II

103D CONGRESS

1ST SESSION S. 102

To provide for line item veto; capital gains tax reduction; enterprise zones;

raising the social security earnings limit workfare.

IN THE SENATE OF THE UNITED STATES

JANUARY 21 (legislative day, JANUARY 5), 1993

Mr. MACK (for himself, Mr. BOND, Mr. BURNS, Mr. COATS, Mr. D’AMATO,

Mr. GRAMM, Mr. CRAIG, Mr. GRASSLEY, Mr. HELMS, Mr. MURKOWSKI,

Mr. NICKLES, Mr. SMITH, Mr. THURMOND, Mr. GORTON, Mr. BROWN,

Mr. WALLOP, Mr. KEMPTHORNE, Mr. BENNETT, Mr. LOTT, Mr. DOLE,

and Mr. COVERDELL) introduced the following bill; which was read twice

and referred to the Committee on Finance

A BILL

To provide for line item veto; capital gains tax reduction;

enterprise zones; raising the social security earnings limit

workfare.

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

3 TITLE I—LINE-ITEM VETO

4 SEC. 101. ENHANCEMENT OF SPENDING CONTROL BY THE

5 PRESIDENT.

6 The Impoundment Control Act of 1974 is amended

7 by adding at the end thereof the following new title:
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1 ‘‘TITLE XI—LEGISLATIVE LINE ITEM VETO

2 RESCISSION AUTHORITY

3 ‘‘PART A—LEGISLATIVE LINE ITEM VETO RESCISSION

4 AUTHORITY

5 ‘‘GRANT OF AUTHORITY AND CONDITIONS

6 ‘‘SEC. 1101. (a) IN GENERAL.—(1) Notwithstanding

7 part B of title X and subject to part B of this title, the

8 President may rescind all or part of any budget authority,

9 if the President—

10 ‘‘(A) determines that—

11 ‘‘(i) such rescission would help balance the

12 Federal budget, reduce the Federal budget defi13 cit, or reduce the public debt;

14 ‘‘(ii) such rescission will not impair any es15 sential Government functions; and

16 ‘‘(iii) such rescission will not harm the na17 tional interest; and

18 ‘‘(B)(i) notifies the Congress of such rescission

19 by a special message not later than 20 calendar days

20 (not including Saturdays, Sundays, or holidays)

21 after the date of enactment of a regular or supple22 mental appropriations Act or a joint resolution mak23 ing continuing appropriations providing such budget

24 authority; or
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1 ‘‘(ii) notifies the Congress of such rescission by

2 special message accompanying the submission of the

3 President’s budget to Congress and such rescissions

4 have not been proposed previously for that fiscal

5 year.

6 ‘‘(2) The President shall submit a separate rescission

7 message for each appropriations bill under paragraph

8 (1)(B)(ii).

9 ‘‘(b) RESCISSION EFFECTIVE UNLESS DIS10 APPROVED.—(1)(A) Any amount of budget authority re11 scinded under this title as set forth in a special message

12 by the President shall be deemed canceled unless, during

13 the period described in subparagraph (B), a rescission dis14 approval bill making available all of the amount rescinded

15 is enacted into law.

16 ‘‘(B) The period referred to in subparagraph (A) is—

17 ‘‘(i) a Congressional review period of 20 cal18 endar days of session under part B, during which

19 Congress must complete action on the rescission dis20 approval bill and present such bill to the President

21 for approval or disapproval;

22 ‘‘(ii) after the period provided in clause (i), an

23 additional 10 days (not including Sundays) during

24 which the President may exercise his authority to

25 sign or veto the rescission disapproval bill; and
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1 ‘‘(iii) if the President vetoes the rescission dis2 approval bill during the period described in clause

3 (ii), an additional 5 calendar days of session after

4 the date of the veto.

5 ‘‘(2) If a special message is transmitted by the Presi6 dent under this section during any Congress and the last

7 session of such Congress adjourns sine die before the expi8 ration of the period described in paragraph (1)(B)—

9 ‘‘(A) the rescission shall not take effect;

10 ‘‘(B) the message shall be deemed to have been

11 retransmitted on the first day of the succeeding

12 Congress; and

13 ‘‘(C) the review period described in paragraph

14 (1)(B) (with respect to such message) shall run be15 ginning after such first day.

16 ‘‘DEFINITIONS

17 ‘‘SEC. 1102. For the purposes of this title, the term

18 ‘rescission disapproval bill’ means a bill or joint resolution

19 which only disapproves a rescission of budget authority,

20 in whole, rescinded in a special message transmitted by

21 the President under section 1101.

22 ‘‘PART B—CONGRESSIONAL CONSIDERATION OF

23 LEGISLATIVE LINE ITEM VETO RESCISSIONS

24 ‘‘PRESIDENTIAL SPECIAL MESSAGE

25 ‘‘SEC. 1111. When the President rescinds any budget

26 authority as provided in section 1101, the President shall
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1 transmit to the House of Representatives and to the Sen2 ate a special message specifying—

3 ‘‘(1) the amount of budget authority rescinded;

4 ‘‘(2) any account, department, or establishment

5 of the Government to which such budget authority

6 is available for obligation, and the specific project or

7 governmental functions involved;

8 ‘‘(3) the reasons and justifications for the de9 termination to rescind budget authority pursuant to

10 section 1101(a)(1);

11 ‘‘(4) to the maximum extent practicable, the es12 timated fiscal, economic, and budgetary effect of the

13 rescission; and

14 ‘‘(5) all facts, circumstances, and considerations

15 relating to or bearing upon the rescission and the

16 decision to effect the rescission, and to the maxi17 mum extent practicable, the estimated effect of the

18 rescission upon the objects, purposes, and programs

19 for which the budget authority is provided.

20 ‘‘TRANSMISSION OF MESSAGES; PUBLICATION

21 ‘‘SEC. 1112. (a) DELIVERY TO HOUSE AND SEN22 ATE.—(1) Each special message transmitted under sec23 tions 1101 and 1111 shall be transmitted to the House

24 of Representatives and the Senate on the same day, and

25 shall be delivered to the Clerk of the House of Representa26 tives if the House of Representatives is not in session and
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1 to the Secretary of the Senate if the Senate is not in ses2 sion.

3 ‘‘(2) Each special message transmitted pursuant to

4 paragraph (1) shall be referred to the appropriate commit5 tees of the House of Representatives and the Senate and

6 shall be printed as a document of each House.

7 ‘‘(b) PRINTING IN FEDERAL REGISTER.—A special

8 message transmitted under sections 1101 and 1111 shall

9 be printed in the first issue of the Federal Register pub10 lished after such transmittal.

11 ‘‘PROCEDURE IN SENATE

12 ‘‘SEC. 1113. (a) REFERRAL.—(1) Any rescission dis13 approval bill introduced with respect to a special message

14 shall be referred to the appropriate committees of the

15 House of Representatives or the Senate, as the case may

16 be.

17 ‘‘(2) Any rescission disapproval bill received in the

18 Senate from the House of Representatives shall be consid19 ered in the Senate pursuant to this section.

20 ‘‘(b) FLOOR CONSIDERATION IN THE SENATE.—

21 ‘‘(1) Debate in the Senate on any rescission dis22 approval bill and debatable motions and appeals in

23 connection therewith, shall be limited to not more

24 than 10 hours, with the time equally divided be25 tween, and controlled by, the majority leader and the

26 minority leader or their designees.
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1 ‘‘(2)(A) Debate in the Senate on any debatable

2 motion or appeal in connection with such a bill shall

3 be limited to 1 hour equally divided between, and

4 controlled by, the mover and the manager of the bill,

5 except that if the manager of the bill is in favor of

6 any such motion or appeal, the time in opposition

7 thereto shall be controlled by the minority leader or

8 the minority leader’s designee.

9 ‘‘(B) Such leaders, or either of them, may, from

10 the time under their control on the passage of the

11 bill, allot additional time to any Senator during the

12 consideration of any debatable motion or appeal.

13 ‘‘(3) A motion to further limit debate shall not

14 be debatable, and a motion to recommit (except a

15 motion to recommit with instructions to report back

16 within a specified number of days, not to exceed 1,

17 not counting any day on which the Senate is not in

18 session) shall not be in order.

19 ‘‘(c) POINT OF ORDER.—(1) It shall not be in order

20 in the Senate or the House of Representatives to consider

21 any rescission disapproval bill that relates to any matter

22 other than the rescission of budget authority transmitted

23 by the President under section 1101.
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1 ‘‘(2) It shall not be in order in the Senate or the

2 House of Representatives to consider any amendment to

3 a rescission disapproval bill.

4 ‘‘(3) Paragraphs (1) and (2) may be waived or sus5 pended in the Senate only by a vote of three-fifths of the

6 members duly chosen and sworn.’’.

7 TITLE II—CAPITAL GAINS

8 SEC. 201. DEDUCTION FOR CAPITAL GAINS ON CERTAIN

9 SMALL BUSINESS STOCK.

10 (a) IN GENERAL.—Subchapter P of chapter 1 of the

11 Internal Revenue Code of 1986 (relating to capital gains

12 and losses) is amended by adding at the end thereof the

13 following new part:

14 ‘‘PART VII—ENTERPRISE CAPITAL INVESTMENT

15 INCENTIVES

‘‘Sec. 1301. Deduction for gain on certain small business stock.

‘‘Sec. 1302. Definitions and special rules.

16 ‘‘SEC. 1301. DEDUCTION FOR GAIN ON CERTAIN SMALL

17 BUSINESS STOCK.

18 ‘‘(a) GENERAL RULE.—If a taxpayer has a qualified

19 small business net capital gain for any taxable year, there

20 shall be allowed as a deduction from gross income an

21 amount equal to the sum of—

22 ‘‘(1) 50 percent of the excess (if any) of—

23 ‘‘(A) qualified small business net capital

24 gain, over
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1 ‘‘(B) the amount of seed capital gain, plus

2 ‘‘(2) the seed capital gain deduction.

3 ‘‘(b) QUALIFIED SMALL BUSINESS NET CAPITAL

4 GAIN.—For purposes of this section, the term ‘qualified

5 small business net capital gain’ means the lesser of—

6 ‘‘(1) the net capital gain for the taxable year,

7 or

8 ‘‘(2) the net capital gain for the taxable year

9 determined by taking into account only gain or loss

10 from sales or exchanges of qualified small business

11 stock with a holding period of more than 5 years at

12 the time of sale or exchange.

13 ‘‘(c) SEED CAPITAL GAIN DEDUCTION.—For pur14 poses of this section—

15 ‘‘(1) IN GENERAL.—The term ‘seed capital gain

16 deduction’ means an amount equal to the sum of the

17 amounts determined by applying the applicable per18 centages to the appropriate categories of seed capital

19 gain under the table contained in paragraph (2).

20 ‘‘(2) COMPUTATION OF AMOUNT.—The seed

21 capital gain deduction shall be computed as follows:

The applicable

‘‘In the case of: percentage is:

5-year gain ................................................................... 50

6-year gain ................................................................... 60

7-year gain ................................................................... 70

8-year gain ................................................................... 80

9-year gain ................................................................... 90

10-year gain ................................................................. 100.
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1 ‘‘(3) SEED CAPITAL GAIN.—For purposes of

2 this subsection, the term ‘seed capital gain’ means

3 the lesser of—

4 ‘‘(A) the excess (if any) of—

5 ‘‘(i) the net capital gain for the tax6 able year, over

7 ‘‘(ii) the qualified small business net

8 capital gain for the taxable year deter9 mined without regard to gain or loss de10 scribed in subparagraph (B), or

11 ‘‘(B) the net capital gain for the taxable

12 year determined by taking into account only

13 gain or loss from sales or exchanges of stock—

14 ‘‘(i) which is qualified small business

15 stock in a corporation which is a qualified

16 small business (determined by substituting

17 ‘$5,000,000’ for ‘$100,000,000’ in section

18 1302(b)(1)), and

19 ‘‘(ii) with a holding period of more

20 than 5 years at the time of the sale or ex21 change.

22 ‘‘(4) CATEGORIES OF GAIN.—For purposes of

23 this subsection—

24 ‘‘(A) 10-YEAR GAIN.—The term ‘10-year

25 gain’ means the lesser of—
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1 ‘‘(i) the seed capital gain, or

2 ‘‘(ii) the seed capital gain determined

3 by taking into account under paragraph

4 (3)(B) only gain or loss from qualified

5 small business stock with a holding period

6 of more than 10 years at the time of the

7 sale or exchange.

8 ‘‘(B) OTHER GAIN.—The terms ‘5-, 6-, 7-

9 , 8-, and 9-year gain’ mean, with respect to

10 any category, the lesser of—

11 ‘‘(i) the excess (if any) of—

12 ‘‘(I) seed capital gain, over

13 ‘‘(II) the amount determined

14 under this paragraph for categories

15 with a longer holding period, or

16 ‘‘(ii) seed capital gain determined by

17 taking into account under paragraph

18 (3)(B) only gain or loss from qualified

19 small business stock with a holding period

20 of more than 5, 6, 7, 8, or 9 years but not

21 more than 6, 7, 8, 9, or 10 years, respec22 tively.

23 ‘‘(d) ESTATES AND TRUSTS.—In the case of an es24 tate or trust, the deduction under subsection (a) shall be

25 computed by excluding the portion (if any) of the gains
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1 for the taxable year from sales or exchanges of qualified

2 small business stock which, under section 652 and 662

3 (relating to inclusions of amounts in gross income of bene4 ficiaries of trusts), is includible by the income beneficiaries

5 as gains derived from the sale or exchange of capital as6 sets.

7 ‘‘SEC. 1302. DEFINITIONS AND SPECIAL RULES.

8 ‘‘(a) QUALIFIED SMALL BUSINESS STOCK.—For pur9 poses of this part—

10 ‘‘(1) IN GENERAL.—The term ‘qualified small

11 business stock’ means any stock in a corporation

12 which is originally issued after December 31, 1991,

13 if—

14 ‘‘(A) as of the date of issuance, such cor15 poration is a qualified small business, and

16 ‘‘(B) except as provided in subsections (d)

17 and (e), such stock is acquired by the taxpayer

18 at its original issue (directly or through an un19 derwriter)—

20 ‘‘(i) in exchange for money or other

21 property (not including stock), or

22 ‘‘(ii) as compensation for services

23 (other than services performed as an un24 derwriter of such stock).
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1 ‘‘(2) 5-YEAR ACTIVE BUSINESS REQUIRE2 MENT.—Stock in a corporation shall not be treated

3 as qualified small business stock unless, during the

4 testing period, such corporation meets the active

5 business requirements of subsection (c).

6 ‘‘(3) CERTAIN REDEMPTIONS, EXCHANGES,

7 ETC. DISQUALIFIED.—For purposes of paragraph

8 (1)(B), and except as provided in subsections (d)

9 and (e), stock shall not be treated as acquired by the

10 taxpayer at its original issue if—

11 ‘‘(i) it is issued directly or indirectly in re12 demption of, or otherwise in exchange for, stock

13 which is not qualified small business stock, or

14 ‘‘(ii) it is issued in an exchange described

15 in section 351 in exchange for property other

16 than qualified small business stock, if imme17 diately after the exchange, both the issuer and

18 transferee of the stock are members of the

19 same controlled group of corporations (as de20 fined in section 1563).

21 ‘‘(b) QUALIFIED SMALL BUSINESS.—For purposes of

22 this part—

23 ‘‘(1) IN GENERAL.—The term ‘qualified small

24 business’ means any domestic corporation with re25 spect to which the sum of—
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1 ‘‘(A) the aggregate amount of money,

2 other property, and services received by the cor3 poration for stock, as a contribution to capital,

4 and as paid-in surplus, plus

5 ‘‘(B) the accumulated earnings and profits

6 of the corporation,

7 does not exceed $100,000,000. The determination

8 under the preceding sentence shall be made as of the

9 time of such issuance but shall include amounts re10 ceived in such issuance and all prior issuances.

11 ‘‘(2) AMOUNT TAKEN INTO ACCOUNT WITH RE12 SPECT TO PROPERTY AND SERVICES.—For purposes

13 of paragraph (1)—

14 ‘‘(A) PROPERTY.—The amount taken into

15 account with respect to any property other than

16 money shall be an amount equal to the adjusted

17 basis of such property for determining gain, re18 duced (but not below zero) by any liability to

19 which the property was subject or which was

20 assumed by the corporation. The determination

21 under the preceding sentence shall be made as

22 of the time the property was received by the

23 corporation.

24 ‘‘(B) COMPENSATION FOR SERVICES.—The

25 amount taken into account with respect to stock
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1 issued for services shall be the value of such

2 services.

3 ‘‘(c) ACTIVE BUSINESS REQUIREMENT.—For pur4 poses of this part—

5 ‘‘(1) IN GENERAL.—For purposes of subsection

6 (a)(2), the requirements of this subsection are met

7 if, during the testing period—

8 ‘‘(A) the corporation is engaged in the ac9 tive conduct of a trade or business, and

10 ‘‘(B) substantially all of the assets of such

11 corporation are used in the active conduct of a

12 trade or business.

13 ‘‘(2) SPECIAL RULE FOR CERTAIN ACTIVI14 TIES.—For purposes of paragraph (1), if, in connec15 tion with any future trade or business, a corporation

16 is engaged in—

17 ‘‘(A) start-up activities described in section

18 195(c)(1)(A),

19 ‘‘(B) activities resulting in the payment or

20 incurring of expenditures which may be treated

21 as research and experimental expenditures

22 under section 174, or

23 ‘‘(C) activities with respect to in-house re24 search expenses described in section 41(b)(4),
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1 such corporation shall be treated with respect to

2 such activities as engaged in (and assets used in

3 such activities shall be treated as used in) the active

4 conduct of a trade or business. Any determination

5 under this paragraph shall be made without regard

6 to whether a corporation has any gross income from

7 such activities at the time of the determination.

8 ‘‘(3) STOCK IN OTHER CORPORATIONS.—

9 ‘‘(A) LOOK-THRU IN CASE OF SUBSIDI10 ARIES.—For purposes of this subsection, stock

11 and debt in any subsidiary corporation shall be

12 disregarded and the parent corporation shall be

13 deemed to own its ratable share of the subsidi14 ary’s assets, and to conduct its ratable share of

15 the subsidiary’s activities.

