I 

109TH CONGRESS 

2D SESSION H. R. 5186 

To amend the Internal Revenue Code of 1986 to replace the expired tax 

benefits for the DC Zone, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 25, 2006 

Ms. NORTON introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on the 

Judiciary and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

A BILL 

To amend the Internal Revenue Code of 1986 to replace 

the expired tax benefits for the DC Zone, 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 Tax Incentives Improvement Act of 2006’’. 


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1 SEC. 2. ESTABLISHMENT OF DC TARGET AREAS TO RE2 PLACE EXPIRED DC ZONE. 

3 (a) IN GENERAL.—Section 1400 of the Internal Rev4 enue Code of 1986 (relating to establishment of DC Zone) 

5 is amended to read as follows: 

6 ‘‘SEC. 1400. ESTABLISHMENT OF DC TARGET AREAS. 

7 ‘‘(a) ESTABLISHMENT OF DC DEVELOPMENT TAR8 GET AREA.— 

9 ‘‘(1) IN GENERAL.—For purposes of this title— 

10 ‘‘(A) the modified DC area is hereby des11 ignated as the DC Development Target Area, 

12 and 

13 ‘‘(B) except for purposes of sections 51 

14 and 1396 and as otherwise provided in this sub15 chapter, the DC Development Target Area shall 

16 be treated as an empowerment zone designated 

17 under subchapter U. 

18 ‘‘(2) MODIFIED DC AREA.—For purposes of this 

19 section— 

20 ‘‘(A) IN GENERAL.—The term ‘modified 

21 DC area’ means the area consisting of— 

22 ‘‘(i) the census tracts located in the 

23 District of Columbia which are part of an 

24 enterprise community designated under 

25 subchapter U before August 5, 1997, 

26 ‘‘(ii) all other census tracts— 


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1 ‘‘(I) which are located in the Dis2 trict of Columbia, and 

3 ‘‘(II) for which the poverty rate 

4 is not less than 20 percent as deter5 mined on the basis of the 1990 cen6 sus, and 

7 ‘‘(iii) the 31 census tracts identified 

8 for commercial and industrial development 

9 (as of October 11, 2005) by the Deputy 

10 Mayor for Planning and Economic Devel11 opment of the District of Columbia. 

12 ‘‘(B) EXCLUSION OF RESIDENTIAL CENSUS

13 TRACTS.—Such term shall not include any cen14 sus tract described in clause (i) or (ii) of sub15 paragraph (A) if no portion of such census 

16 tract is zoned by the District of Columbia for 

17 non-residential development as of June 30, 

18 2003. 

19 ‘‘(C) EXCLUSION OF RESIDENTIAL

20 BLOCKS.—Such term shall not include any resi21 dential block (as determined by the Deputy 

22 Mayor for Planning and Economic Development 

23 of the District of Columbia). 

24 ‘‘(3) SPECIAL RULE FOR APPLICATION OF EN25 TERPRISE ZONE BUSINESS DEFINITION.—For purVerDate Aug 31 2005 08:51 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H5186.IH H5186

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1 poses of this subchapter and for purposes of apply2 ing subchapter U with respect to the DC Develop3 ment Target Area, section 1397C shall be applied 

4 without regard to subsections (b)(6), (c)(5), and 

5 (d)(2)(B) thereof. 

6 ‘‘(4) TIME FOR WHICH DESIGNATION APPLICA7 BLE.— 

8 ‘‘(A) IN GENERAL.—The designation made 

9 by paragraph (1) shall apply for the period be10 ginning on January 1, 2006, and ending on De11 cember 31, 2009. 

12 ‘‘(B) COORDINATION WITH DC ENTER13 PRISE COMMUNITY DESIGNATED UNDER SUB14 CHAPTER U.—With respect to the portions of 

15 the census tracts referred to in paragraph 

16 (2)(A)(i) which are in the modified DC area— 

17 ‘‘(i) section 1400(f)(2) shall not apply, 

18 and 

19 ‘‘(ii) the designation under subchapter 

20 U of such portions shall terminate on De21 cember 31, 2009. 

22 ‘‘(b) ESTABLISHMENT OF DC EMPLOYMENT TARGET

23 AREA.— 

24 ‘‘(1) IN GENERAL.—For purposes of this title— 


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1 ‘‘(A) the DC high unemployment area is 

2 hereby designated as the DC Employment Tar3 get Area, and 

4 ‘‘(B) except as otherwise provided in this 

5 subchapter, the DC Employment Target Area 

6 shall be treated as an empowerment zone des7 ignated under subchapter U for purposes of 

8 sections 51 and 1396 (and for purposes of ap9 plying this subchapter and subchapter U with 

10 respect to such sections). 

