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[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 9203 Introduced in House (IH)]

<DOC>

118th CONGRESS
  2d Session
                                H. R. 9203

 To amend the Internal Revenue Code of 1986 to establish special rules 
     for capital gains invested in brownfield and superfund sites.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             July 30, 2024

Mr. Edwards (for himself and Mr. Nickel) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
 To amend the Internal Revenue Code of 1986 to establish special rules 
     for capital gains invested in brownfield and superfund sites.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Economic Opportunity for Distressed 
Communities Act''.

SEC. 2. ESTABLISHMENT OF SPECIAL RULES FOR CAPITAL GAINS INVESTED IN 
              DISTRESSED OPPORTUNITY ZONES.

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

``SEC. 1400Z-3. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN DISTRESSED 
              OPPORTUNITY ZONES.

    ``(a) In General.--
            ``(1) Treatment of gains.--In the case of capital gains 
        from the sale to, or exchange with, an unrelated person of any 
        property held by the taxpayer, at the election of the 
        taxpayer--
                    ``(A) gross income for the taxable year shall not 
                include so much of such gain as does not exceed the 
                aggregate amount invested by the taxpayer in a 
                qualified distressed opportunity fund during the 180-
                day period beginning on the date of such sale or 
                exchange,
                    ``(B) the amount of gain excluded by subparagraph 
                (A) shall be included in gross income as provided by 
                subsection (b), and
                    ``(C) subsection (c) shall apply.
            ``(2) Election.--No election may be made under paragraph 
        (1)--
                    ``(A) with respect to a sale or exchange if an 
                election previously made with respect to such sale or 
                exchange is in effect, or
                    ``(B) with respect to any sale or exchange after 
                December 31, 2032.
    ``(b) Deferral of Gain Invested in Qualified Distressed Opportunity 
Zone Property.--
            ``(1) Year of inclusion.--Gain to which subsection 
        (a)(1)(B) applies shall be included in income in the taxable 
        year which includes the earlier of--
                    ``(A) the date on which such investment is sold or 
                exchanged, or
                    ``(B) December 31, 2032.
            ``(2) Amount includible.--
                    ``(A) In general.--The amount of gain included in 
                gross income under subsection (a)(1)(A) shall be the 
                excess of--
                            ``(i) the lesser of the amount of gain 
                        excluded under paragraph (1) or the fair market 
                        value of the investment as determined as of the 
                        date described in paragraph (1), over
                            ``(ii) the taxpayer's basis in the 
                        investment.
                    ``(B) Determination of basis qualified distressed 
                opportunity zone property.--
                            ``(i) In general.--Except as otherwise 
                        provided in this clause or subsection (c), the 
                        taxpayer's basis in the investment shall be 
                        zero.
                            ``(ii) Increase for gain recognized under 
                        subsection (a)(1)(B).--The basis in the 
                        investment shall be increased by the amount of 
                        gain recognized by reason of subsection 
                        (a)(1)(B) with respect to such property.
                            ``(iii) Investments held for 5 years.--In 
                        the case of any investment held for at least 5 
                        years, the basis of such investment shall be 
                        increased by an amount equal to 10 percent of 
                        the amount of gain deferred by reason of 
                        subsection (a)(1)(A).
                            ``(iv) Investments held for 7 years.--In 
                        the case of any investment held by the taxpayer 
                        for at least 7 years, in addition to any 
                        adjustment made under clause (iii), the basis 
                        of such property shall be increased by an 
                        amount equal to 5 percent of the amount of gain 
                        deferred by reason of subsection (a)(1)(A).
    ``(c) Special Rule for Investments Held for at Least 10 Years.--In 
the case of any investment held by the taxpayer for at least 10 years 
and with respect to which the taxpayer makes an election under this 
subsection, the basis of such property shall be equal to the fair 
market value of such investment on the date that the investment is sold 
or exchanged.
    ``(d) Qualified Distressed Opportunity Fund.--For purposes of this 
section--
            ``(1) In general.--The term `qualified distressed 
        opportunity fund' means any investment vehicle which is 
        organized as a corporation or a partnership for the purpose of 
        investing in qualified distressed opportunity zone property 
        (other than another qualified distressed opportunity fund) that 
        holds at least 90 percent of its assets in qualified distressed 
        opportunity zone property, determined by the average of the 
        percentage of qualified distressed opportunity zone property 
        held in the fund as measured--
                    ``(A) on the last day of the first 6-month period 
                of the taxable year of the fund, and
                    ``(B) on the last day of the taxable year of the 
                fund.
            ``(2) Qualified distressed opportunity zone property.--
                    ``(A) In general.--The term `qualified distressed 
                opportunity zone property' means property which is--