16 ‘‘(B) PORTFOLIO STOCK.—A corporation

17 shall be treated as failing to meet the require18 ments of paragraph (1) if, at any time during

19 the testing period, more than 10 percent of the

20 value of its assets (in excess of liabilities) con21 sist of stock in other corporations which are not

22 subsidiaries of such corporation.

23 ‘‘(C) SUBSIDIARY.—For purposes of this

24 paragraph, a corporation shall be considered a

25 subsidiary if the parent owns at least 50 per-
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1 cent of the combined voting power of all classes

2 of stock entitled to vote, or at least 50 percent

3 in value of all outstanding stock of such cor4 poration.

5 ‘‘(4) WORKING CAPITAL.—For purposes of

6 paragraph (1)(B), any assets which—

7 ‘‘(A) are held for investment, and

8 ‘‘(B) are to be used to finance future re9 search and experimentation or working capital

10 needs of the corporation,

11 shall be treated as used in the active conduct of a

12 trade or business.

13 ‘‘(5) MAXIMUM REAL ESTATE HOLDINGS.—A

14 corporation shall not be treated as meeting the re15 quirements of paragraph (1) if, at any time during

16 the testing period, more than 10 percent of the total

17 value of its assets is real property which is not used

18 in the active conduct of a trade or business. For

19 purposes of the preceding sentence, the ownership

20 of, dealing in, or renting of real property shall not

21 be treated as the active conduct of a trade or busi22 ness.

23 ‘‘(6) SMALL BUSINESS INVESTMENT COMPA24 NIES.—Paragraph (1) shall not apply to any small
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1 business investment company operating under the

2 Small Business Investment Act of 1958.

3 ‘‘(7) COMPUTER SOFTWARE ROYALTIES.—For

4 purposes of paragraph (1), rights to computer soft5 ware which produces income described in section

6 543(d) shall be treated as an asset used in the active

7 conduct of a trade or business.

8 ‘‘(8) TESTING PERIOD.—For purposes of this

9 section, the term ‘testing period’ means, with respect

10 to any stock held by a taxpayer, the 5-year period

11 beginning with the first day of the taxpayer’s hold12 ing period for such stock.

13 ‘‘(d) SPECIAL RULES FOR OPTIONS, WARRANTS, AND

14 CERTAIN CONVERTIBLE INVESTMENTS.— For purposes

15 of this part—

16 ‘‘(1) IN GENERAL.—In the case of stock which

17 is acquired by the taxpayer through the exercise of

18 an applicable option or warrant, through the conver19 sion of convertible debt, or in exchange for securities

20 of the corporation in a transaction described in sec21 tion 368—

22 ‘‘(A) such stock shall be treated as ac23 quired by the taxpayer at original issue, and

24 ‘‘(B) such stock shall be treated as having

25 been held during the period such option, war-
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1 rant, or debt was held, or such security was

2 outstanding.

3 ‘‘(2) ISSUE PRICE FOR CONVERTIBLE DEBT OR

4 SECURITY.—For purposes of section 1302(b)(1) and

5 notwithstanding section 1302(b)(2), in the case of a

6 debt instrument converted to stock, or stock issued

7 in exchange for securities in a transaction described

8 in section 368, such stock shall be treated as issued

9 for an amount equal to the sum of—

10 ‘‘(A) the principal amount of the debt or

11 security as of the time of the conversion or ex12 change, and

13 ‘‘(B) accrued but unpaid interest on such

14 loan or security.

15 ‘‘(3) APPLICABLE OPTION OR WARRANT.—For

16 purposes of this subsection, the term ‘applicable op17 tion or warrant’ means an option or warrant

18 which—

19 ‘‘(A) was issued in exchange for the per20 formance of services for the corporation issuing

21 it, and

22 ‘‘(B) is nontransferrable.

23 ‘‘(e) CERTAIN TAX-FREE AND OTHER TRANS24 FERS.—For purposes of this part—
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1 ‘‘(1) IN GENERAL.—In the case of a transfer of

2 stock to which this subsection applies, the transferee

3 shall be treated as—

4 ‘‘(A) having acquired such stock in the

5 same manner as the transferor, and

6 ‘‘(B) having held such stock during any

7 continuous period immediately preceding the

8 transfer during which it was held (or treated as

9 held under this subsection) by the transferor.

10 ‘‘(2) TRANSFERS TO WHICH SUBSECTION AP11 PLIES.—This subsection shall apply to any trans12 fer—

13 ‘‘(A) by gift,

14 ‘‘(B) at death,

15 ‘‘(C) to the extent that the basis of the

16 property in the hands of the transferee is deter17 mined by reference to the basis of the property

18 in the hands of the transferor by reason of sec19 tion 334(b), 723, or 732, or

20 ‘‘(D) of qualified small business stock for

21 other qualified small business stock in a trans22 action described in section 351 or a reorganiza23 tion described in section 368.

24 ‘‘(3) INCORPORATIONS AND REORGANIZATIONS

25 INVOLVING NONQUALIFIED STOCK.—
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1 ‘‘(A) IN GENERAL.—In the case of a trans2 action described in section 351 or a reorganiza3 tion described in section 368, if a qualified

4 small business stock is transferred for other

5 stock which is not qualified small business

6 stock, such transfer shall be treated as a trans7 fer to which this subsection applies solely with

8 respect to the person receiving such other stock.

9 ‘‘(B) LIMITATION.—This part shall apply

10 to the sale or exchange of stock treated as

11 qualified small business stock by reason of sub12 paragraph (A) only to the extent of the gain (if

13 any) which would have been recognized at the

14 time of the transfer described in subparagraph

15 (A) if section 351 or 368 had not applied at

16 such time.

17 ‘‘(C) SUCCESSIVE APPLICATION.—For pur18 poses of this paragraph, stock treated as quali19 fied small business stock under subparagraph

20 (A) shall be so treated for subsequent trans21 actions or reorganizations, except that the limi22 tation of subparagraph (B) shall be applied as

23 of the time of the first transfer to which sub24 paragraph (A) applied.
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1 ‘‘(D) CONTROL TEST.—Except in the case

2 of a transaction described in section 368, this

3 paragraph shall apply only if, immediately after

4 the transaction, the corporation issuing the

5 stock owns directly or indirectly stock rep6 resenting control (within the meaning of section

7 368(c)) of the corporation whose stock was

8 transferred.

9 ‘‘(f) STOCK EXCHANGED FOR PROPERTY.—For pur10 poses of this part, in the case where the taxpayer transfers

11 property (other than money or stock) to a corporation in

12 exchange for stock in such corporation—

13 ‘‘(1) such stock shall be treated as having been

14 acquired by the taxpayer on the date of such ex15 change, and

16 ‘‘(2) the basis of such stock in the hands of the

17 taxpayer shall be treated as equal to the fair market

18 value of the property exchanged.

19 ‘‘(g) PASS-THRU ENTITIES.—For purposes of this

20 part, any gain or loss of a pass-thru entity which is treated

21 for purposes of this subtitle as a gain or loss of any person

22 holding an interest in such entity shall retain its character

23 as qualified small business or seed capital gain or loss in

24 the hands of such person.
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1 ‘‘(h) INDEXING.—In the case of any stock issued in

2 a calendar year after 1992, the $5,000,000 and

3 $100,000,000 amounts in section 1301(c)(3)(B)(i) and

4 subsection (b)(1) of this section shall be increased by an

5 amount equal to—

6 ‘‘(1) such dollar amount, multiplied by

7 ‘‘(2) the cost-of-living adjustment determined

8 under section 1(f)(3) for such calendar year by sub9 stituting ‘1991’ for ‘1987’ in subparagraph (B)

10 thereof.’’.

11 (b) MAXIMUM 14 PERCENT TAX RATE.—

12 (1) INDIVIDUALS.—Section 1(h) of such Code

13 (relating to maximum capital gains rate) is amended

14 to read as follows:

15 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—

16 ‘‘(1) IN GENERAL.—If a taxpayer has a net

17 capital gain for any taxable year, then the tax im18 posed by this section shall not exceed the sum of—

19 ‘‘(A) a tax computed at the rate and in the

20 same manner as if this subsection had not been

21 enacted on the greater of—

22 ‘‘(i) taxable income reduced by the

23 amount of the net capital gain, or

24 ‘‘(ii) the amount of taxable income

25 taxed at a rate below 28 percent, plus
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1 ‘‘(B) a tax of 28 percent of the amount of

2 taxable income in excess of the amount deter3 mined under subparagraph (A).

4 ‘‘(2) SPECIAL RULE WHERE TAXPAYER HAS

5 QUALIFIED SMALL BUSINESS NET CAPITAL OR SEED

6 CAPITAL GAIN.—

7 ‘‘(A) IN GENERAL.—If a taxpayer has

8 qualified small business net capital gain or seed

9 capital gain for any taxable year, then the tax

10 imposed by this section shall not exceed the

11 lesser of—

12 ‘‘(i) the amount determined under

13 paragraph (1), or

14 ‘‘(ii) the sum of—

15 ‘‘(I) the amount determined

16 under paragraph (1) without taking

17 into account qualified small business

18 net capital gain and seed capital gain

19 for purposes of subparagraphs (A)

20 and (B) thereof, plus

21 ‘‘(II) 14 percent of the qualified

22 small business net capital gain and

23 seed capital gain.

24 ‘‘(B) DEFINITIONS.—For purposes of this

25 paragraph, the terms ‘qualified small business
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1 net capital gain’ and ‘seed capital gain’ have

2 the meanings given such terms by section 1301

3 (b) and (c), respectively.’’.

4 (2) CORPORATIONS.—Section 1201(a) of such

5 Code (relating to alternative tax for corporations) is

6 amended—

7 (A) by inserting ‘‘or the corporation has a

8 qualified small business net capital gain or seed

9 capital gain’’ before ‘‘, then’’, and

10 (B) by striking paragraph (2) and insert11 ing:

12 ‘‘(2) a tax equal to the sum of—

13 ‘‘(A) 34 percent of the sum of the net cap14 ital gain, reduced by qualified small business

15 net capital gain and seed capital gain, plus

16 ‘‘(B) 17 percent of the qualified small

17 business net capital gain and seed capital

18 gain.’’.

19 (c) TREATMENT AS PREFERENCE ITEM FOR MINI20 MUM TAX.—Section 57(a) of such Code (relating to items

21 of tax preference under the alternative minimum tax) is

22 amended by adding at the end thereof the following new

23 paragraph:

24 ‘‘(8) CAPITAL GAINS ON SALE OF CERTAIN

25 SMALL BUSINESS STOCK.—An amount equal to the
26

•S 102 IS

1 deduction for the taxable year determined under sec2 tion 1301(a)(1).’’.

3 (d) LOSSES ON SMALL BUSINESS STOCK.—Section

4 1244(c)(3)(A) of such Code (defining small business cor5 poration) is amended by striking ‘‘$1,000,000’’ and insert6 ing ‘‘$5,000,000 (adjusted at the same time and manner

7 as under section 1302(g))’’.

8 (e) CONFORMING AMENDMENTS.—

9 (1) Section 62(a) of such Code is amended by

10 adding after paragraph (13) the following new para11 graph:

12 ‘‘(14) LONG-TERM CAPITAL GAINS.—The de13 duction allowed by section 1301.’’.

14 (2) Subparagraph (B) of section 170(e)(1) of

15 such Code is amended by inserting ‘‘(or, in the case

16 of qualified small business stock under section 1301,

17 50 percent of the amount)’’ after ‘‘the amount’’.

18 (3) Section 172(d)(2) of such Code is amended

19 to read as follows:

20 ‘‘(2) CAPITAL GAINS AND LOSSES OF TAX21 PAYERS OTHER THAN CORPORATIONS.—In the case

22 of a taxpayer other than a corporation—

23 ‘‘(A) the amount deductible on account of

24 losses from sales or exchanges of capital assets

25 shall not exceed the amount includible on ac-
27

•S 102 IS

1 count of gains from sales or exchanges of cap2 ital assets; and

3 ‘‘(B) the deduction for long-term capital

4 gains provided by section 1301 shall not be al5 lowed.’’.

6 (4) Subparagraph (B) of section 172(d)(4) of

7 such Code is amended by inserting ‘‘, (2)(B),’’ after

8 ‘‘paragraph (1)’’.

9 (5)(A) Section 220 of such Code is amended to

10 read as follows:

11 ‘‘SEC. 220. CROSS REFERENCES.

12 ‘‘(1) For deduction for long-term capital gains

13 in the case of sale of qualified small business stock,

14 see section 1301.

15 ‘‘(2) For deductions in respect of a decedent,

16 see section 691.’’.

17 (B) The table of sections for part VII of sub18 chapter B of chapter 1 of such Code is amended by

19 striking out ‘‘reference’’ in the item relating to sec20 tion 220 and inserting ‘‘references’’.

21 (6) Paragraph (4) of section 642(c) of such

22 Code is amended to read as follows:

23 ‘‘(4) ADJUSTMENTS.—To the extent that the

24 amount otherwise allowable as a deduction under

25 this subsection consists of gain from the sale or ex-
28

•S 102 IS

1 change of qualified small business stock held for

2 more than 5 years, proper adjustment shall be made

3 for any deduction allowable to the estate or trust

4 under section 1301 (relating to deduction for excess

5 of capital gains over capital losses). In the case of

6 a trust, the deduction allowed by this subsection

7 shall be subject to section 681 (relating to unrelated

8 business income).’’.

9 (7) Paragraph (3) of section 643(a) of such

10 Code is amended by adding at the end thereof the

11 following new sentence: ‘‘The deduction under sec12 tion 1301 (relating to deduction for gain on quali13 fied small business stock) shall not be taken into ac14 count.’’.

15 (8) Paragraph (4) of section 691(c) of such

16 Code is amended by striking out ‘‘1(h), 1201, and

17 1211’’ and inserting in lieu thereof ‘‘1(h), 1201,

18 1211, and 1301, and for purposes of section

19 57(a)(8)’’.

20 (9) Clause (iii) of section 852(b)(3)(D) of such

21 Code is amended by striking out ‘‘66 percent’’ and

22 inserting ‘‘the rate differential portion (within the

23 meaning of section 904(b)(3)(E))’’.

24 (10) The second sentence of paragraph (2) of

25 section 871(a) of such Code is amended by inserting
29

•S 102 IS

1 ‘‘such gains and losses shall be determined without

2 regard to section 1301 (relating to deduction for

3 qualified small business net capital gains) and’’ after

4 ‘‘except that’’.

5 (11) Section 1402(i)(1) of such Code is amend6 ed to read as follows:

7 ‘‘(1) IN GENERAL.—In determining the net

8 earnings from self-employment of any options dealer

9 or commodities dealer—

10 ‘‘(A) notwithstanding subsection (a)(3)(A),

11 there shall not be excluded any gain or loss (in

12 the normal course of the taxpayer’s activity of

13 dealing in or trading section 1256 contracts)

14 from section 1256 contracts or property related

15 to such contracts, and

16 ‘‘(B) the deduction provided by section

17 1301 shall not apply.’’.

18 (12) Section 1445(e)(1) of such Code is amend19 ed by striking out ‘‘34 percent (or, to the extent pro20 vided in regulations, 28 percent)’’ and inserting ‘‘34

21 percent (or, to the extent provided in regulations,

22 the alternative tax rate determined under section

23 904(b)(3)(E)(iii))’’.

24 (f) EFFECTIVE DATE.—
30

•S 102 IS

1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to stock issued after Decem3 ber 31, 1993.

4 (2) APPLICATION OF TAX INCENTIVE TO CUR5 RENT STOCK HOLDINGS OF INVESTORS.—

6 (A) IN GENERAL.—If—

7 (i) a taxpayer holds any stock on any

8 date on or after the date determined under

9 paragraph (1) which, at the time it was is10 sued, would be treated as qualified small

11 business stock (as defined in section

12 1302(a) of the Internal Revenue Code of

13 1986) without regard to the time it was is14 sued, and

15 (ii) the value of such stock on such

16 date exceeds its adjusted basis,

17 the taxpayer may elect to treat such stock as

18 having been sold on such date for an amount

19 equal to its value on such date (and as having

20 been reacquired on such date for an amount

21 equal to such value). The gain from such sale

22 shall be treated as received or accrued (and the

23 holding period of the reacquired stock shall be

24 treated as beginning) on such date. For pur25 poses of applying section 1301 of such Code,
31

•S 102 IS

1 such stock shall be treated after such reacquisi2 tion as acquired in the same manner and at the

3 same time as the original acquisition and the

4 requirement of section 1302(a)(1) that the

5 stock must have been issued after December

6 31, 1993, shall not apply.

7 (B) ELECTION.—An election under sub8 paragraph (A) with respect to any stock shall

9 be made in such manner as the Secretary may

10 prescribe. Such an election, once made with re11 spect to any stock, shall be irrevocable.

12 TITLE III—SOCIAL SECURITY

13 EARNINGS TEST

14 SEC. 301. RETIREMENT TEST EXEMPT AMOUNT INCREASED.

15 (a) IN GENERAL.—Section 203(f)(8)(D) of the Social

16 Security Act (42 U.S.C. 403(f)(8)(D)) is amended to read

17 as follows:

18 ‘‘(D) Notwithstanding any other provision of this

19 subsection, the exempt amount which is applicable to an

20 individual who has attained retirement age (as defined in

21 section 216(l)) before the close of the taxable year involved

22 shall be—

23 ‘‘(i) $925 for each month of any taxable year

24 ending after 1992 and before 1994,
32

•S 102 IS

1 ‘‘(ii) $1,020 for each month of any taxable year

2 ending after 1993 and before 1995,

3 ‘‘(iii) $1,130 for each month of any taxable

4 year ending after 1994 and before 1996,

5 ‘‘(iv) $1,450 for each month of any taxable year

6 ending after 1995 and before 1997,

7 ‘‘(v) $1,750 for each month of any taxable year

8 ending after 1996 and before 1998,

9 ‘‘(vi) $2,250 for each month of any taxable year

10 ending after 1997 and before 1999,

11 ‘‘(vii) $2,670 for each month of any taxable

12 year ending after 1998 and before 2000,

13 ‘‘(viii) $3,500 for each month of any taxable

14 year ending after 1999 and before 2001, and

15 ‘‘(ix) $4,250 for each month of any taxable year

16 ending after 2000 and before 2002.’’.

