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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1253 Introduced in Senate (IS)]

109th CONGRESS
  1st Session
                                S. 1253

To amend the Internal Revenue Code of 1986 to allow a credit to holders 
    of qualified bonds issued to finance certain rural development 
                   projects, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             June 15, 2005

 Mr. Coleman (for himself, Mr. Pryor, Mr. DeWine, Mr. Graham, and Mr. 
Nelson of Florida) 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 credit to holders 
    of qualified bonds issued to finance certain rural development 
                   projects, and for other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Rural Renaissance 
Act II of 2005''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

    (a) In General.--Part IV of subchapter A of chapter 1 (relating to 
credits against tax) is amended by adding at the end the following new 
subpart:

``Subpart H--Nonrefundable Credit to Holders of Rural Renaissance Bonds

``Sec. 54. Credit to holders of rural renaissance bonds.

``SEC. 54. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
rural renaissance bond on a credit allowance date of such bond, which 
occurs during the taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for such taxable year an amount 
equal to the sum of the credits determined under subsection (b) with 
respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a rural renaissance bond is 25 percent of the annual credit 
        determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any rural renaissance bond is the product of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (3) for the day on which such bond was 
                sold, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Determination.--For purposes of paragraph (2), with 
        respect to any rural renaissance bond, the Secretary shall 
        determine daily or caused to be determined daily a credit rate 
        which shall apply to the first day on which there is a binding, 
        written contract for the sale or exchange of the bond. The 
        credit rate for any day is the credit rate which the Secretary 
        or the Secretary's designee estimates will permit the issuance 
        of rural renaissance bonds with a specified maturity or 
        redemption date without discount and without interest cost to 
        the qualified issuer.
            ``(4) Credit allowance date.--For purposes of this section, 
        the term `credit allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term also includes the last day on which the bond is 
        outstanding.
            ``(5) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed or matures.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                part (other than subpart C thereof, relating to 
                refundable credits).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Rural Renaissance Bond.--For purposes of this section--
            ``(1) In general.--The term `rural renaissance bond' means 
        any bond issued as part of an issue if--
                    ``(A) the bond is issued by a qualified issuer,
                    ``(B) 95 percent or more of the proceeds from the 
                sale of such issue are to be used for capital 
                expenditures incurred for 1 or more qualified projects,
                    ``(C) the qualified issuer designates such bond for 
                purposes of this section and the bond is in registered 
                form, and
                    ``(D) the issue meets the requirements of 
                subsections (e) and (g).
            ``(2) Qualified project; special use rules.--
                    ``(A) In general.--The term `qualified project' 
                means 1 or more projects described in subparagraph (B) 
                located in a rural area.
                    ``(B) Projects described.--A project described in 
                this subparagraph is--
                            ``(i) a water or waste treatment project,
                            ``(ii) an affordable housing project,
                            ``(iii) a community facility project, 
                        including hospitals, fire and police stations, 
                        and nursing and assisted-living facilities,
                            ``(iv) a value-added agriculture or 
                        renewable energy facility project for 
                        agricultural producers or farmer-owned 
                        entities, including any project to promote the 
                        production, processing, or retail sale of 
                        ethanol (including fuel at least 85 percent of 
                        the volume of which consists of ethanol), 
                        biodiesel, animal waste, biomass, raw 
                        commodities, or wind as a fuel,
                            ``(v) a distance learning or telemedicine 
                        project,
                            ``(vi) a rural utility infrastructure 
                        project, including any electric or telephone 
                        system,
                            ``(vii) a project to expand broadband 
                        technology,
                            ``(viii) a rural teleworks project, and
                            ``(ix) any project described in any 
                        preceding clause carried out by the Delta 
                        Regional Authority.
                    ``(C) Special rules.--For purposes of this 
