—

17 ‘‘(A) DETERMINATION.—The qualified

18 basis of any qualified low-to-moderate income

19 building for any taxable year is an amount

20 equal to—

21 ‘‘(i) the applicable fraction (deter22 mined as of the close of such taxable year)

23 of

24 ‘‘(ii) the eligible basis of such build25 ing.
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1 ‘‘(B) APPLICABLE FRACTION.—

2 ‘‘(i) IN GENERAL.—For purposes of

3 subparagraph (A), the term ‘applicable

4 fraction’ means the smaller of the unit

5 fraction or the floor space fraction.

6 ‘‘(ii) UNIT FRACTION.—For purposes

7 of clause (i), the term ‘unit fraction’ means

8 the fraction—

9 ‘‘(I) the numerator of which is

10 the number of low-to-moderate income

11 units in the building, and

12 ‘‘(II) the denominator of which is

13 the number of all units (whether or

14 not occupied) in such building.

15 ‘‘(iii) FLOOR SPACE FRACTION.—For

16 purposes of clause (i), the term ‘floor space

17 fraction’ means the fraction—

18 ‘‘(I) the numerator of which is

19 the total floor space of the low-to20 moderate income units in such build21 ing, and

22 ‘‘(II) the denominator of which is

23 the total floor space of all units

24 (whether or not occupied) in such

25 building.
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1 ‘‘(C) ELIGIBLE BASIS.—

2 ‘‘(i) IN GENERAL.—The eligible basis

3 of any qualified low-to-moderate income

4 building for any taxable year shall be de5 termined under rules similar to the rules

6 under section 42(d), except that—

7 ‘‘(I) the determination of the ad8 justed basis of any building shall be

9 made as of the beginning of the credit

10 period, and

11 ‘‘(II) such basis shall include de12 velopment costs properly attributable

13 to such building.

14 ‘‘(ii) DEVELOPMENT COSTS.—For

15 purposes of clause (i)(II), the term ‘devel16 opment costs’ includes—

17 ‘‘(I) site preparation costs,

18 ‘‘(II) State and local impact fees,

19 ‘‘(III) reasonable development

20 costs,

21 ‘‘(IV) professional fees related to

22 basis items,

23 ‘‘(V) construction financing costs

24 related to basis items other than land,

25 and
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1 ‘‘(VI) on-site and adjacent im2 provements required by State and

3 local governments.

4 ‘‘(2) QUALIFIED LOW-TO-MODERATE INCOME

5 BUILDING.—The term ‘qualified low-to-moderate in6 come building’ means any building which is part of

7 a qualified low-to-moderate income development

8 project at all times during the period—

9 ‘‘(A) beginning on the 1st day in the com10 pliance period on which such building is part of

11 such a development project, and

12 ‘‘(B) ending on the last day of the compli13 ance period with respect to such building.

14 ‘‘(d) REHABILITATION EXPENDITURES TREATED AS

15 SEPARATE NEW BUILDING.—Rehabilitation expenditures

16 paid or incurred by the taxpayer with respect to any build17 ing shall be treated for purposes of this section as a sepa18 rate new building under the rules of section 42(e).

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

20 CREDIT PERIOD.—

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

22 of this section, the term ‘credit period’ means, with

23 respect to any building, the period of 10 taxable

24 years beginning with the taxable year in which the

25 building (or a low-to-moderate income unit in such
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1 building) is first sold by the taxpayer to a low-to

2 moderate income individual after being placed in

3 service.

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

5 PERIOD.—

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

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

9 shall be determined by substituting for the ap10 plicable fraction under subsection (c)(1) the

11 fraction—

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

13 sum of the applicable fractions determined

14 under subsection (c)(1) as of the close of

15 each full month of such year during which

16 such building was in service, and

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

18 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL19 LOWED IN 11TH YEAR.—Any reduction by rea20 son of subparagraph (A) in the credit allowable

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

22 1st taxable year of the credit period shall be al23 lowable under subsection (a) for the 1st taxable

24 year following the credit period.
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1 ‘‘(3) CREDIT PERIOD FOR EXISTING BUILDINGS

2 NOT TO BEGIN BEFORE REHABILITATION CREDIT

3 ALLOWED.—The credit period for an existing build4 ing shall not begin before the 1st taxable year of the

5 credit period for rehabilitation expenditures with re6 spect to the building.