17 (b) CONFORMING AMENDMENT.—Section

18 203(f)(8)(B)(ii)(II) of such Act (42 U.S.C.

19 403(f)(8)(B)(ii)(II)) is amended by striking ‘‘for the cal20 endar year before the most recent calendar year in which

21 an increase in the exempt amount was enacted or a deter22 mination resulting in such an increase was made under

23 subparagraph (A)’’ and inserting ‘‘for the second calendar

24 year before the calendar year in which the determination

25 under subparagraph (A) is made’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years ending after De3 cember 31, 1992.

4 SEC. 302. REDUCTION FACTOR WITH RESPECT TO CERTAIN

5 EARNINGS LOWERED TO 25 PERCENT.

6 (a) IN GENERAL.—Section 203(f)(3) of the Social

7 Security Act (42 U.S.C. 403(f)(3)) is amended by striking

‘‘331 8 ⁄3 percent’’ and all that follows through ‘‘paragraph

9 (8)’’ and inserting ‘‘equal to the sum of (A) 25 percent

10 of so much of his earnings for such year in excess of the

11 product of the applicable exempt amount as determined

12 under paragraph (8) as does not exceed $5,000, and (B)

331 13 ⁄3 percent of so much of such earnings in excess of

14 such product as exceeds $5,000,’’.

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

16 subsection (a) shall apply to taxable years beginning after

17 December 31, 1997.

18 TITLE IV—URBAN TAX ENTER19 PRISE ZONES AND RURAL DE20 VELOPMENT INVESTMENT

21 ZONES

22 SEC. 401. STATEMENT OF PURPOSE.

23 It is the purpose of this title to establish a demonstra24 tion program of providing incentives for the creation of

25 tax enterprise zones in order—
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1 (1) to revitalize economically and physically dis2 tressed areas, primarily by encouraging the forma3 tion of new businesses and the retention and expan4 sion of existing businesses,

5 (2) to promote meaningful employment for tax

6 enterprise zone residents, and

7 (3) to encourage individuals to reside in the tax

8 enterprise zones in which they are employed.

9 Subtitle A—Designation and Tax

10 Incentives

11 SEC. 411. DESIGNATION AND TREATMENT OF URBAN TAX

12 ENTERPRISE ZONES AND RURAL DEVELOP13 MENT INVESTMENT ZONES.

14 (a) IN GENERAL.—Chapter 1 of the Internal Reve15 nue Code of 1986 (relating to normal taxes and surtaxes)

16 is amended by inserting after subchapter T the following

17 new subchapter:

18 ‘‘Subchapter U—Designation and Treatment

19 of Tax Enterprise Zones

‘‘Part I. Designation of tax enterprise zones.

‘‘Part II. Incentives for tax enterprise zones.

20 ‘‘PART I—DESIGNATION OF TAX ENTERPRISE

21 ZONES

‘‘Sec. 1391. Designation procedure.

‘‘Sec. 1392. Eligibility and selection criteria.

‘‘Sec. 1393. Definitions and special rules.
35

•S 102 IS

1 ‘‘SEC. 1391. DESIGNATION PROCEDURE.

2 ‘‘(a) IN GENERAL.—For purposes of this title, the

3 term ‘tax enterprise zone’ means any area which is, under

4 this part—

5 ‘‘(1) nominated by 1 or more local governments

6 and the State in which it is located for designation

7 as a tax enterprise zone, and

8 ‘‘(2) designated by—

9 ‘‘(A) the Secretary of Housing and Urban

10 Development in the case of an urban tax enter11 prise zone, or

12 ‘‘(B) the Secretary of Agriculture, in con13 sultation with the Secretary of Commerce, in

14 the case of a rural development investment

15 zone.

16 ‘‘(b) NUMBER OF DESIGNATIONS.—

17 ‘‘(1) AGGREGATE LIMIT.—The appropriate Sec18 retaries may designate in the aggregate 50 nomi19 nated areas as tax enterprise zones under this sec20 tion, subject to the availability of eligible nominated

21 areas. Not more than 25 urban tax enterprise zones

22 may be designated and not more than 25 rural de23 velopment investment zones may be designated.

24 Such designations may be made only during cal25 endar years after 1992 and before 1998.

26 ‘‘(2) ANNUAL LIMITS.—
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•S 102 IS

1 ‘‘(A) URBAN TAX ENTERPRISE ZONES.—

2 The number of urban tax enterprise zones des3 ignated under paragraph (1)—

4 ‘‘(i) before 1995 shall not exceed 8,

5 ‘‘(ii) before 1996 shall not exceed 15,

6 and

7 ‘‘(iii) before 1997 shall not exceed 21.

8 ‘‘(B) RURAL DEVELOPMENT INVESTMENT

9 ZONES.—The number of rural development in10 vestment zones designated under paragraph

11 (1)—

12 ‘‘(i) before 1995 shall not exceed 8,

13 ‘‘(ii) before 1996 shall not exceed 15,

14 and

15 ‘‘(iii) before 1997 shall not exceed 21.

16 ‘‘(3) ADVANCE DESIGNATIONS PERMITTED.—

17 For purposes of this subchapter, a designation dur18 ing any calendar year shall be treated as made on

19 January 1 of the following calendar year if the ap20 propriate Secretary, in making such designation,

21 specifies that such designation is effective as of such

22 January 1.

23 ‘‘(c) LIMITATIONS ON DESIGNATIONS.—The appro24 priate Secretary may not make any designation under sub25 section (a) unless—
37

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1 ‘‘(1) the local governments and the State in

2 which the nominated area is located have the au3 thority—

4 ‘‘(A) to nominate the area for designation

5 as a tax enterprise zone, and

6 ‘‘(B) to provide assurances satisfactory to

7 the appropriate Secretary that the commit8 ments under section 1392(c) will be fulfilled,

9 ‘‘(2) a nomination of the area is submitted

10 within a reasonable time before the calendar year for

11 which designation as a tax enterprise zone is sought

12 (or, if later, a reasonable time after the date of the

13 enactment of this subchapter),

14 ‘‘(3) the appropriate Secretary determines that

15 any information furnished is reasonably accurate,

16 and

17 ‘‘(4) the State and local governments certify

18 that no portion of the area nominated is already in19 cluded in a tax enterprise zone or in an area other20 wise nominated to be a tax enterprise zone.

21 ‘‘(d) PERIOD FOR WHICH DESIGNATION IS IN EF22 FECT.—

23 ‘‘(1) IN GENERAL.—Any designation of an area

24 as a tax enterprise zone shall remain in effect during
38

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1 the period beginning on the date of the designation

2 and ending on the earliest of—

3 ‘‘(A) December 31 of the 15th calendar

4 year following the calendar year in which such

5 date occurs,

6 ‘‘(B) the termination date designated by

7 the State and local governments as provided for

8 in their nomination, or

9 ‘‘(C) the date the appropriate Secretary re10 vokes the designation under paragraph (2).

11 ‘‘(2) REVOCATION OF DESIGNATION.—

12 ‘‘(A) IN GENERAL.—The appropriate Sec13 retary shall revoke the designation of an area

14 as a tax enterprise zone if such Secretary deter15 mines that the local government or the State in

16 which it is located—

17 ‘‘(i) has modified the boundaries of

18 the area, or

19 ‘‘(ii) is not complying substantially

20 with the State and local commitments pur21 suant to section 1392(c).

22 ‘‘(B) APPLICABLE PROCEDURES.—A des23 ignation may be revoked by the appropriate

24 Secretary under subparagraph (A) only after a
39

•S 102 IS

1 hearing on the record involving officials of the

2 State or local government involved.

3 ‘‘SEC. 1392. ELIGIBILITY AND SELECTION CRITERIA.

4 ‘‘(a) IN GENERAL.—The appropriate Secretary may

5 make a designation of any nominated area under section

6 1391 only on the basis of the eligibility and selection cri7 teria set forth in this section.

8 ‘‘(b) ELIGIBILITY CRITERIA.—

9 ‘‘(1) URBAN TAX ENTERPRISE ZONES.—A nom10 inated area which is not a rural area shall be eligible

11 for designation under section 1391 only if it meets

12 the following criteria:

13 ‘‘(A) POPULATION.—The nominated area

14 has a population (as determined by the most re15 cent census data available) of not less than

16 4,000.

17 ‘‘(B) DISTRESS.—The nominated area is

18 one of pervasive poverty, unemployment, and

19 general distress.

20 ‘‘(C) SIZE.—The nominated area—

21 ‘‘(i) does not exceed 20 square miles,

22 ‘‘(ii) has a boundary which is continu23 ous, or consists of not more than 3 non24 contiguous parcels within the same metro25 politan area,
40

•S 102 IS

1 ‘‘(iii) is located entirely within 1

2 State, and

3 ‘‘(iv) does not include any portion of

4 a central business district (as such term is

5 used for purposes of the most recent Cen6 sus of Retail Trade).

7 ‘‘(D) UNEMPLOYMENT RATE.—The unem8 ployment rate (as determined by the appro9 priate available data) is not less than 1.5 times

10 the national unemployment rate.

11 ‘‘(E) POVERTY RATE.—The poverty rate

12 (as determined by the most recent census data

13 available) for not less than 90 percent of the

14 population census tracts (or where not tracted,

15 the equivalent county divisions as defined by

16 the Bureau of the Census for the purposes of

17 defining poverty areas) within the nominated

18 area is not less than 20 percent.

19 ‘‘(F) COURSE OF ACTION.—There has been

20 adopted for the nominated area a course of ac21 tion which meets the requirements of subsection

22 (c).

23 ‘‘(2) RURAL DEVELOPMENT INVESTMENT

24 ZONES.—A nominated area which is a rural area
41

•S 102 IS

1 shall be eligible for designation under section 1391

2 only if it meets the following criteria:

3 ‘‘(A) POPULATION.—The nominated area

4 has a population (as determined by the most re5 cent census data available) of not less than

6 1,000.

7 ‘‘(B) DISTRESS.—The nominated area is

8 one of general distress.

9 ‘‘(C) SIZE.—The nominated area—

10 ‘‘(i) does not exceed 10,000 square

11 miles,

12 ‘‘(ii) consists of areas within not more

13 than 4 contiguous counties,

14 ‘‘(iii) has a boundary which is contin15 uous, or consists of not more than 3 non16 contiguous parcels, and

17 ‘‘(iv) is located entirely within 1

18 State.

19 ‘‘(D) ADDITIONAL CRITERIA.—Not less

20 than 2 of the following criteria:

21 ‘‘(i) UNEMPLOYMENT RATE.—The cri22 terion set forth in paragraph (1)(D).

23 ‘‘(ii) POVERTY RATE.—The criterion

24 set forth in paragraph (1)(E).
42

•S 102 IS

1 ‘‘(iii) JOB LOSS.—The amount of

2 wages attributable to employment in the

3 area, and subject to tax under section

4 3301 during the preceding calendar year,

5 is not more than 95 percent of such wages

6 during the 5th preceding calendar year.

7 ‘‘(iv) OUT-MIGRATION.—The popu8 lation of the area decreased (as determined

9 by the most recent census data available)

10 by 10 percent or more between 1980 and

11 1990.

12 ‘‘(E) COURSE OF ACTION.—There has been

13 adopted for the nominated area a course of ac14 tion which meets the requirements of subsection

15 (c).

16 ‘‘(3) AREAS WITHIN INDIAN RESERVATIONS IN17 ELIGIBLE.—A nominated area shall not be eligible

18 for designation under section 1391 if any portion of

19 such area is within an Indian reservation.

20 ‘‘(c) REQUIRED STATE AND LOCAL COURSE OF AC21 TION.—

22 ‘‘(1) IN GENERAL.—No nominated area may be

23 designated as a tax enterprise zone unless the local

24 government and the State in which it is located

25 agree in writing that, during any period during
43

•S 102 IS

1 which the area is a tax enterprise zone, the govern2 ments will follow a specified course of action de3 signed to reduce the various burdens borne by em4 ployers or employees in the area.

5 ‘‘(2) COURSE OF ACTION.—The course of action

6 under paragraph (1) may be implemented by both

7 governments and private nongovernmental entities,

8 may not be funded from proceeds of any Federal

9 program (other than discretionary proceeds), and

10 may include—

11 ‘‘(A) a certification by the State insurance

12 commissioner (or similar State official) that

13 basic commercial property insurance of a type

14 comparable to that insurance generally in force

15 in urban or rural areas, whichever is applicable,

16 throughout the State is available to businesses

17 within the tax enterprise zone,

18 ‘‘(B) a reduction of tax rates or fees apply19 ing within the tax enterprise zone,

20 ‘‘(C) an increase in the level, or efficiency

21 of delivery, of local public services within the

22 tax enterprise zone,

23 ‘‘(D) actions to reduce, remove, simplify,

24 or streamline government paperwork require25 ments applicable within the tax enterprise zone,
44

•S 102 IS

1 ‘‘(E) the involvement in the program by

2 public authorities or private entities, organiza3 tions, neighborhood associations, and commu4 nity groups, particularly those within the nomi5 nated area, including a written commitment to

6 provide jobs and job training for, and technical,

7 financial, or other assistance to, employers, em8 ployees, and residents of the nominated area,

9 ‘‘(F) the giving of special preference to

10 contractors owned and operated by members of

11 any socially and economically disadvantaged

12 group (within the meaning of section 8(a) of

13 the Small Business Act (15 U.S.C. 637(a)),

14 ‘‘(G) the gift (or sale at below fair market

15 value) of surplus land in the tax enterprise zone

16 to neighborhood organizations agreeing to oper17 ate a business on the land,

18 ‘‘(H) the establishment of a program

19 under which employers within the tax enterprise

20 zone may purchase health insurance for their

21 employees on a pooled basis,

22 ‘‘(I) the establishment of a program to en23 courage local financial institutions to satisfy

24 their obligations under the Community Rein25 vestment Act of 1977 (12 U.S.C. 2901 et seq.)
45

•S 102 IS

1 by making loans to enterprise zone businesses,

2 with emphasis on startup and other small-busi3 ness concerns (as defined in section 3(a) of the

4 Small Business Act (15 U.S.C. 632(a)),

5 ‘‘(J) the giving of special preference to

6 qualified low-income housing projects located in

7 tax enterprise zones, in the allocation of the

8 State housing credit ceiling applicable under

9 section 42, and

10 ‘‘(K) the giving of special preference to fa11 cilities located in tax enterprise zones, in the al12 location of the State ceiling on private activity

13 bonds applicable under section 146.

14 ‘‘(3) RECOGNITION OF PAST EFFORTS.—In

15 evaluating courses of action agreed to by any State

16 or local government, the appropriate Secretary shall

17 take into account the past efforts of the State or

18 local government in reducing the various burdens

19 borne by employers and employees in the area in20 volved.

21 ‘‘(4) PROHIBITION OF ASSISTANCE FOR BUSI22 NESS RELOCATIONS.—

23 ‘‘(A) IN GENERAL.—The course of action

24 implemented under paragraph (1) may not in-
46

•S 102 IS

1 clude any action to assist any establishment in

2 relocating from one area to another area.

3 ‘‘(B) EXCEPTION.—The limitation estab4 lished in subparagraph (A) shall not be con5 strued to prohibit assistance for the expansion

6 of an existing business entity through the estab7 lishment of a new branch, affiliate, or subsidi8 ary if—

9 ‘‘(i) the establishment of the new

10 branch, affiliate, or subsidiary will not re11 sult in an increase in unemployment in the

12 area of original location or in any other

13 area where the existing business entity

14 conducts business operations, and

15 ‘‘(ii) there is no reason to believe that

16 the new branch, affiliate, or subsidiary is

17 being established with the intention of clos18 ing down the operations of the existing

19 business entity in the area of its original

20 location or in any other area where the ex21 isting business entity conducts business op22 erations.

23 ‘‘(d) SELECTION CRITERIA.—From among the nomi24 nated areas eligible for designation under subsection (b)

25 by the appropriate Secretary, such appropriate Secretary
47

•S 102 IS

1 shall make designations of tax enterprise zones on the

2 basis of the following factors (each of which is to be given

3 equal weight):

4 ‘‘(1) STATE AND LOCAL COMMITMENTS.—The

5 strength and quality of the commitments which have

6 been promised as part of the course of action rel7 ative to the fiscal ability of the nominating State

8 and local governments.

9 ‘‘(2) IMPLEMENTATION OF COURSE OF AC10 TION.—The effectiveness and enforceability of the

11 guarantees that the course of action will actually be

12 carried out, including the specificity with which the

13 commitments under paragraph (1) are described in

14 order that the applicable Secretary will be better

15 able to determine annually under section

16 1391(d)(2)(A)(ii) whether the commitments are

17 being carried out.

18 ‘‘(3) PRIVATE COMMITMENTS.—The level of

19 commitments by private entities of additional re20 sources and contributions to the economy of the

21 nominated area, including the creation of new or ex22 panded business activities.

23 ‘‘(4) AVERAGE RANKINGS.—The average rank24 ing with respect to—
48

•S 102 IS

1 ‘‘(A) the criteria set forth in subpara2 graphs (D) and (E) of subsection (b)(1), in the

3 case of an area which is not a rural area, or

4 ‘‘(B) the 2 criteria set forth in subsection

5 (b)(2)(D) that give the area a higher average

6 ranking, in the case of a rural area.

7 ‘‘(5) REVITALIZATION POTENTIAL.—The poten8 tial for the revitalization of the nominated area as

9 a result of zone designation, taking into account

10 particularly the number of jobs to be created and re11 tained.

12 ‘‘SEC. 1393. DEFINITIONS AND SPECIAL RULES.

13 For purposes of this subchapter—

14 ‘‘(1) URBAN TAX ENTERPRISE ZONE.—The

15 term ‘urban tax enterprise zone’ means a tax enter16 prise zone which meets the requirements of section

17 1392(b)(1).

