II 

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. 

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; AMENDMENT OF 1986 CODE. 

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

5 ‘‘Rural Renaissance Act II of 2005’’. 

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

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

4 SEC. 2. CREDIT TO HOLDERS OF RURAL RENAISSANCE 

5 BONDS. 

6 (a) IN GENERAL.—Part IV of subchapter A of chap7 ter 1 (relating to credits against tax) is amended by add8 ing at the end the following new subpart: 

9 ‘‘Subpart H—Nonrefundable Credit to Holders of 

10 Rural Renaissance Bonds 

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

11 ‘‘SEC. 54. CREDIT TO HOLDERS OF RURAL RENAISSANCE 

12 BONDS. 

13 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax14 payer who holds a rural renaissance bond on a credit al15 lowance date of such bond, which occurs during the tax16 able year, there shall be allowed as a credit against the 

17 tax imposed by this chapter for such taxable year an 

18 amount equal to the sum of the credits determined under 

19 subsection (b) with respect to credit allowance dates dur20 ing such year on which the taxpayer holds such bond. 

21 ‘‘(b) AMOUNT OF CREDIT.— 

22 ‘‘(1) IN GENERAL.—The amount of the credit 

23 determined under this subsection with respect to any 

24 credit allowance date for a rural renaissance bond is 
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1 25 percent of the annual credit determined with re2 spect to such bond. 

3 ‘‘(2) ANNUAL CREDIT.—The annual credit de4 termined with respect to any rural renaissance bond 

5 is the product of— 

6 ‘‘(A) the credit rate determined by the Sec7 retary under paragraph (3) for the day on 

8 which such bond was sold, multiplied by 

9 ‘‘(B) the outstanding face amount of the 

10 bond. 

11 ‘‘(3) DETERMINATION.—For purposes of para12 graph (2), with respect to any rural renaissance 

13 bond, the Secretary shall determine daily or caused 

14 to be determined daily a credit rate which shall 

15 apply to the first day on which there is a binding, 

16 written contract for the sale or exchange of the 

17 bond. The credit rate for any day is the credit rate 

18 which the Secretary or the Secretary’s designee esti19 mates will permit the issuance of rural renaissance 

20 bonds with a specified maturity or redemption date 

21 without discount and without interest cost to the 

22 qualified issuer. 

23 ‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 

24 of this section, the term ‘credit allowance date’ 

25 means— 
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1 ‘‘(A) March 15, 

2 ‘‘(B) June 15, 

3 ‘‘(C) September 15, and 

4 ‘‘(D) December 15. 

5 Such term also includes the last day on which the 

6 bond is outstanding. 

7 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE8 DEMPTION.—In the case of a bond which is issued 

9 during the 3-month period ending on a credit allow10 ance date, the amount of the credit determined 

11 under this subsection with respect to such credit al12 lowance date shall be a ratable portion of the credit 

13 otherwise determined based on the portion of the 3- 

14 month period during which the bond is outstanding. 

15 A similar rule shall apply when the bond is redeemed 

16 or matures. 

17 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.— 

18 ‘‘(1) IN GENERAL.—The credit allowed under 

19 subsection (a) for any taxable year shall not exceed 

20 the excess of— 

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

22 (as defined in section 26(b)) plus the tax im23 posed by section 55, over 
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1 ‘‘(B) the sum of the credits allowable 

2 under this part (other than subpart C thereof, 

3 relating to refundable credits). 

4 ‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the 

5 credit allowable under subsection (a) exceeds the 

6 limitation imposed by paragraph (1) for such taxable 

7 year, such excess shall be carried to the succeeding 

8 taxable year and added to the credit allowable under 

9 subsection (a) for such taxable year. 

10 ‘‘(d) RURAL RENAISSANCE BOND.—For purposes of 

11 this section— 

12 ‘‘(1) IN GENERAL.—The term ‘rural renais13 sance bond’ means any bond issued as part of an 

14 issue if— 

15 ‘‘(A) the bond is issued by a qualified 

16 issuer, 

17 ‘‘(B) 95 percent or more of the proceeds 

18 from the sale of such issue are to be used for 

19 capital expenditures incurred for 1 or more 

20 qualified projects, 

21 ‘‘(C) the qualified issuer designates such 

22 bond for purposes of this section and the bond 

23 is in registered form, and 

24 ‘‘(D) the issue meets the requirements of 

25 subsections (e) and (g). 
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1 ‘‘(2) QUALIFIED PROJECT; SPECIAL USE

2 RULES.— 

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

4 project’ means 1 or more projects described in 

5 subparagraph (B) located in a rural area. 