7 ‘‘(f) QUALIFIED LOW-TO-MODERATE INCOME DE8 VELOPMENT PROJECT.—For purposes of this section—

9 ‘‘(1) IN GENERAL.—The term ‘qualified low-to10 moderate income development project’ means any

11 development project of 1 or more for qualified low12 to-moderate income buildings located in an area if

13 40 percent or more of the residential units in such

14 development project are occupied and owned by indi15 viduals whose income is 100 percent or less of area

16 median gross income.

17 ‘‘(2) TREATMENT OF UNITS OCCUPIED BY INDI18 VIDUALS WHOSE INCOMES RISE ABOVE LIMIT.—Not19 withstanding an increase in the income of the occu20 pants of a low-to-moderate income unit above the in21 come limitation applicable under paragraph (2) or

22 (3), such unit shall continue to be treated as a low23 to-moderate income unit if the income of such occu24 pants initially met such income limitation and such

25 unit continues to be so restricted.
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1 ‘‘(3) CERTAIN RULES MADE APPLICABLE.—

2 Paragraphs (3), (5), (7), and (8) of section 42(g)

3 shall apply for purposes of determining whether any

4 development project is a qualified low-to-moderate

5 income development project.

6 ‘‘(g) LIMITATION ON AGGREGATE CREDIT ALLOW7 ABLE WITH RESPECT TO DEVELOPMENT PROJECTS LO8 CATED IN A STATE.—

9 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT

10 AMOUNT ALLOCATED TO BUILDING.—The amount of

11 the credit determined under this section for any tax12 able year with respect to any building shall not ex13 ceed the housing credit dollar amount allocated to

14 such building under rules similar to the rules of sec15 tion 42(h)(1) (determined without regard to sub16 paragraph (D) thereof).

17 ‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY

18 TO ALL TAXABLE YEARS ENDING DURING OR AFTER

19 CREDIT ALLOCATION YEAR.—Any housing credit dol20 lar amount allocated to any building for any cal21 endar year—

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

23 taxable years in the credit period ending during

24 or after such calendar year, and
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1 ‘‘(B) shall reduce the aggregate housing

2 credit dollar amount of the allocating agency

3 only for such calendar year.

4 ‘‘(3) HOUSING CREDIT DOLLAR AMOUNT FOR

5 AGENCIES.—

6 ‘‘(A) IN GENERAL.—The aggregate hous7 ing credit dollar amount which a housing credit

8 agency may allocate for any calendar year is

9 the portion of the State housing credit ceiling

10 allocated under this paragraph for such cal11 endar year to such agency.

12 ‘‘(B) STATE CEILING INITIALLY ALLO13 CATED TO STATE HOUSING CREDIT AGEN14 CIES.—Except as provided in subparagraphs

15 (D) and (E), the State housing credit ceiling

16 for each calendar year shall be allocated to the

17 housing credit agency of such State. If there is

18 more than 1 housing credit agency of a State,

19 all such agencies shall be treated as a single

20 agency.

21 ‘‘(C) STATE HOUSING CREDIT CEILING.—

22 The State housing credit ceiling applicable to

23 any State and any calendar year shall be an

24 amount equal to the sum of—
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1 ‘‘(i) the unused State housing credit

2 ceiling (if any) of such State for the pre3 ceding calendar year,

4 ‘‘(ii) the greater of—

5 ‘‘(I) $1.75 multiplied by the

6 State population, or

7 ‘‘(II) $2,000,000,

8 ‘‘(iii) the amount of State housing

9 credit ceiling returned in the calendar year,

10 plus

11 ‘‘(iv) the amount (if any) allocated

12 under subparagraph (D) to such State by

13 the Secretary.

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

15 housing credit ceiling for any calendar year is

16 the excess (if any) of the sum of the amounts

17 described in clauses (ii) through (iv) over the

18 aggregate housing credit dollar amount allo19 cated for such year. For purposes of clause (iii),

20 the amount of State housing credit ceiling re21 turned in the calendar year equals the housing

22 credit dollar amount previously allocated within

23 the State to any development project which fails

24 to meet the 10 percent test under section

25 42(h)(1)(E)(ii) on a date after the close of the
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•S 1081 IS

1 calendar year in which the allocation was made

2 or which does not become a qualified low-to3 moderate income development project within the

4 period required by this section or the terms of

5 the allocation or to any development project

6 with respect to which an allocation is canceled

7 by mutual consent of the housing credit agency

8 and the allocation recipient.

