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[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1423 Introduced in Senate (IS)]

110th CONGRESS
  1st Session
                                S. 1423

 To extend tax relief to the residents and businesses of an area with 
 respect to which a major disaster has been declared by the President 
    under section 401 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (FEMA-1699-DR) by reason of severe storms and 
 tornados beginning on May 4, 2007, and determined by the President to 
  warrant individual or public assistance from the Federal Government 
                            under such Act.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                              May 17, 2007

 Mr. Roberts (for himself and Mr. Brownback) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
 To extend tax relief to the residents and businesses of an area with 
 respect to which a major disaster has been declared by the President 
    under section 401 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (FEMA-1699-DR) by reason of severe storms and 
 tornados beginning on May 4, 2007, and determined by the President to 
  warrant individual or public assistance from the Federal Government 
                            under such Act.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as ``Kansas Disaster Tax 
Relief Assistance Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.
                     TITLE I--TEMPORARY TAX RELIEF

Sec. 101. Temporary tax relief.
          TITLE II--NEW HOMESTEAD OPPORTUNITIES PILOT PROJECT

Sec. 201. Loans for leadership initiative.
Sec. 202. Credit for certain rural homebuyers.
Sec. 203. Capital loss deduction allowed with respect to sale or 
                            exchange of principal residence in certain 
                            rural areas.
Sec. 204. Individual Homestead accounts.
            TITLE III--INCENTIVES FOR MAIN STREET BUSINESSES

Sec. 301. Rural investment tax credit.
Sec. 302. Qualified rural small business investment credit.
Sec. 303. Accelerated depreciation for rural investment property.

                     TITLE I--TEMPORARY TAX RELIEF

SEC. 101. TEMPORARY TAX RELIEF.

    (a) In General.--Subchapter Y (relating to short-term regional 
benefits) is amended by adding at the end the following new part:

           ``PART III--TAX BENEFITS FOR OTHER DISASTER AREAS

``Sec. 1400U. Tax benefits for Kiowa County, Kansas and surrounding 
                            area.

``SEC. 1400U. TAX BENEFITS FOR KIOWA COUNTY, KANSAS AND SURROUNDING 
              AREA.

    ``The following provisions of this subchapter shall apply, in 
addition to the areas described in such provisions, to an area with 
respect to which a major disaster has been declared by the President 
under section 401 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (FEMA-1699-DR) by reason of severe storms and 
tornados beginning on May 4, 2007, and determined by the President to 
warrant individual or public assistance from the Federal Government 
under such Act:
            ``(1) Suspension of certain limitations on personal 
        casualty losses.--Section 1400S(b)(1), by substituting `May 4, 
        2007' for `August 25, 2005'.
            ``(2) Extension of replacement period for nonrecognition of 
        gain.--Section 1400L(g), by substituting `storms on May 4, 
        2007' for `terrorist attacks on September 11, 2001'.
            ``(3) Employee retention credit for employers affected by 
        may 4 storms.--Section 1400R(a)--
                    ``(A) by substituting `May 4, 2007' for `August 28, 
                2005' each place it appears,
                    ``(B) by substituting `January 1, 2008' for 
                `January 1, 2006' both places it appears, and
                    ``(C) only with respect to eligible employers who 
                employed an average of not more than 200 employees on 
                business days during the taxable year before May 4, 
                2007.
            ``(4) Special allowance for certain property acquired on or 
        after may 5, 2007.--Section 1400N(d)--
                    ``(A) by substituting `qualified Recovery 
                Assistance property' for `qualified Gulf Opportunity 
                Zone property' each place it appears,
                    ``(B) by substituting `May 5, 2007' for `August 28, 
                2005' each place it appears,
                    ``(C) by substituting `December 31, 2008' for 
                `December 31, 2007' in paragraph (2)(A)(v),
                    ``(D) by substituting `December 31, 2009' for 
                `December 31, 2008' in paragraph (2)(A)(v),
                    ``(E) by substituting `May 4, 2007' for `August 27, 
                2005' in paragraph (3)(A),
                    ``(F) by substituting `January 1, 2009' for 
                `January 1, 2008' in paragraph (3)(B), and
                    ``(G) determined without regard to paragraph (6) 
                thereof.
            ``(5) Increase in expensing under section 179.--Section 
        1400N(e), by substituting `qualified section 179 Recovery 
        Assistance property' for `qualified section 179 Gulf 
        Opportunity Zone property' each place it appears.
            ``(6) Expensing for certain demolition and clean-up 
        costs.--Section 1400N(f)--
                    ``(A) by substituting `qualified Recovery 
                Assistance clean-up cost' for `qualified Gulf 
                Opportunity Zone clean-up cost' each place it appears, 
                and
                    ``(B) by substituting `beginning on May 4, 2007, 
                and ending on December 31, 2009' for `beginning on 
                August 28, 2005, and ending on December 31, 2007' in 
                paragraph (2) thereof.
            ``(7) Treatment of public utility property disaster 
        losses.--Section 1400N(o).
            ``(8) Treatment of net operating losses attributable to 
        storm losses.--Section 1400N(k)--
                    ``(A) by substituting `qualified Recovery 
                Assistance loss' for `qualified Gulf Opportunity Zone 
                loss' each place it appears,
                    ``(B) by substituting `after May 3, 2007, and 
                before on January 1, 2010' for `after August 27, 2005, 
                and before January 1, 2008' each place it appears,
                    ``(C) by substituting `May 4, 2007' for `August 28, 
                2005' in paragraph (2)(B)(ii)(I) thereof,
                    ``(D) by substituting `qualified Recovery 
                Assistance property' for `qualified Gulf Opportunity 
                Zone property' in paragraph (2)(B)(iv) thereof, and
                    ``(E) by substituting `qualified Recovery 
                Assistance casualty loss' for `qualified Gulf 
                Opportunity Zone casualty loss' each place it appears.
            ``(9) Treatment of representations regarding income 
        eligibility for purposes of qualified rental project 
        requirements.--Section 1400N(n).
            ``(10) Special rules for use of retirement funds.--Section 
        1400Q--
                    ``(A) by substituting `qualified Recovery 
                Assistance distribution' for `qualified hurricane 
                distribution' each place it appears,
                    ``(B) by substituting `on or after May 4, 2007, and 
                before January 1, 2009' for `on or after August 25, 
                2005, and before January 1, 2007' in subsection 
                (a)(4)(A)(i),
                    ``(C) by substituting `qualified storm 
                distribution' for `qualified Katrina distribution' each 
                place it appears,
                    ``(D) by substituting `after November 4, 2006, and 
                before May 5, 2007' for `after February 28, 2005, and 
                before August 29, 2005' in subsection (b)(2)(B)(ii),
                    ``(E) by substituting `beginning on May 4, 2007, 
                and ending on November 5, 2007' for `beginning on 
                August 25, 2005, and ending on February 28, 2006' in 
                subsection (b)(3)(A),
                    ``(F) by substituting `qualified storm individual' 
                for `qualified Hurricane Katrina individual' each place 
                it appears,
                    ``(G) by substituting `December 31, 2007' for 
                `December 31, 2006' in subsection (c)(2)(A),
                    ``(H) by substituting `beginning on June 4, 2007, 
                and ending on December 31, 2007' for `beginning on 
                September 24, 2005, and ending on December 31, 2006' in 
                subsection (c)(4)(A)(i),
                    ``(I) by substituting `May 4, 2007' for `August 25, 
                2005' in subsection (c)(4)(A)(ii), and
                    ``(J) by substituting `January 1, 2008' for 
                `January 1, 2007' in subsection (d)(2)(A)(ii).''.
    (b) Clerical Amendment.--The table of parts for subchapter Y is 
amended by adding at the end the following new item:

          ``Part III. Tax Benefits for Other Disaster Areas''.

          TITLE II--NEW HOMESTEAD OPPORTUNITIES PILOT PROJECT

SEC. 201. LOANS FOR LEADERSHIP INITIATIVE.