6 ‘‘(B) PROJECTS DESCRIBED.—A project 

7 described in this subparagraph is— 

8 ‘‘(i) a water or waste treatment 

9 project, 

10 ‘‘(ii) an affordable housing project, 

11 ‘‘(iii) a community facility project, in12 cluding hospitals, fire and police stations, 

13 and nursing and assisted-living facilities, 

14 ‘‘(iv) a value-added agriculture or re15 newable energy facility project for agricul16 tural producers or farmer-owned entities, 

17 including any project to promote the pro18 duction, processing, or retail sale of eth19 anol (including fuel at least 85 percent of 

20 the volume of which consists of ethanol), 

21 biodiesel, animal waste, biomass, raw com22 modities, or wind as a fuel, 

23 ‘‘(v) a distance learning or telemedi24 cine project, 
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1 ‘‘(vi) a rural utility infrastructure 

2 project, including any electric or telephone 

3 system, 

4 ‘‘(vii) a project to expand broadband 

5 technology, 

6 ‘‘(viii) a rural teleworks project, and 

7 ‘‘(ix) any project described in any pre8 ceding clause carried out by the Delta Re9 gional Authority. 

10 ‘‘(C) SPECIAL RULES.—For purposes of 

11 this paragraph— 

12 ‘‘(i) any project described in subpara13 graph (B)(iv) for a farmer-owned entity 

14 may be considered a qualified project if 

15 such entity is located in a rural area, or in 

16 the case of a farmer-owned entity the 

17 headquarters of which are located in a 

18 nonrural area, if the project is located in 

19 a rural area, and 

20 ‘‘(ii) any project for a farmer-owned 

21 entity which is a facility described in sub22 paragraph (B)(iv) for agricultural pro23 ducers may be considered a qualified 

24 project regardless of whether the facility is 

25 located in a rural or nonrural area. 
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1 ‘‘(3) SPECIAL USE RULES.— 

2 ‘‘(A) REFINANCING RULES.—For purposes 

3 of paragraph (1)(B), a qualified project may be 

4 refinanced with proceeds of a rural renaissance 

5 bond only if the indebtedness being refinanced 

6 (including any obligation directly or indirectly 

7 refinanced by such indebtedness) was originally 

8 incurred after the date of the enactment of this 

9 section. 

10 ‘‘(B) TREATMENT OF CHANGES IN USE.— 

11 For purposes of paragraph (1)(B), the proceeds 

12 of an issue shall not be treated as used for a 

13 qualified project to the extent that a borrower 

14 takes any action within its control which causes 

15 such proceeds not to be used for a qualified 

16 project. The Secretary shall prescribe regula17 tions specifying remedial actions that may be 

18 taken (including conditions to taking such re19 medial actions) to prevent an action described 

20 in the preceding sentence from causing a bond 

21 to fail to be a rural renaissance bond. 

22 ‘‘(e) MATURITY LIMITATIONS.— 

23 ‘‘(1) DURATION OF TERM.—A bond shall not be 

24 treated as a rural renaissance bond if such bond is 

25 issued as part of an issue and— 
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1 ‘‘(A) the average maturity of bonds issued 

2 as a part of such issue, exceeds 

3 ‘‘(B) 120 percent of the average reasonable 

4 expected economic life of the facilities being fi5 nanced with the proceeds from the sale of such 

6 issue. 

7 ‘‘(2) DETERMINATION OF AVERAGES.—For pur8 poses of paragraph (1), the determination of aver9 ages of an issue and economic life of any facility 

10 shall be determined in accordance with section 

11 147(b). 

12 ‘‘(3) RATABLE PRINCIPAL AMORTIZATION RE13 QUIRED.—A bond shall not be treated as a rural 

14 renaissance bond unless it is part of an issue which 

15 provides for an equal amount of principal to be paid 

16 by the qualified issuer during each calendar year 

17 that the issue is outstanding. 