9 ‘‘(D) UNUSED HOUSING CREDIT

10 CARRYOVERS ALLOCATED AMONG CERTAIN

11 STATES.—

12 ‘‘(i) IN GENERAL.—The unused hous13 ing credit carryover of a State for any cal14 endar year shall be assigned to the Sec15 retary for allocation among qualified

16 States for the succeeding calendar year.

17 ‘‘(ii) UNUSED HOUSING CREDIT CAR18 RYOVER.—For purposes of this subpara19 graph, the unused housing credit carryover

20 of a State for any calendar year is the ex21 cess (if any) of the unused State housing

22 credit ceiling for such year (as defined in

23 subparagraph (C)(i)) over the excess (if

24 any) of —
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1 ‘‘(I) the unused State housing

2 credit ceiling for the year preceding

3 such year, over

4 ‘‘(II) the aggregate housing cred5 it dollar amount allocated for such

6 year.

7 ‘‘(iii) FORMULA FOR ALLOCATION OF

8 UNUSED HOUSING CREDIT CARRYOVERS

9 AMONG QUALIFIED STATES.—The amount

10 allocated under this subparagraph to a

11 qualified State for any calendar year shall

12 be the amount determined by the Secretary

13 to bear the same ratio to the aggregate un14 used housing credit carryovers of all States

15 for the preceding calendar year as such

16 State’s population for the calendar year

17 bears to the population of all qualified

18 States for the calendar year. For purposes

19 of the preceding sentence, population shall

20 be determined in accordance with section

21 146(j).

22 ‘‘(iv) QUALIFIED STATE.—For pur23 poses of this subparagraph, the term

24 ‘qualified State’ means, with respect to a

25 calendar year, any State—
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1 ‘‘(I) which allocated its entire

2 State housing credit ceiling for the

3 preceding calendar year, and

4 ‘‘(II) for which a request is made

5 (not later than May 1 of the calendar

6 year) to receive an allocation under

7 clause (iii).

8 ‘‘(E) SPECIAL RULE FOR STATES WITH

9 CONSTITUTIONAL HOME RULE CITIES.—For

10 purposes of this subsection—

11 ‘‘(i) IN GENERAL.—The aggregate

12 housing credit dollar amount for any con13 stitutional home rule city for any calendar

14 year shall be an amount which bears the

15 same ratio to the State housing credit ceil16 ing for such calendar year as—

17 ‘‘(I) the population of such city,

18 bears to

19 ‘‘(II) the population of the entire

20 State.

21 ‘‘(ii) COORDINATION WITH OTHER AL22 LOCATIONS.—In the case of any State

23 which contains 1 or more constitutional

24 home rule cities, for purposes of applying

25 this paragraph with respect to housing
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•S 1081 IS

1 credit agencies in such State other than

2 constitutional home rule cities, the State

3 housing credit ceiling for any calendar year

4 shall be reduced by the aggregate housing

5 credit dollar amounts determined for such

6 year for all constitutional home rule cities

7 in such State.

8 ‘‘(iii) CONSTITUTIONAL HOME RULE

9 CITY.—For purposes of this paragraph, the

10 term ‘constitutional home rule city’ has the

11 meaning given such term by section

12 146(d)(3)(C).

13 ‘‘(F) STATE MAY PROVIDE FOR DIF14 FERENT ALLOCATION.—Rules similar to the

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

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

17 paragraph.

18 ‘‘(G) POPULATION.—For purposes of this

19 paragraph, population shall be determined in

20 accordance with section 146(j).

21 ‘‘(H) COST-OF-LIVING ADJUSTMENT.—

22 ‘‘(i) IN GENERAL.—In the case of a

23 calendar year after 2002, the $2,000,000

24 and $1.75 amounts in subparagraph (C)
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1 shall each be increased by an amount equal

2 to—

3 ‘‘(I) such dollar amount, multi4 plied by

5 ‘‘(II) the cost-of-living adjust6 ment determined under section

7 1(f )(3) for such calendar year by sub8 stituting ‘calendar year 2001’ for ‘cal9 endar year 1992’ in subparagraph (B)

10 thereof.

11 ‘‘(ii) ROUNDING.—

12 ‘‘(I) In the case of the

13 $2,000,000 amount, any increase

14 under clause (i) which is not a mul15 tiple of $5,000 shall be rounded to the

16 next lowest multiple of $5,000.

