II

106TH CONGRESS

1ST SESSION S. 1859

To amend the Internal Revenue Code of 1986 to provide a tax credit to

taxpayers investing in economically distressed rural communities, and

for other purposes.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 4, 1999

Mr. GRAMS 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

a tax credit to taxpayers investing in economically distressed rural communities, 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 ‘‘Rural Revitalization

5 Act of 1999’’.

6 SEC. 2. RURAL REVITALIZATION TAX CREDIT.

7 (a) IN GENERAL.—Subpart D of part IV of sub8 chapter A of chapter 1 of the Internal Revenue Code of
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1 1986 (relating to business-related credits) is amended by

2 adding at the end the following new section:

3 ‘‘SEC. 45D. RURAL REVITALIZATION TAX CREDIT.

4 ‘‘(a) ALLOWANCE OF CREDIT.—

5 ‘‘(1) IN GENERAL.—For purposes of section 38,

6 the rural revitalization tax credit determined under

7 this section with respect to taxpayer for a taxable

8 year is an amount equal to the sum of—

9 ‘‘(A) the development credit, and

10 ‘‘(B) the wage credit.

11 ‘‘(2) CREDITS.—For purposes of paragraph

12 (1)—

13 ‘‘(A) DEVELOPMENT CREDIT.—The term

14 ‘development credit’ means, in the case of a

15 taxpayer who holds a qualified equity invest16 ment on a credit allowance date of such invest17 ment which occurs during the taxable year, 6

18 percent of the amount paid to the qualified

19 community development entity for such invest20 ment at its original issue.

21 ‘‘(B) WAGE CREDIT.—The term ‘wage

22 credit’ means, in the case of any employer, the

23 qualified wages paid or incurred during the cal24 endar year which ends with or within such tax25 able year.
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1 ‘‘(3) CREDIT ALLOWANCE DATE.—The term

2 ‘credit allowance date’ means, with respect to any

3 qualified equity investment—

4 ‘‘(A) the date on which such investment is

5 initially made, and

6 ‘‘(B) each of the 6 annual anniversary

7 dates of such date thereafter.

8 ‘‘(b) QUALIFIED EQUITY INVESTMENT.—For pur9 poses of this section—

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

11 investment’ means any equity investment in a quali12 fied economic development entity if—

13 ‘‘(A) such investment is acquired by the

14 taxpayer at its original issue (directly or

15 through an underwriter) solely in exchange for

16 cash,

17 ‘‘(B) substantially all of the proceeds from

18 such investment are used by the qualified eco19 nomic development entity to make qualified low20 income rural community investments, and

21 ‘‘(C) such investment is designated for

22 purposes of this section by the qualified eco23 nomic development entity.

24 Such term shall not include any equity investment

25 issued by a qualified economic development entity
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1 more than 7 years after the date that such entity re2 ceives an allocation under subsection (g). Any alloca3 tion not used within such 7-year period may be re4 allocated by the Secretary under subsection (g).

5 ‘‘(2) LIMITATION.—The maximum amount of

6 equity investments issued by a qualified economic

7 development entity which may be designated under

8 paragraph (1)(C) by such entity shall not exceed the

9 portion of the limitation amount allocated under

10 subsection (g) to such entity.

11 ‘‘(3) SAFE HARBOR FOR DETERMINING USE OF

12 CASH.—The requirement of paragraph (1)(B) shall

13 be treated as met if at least 85 percent of the aggre14 gate gross assets of the qualified economic develop15 ment entity are invested in qualified low-income

16 rural community investments.

17 ‘‘(4) TREATMENT OF SUBSEQUENT PUR18 CHASERS.—The term ‘qualified equity investment’

19 includes any equity investment which would (but for

20 paragraph (1)(A)) be a qualified equity investment

21 in the hands of the taxpayer if such investment was

22 a qualified equity investment in the hands of a prior

23 holder.
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1 ‘‘(5) REDEMPTIONS.—A rule similar to the rule

2 of section 1202(c)(3) shall apply for purposes of this

3 subsection.

4 ‘‘(6) EQUITY INVESTMENT.—The term ‘equity

5 investment’ means—

6 ‘‘(A) any stock in a qualified economic de7 velopment entity which is a corporation, and

8 ‘‘(B) any capital interest in a qualified eco9 nomic development entity which is a partner10 ship.

11 ‘‘(c) QUALIFIED ECONOMIC DEVELOPMENT ENTI12 TY.—For purposes of this section—

13 ‘‘(1) IN GENERAL.—The term ‘qualified eco14 nomic development entity’ means any domestic cor15 poration or partnership if—

16 ‘‘(A) the primary mission of the entity is

17 serving, or providing investment capital for,

18 low-income rural communities or low-income

19 persons located in such communities, and

20 ‘‘(B) the entity is certified by the Sec21 retary for purposes of this section as being a

22 qualified economic development entity.