18 ‘‘(f) CREDIT INCLUDED IN GROSS INCOME.—Gross 

19 income includes the amount of the credit allowed to the 

20 taxpayer under this section (determined without regard to 

21 subsection (c)) and the amount so included shall be treat22 ed as interest income. 

23 ‘‘(g) SPECIAL RULES RELATING TO EXPENDI24 TURES.— 
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1 ‘‘(1) IN GENERAL.—An issue shall be treated as 

2 meeting the requirements of this subsection if— 

3 ‘‘(A) at least 95 percent of the proceeds 

4 from the sale of the issue are to be spent for 

5 1 or more qualified projects within the 5-year 

6 period beginning on the date of issuance of the 

7 rural renaissance bond, 

8 ‘‘(B) a binding commitment with a third 

9 party to spend at least 10 percent of the pro10 ceeds from the sale of the issue will be incurred 

11 within the 6-month period beginning on the 

12 date of issuance of the rural renaissance bond 

13 or, in the case of a rural renaissance bond, the 

14 proceeds of which are to be loaned to 2 or more 

15 borrowers, such binding commitment will be in16 curred within the 6-month period beginning on 

17 the date of the loan of such proceeds to a bor18 rower, and 

19 ‘‘(C) such projects will be completed with 

20 due diligence and the proceeds from the sale of 

21 the issue will be spent with due diligence. 

22 ‘‘(2) EXTENSION OF PERIOD.—Upon submis23 sion of a request prior to the expiration of the period 

24 described in paragraph (1)(A), the Secretary may 

25 extend such period if the qualified issuer establishes 
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1 that the failure to satisfy the 5-year requirement is 

2 due to reasonable cause and the related projects will 

3 continue to proceed with due diligence. 

4 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

5 OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex6 tent that less than 95 percent of the proceeds of 

7 such issue are expended within such 5-year period 

8 (and no extension has been obtained under para9 graph (2)), the qualified issuer shall redeem all of 

10 the nonqualified bonds on the earliest call date sub11 sequent to the expiration of the 5-year period. If 

12 such earliest call date is more than 90 days subse13 quent to the expiration of the 5-year period, the 

14 qualified issuer shall establish a yield-restricted de15 feasance escrow within such 90 days to retire such 

16 nonqualified bonds on the earlier of the date which 

17 is 10 years after the issue date or the first call date. 

18 For purposes of this paragraph, the term ‘non19 qualified bonds’ means the portion of the out20 standing bonds in an amount that, if the remaining 

21 bonds were issued on the fifth anniversary of the 

22 date of the issuance of the issue, at least 95 percent 

23 of the proceeds of the remaining bonds would be 

24 used to provide qualified projects. 

25 ‘‘(h) SPECIAL RULES RELATING TO ARBITRAGE.— 
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1 ‘‘(1) IN GENERAL.—A bond which is part of an 

2 issue shall not be treated as a rural renaissance 

3 bond unless, with respect to the issue of which the 

4 bond is a part, the qualified issuer satisfies the arbi5 trage rebate requirements of section 148 with re6 spect to gross proceeds of the issue (other than any 

7 amounts applied in accordance with subsection (g)). 

8 For purposes of such requirements, yield over the 

9 term of an issue shall be determined under the prin10 ciples of section 148 based on the qualified issuer’s 

11 payments of principal, interest (if any), and fees for 

12 qualified guarantees on such issue. 

13 ‘‘(2) EXCEPTION.—Amounts on deposit in a 

14 bona fide debt service fund with regard to any rural 

15 renaissance bond are not subject to the arbitrage re16 bate requirements of section 148. 

17 ‘‘(i) QUALIFIED ISSUER.—For purposes of this sec18 tion— 

19 ‘‘(1) IN GENERAL.—The term ‘qualified issuer’ 

20 means any not-for-profit cooperative lender which 

21 has as of the date of the enactment of this section 

22 received a guarantee under section 306 of the Rural 

23 Electrification Act and which meets the requirement 

24 of paragraph (2). 
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1 ‘‘(2) USER FEE REQUIREMENT.—The require2 ment of this paragraph is met if the issuer of any 

3 rural renaissance bond makes grants for economic 

4 and community development projects on a semi-an5 nual basis every year that such bond is outstanding 

in an annual amount equal to 1 6 ⁄2 of the rate on 

7 United States Treasury bills of the same maturity 

8 multiplied by the outstanding principal balance of 

9 rural renaissance bonds issued by such issuer. 

