II

104TH CONGRESS

2D SESSION S. 1988

To amend the Internal Revenue Code of 1986 to provide for individuals

who are residents of the District of Columbia a maximum rate of tax

of 15 percent on income from sources within the District of Columbia,

and for other purposes.

IN THE SENATE OF THE UNITED STATES

JULY 24, 1996

Mr. MACK (for himself, Mr. LIEBERMAN, Mr. ABRAHAM, Mr. LOTT, Mr.

HATCH, and Mr. BENNETT) introduced the following bill; which was read

twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

for individuals who are residents of the District of Columbia a maximum rate of tax of 15 percent on income

from sources within the District of Columbia, and for

other purposes.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘District of Columbia

5 Economic Recovery Act’’.
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1 SEC. 2. SPECIAL RULES FOR TAXATION OF INDIVIDUALS

2 WHO ARE RESIDENTS OF OR INVESTORS IN

3 THE DISTRICT OF COLUMBIA.

4 (a) IN GENERAL.—Subchapter A of chapter 1 of the

5 Internal Revenue Code of 1986 (relating to determination

6 of tax liability) is amended by adding at the end the fol7 lowing new part:

8 ‘‘PART VIII—SPECIAL RULES FOR TAXATION OF

9 INDIVIDUALS WHO ARE RESIDENTS OF OR

10 INVESTORS IN THE DISTRICT OF COLUMBIA

‘‘Sec. 59B. Limitation on tax imposed on residents of the District of Columbia.

‘‘Sec. 59C. Taxation of capital gains sourced in the District of

Columbia.

11 ‘‘SEC. 59B. LIMITATION ON TAX IMPOSED ON RESIDENTS OF

12 THE DISTRICT OF COLUMBIA.

13 ‘‘(a) GENERAL RULE.—If a taxpayer elects the appli14 cation of this section, the net income tax of an individual

15 who is a resident of the District of Columbia for the tax16 able year shall not exceed the limitation determined under

17 subsection (b) for such year.

18 ‘‘(b) LIMITATION.—

19 ‘‘(1) IN GENERAL.—The limitation determined

20 under this subsection is the sum of the following

21 amounts:
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1 ‘‘(A) 15-PERCENT RATE.—15 percent of so

2 much of District-sourced income as exceeds the

3 exemption amount.

4 ‘‘(B) AVERAGE RATE.—An amount equal

5 to the average rate of the non-District-sourced

6 adjusted gross income.

7 ‘‘(2) DISTRICT-SOURCED CAPITAL GAINS.—

‘‘For exclusion from tax of capital gains, see section 59C.

8 ‘‘(c) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) RESIDENT OF DISTRICT OF COLUMBIA.—

10 An individual is a resident of the District of Colum11 bia for the taxable year if—

12 ‘‘(A) such individual used a residence in

13 the District of Columbia as a place of abode

14 (and was physically present at such place) for

15 at least 183 days of such taxable year, and

16 ‘‘(B) such individual is subject to the Dis17 trict of Columbia income tax for such taxable

18 year.

19 ‘‘(2) NET INCOME TAX.—The term ‘net income

20 tax’ means—

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

22 the tax imposed by section 55 (determined with23 out regard to this section), reduced by
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1 ‘‘(B) the aggregate credits allowable under

2 part IV (other than section 31).

3 ‘‘(3) EXEMPTION AMOUNT.—The term ‘exemp4 tion amount’ means—

5 ‘‘(A) $30,000 in the case of a joint return

6 or a surviving spouse,

7 ‘‘(B) $15,000 in the case of—

8 ‘‘(i) an individual who is not a mar9 ried individual and is not a surviving

10 spouse, and

11 ‘‘(ii) a married individual filing a sep12 arate return, and

13 ‘‘(C) $25,000 in the case of a head of a

14 household.

15 ‘‘(4) AVERAGE RATE.—The term ‘average rate’

16 means the percentage determined by dividing—

17 ‘‘(A) the sum (determined without regard

18 to this section) of the taxpayer’s regular tax li19 ability and the tax imposed by section 55, by

20 ‘‘(B) the taxpayer’s taxable income.

21 If the percentage determined under the preceding

22 sentence is not a whole number of percentage points,

23 such percentage shall be rounded to the nearest

24 whole number of percentage points.
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1 ‘‘(5) REGULAR TAX LIABILITY.—The term ‘reg2 ular tax liability’ has the meaning given to such

3 term by section 26(b).