17 ‘‘(II) In the case of the $1.75

18 amount, any increase under clause (i)

19 which is not a multiple of 5 cents

20 shall be rounded to the next lowest

21 multiple of 5 cents.

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

23 FOR CERTAIN DEVELOPMENT PROJECTS INVOLVING

24 QUALIFIED NONPROFIT ORGANIZATIONS.—
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•S 1081 IS

1 ‘‘(A) IN GENERAL.—Not more than 90

2 percent of the State housing credit ceiling for

3 any State for any calendar year shall be allo4 cated to development projects other than quali5 fied low-to-moderate income development

6 projects described in subparagraph (B).

7 ‘‘(B) DEVELOPMENT PROJECTS INVOLVING

8 QUALIFIED NONPROFIT ORGANIZATIONS.—For

9 purposes of subparagraph (A), a qualified low10 to-moderate income development project is de11 scribed in this subparagraph if a qualified non12 profit organization is to materially participate

13 (within the meaning of section 469(h)) in the

14 development and operation of the development

15 project throughout the compliance period.

16 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA17 TION.—For purposes of this paragraph, the

18 term ‘qualified nonprofit organization’ means

19 any organization if—

20 ‘‘(i) such organization is described in

21 paragraph (3) or (4) of section 501(c) and

22 is exempt from tax under section 501(a),

23 ‘‘(ii) such organization is determined

24 by the State housing credit agency not to
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•S 1081 IS

1 be affiliated with or controlled by a for2 profit organization; and

3 ‘‘(iii) 1 of the exempt purposes of

4 such organization includes the fostering of

5 low-to-moderate income housing.

6 ‘‘(D) TREATMENT OF CERTAIN SUBSIDI7 ARIES.—

8 ‘‘(i) IN GENERAL.—For purposes of

9 this paragraph, a qualified nonprofit orga10 nization shall be treated as satisfying the

11 ownership and material participation test

12 of subparagraph (B) if any qualified cor13 poration in which such organization holds

14 stock satisfies such test.

15 ‘‘(ii) QUALIFIED CORPORATION.—For

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

17 corporation’ means any corporation if 100

18 percent of the stock of such corporation is

19 held by 1 or more qualified nonprofit orga20 nizations at all times during the period

21 such corporation is in existence.

22 ‘‘(E) STATE MAY NOT OVERRIDE SET23 ASIDE.—Nothing in subparagraph (F) of para24 graph (3) shall be construed to permit a State
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•S 1081 IS

1 not to comply with subparagraph (A) of this

2 paragraph.

3 ‘‘(5) BUILDINGS ELIGIBLE FOR CREDIT ONLY

4 IF MINIMUM LONG-TERM COMMITMENT TO LOW-TO5 MODERATE INCOME HOUSING.—

6 ‘‘(A) IN GENERAL.—No credit shall be al7 lowed by reason of this section with respect to

8 any building for the taxable year unless a low9 to-moderate income housing commitment is in

10 effect as of the end of such taxable year.

11 ‘‘(B) LOW-TO-MODERATE INCOME HOUS12 ING COMMITMENT.—For purposes of this para13 graph, the term ‘low-to-moderate income hous14 ing commitment’ means any agreement between

15 the taxpayer and the housing credit agency—

16 ‘‘(i) which requires that the applicable

17 fraction (as defined in subsection

18 (c)(1)(B)) for the building for each taxable

19 year in the compliance period will not be

20 less than the applicable fraction specified

21 in such agreement,

22 ‘‘(ii) which allows individuals who

23 meet the income limitation applicable to

24 the building under subsection (f) (whether

25 prospective, present, or former occupants
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•S 1081 IS

1 of the building) the right to enforce in any

2 State court the requirement of clause (i),

3 ‘‘(iii) which allows the taxpayer the

4 right of first refusal to purchase the build5 ing from the low-or-moderate income indi6 vidual to whom the taxpayer first sold the

7 building,

8 ‘‘(iv) which is binding on all succes9 sors of the taxpayer, and

10 ‘‘(v) which, with respect to the prop11 erty, is recorded pursuant to State law as

12 a restrictive covenant.

13 ‘‘(C) ALLOCATION OF CREDIT MAY NOT

14 EXCEED AMOUNT NECESSARY TO SUPPORT

15 COMMITMENT.—The housing credit dollar

16 amount allocated to any building may not ex17 ceed the amount necessary to support the appli18 cable fraction specified in the low-to-moderate

19 income housing commitment for such building.