18 ‘‘(2) RURAL DEVELOPMENT INVESTMENT

19 ZONE.—The term ‘rural development investment

20 zone’ means a tax enterprise zone which meets the

21 requirements of section 1392(b)(2).

22 ‘‘(3) GOVERNMENTS.—If more than 1 local gov23 ernment seeks to nominate an area as a tax enter24 prise zone, any reference to, or requirement of, this

25 subchapter shall apply to all such governments.
49

•S 102 IS

1 ‘‘(4) LOCAL GOVERNMENT.—The term ‘local

2 government’ means—

3 ‘‘(A) any county, city, town, township, par4 ish, village, or other general purpose political

5 subdivision of a State, and

6 ‘‘(B) any combination of political subdivi7 sions described in subparagraph (A) recognized

8 by the appropriate Secretary.

9 ‘‘(5) NOMINATED AREA.—The term ‘nominated

10 area’ means an area which is nominated by 1 or

11 more local governments and the State in which it is

12 located for designation as a tax enterprise zone

13 under this subchapter.

14 ‘‘(6) RURAL AREA.—The term ‘rural area’

15 means any area which is—

16 ‘‘(A) outside of a metropolitan statistical

17 area (within the meaning of section

18 143(k)(2)(B)), or

19 ‘‘(B) determined by the Secretary of Agri20 culture, after consultation with the Secretary of

21 Commerce, to be a rural area.

22 ‘‘(7) APPROPRIATE SECRETARY.—The term ‘ap23 propriate Secretary’ means—
50

•S 102 IS

1 ‘‘(A) the Secretary of Housing and Urban

2 Development in the case of urban tax enterprise

3 zones, and

4 ‘‘(B) the Secretary of Agriculture in the

5 case of rural development investment zones.

6 ‘‘(8) STATE-CHARTERED DEVELOPMENT COR7 PORATIONS.—An area shall be treated as nominated

8 by a State and a local government if it is nominated

9 by an economic development corporation chartered

10 by the State.

11 ‘‘PART II—INCENTIVES FOR TAX ENTERPRISE

12 ZONES

‘‘SUBPART A. Enterprise zone employment credit.

‘‘SUBPART B. Investment incentives.

‘‘SUBPART C. Regulations.

13 ‘‘Subpart A—Enterprise Zone Employment Credit

‘‘Sec. 1394. Enterprise zone employment credit.

‘‘Sec. 1395. Other definitions and special rules.

14 ‘‘SEC. 1394. ENTERPRISE ZONE EMPLOYMENT CREDIT.

15 ‘‘(a) AMOUNT OF CREDIT.—For purposes of section

16 38, the amount of the enterprise zone employment credit

17 determined under this section with respect to any em18 ployer for any taxable year is 15 percent of the qualified

19 zone wages paid or incurred during such taxable year.

20 ‘‘(b) QUALIFIED ZONE WAGES.—

21 ‘‘(1) IN GENERAL.—For purposes of this sec22 tion, the term ‘qualified zone wages’ means any
51

•S 102 IS

1 wages paid or incurred by an employer for services

2 performed by an employee while such employee is a

3 qualified zone employee.

4 ‘‘(2) ONLY FIRST $20,000 OF WAGES PER YEAR

5 TAKEN INTO ACCOUNT.—With respect to each quali6 fied zone employee, the amount of qualified zone

7 wages which may be taken into account for the tax8 able year shall not exceed $20,000.

9 ‘‘(3) COORDINATION WITH TARGETED JOBS

10 CREDIT.—The term ‘qualified zone wages’ shall not

11 include wages attributable to service rendered during

12 the 1-year period beginning with the day the individ13 ual begins work for the employer if any portion of

14 such wages is taken into account in determining the

15 credit under section 51.

16 ‘‘(c) QUALIFIED ZONE EMPLOYEE.—For purposes of

17 this section—

18 ‘‘(1) IN GENERAL.—Except as otherwise pro19 vided in this subsection, the term ‘qualified zone em20 ployee’ means, with respect to any period, any em21 ployee of an employer if—

22 ‘‘(A) substantially all of the services per23 formed during such period by such employee for

24 such employer are performed within a tax en-
52

•S 102 IS

1 terprise zone in a trade or business of the em2 ployer, and

3 ‘‘(B) the principal place of abode of such

4 employee while performing such services is

5 within such tax enterprise zone.

6 ‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—

7 The term ‘qualified zone employee’ shall not in8 clude—

9 ‘‘(A) any individual described in subpara10 graph (A), (B), or (C) of section 51(i)(1),

11 ‘‘(B) any 5-percent owner (as defined in

12 section 416(i)(1)(B)),

13 ‘‘(C) any individual employed by the em14 ployer at any facility described in section

15 144(c)(6)(B), and

16 ‘‘(D) any individual employed by the em17 ployer in a trade or business the principal activ18 ity of which is farming (within the meaning of

19 subparagraphs (A) or (B) of section

20 2032A(e)(5)), but only if, as of the close of the

21 taxable year, the sum of—

22 ‘‘(i) the aggregate unadjusted bases

23 (or, if greater, the fair market value) of

24 the assets owned by the employer which

25 are used in such a trade or business, and
53

•S 102 IS

1 ‘‘(ii) the aggregate value of assets

2 leased by the employer which are used in

3 such a trade or business (as determined

4 under regulations prescribed by the Sec5 retary),

6 exceeds $500,000.

7 ‘‘(d) EARLY TERMINATION OF EMPLOYMENT BY EM8 PLOYER.—

9 ‘‘(1) IN GENERAL.—If the employment of any

10 employee is terminated by the taxpayer before the

11 day 1 year after the day on which such employee

12 began work for the employer—

13 ‘‘(A) no wages with respect to such em14 ployee shall be taken into account under sub15 section (a) for the taxable year in which such

16 employment is terminated, and

17 ‘‘(B) the tax under this chapter for the

18 taxable year in which such employment is ter19 minated shall be increased by the aggregate

20 credits (if any) allowed under section 38(a) for

21 prior taxable years by reason of wages taken

22 into account with respect to such employee.

23 ‘‘(2) CARRYBACKS AND CARRYOVERS AD24 JUSTED.—In the case of any termination of employ25 ment to which paragraph (1) applies, the carrybacks
54

•S 102 IS

1 and carryovers under section 39 shall be properly

2 adjusted.

3 ‘‘(3) SUBSECTION NOT TO APPLY IN CERTAIN

4 CASES.—

5 ‘‘(A) IN GENERAL.—Paragraph (1) shall

6 not apply to—

7 ‘‘(i) a termination of employment of

8 an employee who voluntarily leaves the em9 ployment of the taxpayer,

10 ‘‘(ii) a termination of employment of

11 an individual who before the close of the

12 period referred to in paragraph (1) be13 comes disabled to perform the services of

14 such employment unless such disability is

15 removed before the close of such period

16 and the taxpayer fails to offer reemploy17 ment to such individual, or

18 ‘‘(iii) a termination of employment of

19 an individual if it is determined under the

20 applicable State unemployment compensa21 tion law that the termination was due to

22 the misconduct of such individual.

23 ‘‘(B) CHANGES IN FORM OF BUSINESS.—

24 For purposes of paragraph (1), the employment
55

•S 102 IS

1 relationship between the taxpayer and an em2 ployee shall not be treated as terminated—

3 ‘‘(i) by a transaction to which section

4 381(a) applies if the employee continues to

5 be employed by the acquiring corporation,

6 or

7 ‘‘(ii) by reason of a mere change in

8 the form of conducting the trade or busi9 ness of the taxpayer if the employee con10 tinues to be employed in such trade or

11 business and the taxpayer retains a sub12 stantial interest in such trade or business.

13 ‘‘(4) SPECIAL RULE.—Any increase in tax

14 under paragraph (1) shall not be treated as a tax

15 imposed by this chapter for purposes of—

16 ‘‘(A) determining the amount of any credit

17 allowable under this chapter, and

18 ‘‘(B) determining the amount of the tax

19 imposed by section 55.

20 ‘‘SEC. 1395. OTHER DEFINITIONS AND SPECIAL RULES.

21 ‘‘(a) WAGES.—For purposes of this subpart, the term

22 ‘wages’ has the same meaning as when used in section

23 51.

24 ‘‘(b) CONTROLLED GROUPS.—For purposes of this

25 subpart—
56

•S 102 IS

1 ‘‘(1) all employers treated as a single employer

2 under subsection (a) or (b) of section 52 shall be

3 treated as a single employer for purposes of this

4 subpart, and

5 ‘‘(2) the credit (if any) determined under sec6 tion 1394 with respect to each such employer shall

7 be its proportionate share of the wages giving rise

8 to such credit.

9 ‘‘(c) CERTAIN OTHER RULES MADE APPLICABLE.—

10 For purposes of this subpart, rules similar to the rules

11 of section 51(k) and subsections (c), (d), and (e) of section

12 52 shall apply.

13 ‘‘(d) NOTICE OF AVAILABILITY OF ADVANCE PAY14 MENT OF EARNED INCOME CREDIT.—Each employer

15 shall take reasonable steps to notify all qualified zone em16 ployees of the availability to eligible individuals of receiv17 ing advanced payments of the credit under section 32 (re18 lating to the earned income credit).

19 ‘‘Subpart B—Investment Incentives

‘‘Sec. 1396. Deduction for purchase of enterprise zone stock.

‘‘Sec. 1397. 50 percent exclusion for gain from new zone investments.

‘‘Sec. 1397A. Nonrecognition of gain from new zone investments.

‘‘Sec. 1397B. Other incentives.

‘‘Sec. 1397C. Enterprise zone business defined.
57

•S 102 IS

1 ‘‘SEC. 1396. DEDUCTION FOR PURCHASE OF ENTERPRISE

2 ZONE STOCK.

3 ‘‘(a) GENERAL RULE.—In the case of an individual,

4 there shall be allowed as a deduction an amount equal to

5 50 percent of the aggregate amount paid in cash by the

6 taxpayer during the taxable year for the purchase of enter7 prise zone stock.

8 ‘‘(b) LIMITATION.—

9 ‘‘(1) IN GENERAL.—The maximum amount al10 lowed as a deduction under subsection (a) to a tax11 payer for the taxable year shall not exceed the lesser

12 of—

13 ‘‘(A) $25,000, or

14 ‘‘(B) the excess of $250,000 over the

15 amount allowed as a deduction under this sec16 tion to the taxpayer for all prior taxable years.

17 ‘‘(2) EXCESS AMOUNTS.—If the amount other18 wise deductible by any person under subsection (a)

19 exceeds the limitation under paragraph (1)(A)—

20 ‘‘(A) the amount of such excess shall be

21 treated as an amount paid to which subsection

22 (a) applies during the next taxable year, and

23 ‘‘(B) the deduction allowed for any taxable

24 year shall be allocated proportionately among

25 the enterprise zone stock purchased by such
58

•S 102 IS

1 person on the basis of the respective purchase

2 prices per share.

3 ‘‘(3) AGGREGATION WITH FAMILY MEMBERS.—

4 The taxpayer and members of the taxpayer’s family

5 shall be treated as one person for purposes of para6 graph (1), and the limitations contained in such

7 paragraph shall be allocated among the taxpayer and

8 such members in accordance with their respective

9 purchases of enterprise zone stock. For purposes of

10 this paragraph, an individual’s family includes only

11 such individual’s spouse and minor children.

12 ‘‘(c) ENTERPRISE ZONE STOCK.—For purposes of

13 this section—

14 ‘‘(1) IN GENERAL.—The term ‘enterprise zone

15 stock’ means stock of a corporation if—

16 ‘‘(A) such stock is acquired on original

17 issue from the corporation, and

18 ‘‘(B) such corporation is, at the time of

19 issue, a qualified enterprise zone issuer.

20 ‘‘(2) PROCEEDS MUST BE INVESTED IN QUALI21 FIED ENTERPRISE ZONE PROPERTY.—

22 ‘‘(A) IN GENERAL.—Such term shall in23 clude such stock only to the extent that the pro24 ceeds of such issuance are used by such issuer

25 during the 12-month period beginning on the
59

•S 102 IS

1 date of issuance to purchase (as defined in sec2 tion 179(d)(2)) qualified enterprise zone prop3 erty.

4 ‘‘(B) QUALIFIED ENTERPRISE ZONE PROP5 ERTY.—For purposes of this section, the term

6 ‘qualified enterprise zone property’ means prop7 erty to which section 168 applies—

8 ‘‘(i) the original use of which in a tax

9 enterprise zone commences with the issuer,

10 and

11 ‘‘(ii) substantially all of the use of

12 which is in a tax enterprise zone.

13 ‘‘(3) REDEMPTIONS.—The term ‘enterprise

14 zone stock’ shall not include any stock acquired from

15 a corporation which made a substantial stock re16 demption or distribution (without a bona fide busi17 ness purpose therefor) in an attempt to avoid the

18 purposes of this section.

19 ‘‘(d) QUALIFIED ENTERPRISE ZONE ISSUER.—For

20 purposes of this section, the term ‘qualified enterprise

21 zone issuer’ means any domestic C corporation if—

22 ‘‘(1) such corporation is an enterprise zone

23 business or, in the case of a new corporation, such

24 corporation is being organized for purposes of being

25 an enterprise zone business,
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•S 102 IS

1 ‘‘(2) such corporation does not have more than

2 one class of stock,

3 ‘‘(3) the sum of—

4 ‘‘(A) the money,

5 ‘‘(B) the aggregate unadjusted bases of

6 property owned by such corporation, and

7 ‘‘(C) the value of property leased to the

8 corporation (as determined under regulations

9 prescribed by the Secretary),

10 does not exceed $5,000,000, and

11 ‘‘(4) more than 20 percent of the total voting

12 power, and 20 percent of the total value, of the

13 stock of such corporation is owned directly by indi14 viduals or estates or indirectly by individuals

15 through partnerships or trusts.

16 The determination under paragraph (3) shall be made as

17 of the time of issuance of the stock in question but shall

18 include amounts received for such stock.

19 ‘‘(e) DISPOSITIONS OF STOCK.—

20 ‘‘(1) BASIS REDUCTION.—For purposes of this

21 title, the basis of any enterprise zone stock shall be

22 reduced by the amount of the deduction allowed

23 under this section with respect to such stock.

24 ‘‘(2) DEDUCTION RECAPTURED AS ORDINARY

25 INCOME.—For purposes of section 1245—
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•S 102 IS

1 ‘‘(A) any stock the basis of which is re2 duced under paragraph (1) (and any other

3 property the basis of which is determined in

4 whole or in part by reference to the adjusted

5 basis of such stock) shall be treated as section

6 1245 property, and

7 ‘‘(B) any reduction under paragraph (1)

8 shall be treated as a deduction allowed for de9 preciation.

10 If an exchange of any stock described in paragraph

11 (1) qualifies under section 354(a), 355(a), or

12 356(a), the amount of gain recognized under section

13 1245 by reason of this paragraph shall not exceed

14 the amount of gain recognized in the exchange (de15 termined without regard to this paragraph).

16 ‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI17 TIONS.—For purposes of determining the amount

18 treated as ordinary income under section 1245 by

19 reason of paragraph (2), paragraph (3) of section

20 1245(b) (relating to certain tax-free transactions)

21 shall not apply.

22 ‘‘(4) INTEREST CHARGED IF DISPOSITION

23 WITHIN 5 YEARS OF PURCHASE.—

24 ‘‘(A) IN GENERAL.—If—
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•S 102 IS

1 ‘‘(i) a taxpayer disposes of any enter2 prise zone stock with respect to which a

3 deduction was allowed under subsection (a)

4 (or any other property the basis of which

5 is determined in whole or in part by ref6 erence to the adjusted basis of such stock)

7 before the end of the 5-year period begin8 ning on the date such stock was purchased

9 by the taxpayer, and

10 ‘‘(ii) section 1245(a) applies to such

11 disposition by reason of paragraph (2),

12 then the tax imposed by this chapter for the

13 taxable year in which such disposition occurs

14 shall be increased by the amount determined

15 under subparagraph (B).

16 ‘‘(B) ADDITIONAL AMOUNT.—For purposes

17 of subparagraph (A), the additional amount

18 shall be equal to the amount of interest (deter19 mined at the rate applicable under section

20 6621(a)(2)) that would accrue—

21 ‘‘(i) during the period beginning on

22 the date the stock was purchased by the

23 taxpayer and ending on the date of such

24 disposition by the taxpayer,
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•S 102 IS

1 ‘‘(ii) on an amount equal to the aggre2 gate decrease in tax of the taxpayer result3 ing from the deduction allowed under this

4 subsection (a) with respect to such stock.

5 ‘‘(C) SPECIAL RULE.—Any increase in tax

6 under subparagraph (A) shall not be treated as

7 a tax imposed by this chapter for purposes of—

8 ‘‘(i) determining the amount of any

9 credit allowable under this chapter, and

10 ‘‘(ii) determining the amount of the

11 tax imposed by section 55.

12 ‘‘(f) DISQUALIFICATION.—

13 ‘‘(1) ISSUER CEASES TO QUALIFY.—If, during

14 the 10-year period beginning on the date enterprise

15 zone stock was purchased by the taxpayer, the issuer

16 of such stock ceases to be a qualified enterprise zone

17 issuer (determined without regard to subsection

18 (d)(3)), then notwithstanding any provision of this

19 subtitle other than paragraph (2), the taxpayer shall

20 be treated for purposes of subsection (e) as dispos21 ing of such stock (and any other property the basis

22 of which is determined in whole or in part by ref23 erence to the adjusted basis of such stock) during

24 the taxable year during which such cessation occurs
64

•S 102 IS

1 at its fair market value as of the 1st day of such

2 taxable year.

3 ‘‘(2) CESSATION OF ENTERPRISE ZONE STATUS

4 NOT TO CAUSE RECAPTURE.—A corporation shall

5 not fail to be treated as a qualified enterprise zone

6 issuer for purposes of paragraph (1) solely by reason

7 of the termination or revocation of a tax enterprise

8 zone designation.

9 ‘‘(g) OTHER SPECIAL RULES.—

10 ‘‘(1) APPLICATION OF LIMITS TO PARTNER11 SHIPS AND S CORPORATIONS.—In the case of a part12 nership or an S corporation, the limitations under

13 subsection (b) shall apply at the partner and share14 holder level and shall not apply at the partnership

15 or corporation level.