23 ‘‘(2) SPECIAL RULES FOR CERTAIN ORGANIZA24 TIONS.—The requirements of paragraph (1) shall be

25 treated as met by—
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1 ‘‘(A) any specialized small business invest2 ment company (as defined in section

3 1044(c)(3)), and

4 ‘‘(B) any community development financial

5 institution (as defined in section 103 of the

6 Community Development Banking and Finan7 cial Institutions Act of 1994 (12 U.S.C. 4702)).

8 ‘‘(d) QUALIFIED LOW-INCOME RURAL COMMUNITY

9 INVESTMENTS.—For purposes of this section—

10 ‘‘(1) IN GENERAL.—The term ‘qualified low-in11 come rural community investment’ means—

12 ‘‘(A) any equity investment in, or loan to,

13 any qualified active low-income rural commu14 nity business,

15 ‘‘(B) the purchase from another economic

16 development entity of any loan made by such

17 entity which is a qualified low-income rural

18 community investment if the amount received

19 by such other entity from such purchase is used

20 by such other entity to make qualified low-in21 come rural community investments,

22 ‘‘(C) financial counseling and other serv23 ices specified in regulations prescribed by the

24 Secretary to businesses located in, and resi25 dents of, low-income rural communities, and
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1 ‘‘(D) any equity investment in, or loan to,

2 any qualified economic development entity if

3 substantially all of the investment or loan is

4 used by such entity to make qualified low-in5 come rural community investments described in

6 subparagraphs (A), (B), and (C).

7 ‘‘(2) QUALIFIED ACTIVE LOW-INCOME RURAL

8 COMMUNITY BUSINESS.—

9 ‘‘(A) IN GENERAL.—For purposes of para10 graph (1), the term ‘qualified active low-income

11 rural community business’ means, with respect

12 to any taxable year, any corporation or partner13 ship if for such year—

14 ‘‘(i) at least 50 percent of the total

15 gross income of such entity is derived from

16 the active conduct of a qualified business

17 within any low-income rural community,

18 ‘‘(ii) a substantial portion of the use

19 of the tangible property of such entity

20 (whether owned or leased) is within any

21 low-income rural community,

22 ‘‘(iii) a substantial portion of the serv23 ices performed for such entity by its em24 ployees are performed in any low-income

25 rural community,
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1 ‘‘(iv) less than 5 percent of the aver2 age of the aggregate unadjusted bases of

3 the property of such entity is attributable

4 to collectibles (as defined in section

5 408(m)(2)) other than collectibles that are

6 held primarily for sale to customers in the

7 ordinary course of such business, and

8 ‘‘(v) less than 5 percent of the aver9 age of the aggregate unadjusted bases of

10 the property of such entity is attributable

11 to nonqualified financial property (as de12 fined in section 1397B(e)).

13 ‘‘(B) PROPRIETORSHIP.—Such term shall

14 include any business carried on by an individual

15 as a proprietor if such business would meet the

16 requirements of subparagraph (A) were it incor17 porated.

18 ‘‘(C) PORTIONS OF BUSINESS MAY BE

19 QUALIFIED ACTIVE LOW-INCOME RURAL COM20 MUNITY BUSINESS.—The term ‘qualified active

21 low-income rural community business’ includes

22 any trades or businesses which would qualify as

23 a qualified active low-income rural community

24 business if such trades or businesses were sepa25 rately incorporated.
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1 ‘‘(3) QUALIFIED BUSINESS.—For purposes of

2 this subsection, the term ‘qualified business’ has the

3 meaning given to such term by section 1397B(d);

4 except that—

5 ‘‘(A) in lieu of applying paragraph (2)(B)

6 thereof, the rental to others of real property lo7 cated in any low-income rural community shall

8 be treated as a qualified business if there are

9 substantial improvements located on such prop10 erty, and

11 ‘‘(B) paragraph (3) thereof shall not apply.

12 ‘‘(e) LOW-INCOME RURAL COMMUNITY.—For pur13 poses of this section—

14 ‘‘(1) IN GENERAL.—The term ‘low-income rural

15 community’ means any population census tract if—

16 ‘‘(A) for the 5 previous calendar years end17 ing before the date on which the taxable year

18 in which the investment is made begins—

19 ‘‘(i) the average poverty rate for such

20 tract is at least 20 percent, or

21 ‘‘(ii) the average median family in22 come for such tract does not exceed 80

23 percent of statewide median family income

24 of the State in which such tract is located,

25 and
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1 ‘‘(B) the tract is not located within a met2 ropolitan area.