                paragraph--
                            ``(i) any project described in subparagraph 
                        (B)(iv) for a farmer-owned entity may be 
                        considered a qualified project if such entity 
                        is located in a rural area, or in the case of a 
                        farmer-owned entity the headquarters of which 
                        are located in a nonrural area, if the project 
                        is located in a rural area, and
                            ``(ii) any project for a farmer-owned 
                        entity which is a facility described in 
                        subparagraph (B)(iv) for agricultural producers 
                        may be considered a qualified project 
                        regardless of whether the facility is located 
                        in a rural or nonrural area.
            ``(3) Special use rules.--
                    ``(A) Refinancing rules.--For purposes of paragraph 
                (1)(B), a qualified project may be refinanced with 
                proceeds of a rural renaissance bond only if the 
                indebtedness being refinanced (including any obligation 
                directly or indirectly refinanced by such indebtedness) 
                was originally incurred after the date of the enactment 
                of this section.
                    ``(B) Treatment of changes in use.--For purposes of 
                paragraph (1)(B), the proceeds of an issue shall not be 
                treated as used for a qualified project to the extent 
                that a borrower takes any action within its control 
                which causes such proceeds not to be used for a 
                qualified project. The Secretary shall prescribe 
                regulations specifying remedial actions that may be 
                taken (including conditions to taking such remedial 
                actions) to prevent an action described in the 
                preceding sentence from causing a bond to fail to be a 
                rural renaissance bond.
    ``(e) Maturity Limitations.--
            ``(1) Duration of term.--A bond shall not be treated as a 
        rural renaissance bond if such bond is issued as part of an 
        issue and--
                    ``(A) the average maturity of bonds issued as a 
                part of such issue, exceeds
                    ``(B) 120 percent of the average reasonable 
                expected economic life of the facilities being financed 
                with the proceeds from the sale of such issue.
            ``(2) Determination of averages.--For purposes of paragraph 
        (1), the determination of averages of an issue and economic 
        life of any facility shall be determined in accordance with 
        section 147(b).
            ``(3) Ratable principal amortization required.--A bond 
        shall not be treated as a rural renaissance bond unless it is 
        part of an issue which provides for an equal amount of 
        principal to be paid by the qualified issuer during each 
        calendar year that the issue is outstanding.
    ``(f) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(g) Special Rules Relating to Expenditures.--
            ``(1) In general.--An issue shall be treated as meeting the 
        requirements of this subsection if--
                    ``(A) at least 95 percent of the proceeds from the 
                sale of the issue are to be spent for 1 or more 
                qualified projects within the 5-year period beginning 
                on the date of issuance of the rural renaissance bond,
                    ``(B) a binding commitment with a third party to 
                spend at least 10 percent of the proceeds from the sale 
                of the issue will be incurred within the 6-month period 
                beginning on the date of issuance of the rural 
                renaissance bond or, in the case of a rural renaissance 
                bond, the proceeds of which are to be loaned to 2 or 
                more borrowers, such binding commitment will be 
                incurred within the 6-month period beginning on the 
                date of the loan of such proceeds to a borrower, and
                    ``(C) such projects will be completed with due 
                diligence and the proceeds from the sale of the issue 
                will be spent with due diligence.
            ``(2) Extension of period.--Upon submission of a request 
        prior to the expiration of the period described in paragraph 
        (1)(A), the Secretary may extend such period if the qualified 
        issuer establishes that the failure to satisfy the 5-year 
        requirement is due to reasonable cause and the related projects 
        will continue to proceed with due diligence.
            ``(3) Failure to spend required amount of bond proceeds 
        within 5 years.--To the extent that less than 95 percent of the 
        proceeds of such issue are expended within such 5-year period 
        (and no extension has been obtained under paragraph (2)), the 
        qualified issuer shall redeem all of the nonqualified bonds on 
        the earliest call date subsequent to the expiration of the 5-
        year period. If such earliest call date is more than 90 days 
        subsequent to the expiration of the 5-year period, the 
        qualified issuer shall establish a yield-restricted defeasance 
        escrow within such 90 days to retire such nonqualified bonds on 
        the earlier of the date which is 10 years after the issue date 
