I 

113TH CONGRESS 

2D SESSION H. R. 5346 

To amend the Internal Revenue Code of 1986 to allow a business credit 

for investments in rural microbusinesses. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 31, 2014 

Mr. KIND (for himself and Mr. REED) introduced the following bill; which was 

referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to allow a 

business credit for investments in rural microbusinesses. 

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 Microbusiness 

5 Investment Credit Act of 2014’’. 

6 SEC. 2. RURAL MICROBUSINESS INVESTMENT CREDIT. 

7 (a) IN GENERAL.—Subpart D of part IV of sub8 chapter A of chapter 1 of the Internal Revenue Code of 

9 1986 (relating to business related credits) is amended by 

10 adding at the end the following new section: 


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1 ‘‘SEC. 45S. RURAL MICROBUSINESS INVESTMENT CREDIT. 

2 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

3 amount of the rural microbusiness investment credit deter4 mined under this section for any taxable year with respect 

5 to a rural microbusiness is equal to 35 percent of the 

6 qualified new investments in the rural microbusiness for 

7 the taxable year. 

8 ‘‘(b) LIMITATIONS.— 

9 ‘‘(1) PER BUSINESS LIMITATIONS.—The 

10 amount allowed as a credit under subsection (a) with 

11 respect to any rural microbusiness for a taxable year 

12 shall not exceed— 

13 ‘‘(A) $10,000, reduced (but not below 

14 zero) by 

15 ‘‘(B) the amount allowed under subsection 

16 (a) to the rural microbusiness for all preceding 

17 taxable years. 

18 ‘‘(2) PER TAXPAYER LIMITATIONS.—The 

19 amount allowed as a credit under subsection (a) with 

20 respect to any taxpayer with respect to all rural 

21 microbusinesses of the taxpayer for a taxable year 

22 shall not exceed— 

23 ‘‘(A) $10,000, reduced (but not below 

24 zero) by 


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1 ‘‘(B) the amount allowed under subsection 

2 (a) to the taxpayer with respect to rural micro3 businesses for all preceding taxable years. 

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

5 ‘‘(1) QUALIFIED NEW INVESTMENT.—The term 

6 ‘qualified new investment’ means the excess of— 

7 ‘‘(A) qualified expenditures paid or in8 curred for the taxable year, over 

9 ‘‘(B) the greater of— 

10 ‘‘(i) qualified expenditures paid or in11 curred for the preceding taxable year, or 

12 ‘‘(ii) the average annual qualified ex13 penditures paid or incurred over the pre14 ceding three taxable years. 

15 If the rural microbusiness was not in existence for 

16 the entire 3-year period referred to in clause (ii) of 

17 subparagraph (B), subparagraph (B) shall be ap18 plied without regard to so much of such subpara19 graph as precedes such clause (ii) and any taxable 

20 years during such 3-year period for which the rural 

21 microbusiness was not in existence shall be taken 

22 into account as taxable years during which there 

23 were no qualified expenditures. 

24 ‘‘(2) QUALIFIED EXPENDITURES.— 


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

2 expenditures’ means any amount which is paid 

3 or incurred with respect to a rural microbusi4 ness. Such term includes costs for capital plant 

5 and equipment, inventory expenses, and wages. 

6 ‘‘(B) EXCEPTION.—Such term does not in7 clude— 

8 ‘‘(i) any interest cost, 

9 ‘‘(ii) the cost of any vehicle which is 

10 not a qualified nonpersonal use vehicle (as 

11 defined in section 274(i)), and 

12 ‘‘(iii) the cost of any compensation or 

13 benefits to the taxpayer claiming the cred14 it, including the taxpayer’s spouse and de15 pendents. 

16 ‘‘(3) RURAL MICROBUSINESS.— 

17 ‘‘(A) IN GENERAL.—The term ‘rural 

18 microbusiness’ means any trade or business if— 

19 ‘‘(i) such trade or business is operated 

20 as a proprietorship, partnership, trust (to 

21 the extent that the trust is a pass-thru en22 tity), S corporation, or other pass-thru en23 tity, 


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1 ‘‘(ii) each of the owners of such trade 

2 or business, with respect to the taxable 

3 year for which the credit is claimed— 

4 ‘‘(I) materially participates (as 

5 determined under rules similar to the 

6 rules of section 469(h)) in such trade 

7 or business, and 

8 ‘‘(II) in the case of any trade or 

9 business substantially all of the activ10 ity of which is in agricultural produc11 tion, is a first-time farmer (as defined 