10 ‘‘(j) SPECIAL RULES RELATING TO POOL BONDS.— 

11 No portion of a pooled financing bond may be allocable 

12 to loan unless the borrower has entered into a written loan 

13 commitment for such portion prior to the issue date of 

14 such issue. 

15 ‘‘(k) OTHER DEFINITIONS AND SPECIAL RULES.— 

16 For purposes of this section— 

17 ‘‘(1) BOND.—The term ‘bond’ includes any ob18 ligation. 

19 ‘‘(2) POOLED FINANCING BOND.—The term 

20 ‘pooled financing bond’ shall have the meaning given 

21 such term by section 149(f)(4)(A). 

22 ‘‘(3) RURAL AREA.—The term ‘rural area’ 

23 means any area other than— 

24 ‘‘(A) a city or town which has a population 

25 of greater than 50,000 inhabitants, or 
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1 ‘‘(B) the urbanized area contiguous and 

2 adjacent to such a city or town. 

3 ‘‘(4) PARTNERSHIP; S CORPORATION; AND

4 OTHER PASS-THRU ENTITIES.—Under regulations 

5 prescribed by the Secretary, in the case of a partner6 ship, trust, S corporation, or other pass-thru entity, 

7 rules similar to the rules of section 41(g) shall apply 

8 with respect to the credit allowable under subsection 

9 (a). 

10 ‘‘(5) BONDS HELD BY REGULATED INVEST11 MENT COMPANIES.—If any rural renaissance bond is 

12 held by a regulated investment company, the credit 

13 determined under subsection (a) shall be allowed to 

14 shareholders of such company under procedures pre15 scribed by the Secretary. 

16 ‘‘(6) TREATMENT FOR ESTIMATED TAX PUR17 POSES.—Solely for purposes of sections 6654 and 

18 6655, the credit allowed by this section to a tax19 payer by reason of holding a rural renaissance bond 

20 on a credit allowance date shall be treated as if it 

21 were a payment of estimated tax made by the tax22 payer on such date. 

23 ‘‘(7) REPORTING.—Issuers of rural renaissance 

24 bonds shall submit reports similar to the reports re25 quired under section 149(e).’’. 
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1 (b) REPORTING.—Subsection (d) of section 6049 (re2 lating to returns regarding payments of interest) is 

3 amended by adding at the end the following new para4 graph: 

5 ‘‘(8) REPORTING OF CREDIT ON RURAL RENAIS6 SANCE BONDS.— 

7 ‘‘(A) IN GENERAL.—For purposes of sub8 section (a), the term ‘interest’ includes amounts 

9 includible in gross income under section 54(f) 

10 and such amounts shall be treated as paid on 

11 the credit allowance date (as defined in section 

12 54(b)(4)). 

13 ‘‘(B) REPORTING TO CORPORATIONS, 

14 ETC.—Except as otherwise provided in regula15 tions, in the case of any interest described in 

16 subparagraph (A), subsection (b)(4) shall be 

17 applied without regard to subparagraphs (A), 

18 (H), (I), (J), (K), and (L)(i) of such subsection. 

19 ‘‘(C) REGULATORY AUTHORITY.—The Sec20 retary may prescribe such regulations as are 

21 necessary or appropriate to carry out the pur22 poses of this paragraph, including regulations 

23 which require more frequent or more detailed 

24 reporting.’’. 

25 (c) CLERICAL AMENDMENTS.— 
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1 (1) The table of subparts for part IV of sub2 chapter A of chapter 1 is amended by adding at the 

3 end the following new item: 

‘‘Subpart H. Nonrefundable credit to holders of rural renaissance bonds.’’. 

4 (2) Section 6401(b)(1) is amended by striking 

5 ‘‘and G’’ and inserting ‘‘G, and H’’. 

6 (d) ISSUANCE OF REGULATIONS.—The Secretary of 

7 Treasury shall issue regulations required under section 54 

8 of the Internal Revenue Code of 1986 (as added by this 

9 section) not later than 120 days after the date of the en10 actment of this Act. 

11 (e) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to bonds issued after the date of 

13 the enactment of this Act. 

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