11 ‘‘(2) DC HIGH UNEMPLOYMENT AREA.—For 

12 purposes of this section, the term ‘DC high unem13 ployment area’ means the census tracts— 

14 ‘‘(A) which are located in the District of 

15 Columbia, and 

16 ‘‘(B) for which the unemployment rate is 

17 not less than 10 percent as determined on the 

18 basis of the 2000 census. 

19 ‘‘(3) SPECIAL RULE FOR APPLICATION OF EM20 PLOYMENT CREDIT.—With respect to the DC Em21 ployment Target Area, section 1396(d)(1)(A) (relat22 ing to empowerment zone employment credit) shall 

23 be applied by substituting ‘the District of Columbia’ 

24 for ‘an empowerment zone’. 


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1 ‘‘(c) DEFINITIONS.—For purposes of this sub2 chapter— 

3 ‘‘(1) DC DEVELOPMENT TARGET AREA.—The 

4 term ‘DC Development Target Area’ means the DC 

5 Development Target Area designated by subsection 

6 (a). 

7 ‘‘(2) DC EMPLOYMENT TARGET AREA.—The 

8 term ‘DC Employment Target Area’ means the DC 

9 Employment Target Area designated by subsection 

10 (b). 

11 ‘‘(d) TIME FOR WHICH DESIGNATIONS APPLICA12 BLE.— 

13 ‘‘(1) IN GENERAL.—The designations made by 

14 subsections (a) and (b) shall apply for the period be15 ginning on January 1, 2006, and ending on Decem16 ber 31, 2009. 

17 ‘‘(2) COORDINATION WITH DC ENTERPRISE

18 COMMUNITY DESIGNATED UNDER SUBCHAPTER U.— 

19 With respect to the portions of the census tracts re20 ferred to in subsection (a)(2)(A)(i) which are in the 

21 modified DC area— 

22 ‘‘(A) section 1400(f)(2) shall not apply, 

23 and 


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1 ‘‘(B) the designation under subchapter U 

2 of such portions shall terminate on December 

3 31, 2009.’’. 

4 (b) CONFORMING AMENDMENTS.— 

5 (1) Section 1202(a)(2)(D) and section 

6 1397B(b)(1) of such Code are each amended by 

7 striking ‘‘The District of Columbia Enterprise Zone’’ 

8 and inserting ‘‘The DC Development Target Area 

9 (as defined in section 1400) and the DC Zone (as 

10 defined in section 1400, as in effect on December 

11 31, 2005)’’. 

12 (2) The heading of subchapter W of chapter 1 

13 of such Code is amended by striking ‘‘Enterprise 

14 Zone’’ and inserting ‘‘Target Areas’’. 

15 (3) The item relating to section 1400 in the 

16 table of sections for subchapter W of chapter 1 of 

17 such Code is amended to read as follows: 

‘‘Sec. 1400. Establishment of DC Target Areas.’’. 

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

19 this section shall take effect on January 1, 2006. 

20 SEC. 3. REPEAL OF SPECIAL RULES RELATED TO TAX-EX21 EMPT ENTERPRISE ZONE FACILITY BONDS. 

22 (a) IN GENERAL.—Section 1400A of the Internal 

23 Revenue Code of 1986 (relating to tax-exempt economic 

24 development bonds) is hereby repealed. 

25 (b) CONFORMING AMENDMENTS.— 


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1 (1) Subparagraph (B) of section 1394(f)(3) of 

2 such Code is amended by striking ‘‘(other than the 

3 District of Columbia Enterprise Zone)’’. 

4 (2) The table of sections for subchapter W of 

5 chapter 1 of such Code is amended by striking the 

6 item relating to section 1400A. 

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

8 this section shall apply to obligations issued after Decem9 ber 31, 2005. 