20 ‘‘(D) EFFECT OF NONCOMPLIANCE.—If,

21 during a taxable year, there is a determination

22 that a low-to-moderate income housing agree23 ment was not in effect as of the beginning of

24 such year, such determination shall not apply to

25 any period before such year and subparagraph
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•S 1081 IS

1 (A) shall be applied without regard to such de2 termination if the failure is corrected within 1

3 year from the date of the determination.

4 ‘‘(E) DEVELOPMENT PROJECTS WHICH

5 CONSIST OF MORE THAN 1 BUILDING.—The ap6 plication of this paragraph to development

7 projects which consist of more than 1 building

8 shall be made under regulations prescribed by

9 the Secretary.

10 ‘‘(6) SPECIAL RULES.—

11 ‘‘(A) BUILDING MUST BE LOCATED WITH12 IN JURISDICTION OF CREDIT AGENCY.—A hous13 ing credit agency may allocate its aggregate

14 housing credit dollar amount only to buildings

15 located in the jurisdiction of the governmental

16 unit of which such agency is a part.

17 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

18 LIMIT.—If the aggregate housing credit dollar

19 amounts allocated by a housing credit agency

20 for any calendar year exceed the portion of the

21 State housing credit ceiling allocated to such

22 agency for such calendar year, the housing

23 credit dollar amounts so allocated shall be re24 duced (to the extent of such excess) for build-
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1 ings in the reverse of the order in which the al2 locations of such amounts were made.

3 ‘‘(C) CREDIT REDUCED IF ALLOCATED

4 CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT

5 WHICH WOULD BE ALLOWABLE WITHOUT RE6 GARD TO SALES CONVENTION, ETC.—

7 ‘‘(i) IN GENERAL.—The amount of

8 the credit determined under this section

9 with respect to any building shall not ex10 ceed the clause (ii) percentage of the

11 amount of the credit which would (but for

12 this subparagraph) be determined under

13 this section with respect to such building.

14 ‘‘(ii) DETERMINATION OF PERCENT15 AGE.—For purposes of clause (i), the

16 clause (ii) percentage with respect to any

17 building is the percentage which—

18 ‘‘(I) the housing credit dollar

19 amount allocated to such building

20 bears to

21 ‘‘(II) the credit amount deter22 mined in accordance with clause (iii).

23 ‘‘(iii) DETERMINATION OF CREDIT

24 AMOUNT.—The credit amount determined

25 in accordance with this clause is the
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•S 1081 IS

1 amount of the credit which would (but for

2 this subparagraph) be determined under

3 this section with respect to the building if

4 this section were applied without regard to

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

6 ‘‘(D) HOUSING CREDIT AGENCY TO SPECI7 FY APPLICABLE PERCENTAGE AND MAXIMUM

8 QUALIFIED BASIS.—In allocating a housing

9 credit dollar amount to any building, the hous10 ing credit agency shall specify the applicable

11 percentage and the maximum qualified basis

12 which may be taken into account under this

13 section with respect to such building. The appli14 cable percentage and maximum qualified basis

15 so specified shall not exceed the applicable per16 centage and qualified basis determined under

17 this section without regard to this subsection.

18 ‘‘(7) OTHER DEFINITIONS.—For purposes of

19 this subsection—

20 ‘‘(A) HOUSING CREDIT AGENCY.—The

21 term ‘housing credit agency’ means any agency

22 authorized to carry out this subsection.

23 ‘‘(B) POSSESSIONS TREATED AS

24 STATES.—The term ‘State’ includes a posses25 sion of the United States.
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•S 1081 IS

1 ‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section—

3 ‘‘(1) COMPLIANCE PERIOD.—The term ‘compli4 ance period’ means, with respect to any building, the

5 period of 5 taxable years beginning with the 1st tax6 able year of the credit period with respect thereto.

7 ‘‘(2) NEW BUILDING.—The term ‘new building’

8 means a building the original use of which begins

9 with the taxpayer.

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

11 building’ means any building which is not a new

12 building.

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

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

15 credit determined under subsection (a) and any in16 crease in tax under subsection (j) shall be appor17 tioned between the estate or trust and the bene18 ficiaries on the basis of the income of the estate or

19 trust allocable to each.