16 ‘‘(2) DEDUCTION NOT ALLOWED TO ESTATES

17 AND TRUSTS.—Estates and trusts shall not be treat18 ed as individuals for purposes of this section.

19 ‘‘SEC. 1397. 50 PERCENT EXCLUSION FOR GAIN FROM NEW

20 ZONE INVESTMENTS.

21 ‘‘(a) GENERAL RULE.—In the case of an individual,

22 gross income shall not include 50 percent of any qualified

23 capital gain recognized on the sale or exchange of a quali24 fied zone asset held for more than 5 years.
65

•S 102 IS

1 ‘‘(b) QUALIFIED ZONE ASSET.—For purposes of this

2 section—

3 ‘‘(1) IN GENERAL.—The term ‘qualified zone

4 asset’ means—

5 ‘‘(A) any qualified zone stock,

6 ‘‘(B) any qualified zone business property,

7 and

8 ‘‘(C) any qualified zone partnership inter9 est.

10 ‘‘(2) QUALIFIED ZONE STOCK.—

11 ‘‘(A) IN GENERAL.—Except as provided in

12 subparagraph (B), the term ‘qualified zone

13 stock’ means any stock in a domestic corpora14 tion if—

15 ‘‘(i) such stock is acquired by the tax16 payer on original issue from the corpora17 tion solely in exchange for cash,

18 ‘‘(ii) as of the time such stock was is19 sued, such corporation was an enterprise

20 zone business (or, in the case of a new cor21 poration, such corporation was being orga22 nized for purposes of being an enterprise

23 zone business), and

24 ‘‘(iii) during substantially all of the

25 taxpayer’s holding period for such stock,
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•S 102 IS

1 such corporation qualified as an enterprise

2 zone business.

3 ‘‘(B) EXCLUSION OF STOCK FOR WHICH

4 DEDUCTION UNDER SECTION 1396 ALLOWED.—

5 The term ‘qualified zone stock’ shall not include

6 any stock the basis of which is reduced under

7 section 1396(e)(1).

8 ‘‘(C) REDEMPTIONS.—The term ‘qualified

9 zone stock’ shall not include any stock acquired

10 from a corporation which made a substantial

11 stock redemption or distribution (without a

12 bona fide business purpose therefor) in an at13 tempt to avoid the purposes of this section.

14 ‘‘(3) QUALIFIED ZONE BUSINESS PROPERTY.—

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

16 zone business property’ means tangible property

17 if—

18 ‘‘(i) such property was acquired by

19 the taxpayer by purchase (as defined in

20 section 179(d)(2)) after the date on which

21 the designation of the tax enterprise zone

22 took effect,

23 ‘‘(ii) the original use of such property

24 in a tax enterprise zone commences with

25 the taxpayer, and
67

•S 102 IS

1 ‘‘(iii) during substantially all of the

2 taxpayer’s holding period for such prop3 erty, substantially all of the use of such

4 property was in a tax enterprise zone and

5 in an enterprise zone business of the tax6 payer.

7 ‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM8 PROVEMENTS.—The requirements of clauses (i)

9 and (ii) of subparagraph (A) shall be treated as

10 satisfied with respect to—

11 ‘‘(i) property which is substantially

12 improved by the taxpayer, and

13 ‘‘(ii) any land on which such property

14 is located.

15 For purposes of the preceding sentence, prop16 erty shall be treated as substantially improved

17 by the taxpayer if, during any 24-month period

18 beginning after the date on which the designa19 tion of the tax enterprise zone took effect, addi20 tions to basis with respect to such property in

21 the hands of the taxpayer exceed the greater of

22 (i) an amount equal to the adjusted basis at the

23 beginning of such 24-month period in the hands

24 of the taxpayer, or (ii) $5,000.
68

•S 102 IS

1 ‘‘(C) LIMITATION ON LAND.—The term

2 ‘qualified zone business property’ shall not in3 clude land which is not an integral part of a

4 qualified business (as defined in section

5 1397C(c)).

6 ‘‘(4) QUALIFIED ZONE PARTNERSHIP INTER7 EST.—The term ‘qualified zone partnership interest’

8 means any interest in a partnership if—

9 ‘‘(A) such interest is acquired by the tax10 payer from the partnership solely in exchange

11 for cash,

12 ‘‘(B) as of the time such interest was ac13 quired, such partnership was an enterprise zone

14 business (or, in the case of a new partnership,

15 such partnership was being organized for pur16 poses of being an enterprise zone business), and

17 ‘‘(C) during substantially all of the tax18 payer’s holding period for such interest, such

19 partnership qualified as an enterprise zone

20 business.

21 A rule similar to the rule of paragraph (2)(C) shall

22 apply for purposes of this paragraph.

23 ‘‘(5) TREATMENT OF SUBSEQUENT PUR24 CHASERS.—The term ‘qualified zone asset’ includes

25 any property which would be a qualified zone asset
69

•S 102 IS

1 but for paragraph (2)(A)(i), (3)(A)(ii), or (4)(A) in

2 the hands of the taxpayer if such property was a

3 qualified zone asset in the hands of any prior holder.

4 ‘‘(6) 10-YEAR SAFE HARBOR.—If any property

5 ceases to be a qualified zone asset by reason of para6 graph (2)(A)(iii), (3)(A)(iii), or (4)(C) after the 10-

7 year period beginning on the date the taxpayer ac8 quired such property, such property shall continue to

9 be treated as meeting the requirements of such

10 paragraph; except that the amount of gain to which

11 subsection (a) applies on any sale or exchange of

12 such property shall not exceed the amount which

13 would be qualified capital gain had such property

14 been sold on the date of such cessation.

15 ‘‘(7) TREATMENT OF ZONE TERMINATIONS.—

16 The termination of any designation of an area as a

17 tax enterprise zone shall be disregarded for purposes

18 of determining whether any property is a qualified

19 zone asset.

20 ‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.—

21 For purposes of this section—

22 ‘‘(1) QUALIFIED CAPITAL GAIN.—Except as

23 otherwise provided in this subsection, the term

24 ‘qualified capital gain’ means any long-term capital

25 gain.
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•S 102 IS

1 ‘‘(2) CERTAIN GAIN ON REAL PROPERTY NOT

2 QUALIFIED.—The term ‘qualified capital gain’ shall

3 not include any gain which would be treated as ordi4 nary income under section 1250 if section 1250 ap5 plied to all depreciation rather than the additional

6 depreciation.

7 ‘‘(3) GAIN ATTRIBUTABLE TO PERIODS AFTER

8 TERMINATION OF ZONE DESIGNATION NOT QUALI9 FIED.—The term ‘qualified capital gain’ shall not in10 clude any gain attributable to periods after the ter11 mination of any designation of an area as a tax en12 terprise zone.

13 ‘‘(d) TREATMENT OF PASS-THRU ENTITIES.—

14 ‘‘(1) SALES AND EXCHANGES.—Gain on the

15 sale or exchange of an interest in a pass-thru entity

16 held by the taxpayer (other than an interest in an

17 entity which was an enterprise zone business during

18 substantially all of the period the taxpayer held such

19 interest) for more than 5 years shall be treated as

20 gain described in subsection (a) to the extent such

21 gain is attributable to amounts which would be

22 qualified capital gain on qualified zone assets (deter23 mined as if such assets had been sold on the date

24 of the sale or exchange) held by such entity for more

25 than 5 years and throughout the period the taxpayer
71

•S 102 IS

1 held such interest. A rule similar to the rule of para2 graph (2)(C) shall apply for purposes of the preced3 ing sentence.

4 ‘‘(2) INCOME INCLUSIONS.—

5 ‘‘(A) IN GENERAL.—Any amount included

6 in income by reason of holding an interest in a

7 pass-thru entity (other than an entity which

8 was an enterprise zone business during substan9 tially all of the period the taxpayer held the in10 terest to which such inclusion relates) shall be

11 treated as gain described in subsection (a) if

12 such amount meets the requirements of sub13 paragraph (B).

14 ‘‘(B) REQUIREMENTS.—An amount meets

15 the requirements of this subparagraph if—

16 ‘‘(i) such amount is attributable to

17 qualified capital gain recognized on the

18 sale or exchange by the pass-thru entity of

19 property which is a qualified zone asset in

20 the hands of such entity and which was

21 held by such entity for the period required

22 under subsection (a), and

23 ‘‘(ii) such amount is includible in the

24 gross income of the taxpayer by reason of

25 the holding of an interest in such entity
72

•S 102 IS

1 which was held by the taxpayer on the date

2 on which such pass-thru entity acquired

3 such asset and at all times thereafter be4 fore the disposition of such asset by such

5 pass-thru entity.

6 ‘‘(C) LIMITATION BASED ON INTEREST

7 ORIGINALLY HELD BY TAXPAYER.—Subpara8 graph (A) shall not apply to any amount to the

9 extent such amount exceeds the amount to

10 which subparagraph (A) would have applied if

11 such amount were determined by reference to

12 the interest the taxpayer held in the pass-thru

13 entity on the date the qualified zone asset was

14 acquired.

15 ‘‘(3) PASS-THRU ENTITY.—For purposes of this

16 subsection, the term ‘pass-thru entity’ means—

17 ‘‘(A) any partnership,

18 ‘‘(B) any S corporation,

19 ‘‘(C) any regulated investment company,

20 and

21 ‘‘(D) any common trust fund.

22 ‘‘(e) SALES AND EXCHANGES OF INTERESTS IN

23 PARTNERSHIPS AND S CORPORATIONS WHICH ARE

24 QUALIFIED ZONE BUSINESSES.—In the case of the sale

25 or exchange of an interest in a partnership, or of stock
73

•S 102 IS

1 in an S corporation, which was an enterprise zone business

2 during substantially all of the period the taxpayer held

3 such interest or stock, the amount of qualified capital gain

4 shall be determined without regard to—

5 ‘‘(1) any intangible, and any land, which is not

6 an integral part of any qualified business (as defined

7 in section 1397C(b)), and

8 ‘‘(2) gain attributable to periods before the des9 ignation of an area as a tax enterprise zone.

10 ‘‘(f) CERTAIN TAX-FREE AND OTHER TRANSFERS.—

11 For purposes of this section—

12 ‘‘(1) IN GENERAL.—In the case of a transfer of

13 a qualified zone asset to which this subsection ap14 plies, the transferee shall be treated as—

15 ‘‘(A) having acquired such asset in the

16 same manner as the transferor, and

17 ‘‘(B) having held such asset during any

18 continuous period immediately preceding the

19 transfer during which it was held (or treated as

20 held under this subsection) by the transferor.

21 ‘‘(2) TRANSFERS TO WHICH SUBSECTION AP22 PLIES.—This subsection shall apply to any trans23 fer—

24 ‘‘(A) by gift,

25 ‘‘(B) at death, or
74

•S 102 IS

1 ‘‘(C) from a partnership to a partner

2 thereof of a qualified zone asset with respect to

3 which the requirements of subsection (d)(2) are

4 met at the time of the transfer (without regard

5 to the 5-year holding requirement).

6 ‘‘(3) CERTAIN RULES MADE APPLICABLE.—

7 Rules similar to the rules of section 1244(d)(2) shall

8 apply for purposes of this section.

9 ‘‘(g) CERTAIN BUSINESSES TREATED AS NOT

10 QUALIFIED BUSINESSES.—For purposes of this section

11 and section 1397A, the term ‘enterprise zone business’ has

12 the meaning given such term by section 1397C except

13 that, in applying section 1397C for such purposes, the

14 term ‘qualified business’ shall not include any trade or

15 business of producing property of a character subject to

16 the allowance for depletion under section 611.

17 ‘‘SEC. 1397A. NONRECOGNITION OF GAIN FROM NEW ZONE

18 INVESTMENTS.

19 ‘‘(a) GENERAL RULE.—At the election of an individ20 ual, qualified capital gain (within the meaning of section

21 1397) from the sale or exchange of a qualified zone asset

22 shall be recognized only to the extent that—

23 ‘‘(1) the amount realized from such sale or ex24 change, exceeds
75

•S 102 IS

1 ‘‘(2) the cost (not heretofore taken into account

2 under this subsection) of any qualified zone asset

3 purchased directly by the taxpayer during the rein4 vestment period.

5 ‘‘(b) QUALIFIED ZONE ASSET.—For purposes of this

6 section—

7 ‘‘(1) IN GENERAL.—The term ‘qualified zone

8 asset’ has the meaning given such term by section

9 1397.

10 ‘‘(2) TIME FOR TESTING.—

11 ‘‘(A) SALES.—In the case of a sale or ex12 change of property, the determination of wheth13 er such property is a qualified zone asset shall

14 be made as of the time of the sale or exchange.

15 ‘‘(B) PURCHASES.—In the case of a pur16 chase of property, the determination of whether

17 such property is a qualified zone asset shall be

18 made as of the time of such purchase.

19 ‘‘(c) OTHER DEFINITIONS.—For purposes of this

20 section—

21 ‘‘(1) REINVESTMENT PERIOD.—The term ‘rein22 vestment period’ means, with respect to any sale or

23 exchange, the 6-month period beginning on the date

24 of such sale or exchange.
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•S 102 IS

1 ‘‘(2) PURCHASE.—The term ‘purchase’ has the

2 meaning given to such term by section 179(d)(2).

3 ‘‘(d) BUSINESS OR PROPERTY CEASES TO QUAL4 IFY.—

5 ‘‘(1) IN GENERAL.—If, during the 10-year pe6 riod beginning on the date any qualified zone re7 placement asset was purchased by the taxpayer,

8 such asset ceases to be a qualified zone asset, not9 withstanding any provision of this subtitle other

10 than paragraph (3), the taxpayer shall be treated as

11 disposing of such asset during the taxable year dur12 ing which such cessation occurs at its fair market

13 value as of the 1st day of such taxable year.

14 ‘‘(2) LIMITATION ON GAIN RECOGNIZED.—The

15 amount of gain recognized pursuant to paragraph

16 (1) with respect to any asset shall not exceed the

17 lesser of—

18 ‘‘(A) the amount of gain which was not

19 recognized under subsection (a) by the reason

20 of the purchase of such asset, or

21 ‘‘(B) the excess of the fair market value

22 referred to in paragraph (1) over the adjusted

23 basis of such asset.

24 ‘‘(3) CESSATION OF ENTERPRISE ZONE STATUS

25 NOT TO CAUSE RECAPTURE.—An asset shall not fail
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1 to be treated as a qualified zone asset for purposes

2 of paragraph (1) solely by reason of the termination

3 of a tax enterprise zone designation.

4 ‘‘(4) QUALIFIED ZONE REPLACEMENT ASSET.—

5 For purposes of paragraph (1), the term ‘qualified

6 zone replacement asset’ means any qualified zone

7 asset the purchase of which resulted in the non8 recognition of gain under subsection (a) with respect

9 to any other property.

10 ‘‘(e) BASIS OF QUALIFIED ZONE REPLACEMENT

11 ASSET.—If gain from the sale or exchange of any property

12 is not recognized by reason of subsection (a), such gain

13 shall be applied to reduce (in the order acquired) the basis

14 of any qualified zone replacement asset (as defined in sub15 section (d)(4)) purchased during the reinvestment period.

16 ‘‘(f) COORDINATION WITH INSTALLMENT METHOD

17 REPORTING.—This section shall not apply to any gain

18 from any installment sale (as defined in section 453(b))

19 if section 453(a) applies to such sale.

20 ‘‘(g) STATUTE OF LIMITATIONS.—If any gain is real21 ized by the taxpayer on any sale or exchange to which

22 an election under this section applies, then—

23 ‘‘(1) the statutory period for the assessment of

24 any deficiency with respect to such gain shall not ex25 pire before the expiration of 3 years from the date
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1 the Secretary is notified by the taxpayer (in such

2 manner as the Secretary may by regulations pre3 scribe) of—

4 ‘‘(A) the taxpayer’s cost of purchasing any

5 qualified zone replacement asset,

6 ‘‘(B) the taxpayer’s intention not to pur7 chase a qualified zone replacement asset within

8 the reinvestment period, or

9 ‘‘(C) a failure to make such purchase with10 in the reinvestment period, and

11 ‘‘(2) such deficiency may be assessed before the

12 expiration of such 3-year period notwithstanding the

13 provisions of any law or rule of law which would oth14 erwise prevent such assessment.

15 ‘‘SEC. 1397B. ADDITIONAL INCENTIVES.

16 ‘‘(a) INCREASE IN EXPENSING UNDER SECTION

17 179.—In the case of an enterprise zone business, section

18 179(b)(1) shall be applied by substituting ‘$20,000’ for

19 ‘$10,000’.

20 ‘‘(b) ORDINARY LOSS TREATMENT FOR CERTAIN

21 PROPERTY.—

22 ‘‘(1) IN GENERAL.—Loss on any qualified zone

23 asset (as defined in section 1397(b)) held for more

24 than 2 years (5 years in the case of real property)

25 shall be treated as an ordinary loss.
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1 ‘‘(2) REAL PROPERTY.—For purposes of para2 graph (1), the term ‘real property’ means any prop3 erty which is section 1250 property (as defined in

4 section 1250(c)).

5 ‘‘(3) SPECIAL RULES.—

6 ‘‘(A) CERTAIN RULES MADE APPLICA7 BLE.—For purposes of this subsection, rules

8 similar to the following rules shall apply:

9 ‘‘(i) Paragraphs (1), (2), and (3) of

10 section 1244(d).

11 ‘‘(ii) Subsections (b)(6), (c)(3), (d),

12 (e), and (f) of section 1397.

13 ‘‘(B) COORDINATION WITH SECTION

14 1231.—Losses treated as ordinary losses by rea15 son of this subsection shall not be taken into

16 account in applying section 1231.

17 ‘‘SEC. 1397C. ENTERPRISE ZONE BUSINESS DEFINED.

18 ‘‘(a) IN GENERAL.—For purposes of this subpart, the

19 term ‘enterprise zone business’ means—

20 ‘‘(1) any qualified business entity, and

21 ‘‘(2) any qualified proprietorship.