    (a) Definitions.--In this section:
            (1) Degree.--The term ``degree'' means an associate's or 
        bachelor's degree awarded by an institution of higher 
        education.
            (2) Institution of higher education.--The term 
        ``institution of higher education'' has the meaning given the 
        term in section 101 of the Higher Education Act of 1965 (20 
        U.S.C. 1001).
            (3) Qualifying area.--The term ``qualifying area'' means an 
        area with respect to which a major disaster has been declared 
        by the President under section 401 of the Robert T. Stafford 
        Disaster Relief and Emergency Assistance Act (FEMA-1699-DR) by 
        reason of severe storms and tornados beginning on May 4, 2007, 
        and determined by the President to warrant individual or public 
        assistance from the Federal Government under such Act.
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of Education.
    (b) Program.--
            (1) In general.--The Secretary shall carry out a program of 
        assuming the obligation to repay, pursuant to subsection (c), a 
        loan made, insured, or guaranteed under part B, D, or E of 
        title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et 
        seq., 20 U.S.C. 1087a et seq., and 20 U.S.C. 1087aa et seq.), 
        excluding loans made under section 428B of such Act or 
        comparable loans made under part D of such Act, for any 
        borrower who--
                    (A) completes a degree;
                    (B) resides in a qualifying area; and
                    (C) is employed in a qualifying area.
            (2) Regulations.--The Secretary is authorized to prescribe 
        such regulations as may be necessary to carry out the 
        provisions of this section.
    (c) Loan Repayment.--
            (1) In general.--The Secretary shall assume the obligation 
        to repay, for each of the first 5 years of the residency and 
        employment described in subparagraphs (B) and (C) of subsection 
        (b)(1) that occur after the date of enactment of this section, 
        10 percent of the total amount of all loans made to a student 
        under the provisions of the Higher Education Act of 1965 as 
        described in subsection (b)(1), up to a maximum amount of 
        $2,000 each year.
            (2) Construction.--Nothing in this section shall be 
        construed to authorize the refunding of any repayment of a loan 
        made under part B, D, or E of title IV of the Higher Education 
        Act of 1965.
            (3) Interest.--If a portion of a loan is repaid by the 
        Secretary under this section for any year, the proportionate 
        amount of interest on such loan which accrues for such year 
        shall be repaid by the Secretary so long as the total amount 
        repaid by the Secretary in any 1 year does not exceed $2,000.
    (d) Repayment to Eligible Lenders.--The Secretary shall pay to each 
eligible lender or holder for each fiscal year an amount equal to the 
aggregate amount of loans which are subject to repayment pursuant to 
this section for such year.
    (e) Application for Repayment.--
            (1) In general.--An eligible borrower desiring loan 
        repayment under this section shall submit a complete and 
        accurate application to the Secretary at such time, in such 
        manner, and containing such information as the Secretary may 
        require.
            (2) Conditions.--An eligible borrower may apply for loan 
        repayment under this section after completing each year of 
        qualifying residency and employment. The eligible borrower 
        shall receive forbearance while engaged in qualifying residency 
        and employment unless the borrower is in deferment while so 
        engaged.
    (f) Definition of Eligible Borrower.--In this section the term 
``eligible borrower'' means any borrower who is not in default on any 
of the borrower's student loans under part B, D, or E of title IV of 
the Higher Education Act of 1965.
    (g) Authorization of Appropriations.--
            (1) Loan repayment.--There are authorized to be 
        appropriated to carry out this section such sums as may be 
        necessary.
            (2) Perkins loan funds.--There are authorized to be 
        appropriated such sums as may be necessary for Federal capital 
        contributions to student loan funds established under part E of 
        title IV of the Higher Education Act of 1965.
    (h) Repayment Excluded From Gross Income.--Section 108(f)(1) 
(relating to student loans) is amended by inserting ``or pursuant to 
section 201 of the Disaster Tax Relief Act of 2007'' after 
``employers''.
    (i) Application of Section.--This section shall apply to 
applications for repayment made after the date of the enactment of this 
Act and before the date which is 5 years after such date of enactment.

SEC. 202. CREDIT FOR CERTAIN RURAL HOMEBUYERS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
before section 26 the following new section:

``SEC. 25E. PURCHASE OF RESIDENCES BY CERTAIN RURAL HOMEBUYERS.

    ``(a) Allowance of Credit.--In the case of an individual who 
purchases a qualified residence in a qualifying area during any taxable 
year, there shall be allowed as a credit against the tax imposed by 
this chapter for the taxable year an amount equal to the lesser of--
            ``(1) 10 percent of the purchase price of the residence, or
            ``(2) $5,000.
    ``(b) Limitations.--
            ``(1) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 23) and 
                section 27 for the taxable year.
            ``(2) Married individuals filing jointly.--In the case of a 
        husband and wife who file a joint return, the credit under this 
        section is allowable only if the residence is a qualified 
        residence with respect to both the husband and wife, and the 
        amount specified under subsection (a)(2) shall apply to the 
        joint return.
            ``(3) Married individuals filing separately.--In the case 
        of a married individual filing a separate return, subsection 
        (a)(2) shall be applied by substituting `$2,500' for `$5,000'.
            ``(4) Other taxpayers.--If 2 or more individuals who are 
        not married purchase a qualified residence, the amount of the 
        credit allowed under subsection (a) shall be allocated among 
        such individuals in such manner as the Secretary may prescribe, 
        except that the total amount of the credits allowed to all such 
        individuals shall not exceed $5,000.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified residence.--The term `qualified residence' 
        has the same meaning as when used in section 163(h).
            ``(2) Qualifying area.--The term `qualifying area' means an 
        area with respect to which a major disaster has been declared 
        by the President under section 401 of the Robert T. Stafford 
        Disaster Relief and Emergency Assistance Act (FEMA-1699-DR) by 
        reason of severe storms and tornados beginning on May 4, 2007, 
        and determined by the President to warrant individual or public 
        assistance from the Federal Government under such Act.
            ``(3) Purchase and purchase price.--The terms `purchase' 
        and `purchase price' have the meanings provided by section 
        1400C(e).
    ``(d) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) for any taxable year exceeds the limitation imposed by 
subsection (b)(1) for such taxable year reduced by the sum of the 
credits allowable under this subpart (other than this section and 
section 23), such excess shall be carried to the succeeding taxable 
year and added to the credit allowable under subsection (a) for such 
taxable year.
    ``(e) Reporting.--If the Secretary requires information reporting 
under section 6045 by a person described in subsection (e)(2) thereof 
to verify the eligibility of taxpayers for the credit allowable by this 
section, the exception provided by section 6045(e)(5) shall not apply.
    ``(f) Recapture of Credit in Case of Certain Sales.--
            ``(1) In general.--Except as provided in paragraph (5), if 
        the taxpayer disposes of a qualified residence with respect to 
        the purchase of which a credit was allowed under subsection (a) 
        at any time within 5 years after the date the taxpayer acquired 
        the property, then the tax imposed under this chapter for the 
        taxable year in which the disposition occurs is increased by 
        the credit recapture amount.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) the applicable recapture percentage of the 
                amount of the credit allowed to the taxpayer under this 
                section, plus
                    ``(B) interest at the overpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

                                               The applicable recapture
``If the sale occurs in:                                 percentage is:
    Year 1........................................                 100 
    Year 2........................................                  80 
    Year 3........................................                  60 
    Year 4........................................                  40 
    Year 5........................................                  20 
    Years 6 and thereafter........................                   0.
                    ``(B) Years.--For purposes of subparagraph (A), 
                year 1 shall begin on the first day of the taxable year 
                in which the purchase of the qualified residence 
                described in subsection (a) occurs.
            ``(4) No credits against tax.--Any increase in tax under 
        this subsection shall not be treated as a tax imposed by this 
        chapter for purposes of determining the amount of any credit 
        under this chapter or for purposes of section 55.
            ``(5) Death of owner; casualty loss; involuntary 
        conversion; etc.--The provisions of paragraph (1) do not apply 
        to--
                    ``(A) a disposition of a qualified residence made 
                on account of the death of any individual having a 
                legal or equitable interest therein occurring during 
                the 5-year period to which reference is made under 
                paragraph (1),
                    ``(B) a disposition of the old qualified residence 
                if it is substantially or completely destroyed by a 
                casualty described in section 165(c)(3) or compulsorily 
                or involuntarily converted (within the meaning of 
                section 1033(a)), or
                    ``(C) a disposition pursuant to a settlement in a 
                divorce or legal separation proceeding where the 
                qualified residence is sold or the other spouse retains 
                such residence.
    ``(g) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section with respect to the purchase of any 
residence, the basis of such residence shall be reduced by the amount 
of the credit so allowed.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 (relating to general 
        rule for adjustments to basis) is amended by striking ``and'' 
        at the end of paragraph (36), by striking the period at the end 
        of paragraph (37) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(38) in the case of a residence with respect to which a 
        credit was allowed under section 25E, to the extent provided in 
        section 25E(g).''.
            (2) Section 23(c)(1) is amended by inserting ``, 25E,'' 
        after ``25D''.
            (3) Section 25(e)(1)(C) is amended by inserting ``25E,'' 
        after ``25D,'' both places it appears.
            (4) Section 1400C(d)(1) is amended by striking ``and 
        section 25D'' and inserting ``and sections 25D and 25E''.
            (5) Section 1400C(d)(2) is amended by striking ``and 25D'' 
        and inserting ``25D, and 25E''.
            (6) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting before the 
        item relating to section 26 the following new item:

``Sec. 25E. Purchase of residences by certain rural homebuyers.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to purchases after the date of the enactment of this Act and 
before the date which is 5 years after such date of enactment.