4 ‘‘(d) DISTRICT-SOURCED INCOME.—For purposes of

5 this section, the term ‘District-sourced income’ means ad6 justed gross income reduced by the sum of—

7 ‘‘(1) non-District-sourced adjusted gross in8 come,

9 ‘‘(2) the deduction allowed by section 170, and

10 ‘‘(3) the deduction allowed by section 163 to

11 the extent attributable to qualified residence interest

12 (as defined in section 163(h)).

13 ‘‘(e) NON-DISTRICT-SOURCED ADJUSTED GROSS IN14 COME.—For purposes of this section, the term ‘non-Dis15 trict-sourced adjusted gross income’ means gross income

16 of the taxpayer from sources outside the District of Co17 lumbia reduced (but not below zero) by the deductions

18 taken into account in determining adjusted gross income

19 which are allocable to such income.

20 ‘‘(f) SOURCES OF INCOME.—For purposes of this sec21 tion—

22 ‘‘(1) RETIREMENT INCOME AND OTHER INCOME

23 NOT SOURCED UNDER SUBSECTION.—The source of

24 any income not specifically provided for in this sub-
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1 section shall be treated as from sources within the

2 District of Columbia.

3 ‘‘(2) PERSONAL SERVICES.—

4 ‘‘(A) IN GENERAL.—Compensation (other

5 than retirement income) for services performed

6 by the taxpayer as an employee, and net earn7 ings from self-employment (as defined in sec8 tion 1402)), shall be sourced at the place such

9 services are performed.

10 ‘‘(B) SERVICES PERFORMED IN WASHING11 TON-BALTIMORE AREA TREATED AS PER12 FORMED IN THE DISTRICT OF COLUMBIA.—

13 Services performed in the Washington-Balti14 more area shall be treated as performed in the

15 District of Columbia.

16 ‘‘(C) INDIVIDUALS PERFORMING 80 PER17 CENT OF SERVICES WITHIN WASHINGTON-BAL18 TIMORE AREA.—If, during any taxable year, at

19 least 80 percent of the hours of service per20 formed by an individual are performed within

21 the Washington-Baltimore area, all such service

22 shall be treated for purposes of this paragraph

23 as performed within the District of Columbia.

24 ‘‘(D) WASHINGTON-BALTIMORE AREA.—

25 For purposes of this paragraph, the term
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1 ‘Washington-Baltimore area’ means the area

2 consisting of—

3 ‘‘(i) the Washington/Baltimore Con4 solidated Metropolitan Statistical Area (as

5 designated by the Office of Management

6 and Budget), and

7 ‘‘(ii) St. Mary’s County, Maryland.

8 ‘‘(3) INTEREST.—

9 ‘‘(A) IN GENERAL.—Interest received or

10 accrued during the taxable year shall be treated

11 as from sources outside the District of Colum12 bia.

13 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

14 NON-DISTRICT-SOURCED INTEREST.—Interest

15 which would (but for this subparagraph) be

16 treated as from sources outside the District of

17 Columbia shall be treated as from sources in

18 the District of Columbia to the extent the

19 amount of such interest does not exceed $400.

20 ‘‘(C) EXCEPTION FOR INTEREST PAID BY

21 DISTRICT OF COLUMBIA BUSINESSES AND RESI22 DENTS.—

23 ‘‘(i) BUSINESSES.—In the case of in24 terest paid during a calendar year by a

25 debtor which was required to file (and
8

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1 filed) a franchise tax return with the Dis2 trict of Columbia for the debtor’s taxable

3 year ending with or within the prior cal4 endar year, an amount equal to the D.C.

5 percentage (as shown on such return) of

6 such interest shall be treated as from

7 sources within the District of Columbia.

8 The preceding sentence shall apply only if

9 such percentage is furnished to the tax10 payer in writing on or before January 31

11 of the year following the calendar year in

12 which such interest is paid.

13 ‘‘(ii) OTHERS.—Interest shall be

14 treated as from sources within the District

15 of Columbia if the interest is paid during

16 a calendar year by a debtor—

17 ‘‘(I) which was required to file

18 (and filed) an income tax return with

19 the District of Columbia for the debt20 or’s taxable year ending with or with21 in the prior calendar year, and

22 ‘‘(II) which is not required to file

23 a franchise tax return with the Dis24 trict of Columbia for such taxable

25 year.
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1 ‘‘(D) SPECIAL RULE FOR DETERMINATION

2 OF D.C. PERCENTAGE FOR NEW BUSINESSES.—

3 Interest shall be treated as from sources within

4 the District of Columbia if the interest is paid

5 during a calendar year by a debtor which was

6 required to file (and filed) a franchise tax re7 turn with the District of Columbia for such

8 debtor’s taxable year ending with or within such

9 calendar year, but which was not required to

10 file such a return for such debtor’s prior tax11 able year.