                            ``(i) qualified distressed opportunity zone 
                        stock,
                            ``(ii) qualified distressed opportunity 
                        zone partnership interest, or
                            ``(iii) qualified distressed opportunity 
                        zone business property.
                    ``(B) Qualified distressed opportunity zone 
                stock.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the term `qualified distressed 
                        opportunity zone stock' means any stock in a 
                        domestic corporation if--
                                    ``(I) such stock is acquired by the 
                                qualified distressed opportunity fund 
                                after December 31, 2024, at its 
                                original issue (directly or through an 
                                underwriter) from the corporation 
                                solely in exchange for cash,
                                    ``(II) as of the time such stock 
                                was issued, such corporation was a 
                                qualified distressed opportunity zone 
                                business (or, in the case of a new 
                                corporation, such corporation was being 
                                organized for purposes of being a 
                                qualified distressed opportunity zone 
                                business), and
                                    ``(III) during substantially all of 
                                the qualified distressed opportunity 
                                fund's holding period for such stock, 
                                such corporation qualified as a 
                                qualified distressed opportunity zone 
                                business.
                            ``(ii) Redemptions.--A rule similar to the 
                        rule of section 1202(c)(3) shall apply for 
                        purposes of this paragraph.
                    ``(C) Qualified distressed opportunity zone 
                partnership interest.--The term `qualified distressed 
                opportunity zone partnership interest' means any 
                capital or profits interest in a domestic partnership 
                if--
                            ``(i) such interest in acquired by the 
                        qualified distressed opportunity fund after 
                        December 31, 2024, from the partnership solely 
                        in exchange for cash,
                            ``(ii) as of the time such interest was 
                        acquired, such partnership was a qualified 
                        distressed opportunity zone business (or, in 
                        the case of a new partnership, such partnership 
                        was being organized for purposes of being a 
                        qualified distressed opportunity zone 
                        business), and
                            ``(iii) during substantially all of the 
                        qualified distressed opportunity fund's holding 
                        period for such interest, such partnership 
                        qualified as a qualified distressed opportunity 
                        zone business.
                    ``(D) Qualified distressed opportunity zone 
                business property.--
                            ``(i) In general.--The term `qualified 
                        distressed opportunity zone business property' 
                        means tangible property used in a trade or 
                        business of the qualified distressed 
                        opportunity fund if--
                                    ``(I) such property was acquired by 
                                the qualified distressed opportunity 
                                fund by purchase (as defined in section 
                                179(d)(2)) after December 31, 2024,
                                    ``(II) the original use of such 
                                property in the qualified distressed 
                                opportunity zone commences with the 
                                qualified distressed opportunity fund 
                                or the qualified distressed opportunity 
                                fund substantially improves the 
                                property, and
                                    ``(III) during substantially all of 
                                the qualified distressed opportunity 
                                fund's holding period for such 
                                property, substantially all of the use 
                                of such property was in a qualified 
                                distressed opportunity zone.
                            ``(ii) Substantial improvement.--For 
                        purposes of subparagraph (A)(ii), property 
                        shall be treated as substantially improved by 
                        the qualified distressed opportunity fund only 
                        if, during any 30-month period beginning after 
                        the date of acquisition of such property, 
                        additions to basis with respect to such 
                        property in the hands of the qualified 
                        distressed opportunity fund exceed an amount 
                        equal to the adjusted basis of such property at 
                        the beginning of such 30-month period in the 
                        hands of the qualified distressed opportunity 
                        fund.
                            ``(iii) Related party.--For purposes of 
                        subparagraph (A)(i), the related person rule of 
                        section 179(d)(2) shall be applied pursuant to 
                        subsection (e)(2) in lieu of the application of 
                        such rule in section 179(d)(2)(A).