22 ‘‘(b) QUALIFIED BUSINESS ENTITY.—For purposes

23 of this section, the term ‘qualified business entity’ means,

24 with respect to any taxable year, any corporation or part25 nership if for such year—
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1 ‘‘(1)(A) every trade or business of such entity

2 is the active conduct of a qualified business within

3 a tax enterprise zone, and

4 ‘‘(B) at least 80 percent of the total gross in5 come of such entity is derived from the active con6 duct of such business,

7 ‘‘(2) substantially all of the use of the tangible

8 property of such entity (whether owned or leased) is

9 within a tax enterprise zone,

10 ‘‘(3) substantially all of the intangible property

11 of such entity is used in, and exclusively related to,

12 the active conduct of any such business,

13 ‘‘(4) substantially all of the services performed

14 for such entity by its employees are performed in a

15 tax enterprise zone,

‘‘(5) at least 1 16 ⁄3 of its employees are residents

17 of a tax enterprise zone,

18 ‘‘(6) less than 5 percent of the average of the

19 aggregate unadjusted bases of the property of such

20 entity is attributable to collectibles (as defined in

21 section 408(m)(2)) other than collectibles that are

22 held primarily for sale to customers in the ordinary

23 course of such business, and

24 ‘‘(7) less than 5 percent of the average of the

25 aggregate unadjusted bases of the property of such
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•S 102 IS

1 entity is attributable to nonqualified financial prop2 erty.

3 ‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of

4 this section, the term ‘qualified proprietorship’ means,

5 with respect to any taxable year, any qualified business

6 carried on by an individual as a proprietorship if for such

7 year—

8 ‘‘(1) at least 80 percent of the total gross in9 come of such individual from such business is de10 rived from the active conduct of such business in a

11 tax enterprise zone,

12 ‘‘(2) substantially all of the use of the tangible

13 property of such individual in such business (wheth14 er owned or leased) is within a tax enterprise zone,

15 ‘‘(3) substantially all of the intangible property

16 of such business is used in, and exclusively related

17 to, the active conduct of such business,

18 ‘‘(4) substantially all of the services performed

19 for such individual in such business by employees of

20 such business are performed in a tax enterprise

21 zone,

‘‘(5) at least 1 22 ⁄3 of such employees are residents

23 of a tax enterprise zone,

24 ‘‘(6) less than 5 percent of the average of the

25 aggregate unadjusted bases of the property of such
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1 individual which is used in such business is attrib2 utable to collectibles (as defined in section

3 408(m)(2)) other than collectibles that are held pri4 marily for sale to customers in the ordinary course

5 of such business, and

6 ‘‘(7) less than 5 percent of the average of the

7 aggregate unadjusted bases of the property of such

8 individual which is used in such business is attrib9 utable to nonqualified financial property.

10 For purposes of this subsection, the term ‘employee’ in11 cludes the proprietor.

12 ‘‘(d) QUALIFIED BUSINESS.—For purposes of this

13 section—

14 ‘‘(1) IN GENERAL.—Except as otherwise pro15 vided in this subsection, the term ‘qualified business’

16 means any trade or business.

17 ‘‘(2) RENTAL OF REAL PROPERTY.—The rental

18 to others of real property located in a tax enterprise

19 zone shall be treated as a qualified business if and

20 only if—

21 ‘‘(A) in the case of real property which is

22 not residential rental property (as defined in

23 section 168(e)(2)), the lessee is an enterprise

24 zone business, or
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1 ‘‘(B) in the case of residential rental prop2 erty (as so defined)—

3 ‘‘(i) such property was originally

4 placed in service after the date the tax en5 terprise zone was designated, or

6 ‘‘(ii) such property is rehabilitated

7 after such date in a rehabilitation which

8 meets requirements based on the principles

9 of section 42(e)(3).

10 ‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP11 ERTY.—The rental to others of tangible personal

12 property shall be treated as a qualified business if

13 and only if substantially all of the rental of such

14 property is by enterprise zone businesses or by resi15 dents of a tax enterprise zone.

16 ‘‘(4) TREATMENT OF BUSINESS HOLDING IN17 TANGIBLES.—The term ‘qualified business’ shall not

18 include any trade or business consisting predomi19 nantly of the development or holding of intangibles

20 for sale or license.

21 ‘‘(5) CERTAIN BUSINESSES EXCLUDED.—The

22 term ‘qualified business’ shall not include—

23 ‘‘(A) any trade or business consisting of

24 the operation of any facility described in section

25 144(c)(6)(B), and
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•S 102 IS

1 ‘‘(B) any trade or business the principal

2 activity of which is farming (within the meaning

3 of subparagraphs (A) or (B) of section

4 2032A(e)(5)), but only if, as of the close of the

5 preceding taxable year, the sum of—

6 ‘‘(i) the aggregate unadjusted bases

7 (or, if greater, the fair market value) of

8 the assets owned by the taxpayer which are

9 used in such a trade or business, and

10 ‘‘(ii) the aggregate value of assets

11 leased by the taxpayer which are used in

12 such a trade or business,

13 exceeds $500,000.

14 For purposes of subparagraph (B), rules similar to

15 the rules of section 1395(b) shall apply.

16 ‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For

17 purposes of this section, the term ‘nonqualified financial

18 property’ means debt, stock, partnership interests, op19 tions, futures contracts, forward contracts, warrants, no20 tional principal contracts, annuities, and other similar

21 property specified in regulations; except that such term

22 shall not include—

23 ‘‘(1) reasonable amounts of working capital

24 held in cash, cash equivalents, or debt instruments

25 with a term of 18 months or less, or
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1 ‘‘(2) debt instruments described in section

2 1221(4).

3 ‘‘Subpart C—Regulations

‘‘Sec. 1397C. Regulations.

4 ‘‘SEC. 1397C. REGULATIONS.

5 ‘‘The Secretary shall prescribe such regulations as

6 may be necessary or appropriate to carry out the purposes

7 of this part, including—

8 ‘‘(1) regulations limiting the benefit of this part

9 in circumstances where such benefits, in combination

10 with benefits provided under other Federal pro11 grams, would result in an activity being 100 percent

12 or more subsidized by the Federal Government,

13 ‘‘(2) regulations preventing abuse of the provi14 sions of this part, and

15 ‘‘(3) regulations dealing with inadvertent fail16 ures of entities to be qualified zone businesses.’’.

17 (b) CLERICAL AMENDMENT.—The table of sub18 chapters for chapter 1 of such Code is amended by insert19 ing after the item relating to subchapter T the following

20 new item:

‘‘Subchapter U. Designation and treatment of tax enterprise

zones.’’.

21 SEC. 412. TECHNICAL AND CONFORMING AMENDMENTS.

22 (a) ENTERPRISE ZONE EMPLOYMENT CREDIT PART

23 OF GENERAL BUSINESS CREDIT.—
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1 (1) Subsection (b) of section 38 of the Internal

2 Revenue Code of 1986 (relating to current year

3 business credit) is amended by striking ‘‘plus’’ at the

4 end of paragraph (6), by striking the period at the

5 end of paragraph (7) and inserting ‘‘, plus’’, and by

6 adding at the end the following new paragraph:

7 ‘‘(8) the enterprise zone employment credit de8 termined under section 1394(a).’’.

9 (2) Subsection (d) of section 39 of such Code

10 is amended by adding at the end thereof the follow11 ing new paragraph:

12 ‘‘(3) NO CARRYBACK OF SECTION 1394 CREDIT

13 BEFORE ENACTMENT.—No portion of the unused

14 business credit for any taxable year which is attrib15 utable to the enterprise zone employment credit de16 termined under section 1394 may be carried to a

17 taxable year ending before the date of the enactment

18 of section 1394.’’.

19 (b) NONITEMIZERS ALLOWED DEDUCTION FOR EN20 TERPRISE ZONE STOCK.—Subsection (a) of section 62 of

21 such Code is amended by adding at the end thereof the

22 following new paragraph:

23 ‘‘(14) ENTERPRISE ZONE STOCK.—The deduc24 tion allowed by section 1396.’’.
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1 (c) DENIAL OF DEDUCTION FOR PORTION OF WAGES

2 EQUAL TO ENTERPRISE ZONE EMPLOYMENT CREDIT.—

3 (1) Subsection (a) of section 280C of such Code

4 (relating to rule for targeted jobs credit) is amend5 ed—

6 (A) by striking ‘‘the amount of the credit

7 determined for the taxable year under section

8 51(a)’’ and inserting ‘‘the sum of the credits

9 determined for the taxable year under sections

10 51(a) and 1394(a)’’, and

11 (B) by striking ‘‘TARGETED JOBS CRED12 IT’’ in the subsection heading and inserting

13 ‘‘EMPLOYMENT CREDITS’’.

14 (2) Subsection (c) of section 196 of such Code

15 (relating to deduction for certain unused business

16 credits) is amended by striking ‘‘and’’ at the end of

17 paragraph (4), by striking the period at the end of

18 paragraph (5) and inserting ‘‘, and’’, and by adding

19 at the end the following new paragraph:

20 ‘‘(6) the enterprise zone employment credit de21 termined under section 1394(a).’’.

22 (d) OTHER AMENDMENTS.—

23 (1)(A) Section 172(d)(2) of such Code (relating

24 to modifications with respect to net operating loss

25 deduction) is amended to read as follows:
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1 ‘‘(2) CAPITAL GAINS AND LOSSES OF TAX2 PAYERS OTHER THAN CORPORATIONS.—In the case

3 of a taxpayer other than a corporation—

4 ‘‘(A) the amount deductible on account of

5 losses from sales or exchanges of capital assets

6 shall not exceed the amount includable on ac7 count of gains from sales or exchanges of cap8 ital assets; and

9 ‘‘(B) the exclusion provided by section

10 1397 shall not be allowed.’’.

11 (B) Subparagraph (B) of section 172(d)(4) of

12 such Code is amended by inserting ‘‘, (2)(B),’’ after

13 ‘‘paragraph (1)’’.

14 (2) Subsection (c) of section 381 of such Code

15 (relating to carryovers in certain corporate acquisi16 tions) is amended by adding at the end the following

17 new paragraph:

18 ‘‘(26) ENTERPRISE ZONE PROVISIONS.—The

19 acquiring corporation shall take into account (to the

20 extent proper to carry out the purposes of this sec21 tion and subchapter U, and under such regulations

22 as may be prescribed by the Secretary) the items re23 quired to be taken into account for purposes of sub24 chapter U in respect of the distributor or transferor

25 corporation.’’.
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1 (3) Paragraph (4) of section 642(c) of such

2 Code is amended to read as follows:

3 ‘‘(4) ADJUSTMENTS.—To the extent that the

4 amount otherwise allowable as a deduction under

5 this subsection consists of gain described in section

6 1397(a), proper adjustment shall be made for any

7 exclusion allowable to the estate or trust under sec8 tion 1397. In the case of a trust, the deduction al9 lowed by this subsection shall be subject to section

10 681 (relating to unrelated business income).’’.

11 (4) Paragraph (3) of section 643(a) of such

12 Code is amended by adding at the end thereof the

13 following new sentence: ‘‘The exclusion under section

14 1397 shall not be taken into account.’’.

15 (5) Paragraph (4) of section 691(c) of such

16 Code is amended by striking ‘‘1201, and 1211’’ and

17 inserting ‘‘1201, 1397, and 1211’’.

18 (6) The second sentence of paragraph (2) of

19 section 871(a) of such Code is amended by inserting

20 ‘‘such gains and losses shall be determined without

21 regard to section 1397 and’’ after ‘‘except that’’.

22 (7) Paragraph (1) of section 1371(d) of such

23 Code (relating to coordination with investment credit

24 recapture) is amended by inserting before the period
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•S 102 IS

1 at the end the following ‘‘and for purposes of section

2 1394(d)(3)’’.

3 (8) Subsection (a) of section 1016 of such Code

4 (relating to adjustments to basis) is amended by

5 striking ‘‘and’’ at the end of paragraph (23), by

6 striking the period at the end of paragraph (24) and

7 inserting a semicolon, and by adding at the end

8 thereof the following new paragraphs:

9 ‘‘(25) in the case of stock with respect to which

10 a deduction was allowed under section 1396(a), to

11 the extent provided in section 1396(e); and

12 ‘‘(26) in the case of property the acquisition of

13 which resulted under section 1397A in the non14 recognition of any part of the gain realized on the

15 sale or exchange of other property, to the extent pro16 vided in section 1397A(e).’’.

17 (9) Section 1223 of such Code (relating to hold18 ing period of property) is amended by redesignating

19 paragraph (15) as paragraph (16) and by inserting

20 after paragraph (14) the following new paragraph:

21 ‘‘(15) In determining the period for which the

22 taxpayer has held property the acquisition of which

23 resulted under section 1397A in the nonrecognition

24 of any part of the gain realized on the sale or ex25 change of any qualified zone asset (as defined in sec-
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1 tion 1397A(b)), there shall be included the period

2 for which such asset had been held as of the date

3 of such sale or exchange.’’.

4 SEC. 413. EFFECTIVE DATE.

5 (a) GENERAL RULE.—The amendments made by this

6 subtitle shall take effect on the date of the enactment of

7 this Act.

8 (b) REQUIREMENT FOR RULES.—Not later than the

9 date 4 months after the date of the enactment of this Act,

10 the appropriate Secretaries shall issue rules—

11 (1) establishing the procedures for nominating

12 areas for designation as tax enterprise zones,

13 (2) establishing a method for comparing the

14 factors listed in section 1392(d) of the Internal Rev15 enue Code of 1986 (as added by this part),

16 (3) establishing recordkeeping requirements

17 necessary or appropriate to assist the studies re18 quired by subtitle E, and

19 (4) providing that State and local governments

20 shall have at least 30 days after such rules are pub21 lished to file applications for nominated areas before

22 such applications are evaluated and compared and

23 any area designated as a tax enterprise zone.
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1 Subtitle B—Redevelopment Bonds

2 for Tax Enterprise Zones

3 SEC. 421. SPECIAL RULES FOR REDEVELOPMENT BONDS

4 PROVIDING FINANCING FOR TAX ENTER5 PRISE ZONES.

6 (a) IN GENERAL.—Subsection (c) of section 144 of

7 the Internal Revenue Code of 1986 (relating to qualified

8 redevelopment bonds) is amended by adding at the end

9 thereof the following new paragraph:

10 ‘‘(9) SPECIAL RULES FOR TAX ENTERPRISE

11 ZONES.—For purposes of this subsection, in the case

12 of bonds issued during the 60-month period begin13 ning on the date a tax enterprise zone is des14 ignated—

15 ‘‘(A) TREATMENT AS DESIGNATED

16 BLIGHTED AREA.—Such tax enterprise zone

17 shall be treated as a designated blighted area

18 during such 60-month period (or, if shorter, the

19 period such designation is in effect). Any area

20 designated by reason of the preceding sentence

21 shall not be taken into account in applying

22 paragraph (4)(C).

23 ‘‘(B) SECURITY FOR BONDS.—The require24 ments of paragraph (2)(B) shall be treated as

25 met with respect to a financed area that is
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1 within a tax enterprise zone if the general pur2 pose governmental unit guarantees the payment

3 of principal and interest on the issue either di4 rectly or through insurance, a letter of credit,

5 or a similar agreement but only if the cost

6 thereof is financed other than with proceeds of

7 any tax-exempt private activity bond or earn8 ings on such proceeds.

9 ‘‘(C) EXPANSION OF REDEVELOPMENT

10 PURPOSES.—

11 ‘‘(i) IN GENERAL.—The term ‘redevel12 opment purposes’ includes the making of

13 loans to any enterprise zone business (as

14 defined in section 1397B) for—

15 ‘‘(I) the acquisition of land with16 in the tax enterprise zone for use in

17 such business, or

18 ‘‘(II) the acquisition, construc19 tion, reconstruction, or improvement

20 by such business of land, or property

21 of a character subject to the allowance

22 for depreciation, for use in such busi23 ness.

24 ‘‘(ii) $2,500,000 LIMITATION.—Clause

25 (i) shall apply to loans made to any enter-
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1 prise zone business only if the aggregate

2 principal amount of such loans (whether or

3 not financed by the same issue) does not

4 exceed $2,500,000. For purposes of the

5 preceding sentence, all persons treated as a

6 single employer under subsection (a) or (b)

7 of section 52 shall be treated as 1 person.

8 ‘‘(iii) LOANS MUST BE MADE WITHIN

9 18 MONTHS AFTER BONDS ISSUED; REPAY10 MENTS MUST BE USED FOR REDEMP11 TIONS.—Clause (i) shall apply only to

12 loans—

13 ‘‘(I) made during the 18-month

14 period beginning on the date of issu15 ance of the issue financing such loan,

16 ‘‘(II) repayments of principal on

17 which are used not later than the

18 close of the 1st semiannual period be19 ginning after the date the repayment

20 is received to redeem bonds which are

21 part of such issue, and

22 ‘‘(III) the effective rate of inter23 est on which does not exceed the yield

24 on the issue by more than 0.125 per25 centage points.
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1 In determining the effective rate of interest

2 for purposes of subclause (III), there shall

3 be taken into account all fees, charges, and

4 other amounts (other than amounts for

5 any credit report) borne by the borrower

6 which are attributable to the loan or the

7 bond issue.

8 ‘‘(iv) HOUSING LOANS EXCLUDED.—

9 Clause (i) shall not apply to any loan to be

10 used directly or indirectly to provide resi11 dential real property.

12 ‘‘(v) COORDINATION WITH RESTRIC13 TIONS ON USE OF PROCEEDS.—Paragraphs

14 (6) and (8) shall apply notwithstanding

15 clause (i); except that in applying para16 graph (6), subsection (a)(8) shall be treat17 ed as not including a reference to a facility

18 the primary purpose of which is retail food

19 services.

20 ‘‘(D) ISSUER TO DESIGNATE AMOUNT OF

21 ISSUE TO BE USED FOR LOANS.—Subparagraph

22 (C) shall not apply with respect to any issue

23 unless the issuer designates before the date of

24 issuance the amount of the proceeds of such

25 issue which is to be used for loans to which
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1 subparagraph (C)(i) applies. If such amount ex2 ceeds the principal amount of loans to which

3 subparagraph (C)(i) applies, an amount of pro4 ceeds equal to such excess shall be used not

5 later than the close of the 1st semiannual pe6 riod beginning after the close of the 18-month

7 period referred to in subparagraph (C)(iii) to

8 redeem bonds which are part of such issue.