20 ‘‘(i) RECAPTURE OF CREDIT.—If—

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

22 compliance period, the amount of the qualified basis

23 of any building with respect to the taxpayer is less

24 than
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1 ‘‘(2) the amount of such basis as of the close

2 of the preceding taxable year,

3 then the taxpayer’s tax under this chapter for the

4 taxable year shall be increased by the credit recap5 ture amount determined under rules similar to the

6 rules of section 42(j).

7 ‘‘(j) APPLICATION OF AT-RISK RULES.—For pur8 poses of this section, rules similar to the rules of section

9 42(k) shall apply.

10 ‘‘(k) CERTIFICATIONS AND OTHER REPORTS TO SEC11 RETARY.—

12 ‘‘(1) CERTIFICATION WITH RESPECT TO 1ST

13 YEAR OF CREDIT PERIOD.—Following the close of

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

15 to any qualified low-to-moderate income building,

16 the taxpayer shall certify to the Secretary (at such

17 time and in such form and in such manner as the

18 Secretary prescribes)—

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

20 in which such building was first sold after being

21 placed in service,

22 ‘‘(B) the adjusted basis and eligible basis

23 of such building as of the beginning of the cred24 it period,
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1 ‘‘(C) the maximum applicable percentage

2 and qualified basis permitted to be taken into

3 account by the appropriate housing credit agen4 cy under subsection (g),

5 ‘‘(D) the election made under subsection

6 (f) with respect to the qualified low-to-moderate

7 income housing development project of which

8 such building is a part, and

9 ‘‘(E) such other information as the Sec10 retary may require.

11 In the case of a failure to make the certification re12 quired by the preceding sentence on the date pre13 scribed therefor, unless it is shown that such failure

14 is due to reasonable cause and not to willful neglect,

15 no credit shall be allowable by reason of subsection

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

17 year ending before such certification is made.

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

19 The Secretary may require taxpayers to submit an

20 information return (at such time and in such form

21 and manner as the Secretary prescribes) for each

22 taxable year setting forth—

23 ‘‘(A) the qualified basis for the taxable

24 year of each qualified low-to-moderate income

25 building of the taxpayer,
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1 ‘‘(B) the information described in para2 graph (1)(C) for the taxable year, and

3 ‘‘(C) such other information as the Sec4 retary may require.

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

6 failure to submit the return required by the Sec7 retary under the preceding sentence on the date pre8 scribed therefor.

9 ‘‘(3) ANNUAL REPORTS FROM HOUSING CREDIT

10 AGENCIES.—Each agency which allocates any hous11 ing credit amount to any building for any calendar

12 year shall submit to the Secretary (at such time and

13 in such manner as the Secretary shall prescribe) an

14 annual report specifying—

15 ‘‘(A) the amount of housing credit amount

16 allocated to each building for such year,

17 ‘‘(B) sufficient information to identify each

18 such building and the taxpayer with respect

19 thereto, and

20 ‘‘(C) such other information as the Sec21 retary may require.

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

23 failure to submit the report required by the pre24 ceding sentence on the date prescribed therefor.
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1 ‘‘(l) RESPONSIBILITIES OF HOUSING CREDIT AGEN2 CIES.—

3 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT

4 AMONG DEVELOPMENT PROJECTS.—

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

6 other provision of this section, the housing cred7 it dollar amount with respect to any building

8 shall be zero unless—

9 ‘‘(i) such amount was allocated pursu10 ant to a qualified allocation plan of the

11 housing credit agency which is approved by

12 the governmental unit (in accordance with

13 rules similar to the rules of section

14 147(f)(2) (other than subparagraph (B)(ii)

15 thereof)) of which such agency is a part,

16 ‘‘(ii) such agency notifies the chief ex17 ecutive officer (or the equivalent) of the

18 local jurisdiction within which the building

19 is located of such development project and

20 provides such individual a reasonable op21 portunity to comment on the development

22 project,

23 ‘‘(iii) a comprehensive market study

24 of the housing needs of low- and moderate25 income individuals in the area to be served
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1 by the development project is conducted

2 before the credit allocation is made and at

3 the developer’s expense by a disinterested

4 party who is approved by such agency, and

5 ‘‘(iv) a written explanation is available

6 to the general public for any allocation of

7 a housing credit dollar amount which is

8 not made in accordance with established

9 priorities and selection criteria of the hous10 ing credit agency.