3 ‘‘(2) AREAS NOT WITHIN CENSUS TRACTS.—In

4 the case of an area which is not tracted for popu5 lation census tracts, the equivalent county divisions

6 (as defined by the Bureau of the Census for pur7 poses of defining poverty areas) shall be used for

8 purposes of determining poverty rates and median

9 family income.

10 ‘‘(3) TARGETED POPULATION.—The Secretary

11 may prescribe regulations under which 1 or more

12 targeted populations (within the meaning of section

13 3(20) of the Riegle Community Development and

14 Regulatory Improvement Act of 1974 (12 U.S.C.

15 4702(20))) may be treated as low-income rural com16 munities. Such regulations shall include procedures

17 for identifying the area covered by any such commu18 nity for purposes of determining entities which are

19 qualified active low-income rural community busi20 nesses with respect to such community.

21 ‘‘(f) QUALIFIED WAGES.—

22 ‘‘(1) IN GENERAL.—For purposes of this sec23 tion, the term ‘qualified wages’ means any wages

24 paid or incurred by an employer for services per-
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1 formed by an employee while such employee is a

2 qualified employee.

3 ‘‘(2) ONLY FIRST $3,000 OF WAGES PER YEAR

4 TAKEN INTO ACCOUNT.—With respect to each quali5 fied employee, the amount of qualified wages which

6 may be taken into account for a calendar year shall

7 not exceed $3,000.

8 ‘‘(3) COORDINATION WITH WORK OPPORTUNITY

9 CREDIT AND EMPOWERMENT ZONE EMPLOYMENT

10 CREDIT.—The term ‘qualified wages’ shall not in11 clude wages taken into account in determining the

12 credit under section 51 or 1396.

13 ‘‘(4) OTHER DEFINITIONS; SPECIAL RULES.—

14 ‘‘(A) QUALIFIED EMPLOYEE.—For pur15 poses of this section—

16 ‘‘(i) IN GENERAL.—The term ‘quali17 fied employee’ means, with respect to any

18 period, any employee of an employer if—

19 ‘‘(I) substantially all of the serv20 ices performed during such period by

21 such employee for such employer are

22 performed within a low-income rural

23 community in a trade or business of

24 the employer, and
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1 ‘‘(II) the principal place of abode

2 of such employee while performing

3 such services is within such low-in4 come rural community.

5 ‘‘(ii) ELIGIBILITY RULES.—Rules

6 similar to the rules of paragraphs (2) and

7 (3) of section 1396(d) shall apply.

8 ‘‘(B) WAGES.—The term ‘wages’ has the

9 same meaning as when used in section 1396.

10 ‘‘(C) CERTAIN OTHER RULES MADE APPLI11 CABLE.—For purposes of this section, rules

12 similar to the rules of subsections (b) and (c)

13 of section 1396 shall apply.

14 ‘‘(g) NATIONAL LIMITATION ON AMOUNT OF INVEST15 MENTS DESIGNATED.—

16 ‘‘(1) IN GENERAL.—There is a development

17 credit limitation of $1,200,000,000 for each of cal18 endar years 2000 through 2004.

19 ‘‘(2) ALLOCATION OF LIMITATION.—The limita20 tion under paragraph (1) shall be allocated by the

21 Secretary among qualified economic development en22 tities selected by the Secretary. In making alloca23 tions under the preceding sentence, the Secretary

24 shall give priority to entities with records of having
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1 successfully provided capital or technical assistance

2 to disadvantaged businesses or communities.

3 ‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If

4 the development credit limitation for any calendar

5 year exceeds the aggregate amount allocated under

6 paragraph (2) for such year, such limitation for the

7 succeeding calendar year shall be increased by the

8 amount of such excess.

9 ‘‘(h) RECAPTURE OF CREDIT IN CERTAIN CASES.—

10 ‘‘(1) IN GENERAL.—If, at any time during the

11 7-year period beginning on the date of the original

12 issue of a qualified equity investment in a qualified

13 economic development entity, there is a recapture

14 event with respect to such investment, then the tax

15 imposed by this chapter for the taxable year in

16 which such event occurs shall be increased by the

17 credit recapture amount.

18 ‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur19 poses of paragraph (1), the credit recapture amount

20 is an amount equal to the sum of—

21 ‘‘(A) the aggregate decrease in the credits

22 allowed to the taxpayer under section 38 for all

23 prior taxable years which would have resulted if

24 no credit had been determined under this sec25 tion with respect to such investment, plus
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1 ‘‘(B) interest at the overpayment rate es2 tablished under section 6621 on the amount de3 termined under subparagraph (A) for each

4 prior taxable year for the period beginning on

5 the due date for filing the return for the prior

6 taxable year involved.

7 No deduction shall be allowed under this chapter for

8 interest described in subparagraph (B).