9 ‘‘(E) DE MINIMIS REDEMPTIONS NOT RE10 QUIRED.—Subparagraphs (C)(iii) and (D) shall

11 not be construed to require amounts of less

12 than $250,000 to be used to redeem bonds. The

13 Secretary may by regulation treat related issues

14 as 1 issue for purposes of the preceding sen15 tence.

16 ‘‘(F) PENALTY.—

17 ‘‘(i) IN GENERAL.—In the case of

18 property with respect to which financing

19 was provided under this paragraph, if at

20 any time during the 10-period beginning

21 on the date such financing was provided—

22 ‘‘(I) such property ceases to be in

23 use in an enterprise zone business (as

24 defined in section 1397B), or
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1 ‘‘(II) substantially all of the use

2 of such property ceases to be in a tax

3 enterprise zone,

4 there is hereby imposed on the trade or

5 business to which such financing was pro6 vided a penalty equal to 1.25 percent of so

7 much of the face amount of all financing

8 provided (whether or not from the same

9 issue and whether or not such issue is out10 standing) before such cessation to the

11 trade or business using such property.

12 ‘‘(ii) NO PENALTY BY REASON OF

13 ZONE TERMINATION.—No penalty shall be

14 imposed under clause (i) solely by reason

15 of the termination or revocation of a tax

16 enterprise zone designation.

17 ‘‘(iii) EXCEPTION FOR BANK18 RUPTCY.—Clause (i) shall not apply to any

19 cessation resulting from bankruptcy.’’.

20 (b) VOLUME CAP ONLY CHARGED WITH 50 PER21 CENT OF TAX ENTERPRISE ZONE REDEVELOPMENT

22 BONDS.—Subsection (g) of section 146 of such Code is

23 amended by striking ‘‘and’’ at the end of paragraph (3),

24 by striking the period at the end of paragraph (4) and
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1 inserting ‘‘, and’’, and by adding at the end thereof the

2 following new paragraph:

3 ‘‘(5) 50 percent of any qualified redevelopment

4 bond issued—

5 ‘‘(A) as part of an issue 95 percent or

6 more of the net proceeds of which are to be

7 used for 1 or more redevelopment purposes (as

8 defined in section 144(c)) in a tax enterprise

9 zone, and

10 ‘‘(B) during the 60-month period begin11 ning on the date of the designation of such

12 zone.’’.

13 (c) PENALTIES FOR LOANS MADE TO BUSINESSES

14 THAT CEASE TO BE ENTERPRISE ZONE BUSINESSES,

15 ETC.—Subsection (b) of section 150 of such Code is

16 amended by adding at the end thereof the following new

17 paragraph:

18 ‘‘(6) ENTERPRISE ZONE REDEVELOPMENT

19 BONDS.—In the case of any financing provided by

20 an issue the interest on which is exempt from tax by

21 reason of section 144(c)(9)—

22 ‘‘(A) IN GENERAL.—No deduction shall be

23 allowed under this chapter for interest on such

24 financing which accrues during the period be-
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1 ginning on the first day of the calendar year

2 which includes the date on which—

3 ‘‘(i) the trade or business to which the

4 financing was provided ceases to be an en5 terprise zone business (as defined in sec6 tion 1397B), or

7 ‘‘(ii) substantially all of the use of the

8 property (determined in accordance with

9 subchapter U) with respect to which the fi10 nancing was provided ceases to be in a tax

11 enterprise zone.

12 The preceding sentence shall not apply solely by

13 reason of the termination or revocation of a tax

14 enterprise zone designation.

15 ‘‘(B) EXCEPTION FOR BANKRUPTCY.—This

16 paragraph shall not apply to any cessation re17 sulting from bankruptcy.’’.

18 Subtitle C—Credit for Contribu19 tions to Certain Community De20 velopment Corporations

21 SEC. 431. CREDIT FOR CONTRIBUTIONS TO CERTAIN COM22 MUNITY DEVELOPMENT CORPORATIONS.

23 (a) IN GENERAL.—For purposes of section 38 of the

24 Internal Revenue Code of 1986, the current year business
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1 credit shall include the credit determined under this sec2 tion.

3 (b) DETERMINATION OF CREDIT.—The credit deter4 mined under this section for each taxable year in the credit

5 period with respect to any qualified CDC contribution

6 made by the taxpayer is an amount equal to 5 percent

7 of such contribution.

8 (c) CREDIT PERIOD.—For purposes of this section,

9 the credit period with respect to any qualified CDC con10 tribution is the period of 10 taxable years beginning with

11 the taxable year during which such contribution was made.

12 (d) QUALIFIED CDC CONTRIBUTION.—For purposes

13 of this section—

14 (1) IN GENERAL.—The term ‘‘qualified CDC

15 contribution’’ means any transfer of cash—

16 (A) which is made to a selected community

17 development corporation during the 5-year pe18 riod beginning on the date such corporation was

19 selected for purposes of this section,

20 (B) the amount of which is available for

21 use by such corporation for at least 10 years,

22 (C) which is to be used by such corpora23 tion for qualified low-income assistance within

24 its operational area, and
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1 (D) which is designated by such corpora2 tion for purposes of this section.

3 (2) LIMITATIONS ON AMOUNT DESIGNATED.—

4 The aggregate amount of contributions to a selected

5 community development corporation which may be

6 designated by such corporation shall not exceed

7 $2,000,000.

8 (e) SELECTED COMMUNITY DEVELOPMENT COR9 PORATIONS.—

10 (1) IN GENERAL.—For purposes of this section,

11 the term ‘‘selected community development corpora12 tion’’ means any corporation—

13 (A) which is described in section 501(c)(3)

14 of such Code and exempt from tax under sec15 tion 501(a) of such Code,

16 (B) the principal purposes of which include

17 promoting employment of, and business oppor18 tunities for, low-income individuals who are

19 residents of the operational area, and

20 (C) which is selected by the Secretary of

21 Housing and Urban Development for purposes

22 of this section.

23 (2) ONLY 10 CORPORATIONS MAY BE SE24 LECTED.—
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•S 102 IS

1 (A) IN GENERAL.—The Secretary of Hous2 ing and Urban Development may select 10 cor3 porations for purposes of this section, subject to

4 the availability of eligible corporations. Such se5 lections may be made only before January 1,

6 1995. At least 4 of the operational areas of the

7 corporations selected must be rural areas (as

8 defined by section 1393(6) of such Code).

9 (B) PRIORITY OF DESIGNATIONS.—In se10 lecting corporations for purposes of this section,

11 such Secretary shall give priority to corpora12 tions with a demonstrated record of perform13 ance in administering community development

14 programs which target at least 75 percent of

15 the jobs emanating from their investment funds

16 to low income or unemployed individuals.

17 (3) OPERATIONAL AREAS MUST HAVE CERTAIN

18 CHARACTERISTICS.—A corporation may be selected

19 for purposes of this section only if its operational

20 area meets the following criteria:

21 (A) The area meets the size requirements

22 under paragraph (1)(C) or (2)(C) of section

23 1391(b) which would apply if such area were to

24 be designated as a tax enterprise zone.
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1 (B) The unemployment rate (as deter2 mined by the appropriate available data) is not

3 less than the national unemployment rate.

4 (C) The median family income of residents

5 of such area does not exceed 80 percent of the

6 median gross income of residents of the juris7 diction of the local government which includes

8 such area.

9 (f) QUALIFIED LOW-INCOME ASSISTANCE.—For pur10 poses of this section, the term ‘‘qualified low-income as11 sistance’’ means assistance—

12 (1) which is designed to provide employment of,

13 and business opportunities for, low-income individ14 uals who are residents of the operational area of the

15 community development corporation, and

16 (2) which is approved by the Secretary of Hous17 ing and Urban Development.

18 Subtitle D—Indian Employment

19 and Investment

20 SEC. 441. INVESTMENT TAX CREDIT FOR PROPERTY ON IN21 DIAN RESERVATIONS.

22 (a) ALLOWANCE OF INDIAN RESERVATION CRED23 IT.—Section 46 of the Internal Revenue Code of 1986 (re24 lating to investment credits) is amended by striking ‘‘and’’

25 at the end of paragraph (2), by striking the period at the
104

•S 102 IS

1 end of paragraph (3) and inserting ‘‘, and’’, and by adding

2 after paragraph (3) the following new paragraph:

3 ‘‘(4) the Indian reservation credit.’’.

4 (b) AMOUNT OF INDIAN RESERVATION CREDIT.—

5 (1) IN GENERAL.—Section 48 of such Code (re6 lating to the energy credit and the reforestation

7 credit) is amended by adding after subsection (b)

8 the following new subsection:

9 ‘‘(c) INDIAN RESERVATION CREDIT.—

10 ‘‘(1) IN GENERAL.—For purposes of section 46,

11 the Indian reservation credit for any taxable year is

12 the Indian reservation percentage of the qualified in13 vestment in qualified Indian reservation property

14 placed in service during such taxable year, deter15 mined in accordance with the following table:

‘‘In the case of qualified

Indian reservation property The Indian reservation

which is: percentage is:

Reservation personal property ............................... 10

New reservation construction property ................. 15

Reservation infrastructure investment .................. 15.

16 ‘‘(2) QUALIFIED INVESTMENT IN QUALIFIED

17 INDIAN RESERVATION PROPERTY DEFINED.—For

18 purposes of this subpart—

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

20 Indian reservation property’ means property—

21 ‘‘(i) which is—
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1 ‘‘(I) reservation personal prop2 erty,

3 ‘‘(II) new reservation construc4 tion property, or

5 ‘‘(III) reservation infrastructure

6 investment, and

7 ‘‘(ii) not acquired (directly or indi8 rectly) by the taxpayer from a person who

9 is related to the taxpayer (within the

10 meaning of section 465(b)(3)(C)).

11 The term ‘qualified Indian reservation property’

12 does not include any property (or any portion

13 thereof) placed in service for purposes of con14 ducting or housing class I, II, or III gaming (as

15 defined in section 4 of the Indian Regulatory

16 Act (25 U.S.C. 2703)).

17 ‘‘(B) QUALIFIED INVESTMENT.—The term

18 ‘qualified investment’ means—

19 ‘‘(i) in the case of reservation infra20 structure investment, the amount expended

21 by the taxpayer for the acquisition or con22 struction of the reservation infrastructure

23 investment; and
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•S 102 IS

1 ‘‘(ii) in the case of all other qualified

2 Indian reservation property, the tax3 payer’s basis for such property.

4 ‘‘(C) RESERVATION PERSONAL PROP5 ERTY.—The term ‘reservation personal prop6 erty’ means qualified personal property which is

7 used by the taxpayer predominantly in the ac8 tive conduct of a trade or business within an

9 Indian reservation. Property shall not be treat10 ed as ‘reservation personal property’ if it is

11 used or located outside the Indian reservation

12 on a regular basis.

13 ‘‘(D) QUALIFIED PERSONAL PROPERTY.—

14 The term ‘qualified personal property’ means

15 property—

16 ‘‘(i) for which depreciation is allow17 able under section 168,

18 ‘‘(ii) which is not—

19 ‘‘(I) nonresidential real property,

20 ‘‘(II) residential rental property,

21 or

22 ‘‘(III) real property which is not

23 described in (I) or (II) and which has

24 a class life of more than 12.5 years.
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1 For purposes of this subparagraph, the terms

2 ‘nonresidential real property’, ‘residential rental

3 property’, and ‘class life’ have the respective

4 meanings given such terms by section 168.

5 ‘‘(E) NEW RESERVATION CONSTRUCTION

6 PROPERTY.—The term ‘new reservation con7 struction property’ means qualified real prop8 erty—

9 ‘‘(i) which is located in an Indian res10 ervation,

11 ‘‘(ii) which is used by the taxpayer

12 predominantly in the active conduct of a

13 trade or business within an Indian reserva14 tion, and

15 ‘‘(iii) which is originally placed in

16 service by the taxpayer.

17 ‘‘(F) QUALIFIED REAL PROPERTY.—The

18 term ‘qualified real property’ means property

19 for which depreciation is allowable under sec20 tion 168 and which is described in clause (I),

21 (II), or (III) of subparagraph (D)(ii).

22 ‘‘(G) RESERVATION INFRASTRUCTURE IN23 VESTMENT.—

24 ‘‘(i) IN GENERAL.—The term ‘reserva25 tion infrastructure investment’ means
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•S 102 IS

1 qualified personal property or qualified real

2 property which—

3 ‘‘(I) benefits the tribal infrastruc4 ture,

5 ‘‘(II) is available to the general

6 public, and

7 ‘‘(III) is placed in service in con8 nection with the taxpayer’s active con9 duct of a trade or business within an

10 Indian reservation.

11 ‘‘(ii) PROPERTY MAY BE LOCATED

12 OUTSIDE THE RESERVATION.—Qualified

13 personal property and qualified real prop14 erty used or located outside an Indian res15 ervation shall be reservation infrastructure

16 investment only if its purpose is to connect

17 to existing tribal infrastructure in the res18 ervation, and shall include, but not be lim19 ited to, roads, power lines, water systems,

20 railroad spurs, and communications facili21 ties.

22 ‘‘(H) COORDINATION WITH OTHER CRED23 ITS.—The term ‘qualified Indian reservation

24 property’ shall not include any property with re-
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1 spect to which the energy credit or the rehabili2 tation credit is allowed.

3 ‘‘(3) REAL ESTATE RENTALS.—For purposes of

4 this section, the rental to others of real property lo5 cated within an Indian reservation shall be treated

6 as the active conduct of a trade or business in an

7 Indian reservation.

8 ‘‘(4) INDIAN RESERVATION DEFINED.—For

9 purposes of this subpart, the term ‘Indian reserva10 tion’ means a reservation, as defined in—

11 ‘‘(A) section 3(d) of the Indian Financing

12 Act of 1974 (25 U.S.C. 1452(d)), or

13 ‘‘(B) section 4(10) of the Indian Child

14 Welfare Act of 1978 (25 U.S.C. 1903(10)).

15 ‘‘(5) LIMITATION BASED ON UNEMPLOY16 MENT.—

17 ‘‘(A) GENERAL RULE.—The Indian res18 ervation credit allowed under section 46 for any

19 taxable year shall equal—

20 ‘‘(i) if the Indian unemployment rate

21 on the applicable Indian reservation for

22 which the credit is sought exceeds 300 per23 cent of the national average unemployment

24 rate at any time during the calendar year

25 in which the property is placed in service
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1 or during the immediately preceding 2 cal2 endar years, 100 percent of such credit,

3 ‘‘(ii) if such Indian unemployment

4 rate exceeds 150 percent but not 300 per5 cent, 50 percent of such credit, and

6 ‘‘(iii) if such Indian unemployment

7 rate does not exceed 150 percent, 0 per8 cent of such credit.

9 ‘‘(B) SPECIAL RULE FOR LARGE

10 PROJECTS.—In the case of a qualified Indian

11 reservation property which has (or is a compo12 nent of a project which has) a projected con13 struction period of more than 2 years or a cost

14 of more than $1,000,000, subparagraph (A)

15 shall apply by substituting ‘during the earlier of

16 the calendar year in which the taxpayer enters

17 into a binding agreement to make a qualified

18 investment or the first calendar year in which

19 the taxpayer has expended at least 10 percent

20 of the taxpayer’s qualified investment, or the

21 preceding calendar year’ for ‘during the cal22 endar year in which the property is placed in

23 service or during the immediately preceding 2

24 calendar years’.
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•S 102 IS

1 ‘‘(C) DETERMINATION OF INDIAN UNEM2 PLOYMENT.—For purposes of this paragraph,

3 with respect to any Indian reservation, the In4 dian unemployment rate shall be based upon

5 Indians unemployed and able to work, and shall

6 be certified by the Secretary of the Interior.

7 ‘‘(6) COORDINATION WITH NONREVENUE

8 LAWS.—Any reference in this subsection to a provi9 sion not contained in this title shall be treated for

10 purposes of this subsection as a reference to such

11 provision as in effect on the date of the enactment

12 of this paragraph.’’.

13 (2) LODGING TO QUALIFY.—Paragraph (2) of

14 section 50(b) of such Code (relating to property used

15 for lodging) is amended—

16 (A) by striking ‘‘and’’ at the end of sub17 paragraph (C),

18 (B) by striking the period at the end of

19 subparagraph (D) and inserting ‘‘; and’’ and

20 (C) by adding at the end thereof the fol21 lowing subparagraph:

22 ‘‘(E) new reservation construction prop23 erty.’’.

24 (c) RECAPTURE.—Subsection (a) of section 50 of

25 such Code (relating to recapture in case of dispositions,
112

•S 102 IS

1 etc.), is amended by adding at the end thereof the follow2 ing new paragraph:

3 ‘‘(6) SPECIAL RULES FOR INDIAN RESERVATION

4 PROPERTY.—

5 ‘‘(A) IN GENERAL.—If, during any taxable

6 year, property with respect to which the tax7 payer claimed an Indian reservation credit—

8 ‘‘(i) is disposed of, or

9 ‘‘(ii) in the case of reservation per10 sonal property—

11 ‘‘(I) otherwise ceases to be in12 vestment credit property with respect

13 to the taxpayer, or

14 ‘‘(II) is removed from the Indian

15 reservation, converted or otherwise

16 ceases to be Indian reservation prop17 erty,

18 the tax under this chapter for such taxable year

19 shall be increased by the amount described in

20 subparagraph (B).

21 ‘‘(B) AMOUNT OF INCREASE.—The in22 crease in tax under subparagraph (A) shall

23 equal the aggregate decrease in the credits al24 lowed under section 38 by reason of section

25 48(c) for all prior taxable years which would
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1 have resulted had the qualified investment

2 taken into account with respect to the property

3 been limited to an amount which bears the

4 same ratio to the qualified investment with re5 spect to such property as the period such prop6 erty was held by the taxpayer bears to the ap7 plicable recovery period under section 168(g).