12 ‘‘(4) DIVIDENDS.—

13 ‘‘(A) IN GENERAL.—Dividends received or

14 accrued during the taxable year shall be treated

15 as from sources outside the District of Colum16 bia.

17 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

18 NON-DISTRICT-SOURCED DIVIDENDS.—Divi19 dends which would (but for this subparagraph)

20 be treated as from sources outside the District

21 of Columbia shall be treated as from sources in

22 the District of Columbia to the extent the

23 amount of such dividends do not exceed $400.

24 ‘‘(C) EXCEPTION FOR DIVIDENDS PAID BY

25 CORPORATION ENGAGED IN BUSINESS IN THE
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1 DISTRICT OF COLUMBIA.—In the case of divi2 dends paid during a calendar year by a corpora3 tion which was required to file (and filed) a

4 franchise tax return with the District of Colum5 bia for the corporation’s taxable year ending

6 with or within the prior calendar year, an

7 amount equal to the D.C. percentage (as shown

8 on such return) of such dividends shall be treat9 ed as from sources within the District of Co10 lumbia. The preceding sentence shall apply only

11 if such percentage is furnished to the taxpayer

12 in writing on or before January 31 of the year

13 following the calendar year in which such divi14 dends are paid.

15 ‘‘(D) SPECIAL RULE FOR DETERMINATION

16 OF D.C. PERCENTAGE FOR NEW BUSINESSES.—

17 Dividends shall be treated as from sources with18 in the District of Columbia if the dividends are

19 paid during a calendar year by a corporation

20 which was required to file (and filed) a fran21 chise tax return with the District of Columbia

22 for such corporation’s taxable year ending with

23 or within such calendar year, but which was not

24 required to file such a return for such corpora25 tion’s prior taxable year.
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1 ‘‘(5) DISPOSITION OF TANGIBLE PROPERTY.—

2 Income, gain, or loss from the disposition of tangible

3 property shall be sourced to the place such property

4 is located at the time of the disposition.

5 ‘‘(6) DISPOSITION OF INTANGIBLE PROP6 ERTY.—

7 ‘‘(A) IN GENERAL.—Income, gain, or loss

8 from the disposition of intangible property shall

9 be treated as from sources outside the District

10 of Columbia.

11 ‘‘(B) EXCEPTION.— If any portion of the

12 most recent income received or accrued by the

13 taxpayer before such disposition which was at14 tributable to such property was from sources

15 within the District of Columbia, a like portion

16 of the income, gain, or loss from such disposi17 tion shall be treated as from sources within the

18 District of Columbia.

19 ‘‘(7) RENTALS.—Rents from property shall be

20 sourced at the place where such property is located.

21 ‘‘(8) ROYALTIES.—Royalties shall be treated as

22 from sources outside the District of Columbia.

23 ‘‘(9) INCOME FROM PROPRIETORSHIP.—

24 ‘‘(A) IN GENERAL.—In the case of a trade

25 or business carried on by the taxpayer as a pro-
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1 prietorship, income from such trade or business

2 (other than income which is included in net

3 earnings from self-employment by the taxpayer)

4 shall be treated as from sources outside the

5 District of Columbia.

6 ‘‘(B) EXCEPTION FOR DISTRICT OF CO7 LUMBIA BUSINESSES.—If the taxpayer is re8 quired to file (and files) a franchise tax return

9 with the District of Columbia for the taxable

10 year, subparagraph (A) shall not apply to an

11 amount equal to the D.C. percentage of such

12 income.

13 ‘‘(10) INCOME FROM PARTNERSHIP.—

14 ‘‘(A) IN GENERAL.—In the case of a tax15 payer who is a partner in a partnership, income

16 from such partnership (other than income

17 which is included in net earnings from self-em18 ployment by any partner) shall be treated as

19 from sources outside the District of Columbia.

20 ‘‘(B) EXCEPTIONS.—

21 ‘‘(i) Subparagraph (A) shall not apply

22 to a partnership which was required to file

23 (and filed) a franchise tax return with the

24 District of Columbia for the partnership’s

25 taxable year ending with or within the tax-
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1 payer’s taxable year to the extent of the

2 D.C. percentage of the taxpayer’s distribu3 tive share of the partnership income.

4 ‘‘(ii) Subparagraph (A) shall not

5 apply to a partnership which was not re6 quired to file a franchise tax return with

7 the District of Columbia for the partner8 ship’s taxable year ending with or within

9 the taxpayer’s taxable year to the extent of

10 the taxpayer’s distributive share of part11 nership income which is not (as determined

12 under this subsection) from sources outside

13 the District of Columbia.