10 SEC. 4. ZERO PERCENT CAPITAL GAINS RATE ON CERTAIN 

11 DC ASSETS. 

12 (a) IN GENERAL.—Section 1400B of the Internal 

13 Revenue Code of 1986 (relating to zero percent capital 

14 gains rate) is amended to read as follows: 

15 ‘‘SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE ON CER16 TAIN DC ASSETS. 

17 ‘‘(a) EXCLUSION.—Gross income shall not include 

18 qualified capital gain from the sale or exchange of any 

19 expanded DC Zone asset held for more than 5 years. 

20 ‘‘(b) EXPANDED DC ZONE ASSET.— For purposes 

21 of this section— 

22 ‘‘(1) IN GENERAL.—The term ‘expanded DC 

23 Zone asset’ means— 

24 ‘‘(A) any expanded DC Zone business 

25 stock, 


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1 ‘‘(B) any expanded DC Zone partnership 

2 interest, and 

3 ‘‘(C) any expanded DC Zone business 

4 property. 

5 ‘‘(2) EXPANDED DC ZONE BUSINESS STOCK.— 

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

7 DC Zone business stock’ means any stock in a 

8 domestic corporation which is originally issued 

9 after December 31, 1997, if— 

10 ‘‘(i) such stock is acquired by the tax11 payer, before January 1, 2010, at its origi12 nal issue (directly or through an under13 writer) solely in exchange for cash, 

14 ‘‘(ii) as of the time such stock was 

15 issued, such corporation was an expanded 

16 DC Zone business (or, in the case of a new 

17 corporation, such corporation was being or18 ganized for purposes of being an expanded 

19 DC Zone business), and 

20 ‘‘(iii) during substantially all of the 

21 taxpayer’s holding period for such stock, 

22 such corporation qualified as an expanded 

23 DC Zone business. 


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1 ‘‘(B) REDEMPTIONS.—A rule similar to 

2 the rule of section 1202(c)(3) shall apply for 

3 purposes of this paragraph. 

4 ‘‘(3) EXPANDED DC ZONE PARTNERSHIP INTER5 EST.—The term ‘expanded DC Zone partnership in6 terest’ means any capital or profits interest in a do7 mestic partnership which is originally issued after 

8 December 31, 1997, if— 

9 ‘‘(A) such interest is acquired by the tax10 payer, before January 1, 2010, from the part11 nership solely in exchange for cash, 

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

14 Zone business (or, in the case of a new partner15 ship, such partnership was being organized for 

16 purposes of being an expanded DC Zone busi17 ness), and 

18 ‘‘(C) during substantially all of the tax19 payer’s holding period for such interest, such 

20 partnership qualified as an expanded DC Zone 

21 business. 

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

23 apply for purposes of this paragraph. 

24 ‘‘(4) EXPANDED DC ZONE BUSINESS PROP25 ERTY.— 


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1 ‘‘(A) IN GENERAL.—The term ‘expanded 

2 DC Zone business property’ means tangible 

3 property if— 

4 ‘‘(i) such property was acquired by 

5 the taxpayer by purchase (as defined in 

6 section 179(d)(2)) after December 31, 

7 1997, and before January 1, 2010, 

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

9 in the expanded DC Zone commences with 

10 the taxpayer, and 

11 ‘‘(iii) during substantially all of the 

12 taxpayer’s holding period for such prop13 erty, substantially all of the use of such 

14 property was in an expanded DC Zone 

15 business of the taxpayer. 

16 ‘‘(B) SPECIAL RULE FOR BUILDINGS

17 WHICH ARE SUBSTANTIALLY IMPROVED.— 

18 ‘‘(i) IN GENERAL.—The requirements 

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

20 shall be treated as met with respect to— 

21 ‘‘(I) property which is substan22 tially improved by the taxpayer before 

23 January 1, 2010, and 

24 ‘‘(II) any land on which such 

25 property is located. 


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1 ‘‘(ii) SUBSTANTIAL IMPROVEMENT.— 

2 For purposes of clause (i), property shall 

3 be treated as substantially improved by the 

4 taxpayer only if, during any 24-month pe5 riod beginning after December 31, 1997, 

6 additions to basis with respect to such 

7 property in the hands of the taxpayer ex8 ceed the greater of— 

9 ‘‘(I) an amount equal to the ad10 justed basis of such property at the 

11 beginning of such 24-month period in 

12 the hands of the taxpayer, or 

13 ‘‘(II) $5,000. 