8 ‘‘(C) COORDINATION WITH OTHER RECAP9 TURE PROVISIONS.—In the case of property to

10 which this paragraph applies, paragraph (1)

11 shall not apply and the rules of paragraphs (3),

12 (4), and (5) shall apply.’’.

13 (d) BASIS ADJUSTMENT TO REFLECT INVESTMENT

14 CREDIT.—Paragraph (3) of section 50(c) of such Code

15 (relating to basis adjustment to investment credit prop16 erty) is amended by striking ‘‘energy credit or reforest17 ation credit’’ and inserting ‘‘energy credit, reforestation

18 credit or Indian reservation credit other than with respect

19 to any expenditure for new reservation construction prop20 erty’’.

21 (e) CERTAIN GOVERNMENTAL USE PROPERTY TO

22 QUALIFY.—Paragraph (4) of section 50(b) of such Code

23 (relating to property used by governmental units or for24 eign persons or entities) is amended by redesignating sub25 paragraphs (D) and (E) as subparagraphs (E) and (F),
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1 respectively, and inserting after subparagraph (C) the fol2 lowing new subparagraph:

3 ‘‘(D) EXCEPTION FOR RESERVATION IN4 FRASTRUCTURE INVESTMENT.—This paragraph

5 shall not apply for purposes of determining the

6 Indian reservation credit with respect to res7 ervation infrastructure investment.’’.

8 (f) APPLICATION OF AT-RISK RULES.—Subpara9 graph (C) of section 49(a)(1) of such Code is amended

10 by striking ‘‘and’’ at the end of clause (ii), by striking

11 the period at the end of clause (iii) and inserting ‘‘, and’’,

12 and by adding at the end the following new clause:

13 ‘‘(iv) the qualified investment in quali14 fied Indian reservation property.’’.

15 (g) CLERICAL AMENDMENTS.—

16 (1) The caption of section 48 of such Code is

17 amended by deleting the period at the end thereof

18 and adding ‘‘; indian reservation credit.’’

19 (2) The table of sections for subpart E of part

20 IV of subchapter A of chapter 1 of such Code is

21 amended by striking out the item relating to section

22 48 and inserting the following:

‘‘Sec. 48. Energy credit; reforestation credit; Indian reservation

credit.’’.
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•S 102 IS

1 (h) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to property placed in service after

3 December 31, 1993.

4 SEC. 442. INDIAN EMPLOYMENT CREDIT.

5 (a) ALLOWANCE OF INDIAN EMPLOYMENT CRED6 IT.—Section 38(b) of the Internal Revenue Code of 1986

7 (relating to general business credits), as amended by sec8 tion 412, is amended by striking ‘‘plus’’ at the end of

9 paragraph (7), by striking the period at the end of para10 graph (8) and inserting ‘‘, plus’’, and by adding after

11 paragraph (8) the following new paragraph:

12 ‘‘(9) the Indian employment credit as deter13 mined under section 45(a).’’.

14 (b) AMOUNT OF INDIAN EMPLOYMENT CREDIT.—

15 Subpart D of Part IV of subchapter A of chapter 1 of

16 such Code (relating to business related credits) is amended

17 by adding at the end thereof the following new section:

18 ‘‘SEC. 45. INDIAN EMPLOYMENT CREDIT.

19 ‘‘(a) AMOUNT OF CREDIT.—

20 ‘‘(1) IN GENERAL.—For purposes of section 38,

21 the amount of the Indian employment credit deter22 mined under this section with respect to any em23 ployer for any taxable year is 10 percent (30 percent

24 in the case of an employer with at least 85 percent
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1 Indian employees throughout the taxable year) of

2 the sum of—

3 ‘‘(A) the qualified wages paid or incurred

4 during such taxable year, plus

5 ‘‘(B) qualified employee health insurance

6 costs paid or incurred during such taxable year.

7 In no event shall the amount of the Indian employ8 ment credit for any taxable year exceed the credit

9 limitation amount determined under subsection (e)

10 for such taxable year.

11 ‘‘(2) INDIAN EMPLOYEE.—For purposes of

12 paragraph (1), the term ‘Indian employee’ means an

13 employee who is an enrolled member of an Indian

14 tribe or the spouse of such a member.

15 ‘‘(b) QUALIFIED WAGES; QUALIFIED EMPLOYEE

16 HEALTH INSURANCE COSTS.—For purposes of this sec17 tion—

18 ‘‘(1) QUALIFIED WAGES.—

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

20 wages’ means any wages paid or incurred by an

21 employer for services performed by an employee

22 while such employee is a qualified employee.

23 ‘‘(B) COORDINATION WITH TARGETED

24 JOBS CREDIT.—The term ‘qualified wages’ shall

25 not include wages attributable to service ren-
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1 dered during the 1-year period beginning with

2 the day the individual begins work for the em3 ployer if any portion of such wages is taken

4 into account in determining the credit under

5 section 51.

6 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR7 ANCE COSTS.—

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

9 employee health insurance costs’ means any

10 amount paid or incurred by an employer for

11 health insurance to the extent such amount is

12 attributable to coverage provided to any em13 ployee while such employee is a qualified em14 ployee.

15 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

16 UNDER SALARY REDUCTION ARRANGEMENTS.—

17 No amount paid or incurred for health insur18 ance pursuant to a salary reduction arrange19 ment shall be taken into account under sub20 paragraph (A).

21 ‘‘(c) QUALIFIED EMPLOYEE.—For purposes of this

22 section—

23 ‘‘(1) IN GENERAL.—Except as otherwise pro24 vided in this subsection, the term ‘qualified em-
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•S 102 IS

1 ployee’ means, with respect to any period, any em2 ployee of an employer if—

3 ‘‘(A) substantially all of the services per4 formed during such period by such employee for

5 such employer are performed within an Indian

6 reservation,

7 ‘‘(B) the principal place of abode of such

8 employee while performing such services is on

9 or near the reservation in which the services are

10 performed, and

11 ‘‘(C) the employee began work for such

12 employer on or after January 1, 1993.

13 ‘‘(2) CREDIT ALLOWED ONLY FOR FIRST 7

14 YEARS.—An employee shall not be treated as a

15 qualified employee for any period after the date 7

16 years after the day on which such employee first

17 began work for the employer.

18 ‘‘(3) INDIVIDUALS RECEIVING WAGES IN EX19 CESS OF $30,000 NOT ELIGIBLE.—An employee shall

20 not be treated as a qualified employee for any tax21 able year of the employer if the total amount of the

22 wages paid or incurred by such employer to such

23 employee during such taxable year (whether or not

24 for services within an Indian reservation) exceeds

25 the amount determined at an annual rate of
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•S 102 IS

1 $30,000. The Secretary shall adjust the $30,000

2 amount contained in the preceding sentence for

3 years beginning after 1993 at the same time and in

4 the same manner as under section 415(d).

5 ‘‘(4) EMPLOYMENT MUST BE TRADE OR BUSI6 NESS EMPLOYMENT.—An employee shall be treated

7 as a qualified employee for any taxable year of the

8 employer only if more than 50 percent of the wages

9 paid or incurred by the employer to such employee

10 during such taxable year are for services performed

11 in a trade or business of the employer. Any deter12 mination as to whether the preceding sentence ap13 plies with respect to any employee for any taxable

14 year shall be made without regard to subsection

15 (f)(2).

16 ‘‘(5) CERTAIN EMPLOYEES NOT ELIGIBLE.—

17 The term ‘qualified employee’ shall not include—

18 ‘‘(A) any individual described in subpara19 graph (A), (B), or (C) of section 51(i)(1),

20 ‘‘(B) any 5-percent owner (as defined in

21 section 416(i)(1)(B)),

22 ‘‘(C) any individual who is neither an en23 rolled member of an Indian tribe nor the spouse

24 of an enrolled member of an Indian tribe, and
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1 ‘‘(D) any individual if the services per2 formed by such individual for the employer in3 volve the conduct of class I, II, or III gaming

4 as defined in section 4 of the Indian Gaming

5 Regulatory Act (25 U.S.C. 2703), or are per6 formed in a building housing such gaming ac7 tivity.

8 ‘‘(6) INDIAN TRIBE DEFINED.—The term ‘In9 dian tribe’ means any Indian tribe, band, nation,

10 pueblo, or other organized group or community, in11 cluding any Alaska Native village, or regional or vil12 lage corporation, as defined in, or established pursu13 ant to, the Alaska Native Claims Settlement Act (43

14 U.S.C. 1601 et seq.) which is recognized as eligible

15 for the special programs and services provided by

16 the United States to Indians because of their status

17 as Indians.

18 ‘‘(7) INDIAN RESERVATION DEFINED.—The

19 term ‘Indian reservation’ means a reservation, as de20 fined in—

21 ‘‘(A) section 3(d) of the Indian Financing

22 Act of 1974 (25 U.S.C. 1452(d)), or

23 ‘‘(B) section 4(10) of the Indian Child

24 Welfare Act of 1978 (25 U.S.C. 1903 (10)).
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•S 102 IS

1 ‘‘(d) EARLY TERMINATION OF EMPLOYMENT BY EM2 PLOYER.—

3 ‘‘(1) IN GENERAL.—If the employment of any

4 employee is terminated by the taxpayer before the

5 day 1 year after the day on which such employee

6 began work for the employer—

7 ‘‘(A) no wages (or qualified employee

8 health insurance costs) with respect to such em9 ployee shall be taken into account under sub10 section (a) for the taxable year in which such

11 employment is terminated, and

12 ‘‘(B) the tax under this chapter for the

13 taxable year in which such employment is ter14 minated shall be increased by the aggregate

15 credits (if any) allowed under section 38(a) for

16 prior taxable years by reason of wages (or

17 qualified employee health insurance costs) taken

18 into account with respect to such employee.

19 ‘‘(2) CARRYBACKS AND CARRYOVERS AD20 JUSTED.—In the case of any termination of employ21 ment to which paragraph (1) applies, the carrybacks

22 and carryovers under section 39 shall be properly

23 adjusted.

24 ‘‘(3) SUBSECTION NOT TO APPLY IN CERTAIN

25 CASES.—
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•S 102 IS

1 ‘‘(A) IN GENERAL.—Paragraph (1) shall

2 not apply to—

3 ‘‘(i) a termination of employment of

4 an employee who voluntarily leaves the em5 ployment of the taxpayer,

6 ‘‘(ii) a termination of employment of

7 an individual who before the close of the

8 period referred to in paragraph (1) be9 comes disabled to perform the services of

10 such employment unless such disability is

11 removed before the close of such period

12 and the taxpayer fails to offer reemploy13 ment to such individual, or

14 ‘‘(iii) a termination of employment of

15 an individual if it is determined under the

16 applicable State unemployment compensa17 tion law that the termination was due to

18 the misconduct of such individual.

19 ‘‘(B) CHANGES IN FORM OF BUSINESS.—

20 For purposes of paragraph (1), the employment

21 relationship between the taxpayer and an em22 ployee shall not be treated as terminated—

23 ‘‘(i) by a transaction to which section

24 381(a) applies if the employee continues to
123

•S 102 IS

1 be employed by the acquiring corporation,

2 or

3 ‘‘(ii) by reason of a mere change in

4 the form of conducting the trade or busi5 ness of the taxpayer if the employee con6 tinues to be employed in such trade or

7 business and the taxpayer retains a sub8 stantial interest in such trade or business.

9 ‘‘(4) SPECIAL RULE.—Any increase in tax

10 under paragraph (1) shall not be treated as a tax

11 imposed by this chapter for purposes of—

12 ‘‘(A) determining the amount of any credit

13 allowable under this chapter, and

14 ‘‘(B) determining the amount of the tax

15 imposed by section 55.

16 ‘‘(e) CREDIT LIMITATION AMOUNT.—For purposes of

17 this section—

18 ‘‘(1) CREDIT LIMITATION AMOUNT.—The credit

19 limitation amount for a taxable year shall be an

20 amount equal to the credit rate (10 or 30 percent

21 as determined under subsection (a)) multiplied by

22 the increased credit base.

23 ‘‘(2) INCREASED CREDIT BASE.—The increased

24 credit base for a taxable year shall be the excess

25 of—
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•S 102 IS

1 ‘‘(A) the sum of any qualified wages and

2 qualified employee health insurance costs paid

3 or incurred by the employer during the taxable

4 year with respect to employees whose wages

5 (paid or incurred by the employer) during the

6 taxable year do not exceed the amount deter7 mined under paragraph (3) of subsection (c),

8 over

9 ‘‘(B) the sum of any qualified wages and

10 qualified employee health insurance costs paid

11 or incurred by the employer (or any prede12 cessor) during calendar year 1993 with respect

13 to employees whose wages (paid or incurred by

14 the employer or any predecessor) during 1993

15 did not exceed $30,000.

16 ‘‘(3) SPECIAL RULE FOR SHORT TAXABLE

17 YEARS.—For any taxable year having less than 12

18 months—

19 ‘‘(A) the amounts paid or incurred by the

20 employer shall be annualized for purposes of de21 termining the increased credit base, and

22 ‘‘(B) the credit limitation amount shall be

23 multiplied by a fraction, the numerator of which

24 is the number of days in the taxable year and

25 the denominator of which is 365.
125

•S 102 IS

1 ‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—

2 For purposes of this section—

3 ‘‘(1) WAGES.—The term ‘wages’ has the same

4 meaning given to such term in section 51.

5 ‘‘(2) CONTROLLED GROUPS.—

6 ‘‘(A) All employers treated as a single em7 ployer under section (a) or (b) of section 52

8 shall be treated as a single employer for pur9 poses of this section.

10 ‘‘(B) The credit (if any) determined under

11 this section with respect to each such employer

12 shall be its proportionate share of the wages

13 and qualified employee health insurance costs

14 giving rise to such credit.

15 ‘‘(3) CERTAIN OTHER RULES MADE APPLICA16 BLE.—Rules similar to the rules of section 51(k)

17 and subsections (c), (d), and (e) of section 52 shall

18 apply.

19 ‘‘(4) COORDINATION WITH NONREVENUE

20 LAWS.—Any reference in this section to a provision

21 not contained in this title shall be treated for pur22 poses of this section as a reference to such provision

23 as in effect on the date of the enactment of this

24 paragraph.’’.
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•S 102 IS

1 (c) DENIAL OF DEDUCTION FOR PORTION OF WAGES

2 EQUAL TO INDIAN EMPLOYMENT CREDIT.—

3 (1) Subsection (a) of section 280C of such Code

4 (relating to rule for targeted jobs credit) is amended

5 by striking ‘‘51(a)’’ and inserting ‘‘45(a), 51(a),

6 and’’.

7 (2) Subsection (c) of section 196 of such Code

8 (relating to deduction for certain unused business

9 credits) is amended by striking ‘‘and’’ at the end of

10 paragraph (5), by striking the period at the end of

11 paragraph (6) and inserting ‘‘, and’’, and by adding

12 at the end the following new paragraph:

13 ‘‘(7) the Indian employment credit determined

14 under section 45(a).’’.

15 (d) DENIAL OF CARRYBACKS TO PREENACTMENT

16 YEARS.—Subsection (d) of section 39 of such Code is

17 amended by adding at the end thereof the following new

18 paragraph:

19 ‘‘(4) NO CARRYBACK OF SECTION 45 CREDIT

20 BEFORE ENACTMENT.—No portion of the unused

21 business credit for any taxable year which is attrib22 utable to the Indian employment credit determined

23 under section 45 may be carried to a taxable year

24 ending before the date of the enactment of section

25 45.’’.
127

•S 102 IS

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

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

3 of such Code is amended by adding at the end thereof

4 the following:

‘‘Sec. 45. Indian employment credit.’’.

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

6 this section shall apply to wages paid or incurred after

7 December 31, 1993.

8 Subtitle E—Study

9 SEC. 451. STUDY OF EFFECTIVENESS OF TAX ENTERPRISE

10 ZONE INCENTIVES.

11 (a) IN GENERAL.—The Secretary of the Treasury, in

12 consultation with the appropriate Secretary (as defined in

13 section 1393(7) of the Internal Revenue Code of 1986,

14 as added by this title), shall contract within 3 months of

15 the date of the enactment of this Act, with the National

16 Academy of Sciences (hereafter in this section referred to

17 as the ‘‘Academy’’) to conduct a study of the relative effec18 tiveness of the incentives provided by this title in achieving

19 the purposes of such title in tax enterprise zones.

20 (b) CONDUCT OF STUDY.—If the Academy contracts

21 for the conduct of the study described in subsection (a),

22 the Academy shall develop a study methodology and shall

23 oversee and manage the conduct of such study.

24 (c) REPORTS.—The Academy shall submit to the

25 Committee on Ways and Means of the House of Rep-
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1 resentatives and the Committee on Finance of the Sen2 ate—

3 (1) not later than July 1, 1997, an interim re4 port setting forth the findings as a result of such

5 study, and

6 (2) not later than July 1, 2002, a final report

7 setting forth the findings as a result of such study.

8 TITLE V—WORKFARE

9 SEC. 501. DEVELOPMENT OF A COMPREHENSIVE LEGISLA10 TIVE PROPOSAL REQUIRING ADULTS RECEIV11 ING AFDC TO ENTER THE WORKFORCE.

12 (a) IN GENERAL.—The Secretary of Labor (herein13 after referred to as the ‘‘Secretary’’), in consultation with

14 the Secretary of Health and Human Services shall develop

15 a comprehensive legislative proposal which would require

16 adults receiving aid to families with dependent children

17 under title IV of the Social Security Act (hereinafter re18 ferred to as ‘‘AFDC’’) to enter the workforce within two

19 years of receiving such aid.

20 (b) SPECIFIC MATTERS TO BE INCLUDED.—The

21 proposal developed pursuant to subsection (a) shall include

22 plans—

23 (1) for education, training, and child care which

24 would permit adults receiving AFDC to gain the

25 skills necessary to become financially independent;
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1 (2) to assist adults receiving AFDC in finding

2 employment in the private sector; and

3 (3) providing for placement in meaningful com4 munity service jobs for those adults receiving AFDC

5 who cannot find employment in the private sector.

6 (c) REPORT.—No later then one hundred days after

7 January 20, 1993, the Secretary shall submit the proposal

8 developed pursuant to subsection (a) to the Congress.

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