14 ‘‘(11) INCOME IN RESPECT OF A DECEDENT;

15 INCOME FROM AN ESTATE.—Income in respect of a

16 decedent, and income from an estate, shall be

17 sourced at the place where the decedent was domi18 ciled at the time of his death.

19 ‘‘(12) INCOME FROM A TRUST.—Income (other

20 than retirement income) from a trust shall be treat21 ed as from the same sources as the income of the

22 trust to which it is attributable.

23 ‘‘(g) DEFINITIONS RELATING TO SUBSECTION (f).—

24 For purposes of subsection (f)—
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1 ‘‘(1) RETIREMENT INCOME.—The term ‘retire2 ment income’ has the meaning given such term by

3 section 114(b)(1) of title 4, United States Code (de4 termined without regard to subparagraph (I) there5 of).

6 ‘‘(2) D.C. PERCENTAGE.—The term ‘D.C. per7 centage’ means the percentage determined by divid8 ing—

9 ‘‘(A) the net income taxable in the District

10 of Columbia (as shown on the original return

11 for the taxable year), by

12 ‘‘(B) total net income from all sources (as

13 shown on such return).

14 The preceding sentence shall be applied based on

15 amounts shown on the original applicable District of

16 Columbia franchise or income tax return.

17 ‘‘(h) SECTION NOT TO APPLY TO ESTATES AND

18 TRUSTS.—This section shall not apply to an estate or

19 trust.

20 ‘‘(i) ELECTION.—The election provided in subsection

21 (a) shall be made at such time and in such manner as

22 the Secretary may by regulations prescribe. Any such elec23 tion shall apply to the first taxable year for which such

24 election was made and for each taxable year thereafter

25 until such election is revoked by the taxpayer.
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1 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary or appropriate to

3 carry out the purposes of this section.

4 ‘‘SEC. 59C. EXCLUSION OF CAPITAL GAINS SOURCED IN THE

5 DISTRICT OF COLUMBIA.

6 ‘‘(a) EXCLUSION.—

7 ‘‘(1) GENERAL RULE.—Except as provided in

8 paragraph (2), in the case of a taxpayer who is an

9 individual, gross income shall not include any quali10 fied capital gain recognized on the sale or exchange

11 of a District asset held for more than 3 years.

12 ‘‘(2) EXCEPTION FOR CERTAIN GAIN OF NON13 RESIDENTS.—In the case of a taxpayer who is not

14 a resident of the District of Columbia for any tax15 able year, gross income shall not include 50 percent

16 of the qualified capital gain recognized on the sale

17 or exchange of residential rental property (within the

18 meaning of section 168(e)(2)(A)) which is a District

19 asset held for more than 3 years and which is not

20 taken into account under section 1202.

21 ‘‘(b) DISTRICT ASSET.—For purposes of this sec22 tion—

23 ‘‘(1) IN GENERAL.—The term ‘District asset’

24 means—

25 ‘‘(A) any District stock,
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1 ‘‘(B) any District business property,

2 ‘‘(C) any District partnership interest, and

3 ‘‘(D) any principal residence (within the

4 meaning of section 1034).

5 ‘‘(2) DISTRICT STOCK.—

6 ‘‘(A) IN GENERAL.—The term ‘District

7 stock’ means any stock in a domestic corpora8 tion if—

9 ‘‘(i) such stock is acquired by the tax10 payer on original issue from the corpora11 tion solely in exchange for cash,

12 ‘‘(ii) as of the time such stock was is13 sued, such corporation was a District busi14 ness (or, in the case of a new corporation,

15 such corporation was being organized for

16 purposes of being a District business), and

17 ‘‘(iii) during substantially all of the

18 taxpayer’s holding period for such stock,

19 such corporation qualified as a District

20 business.

21 ‘‘(B) REDEMPTIONS.—The term ‘District

22 stock’ shall not include any stock acquired from

23 a corporation which made a substantial stock

24 redemption or distribution (without a bona fide
17

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1 business purpose therefor) in an attempt to

2 avoid the purposes of this section.