        or the first call date. For purposes of this paragraph, the 
        term `nonqualified bonds' means the portion of the outstanding 
        bonds in an amount that, if the remaining bonds were issued on 
        the fifth anniversary of the date of the issuance of the issue, 
        at least 95 percent of the proceeds of the remaining bonds 
        would be used to provide qualified projects.
    ``(h) Special Rules Relating to Arbitrage.--
            ``(1) In general.--A bond which is part of an issue shall 
        not be treated as a rural renaissance bond unless, with respect 
        to the issue of which the bond is a part, the qualified issuer 
        satisfies the arbitrage rebate requirements of section 148 with 
        respect to gross proceeds of the issue (other than any amounts 
        applied in accordance with subsection (g)). For purposes of 
        such requirements, yield over the term of an issue shall be 
        determined under the principles of section 148 based on the 
        qualified issuer's payments of principal, interest (if any), 
        and fees for qualified guarantees on such issue.
            ``(2) Exception.--Amounts on deposit in a bona fide debt 
        service fund with regard to any rural renaissance bond are not 
        subject to the arbitrage rebate requirements of section 148.
    ``(i) Qualified Issuer.--For purposes of this section--
            ``(1) In general.--The term `qualified issuer' means any 
        not-for-profit cooperative lender which has as of the date of 
        the enactment of this section received a guarantee under 
        section 306 of the Rural Electrification Act and which meets 
        the requirement of paragraph (2).
            ``(2) User fee requirement.--The requirement of this 
        paragraph is met if the issuer of any rural renaissance bond 
        makes grants for economic and community development projects on 
        a semi-annual basis every year that such bond is outstanding in 
        an annual amount equal to \1/2\ of the rate on United States 
        Treasury bills of the same maturity multiplied by the 
        outstanding principal balance of rural renaissance bonds issued 
        by such issuer.
    ``(j) Special Rules Relating to Pool Bonds.--No portion of a pooled 
financing bond may be allocable to loan unless the borrower has entered 
into a written loan commitment for such portion prior to the issue date 
of such issue.
    ``(k) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bond.--The term `bond' includes any obligation.
            ``(2) Pooled financing bond.--The term `pooled financing 
        bond' shall have the meaning given such term by section 
        149(f)(4)(A).
            ``(3) Rural area.--The term `rural area' means any area 
        other than--
                    ``(A) a city or town which has a population of 
                greater than 50,000 inhabitants, or
                    ``(B) the urbanized area contiguous and adjacent to 
                such a city or town.
            ``(4) Partnership; s corporation; and other pass-thru 
        entities.--Under regulations prescribed by the Secretary, in 
        the case of a partnership, trust, S corporation, or other pass-
        thru entity, rules similar to the rules of section 41(g) shall 
        apply with respect to the credit allowable under subsection 
        (a).
            ``(5) Bonds held by regulated investment companies.--If any 
        rural renaissance bond is held by a regulated investment 
        company, the credit determined under subsection (a) shall be 
        allowed to shareholders of such company under procedures 
        prescribed by the Secretary.
            ``(6) Treatment for estimated tax purposes.--Solely for 
        purposes of sections 6654 and 6655, the credit allowed by this 
        section to a taxpayer by reason of holding a rural renaissance 
        bond on a credit allowance date shall be treated as if it were 
        a payment of estimated tax made by the taxpayer on such date.
            ``(7) Reporting.--Issuers of rural renaissance bonds shall 
        submit reports similar to the reports required under section 
        149(e).''.
    (b) Reporting.--Subsection (d) of section 6049 (relating to returns 
regarding payments of interest) is amended by adding at the end the 
following new paragraph:
            ``(8) Reporting of credit on rural renaissance bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54(f) and such amounts shall 
                be treated as paid on the credit allowance date (as 
                defined in section 54(b)(4)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A), subsection 
                (b)(4) shall be applied without regard to subparagraphs 
                (A), (H), (I), (J), (K), and (L)(i) of such subsection.
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
    (c) Clerical Amendments.--
            (1) The table of subparts for part IV of subchapter A of 
        chapter 1 is amended by adding at the end the following new 
        item:

        ``Subpart H. Nonrefundable credit to holders of rural 
                            renaissance bonds.''.
            (2) Section 6401(b)(1) is amended by striking ``and G'' and 
        inserting ``G, and H''.
    (d) Issuance of Regulations.--The Secretary of Treasury shall issue 
regulations required under section 54 of the Internal Revenue Code of 
1986 (as added by this section) not later than 120 days after the date 
of the enactment of this Act.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.
                                 <all>
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