II 

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. 

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


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1 SECTION 1. SHORT TITLE; ETC. 

2 (a) SHORT TITLE.—This Act may be cited as ‘‘Kan3 sas Disaster Tax Relief Assistance Act’’. 

4 (b) AMENDMENT OF 1986 CODE.—Except as other5 wise expressly provided, whenever in this Act an amend6 ment or repeal is expressed in terms of an amendment 

7 to, or repeal of, a section or other provision, the reference 

8 shall be considered to be made to a section or other provi9 sion of the Internal Revenue Code of 1986. 

10 (c) TABLE OF CONTENTS.—The table of contents for 

11 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. 

12 TITLE I—TEMPORARY TAX 

13 RELIEF 

14 SEC. 101. TEMPORARY TAX RELIEF. 

15 (a) IN GENERAL.—Subchapter Y (relating to short16 term regional benefits) is amended by adding at the end 

17 the following new part: 


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1 ‘‘PART III—TAX BENEFITS FOR OTHER DISASTER 

2 AREAS 

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

3 ‘‘SEC. 1400U. TAX BENEFITS FOR KIOWA COUNTY, KANSAS 

4 AND SURROUNDING AREA. 

5 ‘‘The following provisions of this subchapter shall 

6 apply, in addition to the areas described in such provi7 sions, to an area with respect to which a major disaster 

8 has been declared by the President under section 401 of 

9 the Robert T. Stafford Disaster Relief and Emergency As10 sistance Act (FEMA–1699–DR) by reason of severe 

11 storms and tornados beginning on May 4, 2007, and de12 termined by the President to warrant individual or public 

13 assistance from the Federal Government under such Act: 

14 ‘‘(1) SUSPENSION OF CERTAIN LIMITATIONS ON

15 PERSONAL CASUALTY LOSSES.—Section 

16 1400S(b)(1), by substituting ‘May 4, 2007’ for ‘Au17 gust 25, 2005’. 

18 ‘‘(2) EXTENSION OF REPLACEMENT PERIOD

19 FOR NONRECOGNITION OF GAIN.—Section 1400L(g), 

20 by substituting ‘storms on May 4, 2007’ for ‘ter21 rorist attacks on September 11, 2001’. 

22 ‘‘(3) EMPLOYEE RETENTION CREDIT FOR EM23 PLOYERS AFFECTED BY MAY 4 STORMS.—Section 

24 1400R(a)— 


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1 ‘‘(A) by substituting ‘May 4, 2007’ for 

2 ‘August 28, 2005’ each place it appears, 

3 ‘‘(B) by substituting ‘January 1, 2008’ for 

4 ‘January 1, 2006’ both places it appears, and 

5 ‘‘(C) only with respect to eligible employers 

6 who employed an average of not more than 200 

7 employees on business days during the taxable 

8 year before May 4, 2007. 

9 ‘‘(4) SPECIAL ALLOWANCE FOR CERTAIN PROP10 ERTY ACQUIRED ON OR AFTER MAY 5, 2007.—Section 

11 1400N(d)— 

12 ‘‘(A) by substituting ‘qualified Recovery 

13 Assistance property’ for ‘qualified Gulf Oppor14 tunity Zone property’ each place it appears, 

15 ‘‘(B) by substituting ‘May 5, 2007’ for 

16 ‘August 28, 2005’ each place it appears, 

17 ‘‘(C) by substituting ‘December 31, 2008’ 

18 for ‘December 31, 2007’ in paragraph 

19 (2)(A)(v), 

20 ‘‘(D) by substituting ‘December 31, 2009’ 

21 for ‘December 31, 2008’ in paragraph 

22 (2)(A)(v), 

23 ‘‘(E) by substituting ‘May 4, 2007’ for 

24 ‘August 27, 2005’ in paragraph (3)(A), 


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1 ‘‘(F) by substituting ‘January 1, 2009’ for 

2 ‘January 1, 2008’ in paragraph (3)(B), and 

3 ‘‘(G) determined without regard to para4 graph (6) thereof. 

5 ‘‘(5) INCREASE IN EXPENSING UNDER SECTION

6 179.—Section 1400N(e), by substituting ‘qualified 

7 section 179 Recovery Assistance property’ for ‘quali8 fied section 179 Gulf Opportunity Zone property’ 

9 each place it appears. 