3 ‘‘(3) DISTRICT BUSINESS PROPERTY.—

4 ‘‘(A) IN GENERAL.—The term ‘District

5 business property’ means tangible property if—

6 ‘‘(i) such property was acquired by

7 the taxpayer by purchase (as defined in

8 section 179(d)(2)),

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

10 in the District of Columbia commences

11 with the taxpayer, and

12 ‘‘(iii) during substantially all of the

13 taxpayer’s holding period for such prop14 erty, substantially all of the use of such

15 property was in a District business of the

16 taxpayer.

17 ‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM18 PROVEMENTS.—

19 ‘‘(i) IN GENERAL.—The requirements

20 of clauses (i) and (ii) of subparagraph (A)

21 shall be treated as satisfied with respect

22 to—

23 ‘‘(I) property which is substan24 tially improved by the taxpayer, and
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1 ‘‘(II) any land on which such

2 property is located.

3 ‘‘(ii) SUBSTANTIAL IMPROVEMENT.—

4 For purposes of clause (i), property shall

5 be treated as substantially improved by the

6 taxpayer if, during any 24-month period

7 beginning after the date of the enactment

8 of this section, additions to basis with re9 spect to such property in the hands of the

10 taxpayer exceed the greater of—

11 ‘‘(I) an amount equal to the ad12 justed basis at the beginning of such

13 24-month period in the hands of the

14 taxpayer, or

15 ‘‘(II) $5,000.

16 ‘‘(C) LIMITATION ON LAND.—The term

17 ‘District business property’ shall not include

18 land which is not an integral part of a District

19 business.

20 ‘‘(4) DISTRICT PARTNERSHIP INTEREST.—The

21 term ‘District partnership interest’ means any inter22 est in a partnership if—

23 ‘‘(A) such interest is acquired by the tax24 payer from the partnership solely in exchange

25 for cash,
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•S 1988 IS

1 ‘‘(B) as of the time such interest was ac2 quired, such partnership was a District business

3 (or, in the case of a new partnership, such part4 nership was being organized for purposes of

5 being a District business), and

6 ‘‘(C) during substantially all of the tax7 payer’s holding period for such interest, such

8 partnership qualified as a District business.

9 A rule similar to the rule of paragraph (2)(B) shall

10 apply for purposes of this paragraph.

11 ‘‘(5) TREATMENT OF SUBSEQUENT PUR12 CHASERS.—The term ‘District asset’ includes any

13 property which would be a District asset but for

14 paragraph (2)(A)(i), (3)(A)(ii), or (4)(A) in the

15 hands of the taxpayer if such property was a Dis16 trict asset in the hands of all prior holders.

17 ‘‘(6) 10-YEAR SAFE HARBOR.—If any property

18 ceases to be a District asset by reason of paragraph

19 (2)(A)(iii), (3)(A)(iii), or (4)(C) after the 10-year

20 period beginning on the date the taxpayer acquired

21 such property, such property shall continue to be

22 treated as meeting the requirements of such para23 graph; except that the amount of gain to which sub24 section (a) applies on any sale or exchange of such

25 property shall not exceed the amount which would be
20

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1 qualified capital gain had such property been sold on

2 the date of such cessation.

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

4 For purposes of this section—

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

6 otherwise provided in this subsection, the term

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

8 gain recognized on the sale or exchange of a District

9 asset held for more than 3 years.

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

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

12 not include any gain which would be treated as ordi13 nary income under section 1250 if section 1250 ap14 plied to all depreciation rather than the additional

15 depreciation.

16 ‘‘(3) DISTRICT BUSINESS.—The term ‘District

17 business’ means, with respect to any taxable year,

18 any individual, partnership, or corporation if for

19 such year either—

20 ‘‘(A)(i) at least 50 percent of the total

21 gross income of such individual, partnership, or

22 corporation is derived from the active conduct

23 of a trade or business in the District of Colum24 bia,
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1 ‘‘(ii) substantially all of the use of the tan2 gible property of such individual, partnership,

3 or corporation (whether owned or leased) is

4 within the District of Columbia, and

5 ‘‘(iii) at least 35 percent of the employees

6 of such individual, partnership, or corporation

7 are located in the District of Columbia, or

8 ‘‘(B) at least 50 percent of the employees

9 of such individual, partnership, or corporation

10 are located in the District of Columbia.