SEC. 203. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR 
              EXCHANGE OF PRINCIPAL RESIDENCE IN CERTAIN RURAL AREAS.

    (a) In General.--Subsection (c) of section 165 (relating to 
limitation on losses of individuals) is amended--
            (1) by striking ``and'' at the end of paragraph (2),
            (2) by striking the period at the end of paragraph (3) and 
        inserting ``; and'', and
            (3) by adding at the end the following new paragraph:
            ``(4) losses arising from the sale or exchange of the 
        principal residence (within the meaning of section 121) of the 
        taxpayer located in a qualifying area (as defined in section 
        223(b)(2)), but only if the principal residence was acquired by 
        the taxpayer after the date of enactment of this paragraph.''.
    (b) Conforming Amendment.--Section 67(b)(3) is amended by striking 
``paragraph (2) or (3)'' and inserting ``paragraph (2), (3), or (4)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges after the date of the enactment of this 
Act and before the date which is 5 years after such date of enactment.

SEC. 204. INDIVIDUAL HOMESTEAD ACCOUNTS.

    (a) In General.--Subchapter F of chapter 1 (relating to exempt 
organizations) is amended by adding at the end the following new part:

                ``PART IX--INDIVIDUAL HOMESTEAD ACCOUNTS

``Sec. 530A. Individual homestead accounts.

``SEC. 530A. INDIVIDUAL HOMESTEAD ACCOUNTS.

    ``(a) General Rule.--An individual homestead account shall be 
exempt from taxation under this subtitle. Notwithstanding the preceding 
sentence, any individual homestead account shall be subject to the 
taxes imposed by section 511 (relating to imposition of tax on 
unrelated business income of charitable, etc., organizations).
    ``(b) Individual Homestead Account.--For purposes of this title, 
the term `individual homestead account' means a trust created or 
organized in the United States for the exclusive benefit of a qualified 
individual or his beneficiaries, but only if the written governing 
instrument creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover (as 
        defined in subsection (f)(7))--
                    ``(A) no contribution will be accepted unless it is 
                in cash,
                    ``(B) contributions will not be accepted for the 
                taxable year in excess of $2,500 (determined without 
                regard to any contribution made under subsection (d)), 
                and
                    ``(C) contributions will not be accepted for any 
                taxable year following the fifth taxable year in which 
                the qualified individual has contributed to any 
                individual homestead account.
            ``(2) The requirements of paragraphs (2) through (6) of 
        section 408(a) are met.
    ``(c) Qualified Individual; Qualifying Area.--For purposes of this 
section--
            ``(1) Qualified individual.--The term `qualified 
        individual' means, for any taxable year, an individual who is a 
        bona fide resident of a qualifying area.
            ``(2) Qualifying area.--The term `qualifying area' means an 
        area with respect to which a major disaster has been declared 
        by the President under section 401 of the Robert T. Stafford 
        Disaster Relief and Emergency Assistance Act (FEMA-1699-DR) by 
        reason of severe storms and tornados beginning on May 4, 2007, 
        and determined by the President to warrant individual or public 
        assistance from the Federal Government under such Act.
    ``(d) Matching Contributions to Individual Homestead Accounts.--
            ``(1) In general.--Not less than once each taxable year, 
        the Secretary shall deposit (to the extent provided in 
        appropriation Acts) into an individual Homestead account of 
        each qualified individual an amount equal to the applicable 
        percentage of the sum of the amounts deposited into all of the 
        individual homestead accounts of such individual during such 
        taxable year (determined without regard to any amount 
        contributed under this subsection).
            ``(2) Applicable percentage.--For purposes of this 
        subsection, the applicable percentage with respect to any 
        qualified individual for any taxable year shall be determined 
        in accordance with the following tables:
                    ``(A) In the case of a married individual (as 
                defined in section 7703) filing a joint return:

``If modified adjusted gross income   The applicable percentage is:
        is:
        $30,000 or less........................................     50 
        Over $30,000 but not over $60,000......................     25 
        Over $60,000 but not over $100,000.....................   12.5 
        Over $100,000..........................................   zero.
                    ``(B) In the case of a head of household (as 
                defined in section 2(b)):

``If modified adjusted gross income   The applicable percentage is:
        is:
        $22,500 or less........................................     50 
        Over $22,500 but not over $45,000......................     25 
        Over $45,000 but not over $75,000......................   12.5 
        Over $75,000...........................................   zero.
                    ``(C) In the case of any other individual:

``If modified adjusted gross income   The applicable percentage is:
        is:
        $15,000 or less........................................     50 
        Over $15,000 but not over $30,000......................     25 
        Over $30,000 but not over $50,000......................   12.5 
        Over $50,000...........................................   zero.
        For purposes of this paragraph, the term `modified adjusted 
        gross income' has the meaning given such term by section 
        86(b)(2).
            ``(3) Exclusion from income.--Except as otherwise provided 
        in this section, gross income shall not include any amount 
        deposited into an individual homestead account under paragraph 
        (1).
            ``(4) Forfeiture of matching contributions in the case of 
        certain distributions.--In the event of a distribution from an 
        individual homestead account before the date described in 
        subsection (f)(1)(A) (other than a distribution described in 
        subsection (e)(2)(A)), the account holder shall forfeit the 
        corresponding matching contributions and interest earned on the 
        matching contributions, unless such distribution is 
        recontributed to such account within 6 months of such 
        distribution.
    ``(e) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts in gross income.--Except as 
        otherwise provided in this subsection, any amount paid or 
        distributed out of an individual homestead account shall be 
        includible in the gross income of the payee or distributee, as 
        the case may be, in the manner as provided in section 72. For 
        purposes of the preceding sentence, distributions which are 
        includible in gross income shall be treated as first 
        attributable to amounts contributed under subsection (d) to the 
        extent thereof.
            ``(2) Exclusion of catastrophic medical expense 
        distributions in first five years and qualified individual 
        homestead distributions thereafter.--Paragraph (1) shall not 
        apply to--
                    ``(A) any distribution described in section 
                72(t)92)(B) before the date described in subsection 
                (f)(1)(A), but only to the extent such distribution 
                does not exceed the balance in the account as of the 
                date of such distribution, reduced by any matching 
                contribution under subsection (d), and
                    ``(B) any qualified individual homestead 
                distribution.
    ``(f) Qualified Individual Homestead Distribution.--For purposes of 
this section--
            ``(1) In general.--The term `qualified individual homestead 
        distribution' means any amount paid or distributed out of an 
        individual homestead account which would otherwise be 
        includible in gross income, to the extent that such payment or 
        distribution--
                    ``(A) is paid or distributed after the 5-taxable 
                year period beginning with the first taxable year in 
                which the qualified individual made a contribution to 
                the individual homestead account (including any 
                predecessor account), and
                    ``(B) is used exclusively to pay qualified 
                individual homestead expenses for the qualified 
                individual or the spouse or dependent (as defined in 
                section 152) of such individual.
            ``(2) Qualified individual homestead expenses.--The term 
        `qualified individual homestead expenses' means any of the 
        following:
                    ``(A) Qualified higher education expenses.
                    ``(B) Qualified first-time homebuyer costs.
                    ``(C) Qualified business capitalization costs.
                    ``(D) Qualified medical expenses.
                    ``(E) Qualified rollovers.
            ``(3) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' has the meaning given such term by 
                section 72(t)(7), determined by treating postsecondary 
                vocational educational schools as eligible educational 
                institutions.
                    ``(B) Postsecondary vocational education school.--
                The term `postsecondary vocational educational school' 
                means an area vocational education school (as defined 
                in subparagraph (C) or (D) of section 521(4) of the 
                Carl D. Perkins Vocational and Applied Technology 
                Education Act (20 U.S.C. 2471(4))) which is in any 
                State (as defined in section 521(33) of such Act), as 
                such sections are in effect on the date of the 
                enactment of this section.
                    ``(C) Coordination with other benefits.--The amount 
                of qualified higher education expenses for any taxable 
                year shall be reduced as provided in section 25A(g)(2).
            ``(4) Qualified first-time homebuyer costs.--The term 
        `qualified first-time homebuyer costs' means qualified 
        acquisition costs (as defined in section 72(t)(8) without 
        regard to subparagraph (B) thereof) with respect to a principal 
        residence (within the meaning of section 121) located in a 
        qualifying area for a qualified first-time homebuyer (as 
        defined in section 72(t)(8)).
            ``(5) Qualified business capitalization costs.--
                    ``(A) In general.--The term `qualified business 
                capitalization costs' means qualified expenditures for 
                the capitalization of a qualified business pursuant to 
                a qualified plan.
                    ``(B) Qualified expenditures.--The term `qualified 
                expenditures' means expenditures included in a 
                qualified plan, including capital, plant, equipment, 
                working capital, and inventory expenses.
                    ``(C) Qualified business.--The term `qualified 
                business' means any trade or business located in a 
                qualifying area other than any trade or business--
                            ``(i) which consists of the operation of 
                        any facility described in section 144(c)(6)(B), 
                        or
                            ``(ii) which contravenes any law.
                Rules similar to the rules under subsection (b) or (c) 
                of section 1397C shall apply to any qualified business 
                under this section.
                    ``(D) Qualified plan.--The term `qualified plan' 
                means a business plan which meets such requirements as 
                the Secretary may specify.
            ``(6) Qualified medical expenses.--The term `qualified 
        medical expenses' means any amount paid during the taxable 
        year, not compensated for by insurance or otherwise, for 
        medical care (as defined in section 213(d)) of the taxpayer, 
        his spouse, or his dependent (as defined in section 152).
            ``(7) Qualified rollovers.--The term `qualified rollover' 
        means any amount paid from an individual homestead account of a 
        taxpayer into another such account established for the benefit 
        of--
                    ``(A) such taxpayer, or
                    ``(B) any qualified individual who is--
                            ``(i) the spouse of such taxpayer, or
                            ``(ii) any dependent (as defined in section 
                        152) of the taxpayer.
        Rules similar to the rules of section 408(d)(3) shall apply for 
        purposes of this paragraph.
    ``(g) Tax Treatment of Accounts.--
            ``(1) Loss of exemption in case of prohibited 
        transactions.--For purposes of this section, rules similar to 
        the rules of section 408(e) shall apply.
            ``(2) Other rules to apply.--Rules similar to the rules of 
        paragraphs (4), (5), and (6) of section 408(d) shall apply for 
        purposes of this section.
    ``(h) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) All accounts treated as one account.--All individual 
        homestead accounts of a qualified individual shall be treated 
        as 1 account.
            ``(2) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution to an individual 
        homestead account on the last day of the preceding taxable year 
        if the contribution is made on account of such taxable year and 
        is made not later than the time prescribed by law for filing 
        the return for such taxable year (not including extensions 
        thereof).
            ``(3) Custodial accounts.--Rules similar to the rules of 
        section 408(h) shall apply.
            ``(4) Reports.--The trustee of an individual homestead 
        account shall make such reports regarding such account to the 
        Secretary and to the individual for whom the account is 
        maintained with respect to contributions (and the years to 
        which they relate), distributions, and such other matters as 
        the Secretary may require under regulations. The reports 
        required by this paragraph--
                    ``(A) shall be filed at such time and in such 
                manner as the Secretary prescribes in such regulations, 
                and
                    ``(B) shall be furnished to individuals--
                            ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                            ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.
            ``(5) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 408(m) 
        shall apply.
    ``(i) Designation of Earned Income Tax Credit Payments for Deposit 
to Individual Homestead Account.--
            ``(1) In general.--With respect to the return of any 
        qualified individual for the taxable year of the tax imposed by 
        this chapter, such individual may designate that a specified 
        portion (not less than $1) of any overpayment of tax for such 
        taxable year which is attributable to the earned income tax 
        credit shall be deposited by the Secretary into an individual 
        homestead account of such individual. The Secretary shall so 
        deposit such portion designated under this subsection.
            ``(2) Manner and time of designation.--A designation under 
        paragraph (1) may be made with respect to any taxable year--
                    ``(A) at the time of filing the return of the tax 
                imposed by this chapter for such taxable year, or
                    ``(B) at any other time (after the time of filing 
                the return of the tax imposed by this chapter for such 
                taxable year) specified in regulations prescribed by 
                the Secretary.
        Such designation shall be made in such manner as the Secretary 
        prescribes by regulations.
            ``(3) Portion attributable to earned income tax credit.--
        For purposes of this subsection, an overpayment for any taxable 
        year shall be treated as attributable to the earned income tax 
        credit to the extent that such overpayment does not exceed the 
        credit allowed to the taxpayer under section 32 for such 
        taxable year.
            ``(4) Overpayments treated as refunded.--For purposes of 
        this title, any portion of an overpayment of tax designated 
        under paragraph (1) shall be treated as being refunded to the 
        taxpayer as of the last date prescribed for filing the return 
        of tax imposed by this chapter (determined without regard to 
        extensions) or, if later, the date the return is filed.
    ``(j) Penalty for Distributions Not Used for Qualified Individual 
Homestead Expenses.--
            ``(1) In general.--If any amount is distributed from an 
        individual homestead account and is not used exclusively to pay 
        qualified individual homestead expenses for the holder of the 
        account or the spouse or dependent (as defined in section 152) 
        of such holder, the tax imposed by this chapter for the taxable 
        year of such distribution shall be increased by 10 percent of 
        such amount which is includible in gross income. For purposes 
        of the preceding sentence, distributions which are includible 
        in gross income shall be treated as first attributable to 
        amounts contributed under subsection (d) to the extent thereof.
            ``(2) Exception for certain distributions.--Paragraph (1) 
        shall not apply to distributions which are--
                    ``(A) made on or after the date on which the 
                account holder attains age 59\1/2\,
                    ``(B) made to a beneficiary (or the estate of the 
                account holder) on or after the death of the account 
                holder,
                    ``(C) attributable to the account holder's being 
                disabled within the meaning of section 72(m)(7), or
                    ``(D) described in subsection (e)(2)(A).
    ``(k) Application of Section.--This section shall apply with 
respect to any individual homestead account established after the date 
of the enactment of the Kansas Disaster Tax Relief Assistance Act and 
before the date which is 5 years after such date of enactment.''.
    (b) Tax on Excess Contributions.--
            (1) Tax imposed.--Subsection (a) of section 4973 is amended 
        by striking ``or'' at the end of paragraph (4), by 
        redesignating paragraph (5) as paragraph (6), and by inserting 
        after paragraph (4) the following new paragraph:
            ``(5) an individual homestead account (within the meaning 
        of section 530A(b)), or''.
            (2) Excess contributions.--Section 4973 is amended by 
        adding at the end the following subsection:
    ``(h) Individual Homestead Accounts.--For purposes of this section, 
in the case of individual homestead accounts, the term `excess 
contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to the accounts (other than a qualified rollover, as 
                defined in section 530A(f)(7), or a contribution under 
                section 530A(d)), over
                    ``(B) the amount allowable under section 530A for 
                such contributions, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year reduced by the sum of--
                    ``(A) the distributions out of the accounts for the 
                taxable year which were included in the gross income of 
                the payee under section 530A(e)(1),
                    ``(B) the distributions out of the accounts for the 
                taxable year to which rules similar to the rules of 
                section 408(d)(5) apply by reason of section 
                530A(g)(2), and
                    ``(C) the excess (if any) of the maximum amount 
                allowable as a contribution under section 530A for the 
                taxable year over the amount contributed to the account 
                for the taxable year (other than a contribution under 
                section 530A(d)).
For purposes of this subsection, any contribution which is distributed 
from the individual homestead account in a distribution to which rules 
similar to the rules of section 408(d)(4) apply by reason of section 
530A(g)(2) shall be treated as an amount not contributed.''.
    (c) Tax on Prohibited Transactions.--Section 4975 is amended--
            (1) by adding at the end of subsection (c) the following 
        paragraph:
            ``(7) Special rule for individual homestead accounts.--An 
        individual for whose benefit an individual homestead account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be an individual homestead 
        account by reason of the application of section 530A(g)(1) to 
        such account.'', and
            (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (F), by redesignating subparagraph (G) as 
        subparagraph (H), and by inserting after subparagraph (F) the 
        following new subparagraph:
                    ``(G) an individual homestead account described in 
                section 530A(b), or''.
    (d) Information Relating to Certain Trusts and Annuity Plans.--
Subsection (c) of section 6047 is amended--
            (1) by inserting ``or section 530A'' after ``section 219'', 
        and
            (2) by inserting ``, of any individual homestead account 
        described in section 530A(b),'', after ``section 408(a)''.
    (e) Inspection of Applications for Tax Exemption.--Clause (i) of 
section 6104(a)(1)(B) is amended by inserting ``an individual homestead 
account described in section 530A(b),'' after ``section 408(a),''.
    (f) Failure to Provide Reports on Individual Homestead Accounts.--
Paragraph (2) of section 6693(a) is amended by striking ``and'' at the 
end of subparagraph (D), by striking the period and inserting ``, and'' 
at the end of subparagraph (E), and by inserting after subparagraph (E) 
the following new subparagraph:
                    ``(F) section 530A(h)(4) (relating to individual 
                homestead accounts).''.
    (g) Clerical Amendment.--The table of parts for subchapter F of 
chapter 1 is amended by adding at the end the following new item:

              ``Part IX. Individual Homestead Accounts''.