14 ‘‘(5) TREATMENT OF DEVELOPMENT AREA TER15 MINATIONS.—Except as provided in subsection (d), 

16 the termination of the designation of the DC Zone 

17 or the DC Development Target Area shall be dis18 regarded for purposes of determining whether any 

19 property is an expanded DC Zone asset. 

20 ‘‘(6) TREATMENT OF SUBSEQUENT PUR21 CHASERS, ETC.—The term ‘expanded DC Zone 

22 asset’ includes any property which would be an ex23 panded DC Zone asset but for paragraph (2)(A)(i), 

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1 payer if such property was an expanded DC Zone 

2 asset in the hands of a prior holder. 

3 ‘‘(7) 5-YEAR SAFE HARBOR.—If any property 

4 ceases to be an expanded DC Zone asset by reason 

5 of paragraph (2)(A)(iii), (3)(C), or (4)(A)(iii) after 

6 the 5-year period beginning on the date the taxpayer 

7 acquired such property, such property shall continue 

8 to be treated as meeting the requirements of such 

9 paragraph; except that the amount of gain to which 

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

11 such property shall not exceed the amount which 

12 would be qualified capital gain had such property 

13 been sold on the date of such cessation. 

14 ‘‘(c) EXPANDED DC ZONE BUSINESS.—For purposes 

15 of this section, the term ‘expanded DC Zone business’ 

16 means any enterprise zone business (as defined in section 

17 1397C), determined— 

18 ‘‘(1) after the application of section 1400D(d), 

19 ‘‘(2) by substituting ‘80 percent’ for ‘50 per20 cent’ in subsections (b)(2) and (c)(1) of section 

21 1397C, 

22 ‘‘(3) by treating no area other than the ex23 panded DC Zone as an empowerment zone or enter24 prise community, and 


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1 ‘‘(4) in the case of periods beginning after De2 cember 31, 2005, without regard to subparagraph 

3 (B) of section 1397C(d)(2). 

4 ‘‘(d) EXPANDED DC ZONE.—For purposes of this 

5 section— 

6 ‘‘(1) IN GENERAL .—The term ‘expanded DC 

7 Zone’ means the DC Zone and DC Development 

8 Target Area. 

9 ‘‘(2) DC ZONE.—The term ‘DC Zone’ means— 

10 ‘‘(A) the DC Zone (within the meaning of 

11 section 1400, as in effect on December 31, 

12 2005), and 

13 ‘‘(B) all census tracts— 

14 ‘‘(i) which are located in the District 

15 of Columbia, and 

16 ‘‘(ii) for which the poverty rate is not 

17 less than 10 percent as determined on the 

18 basis of the 1990 census. 

19 ‘‘(3) APPLICATION OF SECTION TO EXPIRED

20 PORTION OF DC ZONE.—In the case of any expanded 

21 DC Zone asset (determined without regard to this 

22 paragraph) which would not be an expanded DC 

23 Zone asset if the expanded DC Zone did not include 

24 that portion of the DC Zone which is not part the 


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1 DC Development Target Area, this section shall be 

2 applied— 

3 ‘‘(A) by substituting ‘January 1, 2006’ for 

4 ‘January 1, 2010’ each place it appears in sub5 section (b), 

6 ‘‘(B) by substituting ‘January 1, 2010’ for 

7 ‘January 1, 2014’ in subsections (e)(2) and 

8 (g)(2). 

9 ‘‘(4) APPLICATION OF SECTION TO NEWLY DES10 IGNATED PORTION OF EXPANDED DC ZONE.—In the 

11 case of any expanded DC Zone asset (determined 

12 without regard to this paragraph) which would not 

13 be an expanded DC Zone asset if the expanded DC 

14 Zone did not include that portion of the DC Devel15 opment Target Area which is not part of the DC 

16 Zone, this section shall be applied— 

17 ‘‘(A) by substituting ‘December 31, 2005’ 

18 for ‘December 31, 1997’ each place it appears 

19 in subsection (b), and 

20 ‘‘(B) by substituting ‘January 1, 2006’ for 

21 ‘January 1, 1998’ in subsections (e)(2) and 

22 (g)(2). 