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

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

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

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

15 entity which was a District business during substan16 tially all of the period the taxpayer held such inter17 est) for more than 3 years shall be treated as gain

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

19 is attributable to amounts which would be qualified

20 capital gain on District assets (determined as if such

21 assets had been sold on the date of the sale or ex22 change) held by such entity for more than 3 years

23 and throughout the period the taxpayer held such in24 terest. A rule similar to the rule of paragraph (2)(B)

25 shall apply for purposes of the preceding sentence.
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1 ‘‘(2) INCOME INCLUSIONS.—

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

3 in income by reason of holding an interest in a

4 pass-thru entity (other than an entity which

5 was a District business during substantially all

6 of the period the taxpayer held the interest to

7 which such inclusion relates) shall be treated as

8 gain described in subsection (a) if such amount

9 meets the requirements of subparagraph (B).

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

11 the requirements of this subparagraph if—

12 ‘‘(i) such amount is attributable to

13 qualified capital gain recognized on the

14 sale or exchange by the pass-thru entity of

15 property which is a District asset in the

16 hands of such entity and which was held

17 by such entity for the period required

18 under subsection (a), and

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

20 gross income of the taxpayer by reason of

21 the holding of an interest in such entity

22 which was held by the taxpayer on the date

23 on which such pass-thru entity acquired

24 such asset and at all times thereafter be-
23

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1 fore the disposition of such asset by such

2 pass-thru entity.

3 ‘‘(C) LIMITATION BASED ON INTEREST

4 ORIGINALLY HELD BY TAXPAYER.—Subpara5 graph (A) shall not apply to any amount to the

6 extent such amount exceeds the amount to

7 which subparagraph (A) would have applied if

8 such amount were determined by reference to

9 the interest the taxpayer held in the pass-thru

10 entity on the date the District asset was ac11 quired.

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

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

14 ‘‘(A) any partnership,

15 ‘‘(B) any S corporation,

16 ‘‘(C) any regulated investment company,

17 and

18 ‘‘(D) any common trust fund.

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

20 PARTNERSHIPS AND S CORPORATIONS WHICH ARE DIS21 TRICT BUSINESSES.—In the case of the sale or exchange

22 of an interest in a partnership, or of stock in an S corpora23 tion, which was a District business during substantially

24 all of the period the taxpayer held such interest or stock,

25 the amount of qualified capital gain shall be determined
24

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1 without regard to any intangible, and any land, which is

2 not an integral part of the District business.

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

4 For purposes of this section—

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

6 a District asset to which this subsection applies, the

7 transferee shall be treated as—

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

9 same manner as the transferor, and

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

11 continuous period immediately preceding the

12 transfer during which it was held (or treated as

13 held under this subsection) by the transferor.

14 ‘‘(2) TRANSFERS TO WHICH SUBSECTION AP15 PLIES.—This subsection shall apply to any trans16 fer—

17 ‘‘(A) by gift,

18 ‘‘(B) at death, or

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

20 thereof of a District asset with respect to which

21 the requirements of subsection (d)(2) are met

22 at the time of the transfer (without regard to

23 the 3-year holding requirement).
25

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

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

3 apply for purposes of this section.’’

4 (b) CONFORMING AMENDMENTS.—

5 (1) Paragraph (1) of section 55(c) of such Code

6 is amended by adding at the end the following:

7 ‘‘Such regular tax shall be determined without re8 gard to section 59B.’’

9 (2) The table of parts for subchapter A of chap10 ter 1 of such Code is amended by adding at the end

11 the following new item:

‘‘Part VIII. Special rules for taxation of individuals who are residents of or investors in the District of Columbia.’’

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

13 this section shall apply to taxable years ending after the

14 date of the enactment of this Act.

15 SEC. 3. EXPENSING OF ENVIRONMENTAL REMEDIATION

16 COSTS WITHIN THE DISTRICT OF COLUMBIA.

17 (a) IN GENERAL.—Part VI of subchapter B of chap18 ter 1 of the Internal Revenue Code of 1986 is amended

19 by adding at the end the following new section:

20 ‘‘SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION

21 COSTS WITHIN THE DISTRICT OF COLUMBIA.

22 ‘‘(a) IN GENERAL.—A taxpayer may elect to treat

23 any qualified environmental remediation expenditure

24 which is paid or incurred by the taxpayer as an expense
26

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1 which is not chargeable to capital account. Any expendi2 ture which is so treated shall be allowed as a deduction

3 for the taxable year in which it is paid or incurred.

4 ‘‘(b) QUALIFIED ENVIRONMENTAL REMEDIATION

5 EXPENDITURE.—For purposes of this section—

6 ‘‘(1) IN GENERAL.—The term ‘qualified envi7 ronmental remediation expenditure’ means any ex8 penditure—

9 ‘‘(A) which is otherwise chargeable to cap10 ital account, and

11 ‘‘(B) which is paid or incurred in connec12 tion with the abatement or control of hazardous

13 substances at a qualified contaminated site.