            TITLE III--INCENTIVES FOR MAIN STREET BUSINESSES

SEC. 301. RURAL INVESTMENT TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
the following new section:

``SEC. 42A. RURAL INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
rural investment credit determined under this section for any taxable 
year in the credit period shall be an amount equal to the applicable 
percentage of the eligible basis of each qualified rural investment 
building.
    ``(b) Applicable Percentage: 70 Percent Present Value Credit for 
New Buildings; 30 Percent Present Value Credit for Existing 
Buildings.--For purposes of this section--
            ``(1) In general.--The term `applicable percentage' means 
        the appropriate percentage prescribed by the Secretary for the 
        earlier of--
                    ``(A) the first month of the credit period with 
                respect to a rural investment building, or
                    ``(B) at the election of the taxpayer, the month in 
                which the taxpayer and the rural investment credit 
                agency enter into an agreement with respect to such 
                building (which is binding on such agency, the 
                taxpayer, and all successors in interest) as to the 
                rural investment credit dollar amount to be allocated 
                to such building.
        A month may be elected under subparagraph (B) only if the 
        election is made not later than the 5th day after the close of 
        such month. Such an election, once made, shall be irrevocable.
            ``(2) Method of prescribing percentages.--The percentages 
        prescribed by the Secretary for any month shall be percentages 
        which will yield over a 10-year period amounts of credit under 
        subsection (a) which have a present value equal to--
                    ``(A) 70 percent of the eligible basis of a new 
                building, and
                    ``(B) 30 percent of the eligible basis of an 
                existing building.
            ``(3) Method of discounting.--The present value under 
        paragraph (2) shall be determined--
                    ``(A) as of the last day of the 1st year of the 10-
                year period referred to in paragraph (2),
                    ``(B) by using a discount rate equal to 72 percent 
                of the average of the annual Federal mid-term rate and 
                the annual Federal long-term rate applicable under 
                section 1274(d)(1) to the month applicable under 
                subparagraph (A) or (B) of paragraph (1) and compounded 
                annually, and
                    ``(C) by assuming that the credit allowable under 
                this section for any year is received on the last day 
                of such year.
    ``(c) Eligible Basis; Qualified Rural Investment Building.--For 
purposes of this section--
            ``(1) Eligible basis.--
                    ``(A) In general.--The eligible basis of any 
                qualified rural investment building for any taxable 
                year shall be determined under rules similar to the 
                rules under section 42(d), except that--
                            ``(i) the determination of the adjusted 
                        basis of any building shall be made as of the 
                        beginning of the credit period, and
                            ``(ii) such basis shall include development 
                        costs properly attributable to such building.
                    ``(B) Development costs.--For purposes of 
                subparagraph (A)(ii), the term `development costs' 
                includes--
                            ``(i) site preparation costs,
                            ``(ii) State and local impact fees,
                            ``(iii) reasonable development costs,
                            ``(iv) professional fees related to basis 
                        items,
                            ``(v) construction financing costs related 
                        to basis items other than land, and
                            ``(vi) on-site and adjacent improvements 
                        required by State and local governments.
            ``(2) Qualified rural investment building.--The term 
        `qualified rural investment building' means any building which 
        is part of a qualified rural investment project at all times 
        during the period--
                    ``(A) beginning on the 1st day in the compliance 
                period on which such building is part of such an 
                investment project, and
                    ``(B) ending on the last day of the compliance 
                period with respect to such building.
    ``(d) Rehabilitation Expenditures Treated as Separate New 
Building.--Rehabilitation expenditures paid or incurred by the taxpayer 
with respect to any building shall be treated for purposes of this 
section as a separate new building under the rules of section 42(e).
    ``(e) Definition and Special Rules Relating to Credit Period.--
            ``(1) Credit period defined.--For purposes of this section, 
        the term `credit period' means, with respect to any building, 
        the period of 10 taxable years beginning with the taxable year 
        in which the building is first placed in service.
            ``(2) Special rule for 1st year of credit period.--
                    ``(A) In general.--The credit allowable under 
                subsection (a) with respect to any building for the 1st 
                taxable year of the credit period shall be determined 
                by multiplying such credit by the fraction--
                            ``(i) the numerator of which is the number 
                        of full months of such year during which such 
                        building was in service, and
                            ``(ii) the denominator of which is 12.
                    ``(B) Disallowed 1st year credit allowed in 11th 
                year.--Any reduction by reason of subparagraph (A) in 
                the credit allowable (without regard to subparagraph 
                (A)) for the 1st taxable year of the credit period 
                shall be allowable under subsection (a) for the 1st 
                taxable year following the credit period.
            ``(3) Credit period for existing buildings not to begin 
        before rehabilitation credit allowed.--The credit period for an 
        existing building shall not begin before the 1st taxable year 
        of the credit period for rehabilitation expenditures with 
        respect to the building.
    ``(f) Qualified Rural Investment Project; Qualifying Area.--For 
purposes of this section--
            ``(1) Qualified rural investment project.--The term 
        `qualified rural investment project' means any investment 
        project of 1 or more qualified rural investment buildings 
        located in a qualifying area (and, if necessary to the project, 
        any contiguous county) and selected by the State according to 
        its qualified rural investment plan.
            ``(2) Qualifying area.--The term `qualifying area' means an 
        area with respect to which a major disaster has been declared 
        by the President under section 401 of the Robert T. Stafford 
        Disaster Relief and Emergency Assistance Act (FEMA-1699-DR) by 
        reason of severe storms and tornados beginning on May 4, 2007, 
        and determined by the President to warrant individual or public 
        assistance from the Federal Government under such Act.
    ``(g) Limitation on Aggregate Credit Allowable With Respect to 
Investment Projects Located in a State.--
            ``(1) Credit may not exceed credit amount allocated to 
        building.--The amount of the credit determined under this 
        section for any taxable year with respect to any building shall 
        not exceed the rural investment credit dollar amount allocated 
        to such building under rules similar to the rules of section 
        42(h)(1).
            ``(2) Allocated credit amount to apply to all taxable years 
        ending during or after credit allocation year.--Any rural 
        investment credit dollar amount allocated to any building for 
        any calendar year--
                    ``(A) shall apply to such building for all taxable 
                years in the credit period ending during or after such 
                calendar year, and
                    ``(B) shall reduce the aggregate rural investment 
                credit dollar amount of the allocating agency only for 
                such calendar year.
            ``(3) Rural investment credit dollar amount for agencies.--
                    ``(A) In general.--The aggregate rural investment 
                credit dollar amount which a rural investment credit 
                agency may allocate for any calendar year is the 
                portion of the State rural investment credit ceiling 
                allocated under this paragraph for such calendar year 
                to such agency.
                    ``(B) State ceiling initially allocated to state 
                rural investment credit agencies.--Except as provided 
                in subparagraphs (D) and (E), the State rural 
                investment credit ceiling for each calendar year shall 
                be allocated to the rural investment credit agency of 
                such State. If there is more than 1 rural investment 
                credit agency of a State, all such agencies shall be 
                treated as a single agency.
                    ``(C) State rural investment credit ceiling.--The 
                State rural investment credit ceiling applicable to any 
                State and any calendar year shall be an amount equal to 
                the sum of--
                            ``(i) the unused State rural investment 
                        credit ceiling (if any) of such State for the 
                        preceding calendar year,
                            ``(ii) $1,000,000 for each qualifying area 
                        in the State,
                            ``(iii) the amount of State rural 
                        investment credit ceiling returned in the 
                        calendar year, plus
                            ``(iv) the amount (if any) allocated under 
                        subparagraph (D) to such State by the 
                        Secretary.
                For purposes of clause (i), the unused State rural 
                investment credit ceiling for any calendar year is the 
                excess (if any) of the sum of the amounts described in 
                clauses (ii) through (iv) over the aggregate rural 
                investment credit dollar amount allocated for such 
                year. For purposes of clause (iii), the amount of State 
                rural investment credit ceiling returned in the 
                calendar year equals the rural investment credit dollar 
                amount previously allocated within the State to any 
                investment project which fails to meet the 10 percent 
                test under section 42(h)(1)(E)(ii) on a date after the 
                close of the calendar year in which the allocation was 
                made or which does not become a qualified rural 
                investment project within the period required by this 
                section or the terms of the allocation or to any 
                investment project with respect to which an allocation 
                is canceled by mutual consent of the rural investment 
                credit agency and the allocation recipient.
                    ``(D) Unused rural investment credit carryovers 
                allocated among certain states.--
                            ``(i) In general.--The unused rural 
                        investment credit carryover of a State for any 
                        calendar year shall be assigned to the 
                        Secretary for allocation among qualified States 
                        for the succeeding calendar year.
                            ``(ii) Unused rural investment credit 
                        carryover.--For purposes of this subparagraph, 
                        the unused rural investment credit carryover of 
                        a State for any calendar year is the excess (if 
                        any) of the unused State rural investment 
                        credit ceiling for such year (as defined in 
                        subparagraph (C)(i)) over the excess (if any) 