            ``(3) Qualified distressed opportunity zone business.--
                    ``(A) In general.--The term `qualified distressed 
                opportunity zone business' means a trade or business--
                            ``(i) in which substantially all of the 
                        tangible property owned or leased by the 
                        taxpayer is qualified distressed opportunity 
                        zone business property (determined by 
                        substituting `qualified distressed opportunity 
                        zone business' for `qualified distressed 
                        opportunity fund' each place it appears in 
                        subparagraph (D)),
                            ``(ii) which satisfies the requirements of 
                        paragraphs (2), (4), and (8) of section 
                        1397C(b), and
                            ``(iii) which is not described in section 
                        144(c)(6)(B).
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), tangible property that ceases to be a qualified 
                distressed opportunity zone business property shall 
                continue to be treated as a qualified distressed 
                opportunity zone business property for the lesser of--
                            ``(i) 5 years after the date on which such 
                        tangible property ceases to be so qualified, or
                            ``(ii) the date on which such tangible 
                        property is no longer held by the qualified 
                        distressed opportunity zone business.
            ``(4) Qualified distressed opportunity zone.--The term 
        `qualified distressed opportunity zone' means--
                    ``(A) a brownfield site (as defined in section 
                101(39) of the Comprehensive Environmental Response, 
                Compensation, and Liability Act of 1980), or
                    ``(B) a facility that is included on the National 
                Priorities List developed by the President in 
                accordance with section 105(a)(8)(B) of the 
                Comprehensive Environmental Response, Compensation, and 
                Liability Act of 1980.
    ``(e) Applicable Rules.--
            ``(1) Treatment of investments with mixed funds.--In the 
        case of any investment in a qualified distressed opportunity 
        fund only a portion of which consists of investments of gain to 
        which an election under subsection (a) is in effect--
                    ``(A) such investment shall be treated as 2 
                separate investments, consisting of--
                            ``(i) one investment that only includes 
                        amounts to which the election under subsection 
                        (a) applies, and
                            ``(ii) a separate investment consisting of 
                        other amounts, and
                    ``(B) subsections (a), (b), and (c) shall only 
                apply to the investment described in subparagraph 
                (A)(i).
            ``(2) Related persons.--For purposes of this section, 
        persons are related to each other if such persons are described 
        in section 267(b) or 707(b)(1), determined by substituting `20 
        percent' for `50 percent' each place it occurs in such 
        sections.
            ``(3) Decedents.--In the case of a decedent, amounts 
        recognized under this section shall, if not properly includible 
        in the gross income of the decedent, be included in gross 
        income as provided by section 691.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this section, including--
                    ``(A) rules for the certification of qualified 
                distressed opportunity funds for the purposes of this 
                section,
                    ``(B) rules to ensure a qualified distressed 
                opportunity fund has a reasonable period of time to 
                reinvest the return of capital from investments in 
                qualified distressed opportunity zone stock and 
                qualified distressed opportunity zone partnership 
                interests, and to reinvest proceeds received from the 
                sale or disposition of qualified distressed opportunity 
                zone property, and
                    ``(C) rules to prevent abuse.
    ``(f) Failure of Qualified Distressed Opportunity Fund To Maintain 
Investment Standard.--
            ``(1) In general.--If a qualified distressed opportunity 
        fund fails to meet the 90-percent requirement of subsection 
        (d)(1), the qualified distressed opportunity fund shall pay a 
        penalty for reach month it fails to meet the requirement in an 
        amount equal to the product of--
                    ``(A) the excess of--
                            ``(i) the amount equal to 90 percent of its 
                        aggregate assets, over
                            ``(ii) the aggregate amount of qualified 
                        distressed opportunity zone property held by 
                        the fund, multiplied by
                    ``(B) the underpayment rate established under 
                section 6621(a)(2) for such month.
            ``(2) Special rule for partnerships.--In the case that the 
        qualified distressed opportunity fund is a partnership, the 
        penalty imposed by paragraph (1) shall be taken int account 
        proportionately as part of the distributive share of each 
        partner of the partnership.
            ``(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any failure if it 
        is shown that such failure is due to reasonable cause.''.
    (b) Clerical Amendment.--The table of sections for subchapter Z of 
chapter 1 is amended by adding at the end the following new item:

``Sec. 1400Z-3. Special rules for capital gains invested in distressed 
                            opportunity zones.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts invested after the date of the enactment of this Act.
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