14 ‘‘(2) SPECIAL RULE FOR EXPENDITURES FOR

15 DEPRECIABLE PROPERTY.—Such term shall not in16 clude any expenditure for the acquisition of property

17 of a character subject to the allowance for deprecia18 tion which is used in connection with the abatement

19 or control of hazardous substances at a qualified

20 contaminated site; except that the portion of the al21 lowance under section 167 for such property which

22 is otherwise allocated to such site shall be treated as

23 a qualified environmental remediation expenditure.

24 ‘‘(c) QUALIFIED CONTAMINATED SITE.—For pur25 poses of this section—
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•S 1988 IS

1 ‘‘(1) IN GENERAL.—The term ‘qualified con2 taminated site’ means any area within the District

3 of Columbia—

4 ‘‘(A) which is held by the taxpayer for use

5 in a trade or business or for the production of

6 income, or which is property described in sec7 tion 1221(1) in the hands of the taxpayer, and

8 ‘‘(B) which contains (or potentially con9 tains) any hazardous substance.

10 ‘‘(2) TAXPAYER MUST RECEIVE STATEMENT

11 FROM ENVIRONMENTAL AGENCY.—An area shall be

12 treated as a qualified contaminated site with respect

13 to expenditures paid or incurred during any taxable

14 year only if the taxpayer receives a statement from

15 the appropriate agency of the District of Columbia

16 in which such area is located that such area meets

17 the requirements of paragraph (1)(B).

18 ‘‘(3) APPROPRIATE AGENCY.— For purposes of

19 paragraph (2), the appropriate agency of the Dis20 trict of Columbia is the agency designated by the

21 Administrator of the Environmental Protection

22 Agency for purposes of this section. If no agency is

23 designated under the preceding sentence, the appro24 priate agency shall be the Environmental Protection

25 Agency.
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•S 1988 IS

1 ‘‘(d) HAZARDOUS SUBSTANCE.—For purposes of this

2 section—

3 ‘‘(1) IN GENERAL.—The term ‘hazardous sub4 stance’ means—

5 ‘‘(A) any substance which is a hazardous

6 substance as defined in section 101(14) of the

7 Comprehensive Environmental Response, Com8 pensation, and Liability Act of 1980, and

9 ‘‘(B) any substance which is designated as

10 a hazardous substance under section 102 of

11 such Act.

12 ‘‘(2) EXCEPTION.—Such term shall not include

13 any substance with respect to which a removal or re14 medial action is not permitted under section 104 of

15 such Act by reason of subsection (a)(3) thereof.

16 ‘‘(e) DEDUCTION RECAPTURED AS ORDINARY IN17 COME ON SALE, ETC.—Solely for purposes of section

18 1245, in the case of property to which a qualified environ19 mental remediation expenditure would have been capital20 ized but for this section—

21 ‘‘(1) the deduction allowed by this section for

22 such expenditure shall be treated as a deduction for

23 depreciation, and

24 ‘‘(2) such property (if not otherwise section

25 1245 property) shall be treated as section 1245
29

•S 1988 IS

1 property solely for purposes of applying section 1245

2 to such deduction.

3 ‘‘(f) COORDINATION WITH OTHER PROVISIONS.—

4 Sections 280B and 468 shall not apply to amounts which

5 are treated as expenses under this section.

6 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

7 such regulations as may be necessary or appropriate to

8 carry out the purposes of this section.’’

9 (b) CLERICAL AMENDMENT.—The table of sections

10 for part VI of subchapter B of chapter 1 of such Code

11 is amended by adding at the end the following new item:

‘‘Sec. 198. Expensing of environmental remediation costs within

the District of Columbia.’’

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

13 this section shall apply to expenditures paid or incurred

14 after the date of the enactment of this Act, in taxable

15 years ending after such date.

16 SEC. 4. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF

17 COLUMBIA.

18 (a) IN GENERAL.—Subpart A of part IV of sub19 chapter A of chapter 1 of the Internal Revenue Code of

20 1986 (relating to nonrefundable personal credits) is

21 amended by inserting after section 22 the following new

22 section:
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•S 1988 IS

1 ‘‘SEC. 23. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT

2 OF COLUMBIA.

3 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in4 dividual who is a first-time homebuyer of a principal resi5 dence in the District of Columbia during any taxable year,

6 there shall be allowed as a credit against the tax imposed

7 by this chapter for the taxable year an amount equal to

8 so much of the purchase price of the residence as does

9 not exceed $5,000.