11 ‘‘(B) QUALIFIED ALLOCATION PLAN.—For

12 purposes of this paragraph, the term ‘qualified

13 allocation plan’ means any plan—

14 ‘‘(i) which sets forth selection criteria

15 to be used to determine housing priorities

16 of the housing credit agency which are ap17 propriate to local conditions,

18 ‘‘(ii) which also gives preference in al19 locating housing credit dollar amounts

20 among selected development projects to—

21 ‘‘(I) development projects serving

22 the lowest income owners, and

23 ‘‘(II) development projects which

24 are located in qualified census tracts

25 (as defined in section 42(d)(5)(C))
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1 and the development of which contrib2 utes to a concerted community revital3 ization plan, and

4 ‘‘(iii) which provides a procedure that

5 the agency (or an agent or other private

6 contractor of such agency) will follow in

7 monitoring for noncompliance with the

8 provisions of this section and in notifying

9 the Internal Revenue Service of such non10 compliance which such agency becomes

11 aware of and in monitoring for noncompli12 ance with habitability standards through

13 regular site visits.

14 ‘‘(C) CERTAIN SELECTION CRITERIA MUST

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

16 qualified allocation plan must include—

17 ‘‘(i) development project location,

18 ‘‘(ii) housing needs characteristics,

19 ‘‘(iii) development project characteris20 tics, including whether the development

21 project includes the use of existing housing

22 as part of a community revitalization plan,

23 ‘‘(iv) populations with special housing

24 needs,
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1 ‘‘(v) low-to-moderate income housing

2 waiting lists, and

3 ‘‘(vi) populations of individuals with

4 children.

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

6 EXCEED AMOUNT NECESSARY TO ASSURE DEVELOP7 MENT PROJECT FEASIBILITY.—

8 ‘‘(A) IN GENERAL.—The housing credit

9 dollar amount allocated to a development

10 project shall not exceed the amount the housing

11 credit agency determines is necessary for the fi12 nancial feasibility of the development project

13 and its viability as a qualified low-to-moderate

14 income development project throughout the

15 compliance period.

16 ‘‘(B) AGENCY EVALUATION.—In making

17 the determination under subparagraph (A), the

18 housing credit agency shall consider—

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

20 the total financing planned for the develop21 ment project,

22 ‘‘(ii) any proceeds or receipts expected

23 to be generated by reason of tax benefits,

24 ‘‘(iii) the percentage of the housing

25 credit dollar amount used for development
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•S 1081 IS

1 project costs other than the cost of inter2 mediaries, and

3 ‘‘(iv) the reasonableness of the devel4 opmental and operational costs of the de5 velopment project.

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

7 the development of development projects in

8 hard-to-develop areas.

9 ‘‘(C) DETERMINATION MADE WHEN CRED10 IT AMOUNT APPLIED FOR AND WHEN BUILDING

11 SOLD.—

12 ‘‘(i) IN GENERAL.—A determination

13 under subparagraph (A) shall be made as

14 of each of the following times:

15 ‘‘(I) The application for the

16 housing credit dollar amount.

17 ‘‘(II) The allocation of the hous18 ing credit dollar amount.

19 ‘‘(III) The date the building is

20 first sold after having been placed in

21 service.

22 ‘‘(ii) CERTIFICATION AS TO AMOUNT

23 OF OTHER SUBSIDIES.—Prior to each de24 termination under clause (i), the taxpayer

25 shall certify to the housing credit agency
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1 the full extent of all Federal, State, and

2 local subsidies which apply (or which the

3 taxpayer expects to apply) with respect to

4 the building.

5 ‘‘(m) REGULATIONS.—The Secretary shall prescribe

6 such regulations as may be necessary or appropriate to

7 carry out the purposes of this section, including

8 regulations—

9 ‘‘(1) dealing with—

10 ‘‘(A) development projects which include

11 more than 1 building or only a portion of a

12 building,

13 ‘‘(B) buildings which are sold in portions,

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

15 to short taxable years,

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

17 this section, and

18 ‘‘(4) providing the opportunity for housing cred19 it agencies to correct administrative errors and omis20 sions with respect to allocations and record keeping

21 within a reasonable period after their discovery, tak22 ing into account the availability of regulations and

23 other administrative guidance from the Secretary.
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1 ‘‘(n) TERMINATION.—Clause (ii) of subsection

2 (g)(3)(C) shall not apply to any amount allocated after

3 December 31, 2004.’’.

4 (b) CURRENT YEAR BUSINESS CREDIT CALCULA5 TION.—Section 38(b) of the Internal Revenue Code of

6 1986 (relating to current year business credit) is amended

7 by striking ‘‘plus’’ at the end of paragraph (12), by strik8 ing the period at the end of paragraph (13) and inserting

9 ‘‘, plus’’, and by adding at the end the following:

10 ‘‘(14) the home ownership credit determined

11 under section 42A(a).’’.