                        of--
                                    ``(I) the unused State rural 
                                investment credit ceiling for the year 
                                preceding such year, over
                                    ``(II) the aggregate rural 
                                investment credit dollar amount 
                                allocated for such year.
                            ``(iii) Formula for allocation of unused 
                        rural investment credit carryovers among 
                        qualified states.--The amount allocated under 
                        this subparagraph to a qualified State for any 
                        calendar year shall be the amount determined by 
                        the Secretary to bear the same ratio to the 
                        aggregate unused rural investment credit 
                        carryovers of all States for the preceding 
                        calendar year as such State's population for 
                        the calendar year bears to the population of 
                        all qualified States for the calendar year. For 
                        purposes of the preceding sentence, population 
                        shall be determined in accordance with section 
                        146(j).
                            ``(iv) Qualified state.--For purposes of 
                        this subparagraph, the term `qualified State' 
                        means, with respect to a calendar year, any 
                        State--
                                    ``(I) which allocated its entire 
                                State rural investment credit ceiling 
                                for the preceding calendar year, and
                                    ``(II) for which a request is made 
                                (not later than May 1 of the calendar 
                                year) to receive an allocation under 
                                clause (iii).
                    ``(E) State may provide for different allocation.--
                Rules similar to the rules of section 146(e) (other 
                than paragraph (2)(B) thereof) shall apply for purposes 
                of this paragraph.
                    ``(F) Population.--For purposes of this paragraph, 
                population shall be determined in accordance with 
                section 146(j).
                    ``(G) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2007, the $1,000,000 amount 
                        in subparagraph (C) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year by 
                                substituting `calendar year 2006' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--Any increase under clause 
                        (i) which is not a multiple of $5,000 shall be 
                        rounded to the next lowest multiple of $5,000.
            ``(4) Portion of state ceiling set-aside for certain 
        investment projects involving qualified nonprofit 
        organizations.--
                    ``(A) In general.--At least 10 percent of the State 
                rural investment credit ceiling for any State for any 
                calendar year shall be allocated to qualified rural 
                investment projects described in subparagraph (B).
                    ``(B) Investment projects involving qualified 
                nonprofit organizations.--For purposes of subparagraph 
                (A), a qualified rural investment project is described 
                in this subparagraph if a qualified nonprofit 
                organization is to materially participate (within the 
                meaning of section 469(h)) in the development and 
                operation of the investment project throughout the 
                compliance period.
                    ``(C) Qualified nonprofit organization.--For 
                purposes of this paragraph, the term `qualified 
                nonprofit organization' means any organization if--
                            ``(i) such organization is described in any 
                        paragraph of section 501(c) and is exempt from 
                        tax under section 501(a),
                            ``(ii) such organization is determined by 
                        the State rural investment credit agency not to 
                        be affiliated with or controlled by a for-
                        profit organization, and
                            ``(iii) 1 of the exempt purposes of such 
                        organization includes the fostering of rural 
                        investment.
                    ``(D) Treatment of certain subsidiaries.--
                            ``(i) In general.--For purposes of this 
                        paragraph, a qualified nonprofit organization 
                        shall be treated as satisfying the ownership 
                        and material participation test of subparagraph 
                        (B) if any qualified corporation in which such 
                        organization holds stock satisfies such test.
                            ``(ii) Qualified corporation.--For purposes 
                        of clause (i), the term `qualified corporation' 
                        means any corporation if 100 percent of the 
                        stock of such corporation is held by 1 or more 
                        qualified nonprofit organizations at all times 
                        during the period such corporation is in 
                        existence.
                    ``(E) State may not override set-aside.--Nothing in 
                subparagraph (F) of paragraph (3) shall be construed to 
                permit a State not to comply with subparagraph (A) of 
                this paragraph.
                    ``(F) Credits for qualified nonprofit 
                organizations.--
                            ``(i) Allowance of credit.--Any credit 
                        which would be allowable under subsection (a) 
                        with respect to a qualified rural investment 
                        building of a qualified nonprofit organization 
                        if such organization were not exempt from tax 
                        under this chapter shall be treated as a credit 
                        allowable under subpart C to such organization.
                            ``(ii) Use of credit.--A qualified 
                        nonprofit organization may assign, trade, sell, 
                        or otherwise transfer any credit allowable to 
                        such organization under subparagraph (A) to any 
                        taxpayer.
                            ``(iii) Credit not income.--A transfer 
                        under subparagraph (B) of any credit allowable 
                        under subparagraph (A) shall not result in 
                        income for purposes of section 511.
            ``(5) Special rules.--
                    ``(A) Building must be located within jurisdiction 
                of credit agency.--A rural investment credit agency may 
                allocate its aggregate rural investment credit dollar 
                amount only to buildings located in the jurisdiction of 
                the governmental unit of which such agency is a part.
                    ``(B) Agency allocations in excess of limit.--If 
                the aggregate rural investment credit dollar amounts 
                allocated by a rural investment credit agency for any 
                calendar year exceed the portion of the State rural 
                investment credit ceiling allocated to such agency for 
                such calendar year, the rural investment credit dollar 
                amounts so allocated shall be reduced (to the extent of 
                such excess) for buildings in the reverse of the order 
                in which the allocations of such amounts were made.
                    ``(C) Credit reduced if allocated credit dollar 
                amount is less than credit which would be allowable 
                without regard to sales convention, etc.--
                            ``(i) In general.--The amount of the credit 
                        determined under this section with respect to 
                        any building shall not exceed the clause (ii) 
                        percentage of the amount of the credit which 
                        would (but for this subparagraph) be determined 
                        under this section with respect to such 
                        building.
                            ``(ii) Determination of percentage.--For 
                        purposes of clause (i), the clause (ii) 
                        percentage with respect to any building is the 
                        percentage which--
                                    ``(I) the rural investment credit 
                                dollar amount allocated to such 
                                building bears to
                                    ``(II) the credit amount determined 
                                in accordance with clause (iii).
                            ``(iii) Determination of credit amount.--
                        The credit amount determined in accordance with 
                        this clause is the amount of the credit which 
                        would (but for this subparagraph) be determined 
                        under this section with respect to the building 
                        if this section were applied without regard to 
                        paragraph (2)(A) of subsection (e).
                    ``(D) Rural investment credit agency to specify 
                applicable percentage and maximum eligible basis.--In 
                allocating a rural investment credit dollar amount to 
                any building, the rural investment credit agency shall 
                specify the applicable percentage and the maximum 
                eligible basis which may be taken into account under 
                this section with respect to such building. The 
                applicable percentage and maximum eligible basis so 
                specified shall not exceed the applicable percentage 
                and eligible basis determined under this section 
                without regard to this subsection.
            ``(6) Other definitions.--For purposes of this subsection--
                    ``(A) Rural investment credit agency.--The term 
                `rural investment credit agency' means any agency 
                authorized to carry out this subsection.
                    ``(B) Possessions treated as states.--The term 
                `State' includes a possession of the United States.
            ``(7) Portion of state ceiling set-aside for qualified 
        rural small business investment credits.--Not more than 20 
        percent of the State rural investment credit ceiling for any 
        State for any calendar year may be allocated to qualified rural 
        small business investment credits under section 42B.
    ``(h) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Compliance period.--The term `compliance period' 
        means, with respect to any building, the period of 10 taxable 
        years beginning with the 1st taxable year of the credit period 
        with respect thereto.
            ``(2) New building.--The term `new building' means a 
        building the original use of which begins with the taxpayer.
            ``(3) Existing building.--The term `existing building' 
        means any building which is not a new building.
            ``(4) Application to estates and trusts.--In the case of an 
        estate or trust, the amount of the credit determined under 
        subsection (a) and any increase in tax under subsection (i) 
        shall be apportioned between the estate or trust and the 
        beneficiaries on the basis of the income of the estate or trust 
        allocable to each.
    ``(i) Recapture of Credit.--If--
            ``(1) as of the close of any taxable year in the compliance 
        period, the amount of the eligible basis of any building with 
        respect to the taxpayer is less than
            ``(2) the amount of such basis as of the close of the 
        preceding taxable year, then the taxpayer's tax under this 
        chapter for the taxable year shall be increased by the credit 
        recapture amount determined under rules similar to the rules of 
        section 42(j).
    ``(j) Certifications and Other Reports to Secretary.--