12 in section 147(c)(2)(C)), 

13 ‘‘(iii) such trade or business is carried 

14 on, and physically located, in a distressed 

15 rural area during the taxable year for 

16 which the credit is claimed, 

17 ‘‘(iv) such trade or business employs 

18 not more than 5 full time (or full-time 

19 equivalent) employees during the taxable 

20 year for which the credit is claimed, and 

21 ‘‘(v) which meets the gross revenue 

22 test under subparagraph (D) for the first 

23 taxable year in which the credit under sub24 section (a) is allowable with respect to the 

25 trade or business. 


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1 ‘‘(B) EXCEPTIONS.—Such term shall not 

2 include— 

3 ‘‘(i) any trade or business which in4 cludes, in whole or in part, any private or 

5 commercial golf course, country club, mas6 sage parlor, hot tub facility, suntan facil7 ity, racetrack or other facility used for 

8 gambling, or any store the principal busi9 ness of which is the sale of alcoholic bev10 erages for consumption off premises, or 

11 ‘‘(ii) any trade or business with re12 spect to which records are required under 

13 section 2257 of title 18, United States 

14 Code, to be maintained with respect to any 

15 performer. 

16 ‘‘(C) GROSS REVENUE TEST.— 

17 ‘‘(i) IN GENERAL.—A trade or busi18 ness meets the gross revenue test of this 

19 subparagraph for any taxable year if the 

20 average annual gross revenue of the trade 

21 or business for the 3-taxable year period 

22 ending with the taxable year does not ex23 ceed $1,000,000. 

24 ‘‘(ii) AGGREGATION RULES.—All per25 sons treated as a single employer under 


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1 subsection (a) or (b) or section 52 or sub2 section (m) or (o) of section 414 shall be 

3 treated as a trade or business for purposes 

4 of clause (i). 

5 ‘‘(iii) SPECIAL RULES FOR ENTITIES

6 NOT IN EXISTENCE FOR ENTIRE 3-YEAR

7 PERIOD, ETC.—Rules similar to the rules 

8 of subparagraphs (A), (B), and (D) of sec9 tion 448(c)(3) shall apply for purposes of 

10 this subparagraph. 

11 ‘‘(D) SELF-EMPLOYED INDIVIDUALS.—For 

12 purposes of this paragraph, if, with respect to 

13 a trade or business, an individual is treated as 

14 an employee under section 401(c), such indi15 vidual shall be treated as an employee of such 

16 trade or business for purposes of the preceding 

17 sentence. 

18 ‘‘(E) FULL-TIME EQUIVALENT EM19 PLOYEE.—For purposes of this paragraph— 

20 ‘‘(i) IN GENERAL.—The term ‘full21 time equivalent employee’ means a number 

22 of employees equal to the number deter23 mined by dividing— 

24 ‘‘(I) the total number of hours of 

25 service for which wages were paid by 


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1 the employer to employees during the 

2 taxable year, by 

3 ‘‘(II) 2,080. 

4 Such number shall be rounded to the next 

5 lowest whole number if not otherwise a 

6 whole number. 

7 ‘‘(ii) EXCESS HOURS NOT COUNT8 ED.—If an employee works in excess of 

9 2,080 hours of service during any taxable 

10 year, such excess shall not be taken into 

11 account under clause (i). 

12 ‘‘(iii) HOURS OF SERVICE.—The Sec13 retary, in consultation with the Secretary 

14 of Labor, shall prescribe such regulations, 

15 rules, and guidance as may be necessary to 

16 determine the hours of service of an em17 ployee, including rules for the application 

18 of this paragraph to employees who are not 

19 compensated on an hourly basis. 

20 ‘‘(4) DISTRESSED RURAL AREA.— 

21 ‘‘(A) IN GENERAL.—The term ‘distressed 

22 rural area’ means any qualified area in the 

23 United States— 

24 ‘‘(i) that has lost at least 5 percent of 

25 its population over the last 10 years, 


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1 ‘‘(ii) that lost at least 10 percent if its 

2 population over the last 20 years, 

3 ‘‘(iii) that has median family income 

4 below 85 percent of the national median 

5 family income, 

6 ‘‘(iv) that has a poverty rate that ex7 ceeds 12.5 percent, or 

8 ‘‘(v) where average unemployment in 

9 the preceding year exceeds 120 percent of 

10 the national average. 