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

13 section 39 of the Internal Revenue Code of 1986 (relating

14 to carryback and carryforward of unused credits) is

15 amended by adding at the end the following:

16 ‘‘(10) NO CARRYBACK OF HOME OWNERSHIP

17 CREDIT BEFORE EFFECTIVE DATE.—No amount of

18 unused business credit available under section 42A

19 may be carried back to a taxable year beginning on

20 or before the date of the enactment of this para21 graph.’’.

22 (d) CONFORMING AMENDMENTS.—

23 (1) Section 55(c)(1) of the Internal Revenue

24 Code of 1986 is amended by inserting ‘‘or subsection

25 (i) or (j) of section 42A’’ after ‘‘section 42’’.
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1 (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and

2 (k)(1) of section 469 of such Code are each amended

3 by inserting ‘‘or 42A’’ after ‘‘section 42’’.

4 (3) Section 772(a) of such Code is amended by

5 striking ‘‘and’’ at the end of paragraph (10), by re6 designating paragraph (11) as paragraph (12), and

7 by inserting after paragraph (10) the following:

8 ‘‘(11) the home ownership credit determined

9 under section 42A, and’’.

10 (4) Section 774(b)(4) of such Code is amended

11 by inserting ‘‘, 42A(i),’’ after ‘‘section 42(j)’’.

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

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

14 of the Internal Revenue Code of 1986 is amended by in15 serting after the item relating to section 42 the following:

‘‘Sec. 42A. Low-to-moderate income home ownership credit.’’.

16 (f) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to expenditures made in taxable

18 years beginning after the date of the enactment of this

19 Act.

20 SEC. 3. PARTIAL EXCLUSION OF GAIN FROM SALE OF LOW21 TO-MODERATE INCOME HOUSING.

22 (a) IN GENERAL.—Part III of subchapter B of chap23 ter 1 of the Internal Revenue Code of 1986 (relating to

24 items specifically excluded from gross income) is amended
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1 by redesignating section 139 as section 140 and inserting

2 after section 138 the following new section:

3 ‘‘SEC. 139. CERTAIN GAIN FROM SALE OF LOW-TO-MOD4 ERATE INCOME HOUSING.

5 ‘‘(a) IN GENERAL.—Gross income shall not include

6 the gain from the sale of any low-to-moderate income

7 building made during the taxable year and with respect

8 to which the taxpayer is allowed a credit under section

9 42A.

10 ‘‘(b) LIMITATION.—The amount of gain which may

11 be taken into account under subsection (a) with respect

12 to the sale of a low-to-moderate income building shall not

13 exceed $10,000 for each low-to-moderate income unit in

14 such building.’’.

15 (b) CONFORMING AMENDMENT.—The table of sec16 tions for part III of subchapter B of chapter 1 of such

17 Code is amended by striking the item relating to section

18 139 and inserting the following new items:

‘‘Sec. 139. Certain gain from sale of low-to-moderate income housing.

‘‘Sec. 140. Cross references to other Acts.’’.

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

20 this section shall apply sales in taxable years beginning

21 after the date of the enactment of this Act.

22 SEC. 4. EXPANSION OF REHABILITATION CREDIT.

23 (a) CREDIT APPLICABLE TO BUILDINGS AT LEAST

24 50 YEARS OLD.—Subparagraph (B) of section 47(c)(1)
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1 of the Internal Revenue Code of 1986 (relating to quali2 fied rehabilitated building is amended to read as follows:

3 ‘‘(B) BUILDING MUST BE AT LEAST 50

4 YEARS OLD.—In the case of a building other

5 than a certified historic structure, a building

6 shall not be a qualified rehabilitated building

7 unless the building was first placed in service

8 before the date which is at least 50 years before

9 the date such building is placed in service for

10 purposes of the credit under this section.’’.

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

12 this section shall apply to property placed in service after

13 the date of the enactment of this Act.

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