            ``(1) Certification with respect to 1st year of credit 
        period.--Following the close of the 1st taxable year in the 
        credit period with respect to any qualified rural investment 
        building, the taxpayer shall certify to the Secretary (at such 
        time and in such form and in such manner as the Secretary 
        prescribes)--
                    ``(A) the taxable year, and calendar year, in which 
                such building was first placed in service,
                    ``(B) the eligible basis of such building as of the 
                beginning of the credit period,
                    ``(C) the maximum applicable percentage and 
                eligible basis permitted to be taken into account by 
                the appropriate rural investment credit agency under 
                subsection (g),
                    ``(D) the election made under subsection (f) with 
                respect to the qualified rural investment project of 
                which such building is a part, and
                    ``(E) such other information as the Secretary may 
                require.
        In the case of a failure to make the certification required by 
        the preceding sentence on the date prescribed therefor, unless 
        it is shown that such failure is due to reasonable cause and 
        not to willful neglect, no credit shall be allowable by reason 
        of subsection (a) with respect to such building for any taxable 
        year ending before such certification is made.
            ``(2) Annual reports to the secretary.--The Secretary may 
        require taxpayers to submit an information return (at such time 
        and in such form and manner as the Secretary prescribes) for 
        each taxable year setting forth--
                    ``(A) the eligible basis for the taxable year of 
                each qualified rural investment building of the 
                taxpayer,
                    ``(B) the information described in paragraph (1)(C) 
                for the taxable year, and
                    ``(C) such other information as the Secretary may 
                require.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the return required by the Secretary under the preceding 
        sentence on the date prescribed therefor.
            ``(3) Annual reports from rural investment credit 
        agencies.--Each agency which allocates any rural investment 
        credit amount to any building for any calendar year shall 
        submit to the Secretary (at such time and in such manner as the 
        Secretary shall prescribe) an annual report specifying--
                    ``(A) the amount of rural investment credit amount 
                allocated to each building for such year,
                    ``(B) sufficient information to identify each such 
                building and the taxpayer with respect thereto, and
                    ``(C) such other information as the Secretary may 
                require.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the report required by the preceding sentence on the 
        date prescribed therefor.
    ``(k) Responsibilities of Rural Investment Credit Agencies.--
            ``(1) Plans for allocation of credit among investment 
        projects.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this section, the rural investment credit 
                dollar amount with respect to any building shall be 
                zero unless--
                            ``(i) such amount was allocated pursuant to 
                        a qualified rural investment plan of the agency 
                        which is approved by the governmental unit (in 
                        accordance with rules similar to the rules of 
                        section 147(f)(2) (other than subparagraph 
                        (B)(ii) thereof)) of which such agency is a 
                        part,
                            ``(ii) such agency notifies the chief 
                        executive officer (or the equivalent) of the 
                        local jurisdiction within which the building is 
                        located of such investment project and provides 
                        such individual a reasonable opportunity to 
                        comment on the investment project,
                            ``(iii) a comprehensive market study of the 
                        development needs of individuals in the 
                        qualifying area to be served by the investment 
                        project is conducted before the credit 
                        allocation is made and at the developer's 
                        expense by a disinterested party who is 
                        approved by such agency, and
                            ``(iv) a written explanation is available 
                        to the general public for any allocation of a 
                        rural investment credit dollar amount which is 
                        not made in accordance with established 
                        priorities and selection criteria of the rural 
                        investment credit agency.
                    ``(B) Qualified rural investment plan.--For 
                purposes of this section, the term `qualified rural 
                investment plan' means any plan--
                            ``(i) which sets forth selection criteria 
                        to be used to determine priorities of the rural 
                        investment credit agency which are appropriate 
                        to the qualifying area,
                            ``(ii) which also gives preference in 
                        allocating rural investment credit dollar 
                        amounts among selected investment projects to--
                                    ``(I) investment projects that 
                                target those small rural counties with 
                                consistently high rates of net out-
                                migration,
                                    ``(II) investment projects that 
                                link the economic development and job 
                                creation efforts of 2 or more small 
                                rural counties with high rates of net 
                                out-migration, and
                                    ``(III) investment projects that 
                                link the economic development and job 
                                creation efforts of 1 or more small 
                                rural counties in the State with high 
                                rates of net out-migration to related 
                                efforts in regions of such State 
                                experiencing economic growth, and
                            ``(iii) which provides a procedure that the 
                        agency (or an agent or other private contractor 
                        of such agency) will follow in monitoring for 
                        noncompliance with the provisions of this 
                        section and in notifying the Internal Revenue 
                        Service of such noncompliance which such agency 
                        becomes aware of and in monitoring for 
                        noncompliance through regular site visits.
                    ``(C) Certain selection criteria must be used.--The 
                selection criteria set forth in a qualified rural 
                investment plan must include--
                            ``(i) investment project location,
                            ``(ii) technology and transportation 
                        infrastructure needs, and
                            ``(iii) private development trends.
            ``(2) Credit allocated to building not to exceed amount 
        necessary to assure investment project feasibility.--
                    ``(A) In general.--The rural investment credit 
                dollar amount allocated to an investment project shall 
                not exceed the amount the rural investment credit 
                agency determines is necessary for the financial 
                feasibility of the investment project and its viability 
                as a qualified rural investment project throughout the 
                compliance period.
                    ``(B) Agency evaluation.--In making the 
                determination under subparagraph (A), the rural 
                investment credit agency shall consider--
                            ``(i) the sources and uses of funds and the 
                        total financing planned for the investment 
                        project,
                            ``(ii) any proceeds or receipts expected to 
                        be generated by reason of tax benefits,
                            ``(iii) the percentage of the rural 
                        investment credit dollar amount used for 
                        investment project costs other than the cost of 
                        intermediaries, and
                            ``(iv) the reasonableness of the 
                        developmental and operational costs of the 
                        investment project.
                Clause (iii) shall not be applied so as to impede the 
                development of investment projects in hard-to-develop 
                areas.
                    ``(C) Determination made when credit amount applied 
                for and when building placed in service.--
                            ``(i) In general.--A determination under 
                        subparagraph (A) shall be made as of each of 
                        the following times:
                                    ``(I) The application for the rural 
                                investment credit dollar amount.
                                    ``(II) The allocation of the rural 
                                investment credit dollar amount.
                                    ``(III) The date the building is 
                                first placed in service.
                            ``(ii) Certification as to amount of other 
                        subsidies.--Prior to each determination under 
                        clause (i), the taxpayer shall certify to the 
                        rural investment credit agency the full extent 
                        of all Federal, State, and local subsidies 
                        which apply (or which the taxpayer expects to 
                        apply) with respect to the building.
    ``(l) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
            ``(1) dealing with--
                    ``(A) investment projects which include more than 1 
                building or only a portion of a building,
                    ``(B) buildings which are sold in portions,
            ``(2) providing for the application of this section to 
        short taxable years,
            ``(3) preventing the avoidance of the rules of this 
        section, and
            ``(4) providing the opportunity for rural investment credit 
        agencies to correct administrative errors and omissions with 
        respect to allocations and record keeping within a reasonable 
        period after their discovery, taking into account the 
        availability of regulations and other administrative guidance 
        from the Secretary.''.
    (b) Current Year Business Credit Calculation.--Section 38(b) 
(relating to current year business credit) is amended by striking 
``plus'' at the end of paragraph (30), by striking the period at the 
end of paragraph (31) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(32) the rural investment credit determined under section 
        42A(a).''.
    (c) Conforming Amendments.--
            (1) Section 55(c)(1) is amended by inserting ``or 
        subsection (i) or (j) of section 42A'' after ``section 42''.
            (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and (k)(1) of 
        section 469 are each amended by inserting ``or 42A'' after 
        ``section 42''.
            (3) Section 772(a) is amended by striking ``and'' at the 
        end of paragraph (10), by redesignating paragraph (11) as 
        paragraph (12), and by inserting after paragraph (10) the 
        following new paragraph:
            ``(11) the rural investment credit determined under section 
        42A, and''.
            (4) Section 774(b)(4) is amended by inserting ``, 42A(i),'' 
        after ``section 42(j)''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 42 the following new item:

``Sec. 42A. Rural investment credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenditures made in taxable years beginning after the date of 
the enactment of this Act and before the date which is 5 years after 
such date of enactment.

SEC. 302. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of a 
qualified rural small business, the amount of the qualified rural small 
business investment credit determined under this section for any 
taxable year is equal to 30 percent of the qualified expenditures for 
the taxable year of such business.
    ``(b) Dollar Limitation.--
            ``(1) In general.--The credit allowable under subsection 
        (a) for any taxable year shall not exceed the lesser of--
                    ``(A) $5,000, or
                    ``(B) the amount when added to the aggregate 
                credits allowable to the taxpayer under subsection (a) 
                for all preceding taxable years does not exceed 
                $25,000.
            ``(2) No double credit allowed.--In the case of any 
        qualified rural small business which places in service a 
        qualified rural investment building with respect to which a 
        rural investment credit is allowed under section 42A for any 
        taxable year, paragraph (1)(A) shall be applied with respect to 
        such taxable year by substituting `zero' for `$5,000'.
    ``(c) Qualified Rural Small Business.--For purposes of this 
section, the term `qualified rural small business' means any person if 
such person--
            ``(1) employed not more than 5 full-time employees during 
        the taxable year,
            ``(2) materially and substantially participates in 
        management,
            ``(3) is located is a qualifying area, and
            ``(4) submitted a qualified business plan with respect to 
        which the rural investment credit agency with jurisdiction over 
        such qualifying area has allocated a portion of the State rural 
        investment ceiling for such taxable year under section 
        42A(g)(7).
For purposes of paragraph (1), an employee shall be considered full-
time if such employee is employed at least 30 hours per week for 20 or 
more calendar weeks in the taxable year.
    ``(d) Qualified Expenditures.--For purposes of this section--
            ``(1) In general.--The term `qualified expenditures' means 
        expenditures normally associated with starting or expanding a 
        business and included in a qualified business plan, including 
        costs for capital, plant and equipment, inventory expenses, and 
        wages, but not including interest costs.
            ``(2) Only certain expenditures included for existing 
        businesses.--In the case of a qualified rural small business 
        with respect to which a credit under subsection (a) was allowed 
        for a preceding taxable year, such term shall include only so 
        much of the expenditures described in paragraph (1) for the 
        taxable year as exceed the aggregate of such expenditures for 
        the preceding taxable year.
    ``(e) Qualified Business Plan.--For purposes of this section, the 
term `qualified business plan' means a business plan which--
            ``(1) has been approved by the rural investment credit 
        agency with jurisdiction over the qualifying area in which the 
        qualified rural small business is located pursuant to such 
        agency's rural investment plan, and
            ``(2) meets such requirements as the agency may specify.
    ``(f) Denial of Double Benefit.--In the case of the amount of the 
credit determined under this section--
            ``(1) no deduction or credit shall be allowed for such 
        amount under any other provision of this chapter, and
            ``(2) no increase in the adjusted basis of any property 
        shall result from such amount.
    ``(g) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) any term which is used in this section which is used 
        in section 42A shall have the meaning given such term by 
        section 42A, and
            ``(2) rules similar to the rules under subsections (j)(2), 
        (j)(3), and (k) of section 42A shall apply.''.
    (b) Current Year Business Credit Calculation.--Section 38(b) 
(relating to current year business credit), as amended by this Act, is 
amended by striking ``plus'' at the end of paragraph (31), by striking 
the period at the end of paragraph (32) and inserting ``, plus'', and 
by adding at the end the following new paragraph:
            ``(33) the qualified rural small business investment credit 
        determined under section 42B(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by inserting after the item relating to section 42A the 
following new item:

``Sec. 42B. Qualified rural small business investment credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenditures made in taxable years beginning after the date of 
the enactment of this Act and before the date which is 5 years after 
such date of enactment.

SEC. 303. ACCELERATED DEPRECIATION FOR RURAL INVESTMENT PROPERTY.

    (a) In General.--Section 168 is amended by adding at the end the 
following new subsection:
    ``(m) Property in Rural Investment Projects.--
            ``(1) In general.--For purposes of subsection (a), the 
        applicable recovery period for qualified rural investment 
        property shall be determined in accordance with the table 
        contained in paragraph (2) in lieu of the table contained in 
        subsection (c).
            ``(2) Applicable recovery period for rural investment 
        property.--For purposes of paragraph (1)--

                                                         The applicable
``In the case of:                                   recovery period is:
    3-year property...............................             2 years 
    5-year property...............................             3 years 
    7-year property...............................             4 years 
    10-year property..............................             6 years 
    15-year property..............................             9 years 
    20-year property..............................            12 years 
    Nonresidential real property..................            22 years.
            ``(3) Deduction allowed in computing minimum tax.--For 
        purposes of determining alternative minimum taxable income 
        under section 55, the deduction under subsection (a) for 
        property to which paragraph (1) applies shall be determined 
        under this section without regard to any adjustment under 
        section 56.
            ``(4) Qualified rural investment property defined.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `qualified rural 
                investment property' means property which is property 
                described in the table in paragraph (2) and which is--
                            ``(i) used by the taxpayer predominantly in 
                        the active conduct of a trade or business 
                        within a qualified rural investment project,
                            ``(ii) not used or located outside the 
                        qualified rural investment project on a regular 
                        basis,
                            ``(iii) not acquired (directly or 
                        indirectly) by the taxpayer from a person who 
                        is related to the taxpayer (within the meaning 
                        of section 465(b)(3)(C)), and
                            ``(iv) not property (or any portion 
                        thereof) placed in service for purposes of 
                        operating any facility described in section 
                        144(c)(6)(B).
                    ``(B) Exception for alternative depreciation 
                property.--The term `qualified rural investment 
                property' does not include any property to which the 
                alternative depreciation system under subsection (g) 
                applies, determined--
                            ``(i) without regard to subsection (g)(7) 
                        (relating to election to use alternative 
                        depreciation system), and
                            ``(ii) after the application of section 
                        280F(b) (relating to listed property with 
                        limited business use).
                    ``(C) Special rule for infrastructure investment.--
                            ``(i) In general.--Subparagraph (A)(ii) 
                        shall not apply to qualified infrastructure 
                        property located outside of the qualified rural 
                        investment project if the purpose of such 
                        property is to connect with qualified 
                        infrastructure property located within such 
                        project.
                            ``(ii) Qualified infrastructure property.--
                        For purposes of this subparagraph, the term 
                        `qualified infrastructure property' means 
                        qualified rural investment property (determined 
                        without regard to subparagraph (A)(ii)) which--
                                    ``(I) benefits the qualifying area 
                                infrastructure,
                                    ``(II) is available to the general 
                                public, and
                                    ``(III) is placed in service in 
                                connection with the taxpayer's active 
                                conduct of a trade or business within a 
                                qualified rural investment project.
                        Such term includes, but is not limited to, 
                        roads, power lines, water systems, railroad 
                        spurs, and communications facilities.
            ``(5) Definitions.--For purposes of this subsection, any 
        term used in this section which is used in section 42A shall 
        have the meaning given such term by section 42A.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act and before the date which is 5 years after such date of enactment.
                                 <all>
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