11 ‘‘(B) QUALIFIED AREA.—For purposes of 

12 subparagraph (A), the term ‘qualified area’ 

13 means— 

14 ‘‘(i) any area other than— 

15 ‘‘(I) a city or town that has a 

16 population of greater than 50,000 in17 habitants, and 

18 ‘‘(II) any urbanized area contig19 uous and adjacent to a city or town 

20 described in subclause (I), and 

21 ‘‘(ii) any county in which— 

22 ‘‘(I) there is no city or town that 

23 has a population of greater than 

24 100,000 inhabitants, and 


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1 ‘‘(II) there are no urbanized 

2 areas contiguous and adjacent to a 

3 city or town described in subclause 

4 (I). 

5 ‘‘(C) RELEVANT SOURCES OF INFORMA6 TION.—In determining whether an area is a 

7 distressed rural area under this paragraph, 

8 such determination shall be made in accordance 

9 with the most recent information from the Bu10 reau of the Census, the Bureau of Labor Statis11 tics, or other government entity with relevant 

12 information. 

13 ‘‘(5) RELATED PERSONS.—A person shall be 

14 treated as related to another person if the relation15 ship between such persons would result in the dis16 allowance of losses under section 267 or 707(b) (but, 

17 in applying section 267(b) and (c) for purposes of 

18 this section, paragraph (4) of section 267(c) shall be 

19 treated as providing that the family of an individual 

20 shall include only his spouse, ancestors, and lineal 

21 descendants). 

22 ‘‘(d) DENIAL OF DOUBLE BENEFIT.—No deduction 

23 or credit shall be allowed under any other provision of this 

24 chapter for any amount taken into account in determining 

25 the credit under this section. 


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1 ‘‘(e) OTHER RULES.— 

2 ‘‘(1) MARRIED COUPLE MUST FILE JOINT RE3 TURN.—Rules similar to the rules of paragraphs (2), 

4 (3), and (4) of section 21(e) shall apply for purposes 

5 of this section. 

6 ‘‘(2) DENIAL OF CREDIT TO DEPENDENTS.—No 

7 credit shall be allowed under this section to any indi8 vidual with respect to whom a deduction is allowed 

9 under section 151 is allowable to another taxpayer 

10 for a taxable year beginning in the calendar year in 

11 which such individual’s calendar year begins.’’. 

12 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI13 NESS CREDIT.—Section 38(b) of such Code (defining cur14 rent year business credit) is amended by striking ‘‘plus’’ 

15 at the end of paragraph (35), by striking the period at 

16 the end of paragraph (36) and inserting ‘‘, plus’’, and by 

17 adding at the end the following new paragraph: 

18 ‘‘(37) the rural microbusiness investment credit 

19 determined under section 45S(a).’’. 

20 (c) CARRYOVER OF UNUSED CREDIT.—Subsection 

21 (a) of section 39 of such Code is amended by adding at 

22 the end the following new paragraph: 

23 ‘‘(5) 5-YEAR CARRYBACK FOR RURAL MICRO24 BUSINESS INVESTMENT CREDIT.—Notwithstanding 


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1 subsection (d), in the case of the rural microbusiness 

2 investment credit— 

3 ‘‘(A) this section shall be applied sepa4 rately from the business credit and the mar5 ginal oil and gas well production credit (other 

6 than the rural microbusiness investment credit), 

7 ‘‘(B) paragraph (1) shall be applied by 

8 substituting ‘each of the 5 taxable years’ for 

9 ‘the taxable year’ in subparagraph (A) thereof, 

10 and 

11 ‘‘(C) paragraph (2) shall be applied— 

12 ‘‘(i) by substituting ‘25 taxable years’ 

13 for ‘21 taxable years’ in subparagraph (A) 

14 thereof, and 

15 ‘‘(ii) by substituting ‘24 taxable years’ 

16 for ‘20 taxable years’ in subparagraph (B) 

17 thereof.’’. 

18 (d) CONFORMING AMENDMENT.—The table of sec19 tions for subpart D of part IV of subchapter A of chapter 

20 1 of such Code is amended by adding at the end the fol21 lowing new item: 

‘‘Sec. 45S. Rural microbusiness investment credit.’’. 

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

23 this section shall apply to expenditures made in taxable 


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1 years beginning after the date of the enactment of this 

2 Act. 

Æ 


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