10 ‘‘(b) FIRST-TIME HOMEBUYER.—For purposes of

11 this section—

12 ‘‘(1) IN GENERAL.—The term ‘first-time home13 buyer’ means any individual if—

14 ‘‘(A) such individual (and if married, such

15 individual’s spouse) had no present ownership

16 interest in a principal residence in the District

17 of Columbia during the 1-year period ending on

18 the date of acquisition of the principal residence

19 to which this section applies, and

20 ‘‘(B) subsection (h) or (k) of section 1034

21 did not, on the day before the close of such 1-

22 year period, suspend the running of any period

23 of time specified in section 1034 for such indi24 vidual with respect to gain on a principal resi25 dence in the District of Columbia.
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•S 1988 IS

1 ‘‘(2) ONE-TIME ONLY.—If an individual is

2 treated as a first-time homebuyer with respect to

3 any principal residence, such individual may not be

4 treated as a first-time homebuyer with respect to

5 any other principal residence.

6 ‘‘(3) PRINCIPAL RESIDENCE.—The term ‘prin7 cipal residence’ has the meaning given such term by

8 section 1034.

9 ‘‘(4) DATE OF ACQUISITION.—The term ‘date

10 of acquisition’ means the date—

11 ‘‘(A) on which a binding contract to ac12 quire the principal residence to which this sec13 tion applies to is entered into, or

14 ‘‘(B) on which construction or reconstruc15 tion of such principal residence is commenced.

16 ‘‘(c) CARRYOVER OF CREDIT.—If the credit allowable

17 under subsection (a) exceeds the limitation imposed by

18 section 26(a) for such taxable year reduced by the sum

19 of the credits allowable under this subpart (other than this

20 section and section 25), such excess shall be carried to

21 the succeeding taxable year and added to the credit allow22 able under subsection (a) for such taxable year.

23 ‘‘(d) SPECIAL RULES.—For purposes of this sec24 tion—

25 ‘‘(1) ALLOCATION OF DOLLAR LIMITATION.—
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•S 1988 IS

1 ‘‘(A) MARRIED INDIVIDUALS FILING

2 JOINTLY.—In the case of a husband and wife

3 who file a joint return under section 6013, the

4 $5,000 limitation under subsection (a) shall

5 apply to the joint return.

6 ‘‘(B) MARRIED INDIVIDUALS FILING SEPA7 RATELY.—In the case of a married individual

8 filing a separate return, subsection (a) shall be

9 applied by substituting ‘$2,500’ for ‘$5,000’.

10 ‘‘(C) OTHER TAXPAYERS.—If 2 or more

11 individuals who are not married purchase a

12 principal residence, the amount of the credit al13 lowed under subsection (a) shall be allocated

14 among such individuals in such manner as the

15 Secretary may prescribe, except that the total

16 amount of the credits allowed to all such indi17 viduals shall not exceed $5,000.

18 ‘‘(2) PURCHASE.—The term ‘purchase’ means

19 any acquisition, but only if—

20 ‘‘(A) the property is not acquired from a

21 person whose relationship to the person acquir22 ing it would result in the disallowance of losses

23 under section 267 or 707(b) (but, in applying

24 section 267 (b) and (c) for purposes of this sec25 tion, paragraph (4) of section 267(c) shall be
33

•S 1988 IS

1 treated as providing that the family of an indi2 vidual shall include only his spouse, ancestors,

3 and lineal descendants), and

4 ‘‘(B) the basis of the property in the hands

5 of the person acquiring it is not determined—

6 ‘‘(i) in whole or in part by reference

7 to the adjusted basis of such property in

8 the hands of the person from whom ac9 quired, or

10 ‘‘(ii) under section 1014(a) (relating

11 to property acquired from a decedent).

12 ‘‘(3) PURCHASE PRICE.—The term ‘purchase

13 price’ means the adjusted basis of the principal resi14 dence on the date of acquisition.’’

15 (b) CONFORMING AMENDMENT.—The table of sec16 tions for subpart A of part IV of subchapter A of chapter

17 1 of such Code is amended by inserting after the item

18 relating to section 22 the following new item:

‘‘Sec. 23. First-time homebuyer credit for District of Columbia.’’

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

20 this section shall apply to purchases after the date of the

21 enactment of this Act, in taxable years ending after such

22 date.

Æ