9 ‘‘(3) RECAPTURE EVENT.—For purposes of

10 paragraph (1), there is a recapture event with re11 spect to an equity investment in a qualified economic

12 development entity if—

13 ‘‘(A) such entity ceases to be a qualified

14 economic development entity,

15 ‘‘(B) the proceeds of the investment cease

16 to be used as required of subsection (b)(1)(B),

17 or

18 ‘‘(C) such investment is redeemed by such

19 entity.

20 ‘‘(4) SPECIAL RULES.—

21 ‘‘(A) TAX BENEFIT RULE.—The tax for

22 the taxable year shall be increased under para23 graph (1) only with respect to credits allowed

24 by reason of this section which were used to re25 duce tax liability. In the case of credits not so
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1 used to reduce tax liability, the carryforwards

2 and carrybacks under section 39 shall be appro3 priately adjusted.

4 ‘‘(B) NO CREDITS AGAINST TAX.—Any in5 crease in tax under this subsection shall not be

6 treated as a tax imposed by this chapter for

7 purposes of determining the amount of any

8 credit under this chapter or for purposes of sec9 tion 55.

10 ‘‘(i) BASIS REDUCTION.—The basis of any qualified

11 equity investment shall be reduced by the amount of any

12 credit determined under this section with respect to such

13 investment.

14 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

15 such regulations as may be appropriate to carry out this

16 section, including regulations—

17 ‘‘(1) which limit the development credit for in18 vestments which are directly or indirectly subsidized

19 by other Federal benefits (including the credit under

20 section 42 and the exclusion from gross income

21 under section 103),

22 ‘‘(2) which prevent the abuse of the provisions

23 of this section through the use of related parties,

24 ‘‘(3) which impose appropriate reporting re25 quirements, and
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1 ‘‘(4) which apply the provisions of this section

2 to newly formed entities.’’

3 (b) CREDIT MADE PART OF GENERAL BUSINESS

4 CREDIT.—

5 (1) IN GENERAL.—Subsection (b) of section 38

6 of the Internal Revenue Code of 1986 is amended by

7 striking ‘‘plus’’ at the end of paragraph (12), by

8 striking the period at the end of paragraph (13) and

9 inserting ‘‘, plus’’, and by adding at the end the fol10 lowing new paragraph:

11 ‘‘(14) the rural revitalization tax credit deter12 mined under section 45D(a).’’

13 (2) LIMITATION ON CARRYBACK.—Subsection

14 (d) of section 39 of such Code is amended by adding

15 at the end the following new paragraph:

16 ‘‘(10) NO CARRYBACK OF RURAL REVITALIZA17 TION TAX CREDIT BEFORE JANUARY 1, 2000.—No

18 portion of the unused business credit for any taxable

19 year which is attributable to the credit under section

20 45D may be carried back to a taxable year ending

21 before January 1, 2000.’’

22 (c) DEDUCTION FOR UNUSED CREDIT.—Subsection

23 (c) of section 196 of the Internal Revenue Code of 1986

24 is amended by striking ‘‘and’’ at the end of paragraph (7),

25 by striking the period at the end of paragraph (8) and
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1 inserting ‘‘, and’’, and by adding at the end the following

2 new paragraph:

3 ‘‘(9) the rural revitalization tax credit deter4 mined under section 45D(a).’’

5 (d) CLERICAL AMENDMENT.—The table of sections

6 for subpart D of part IV of subchapter A of chapter 1

7 of the Internal Revenue Code of 1986 is amended by add8 ing at the end the following new item:

‘‘Sec. 45D. Rural revitalization tax credit.’’

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

10 this section shall apply to investments made after Decem11 ber 31, 1999.

12 SEC. 3. INCREASE IN EXPENSING FOR QUALIFIED ACTIVE

13 LOW-INCOME RURAL COMMUNITY BUSI14 NESSES.

15 (a) IN GENERAL.—Subsection (b) of section 179 of

16 the Internal Revenue Code of 1986 (relating to election

17 to expense certain depreciable business assets) is amended

18 by adding at the end the following new paragraph:

19 ‘‘(5) INCREASED LIMITATION FOR QUALIFIED

20 ACTIVE LOW-INCOME RURAL COMMUNITY BUSI21 NESSES.—In the case of a qualified active low-in22 come rural community business (as defined in sec23 tion 45D(d)(2)), the applicable amount under para24 graph (1) shall be $37,500.’’
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1 (b) CONFORMING AMENDMENT.—Section 179(b)(1)

2 of the Internal Revenue Code of 1986 (relating to dollar

3 limitation) is amended by striking ‘‘The aggregate’’ and

4 inserting ‘‘Except as provided in paragraph (5), the aggre5 gate’’.

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

7 this section shall apply to property placed in service after

8 December 31, 1999.

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