23 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.— 

24 For purposes of this section— 


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

2 otherwise provided in this subsection, the term 

3 ‘qualified capital gain’ means any gain recognized on 

4 the sale or exchange of— 

5 ‘‘(A) a capital asset, or 

6 ‘‘(B) property used in the trade or busi7 ness (as defined in section 1231(b). 

8 ‘‘(2) GAIN BEFORE 1998OR AFTER 2014 NOT

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

10 not include any gain attributable to periods before 

11 January 1, 1998, or after December 31, 2014. 

12 ‘‘(3) CERTAIN GAIN NOT QUALIFIED.—The 

13 term ‘qualified capital gain’ shall not include any 

14 gain which would be treated as ordinary income 

15 under section 1245 or under section 1250 if section 

16 1250 applied to all depreciation rather than the ad17 ditional depreciation. 

18 ‘‘(4) INTANGIBLES AND LAND NOT INTEGRAL

19 PART OF EXPANDED DC ZONE BUSINESS.—The term 

20 ‘qualified capital gain’ shall not include any gain 

21 which is attributable to real property, or an intan22 gible asset, which is not an integral part of an ex23 panded DC Zone business. 

24 ‘‘(5) RELATED PARTY TRANSACTIONS.—The 

25 term ‘qualified capital gain’ shall not include any 


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1 gain attributable, directly or indirectly, in whole or 

2 in part, to a transaction with a related person. For 

3 purposes of this paragraph, persons are related to 

4 each other if such persons are described in section 

5 267(b) or 707(b)(1). 

6 ‘‘(f) CERTAIN OTHER RULES TO APPLY.—Rules 

7 similar to the rules of subsections (g), (h), (i)(2), and (j) 

8 of section 1202 shall apply for purposes of this section. 

9 ‘‘(g) SALES AND EXCHANGES OF INTERESTS IN

10 PARTNERSHIPS AND S CORPORATIONS WHICH ARE DC 

11 DEVELOPMENT AREA BUSINESSES.—In the case of the 

12 sale or exchange of an interest in a partnership, or of 

13 stock in an S corporation, which was an expanded DC 

14 Zone business during substantially all of the period the 

15 taxpayer held such interest or stock, the amount of quali16 fied capital gain shall be determined without regard to— 

17 ‘‘(1) any gain which is attributable to real prop18 erty, or an intangible asset, which is not an integral 

19 part of an expanded DC Zone business, and 

20 ‘‘(2) any gain attributable to periods before 

21 January 1, 1998, or after December 31, 2014.’’. 

22 (b) CLERICAL AMENDMENT.—The item relating to 

23 section 1400B in the table of sections for subchapter W 

24 of chapter 1 of such Code is amended to read as follows: 

‘‘Sec. 1400B. Zero capital gains rate on certain DC assets’’. 


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

2 this section shall apply to sales or exchanges after Decem3 ber 31, 2005. 

4 SEC. 5. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF 

5 COLUMBIA. 

6 (a) EXTENSION OF CREDIT.—Subsection (i) of sec7 tion 1400C of such Code (relating to first-time homebuyer 

8 credit for District of Columbia) is amended by striking 

9 ‘‘January 1, 2006’’ and inserting ‘‘January 1, 2010’’. 

10 (b) INCREASE IN MAXIMUM CREDIT.—Subsection (a) 

11 of section 1400C of such Code is amended by striking 

12 ‘‘$5,000’’ and inserting ‘‘$10,000’’. 

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

14 this section shall apply to property purchased after De15 cember 31, 2005, in taxable years ending after such date. 

16 SEC. 6. BONDS OF DISTRICT OF COLUMBIA EXEMPT FROM 

17 STATE AND LOCAL TAXES. 

18 (a) IN GENERAL.—Section 485 of the District of Co19 lumbia Home Rule Act is amended to read as follows: 

20 ‘‘TAX EXEMPTION

21 ‘‘SEC. 485. 

22 Bonds and notes issued by the Council pursuant to this 

23 title and the interest thereon shall be exempt from all tax24 ation (except estate, inheritance, and gift taxes) imposed 

25 by the United States, any State or political subdivision 


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1 thereof, the District, or any possession of the United 

2 States.’’. 

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

4 this section shall apply to bonds and notes issued after 

5 the date of the enactment of this Act. 

Æ 


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