10 ‘‘(6) EXPENSING FOR CERTAIN DEMOLITION

11 AND CLEAN-UP COSTS.—Section 1400N(f)— 

12 ‘‘(A) by substituting ‘qualified Recovery 

13 Assistance clean-up cost’ for ‘qualified Gulf Op14 portunity Zone clean-up cost’ each place it ap15 pears, and 

16 ‘‘(B) by substituting ‘beginning on May 4, 

17 2007, and ending on December 31, 2009’ for 

18 ‘beginning on August 28, 2005, and ending on 

19 December 31, 2007’ in paragraph (2) thereof. 

20 ‘‘(7) TREATMENT OF PUBLIC UTILITY PROP21 ERTY DISASTER LOSSES.—Section 1400N(o). 

22 ‘‘(8) TREATMENT OF NET OPERATING LOSSES

23 ATTRIBUTABLE TO STORM LOSSES.—Section 

24 1400N(k)— 


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1 ‘‘(A) by substituting ‘qualified Recovery 

2 Assistance loss’ for ‘qualified Gulf Opportunity 

3 Zone loss’ each place it appears, 

4 ‘‘(B) by substituting ‘after May 3, 2007, 

5 and before on January 1, 2010’ for ‘after Au6 gust 27, 2005, and before January 1, 2008’ 

7 each place it appears, 

8 ‘‘(C) by substituting ‘May 4, 2007’ for 

9 ‘August 28, 2005’ in paragraph (2)(B)(ii)(I) 

10 thereof, 

11 ‘‘(D) by substituting ‘qualified Recovery 

12 Assistance property’ for ‘qualified Gulf Oppor13 tunity Zone property’ in paragraph (2)(B)(iv) 

14 thereof, and 

15 ‘‘(E) by substituting ‘qualified Recovery 

16 Assistance casualty loss’ for ‘qualified Gulf Op17 portunity Zone casualty loss’ each place it ap18 pears. 

19 ‘‘(9) TREATMENT OF REPRESENTATIONS RE20 GARDING INCOME ELIGIBILITY FOR PURPOSES OF

21 QUALIFIED RENTAL PROJECT REQUIREMENTS.—Sec22 tion 1400N(n). 

23 ‘‘(10) SPECIAL RULES FOR USE OF RETIRE24 MENT FUNDS.—Section 1400Q— 


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1 ‘‘(A) by substituting ‘qualified Recovery 

2 Assistance distribution’ for ‘qualified hurricane 

3 distribution’ each place it appears, 

4 ‘‘(B) by substituting ‘on or after May 4, 

5 2007, and before January 1, 2009’ for ‘on or 

6 after August 25, 2005, and before January 1, 

7 2007’ in subsection (a)(4)(A)(i), 

8 ‘‘(C) by substituting ‘qualified storm dis9 tribution’ for ‘qualified Katrina distribution’ 

10 each place it appears, 

11 ‘‘(D) by substituting ‘after November 4, 

12 2006, and before May 5, 2007’ for ‘after Feb13 ruary 28, 2005, and before August 29, 2005’ in 

14 subsection (b)(2)(B)(ii), 

15 ‘‘(E) by substituting ‘beginning on May 4, 

16 2007, and ending on November 5, 2007’ for 

17 ‘beginning on August 25, 2005, and ending on 

18 February 28, 2006’ in subsection (b)(3)(A), 

19 ‘‘(F) by substituting ‘qualified storm indi20 vidual’ for ‘qualified Hurricane Katrina indi21 vidual’ each place it appears, 

22 ‘‘(G) by substituting ‘December 31, 2007’ 

23 for ‘December 31, 2006’ in subsection 

24 (c)(2)(A), 


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1 ‘‘(H) by substituting ‘beginning on June 4, 

2 2007, and ending on December 31, 2007’ for 

3 ‘beginning on September 24, 2005, and ending 

4 on December 31, 2006’ in subsection 

5 (c)(4)(A)(i), 

6 ‘‘(I) by substituting ‘May 4, 2007’ for ‘Au7 gust 25, 2005’ in subsection (c)(4)(A)(ii), and 

8 ‘‘(J) by substituting ‘January 1, 2008’ for 

9 ‘January 1, 2007’ in subsection (d)(2)(A)(ii).’’. 

10 (b) CLERICAL AMENDMENT.—The table of parts for 

11 subchapter Y is amended by adding at the end the fol12 lowing new item: 

‘‘PART III. TAX BENEFITS FOR OTHER DISASTER AREAS’’. 

13 TITLE II—NEW HOMESTEAD OP14 PORTUNITIES PILOT 

15 PROJECT 

16 SEC. 201. LOANS FOR LEADERSHIP INITIATIVE. 

17 (a) DEFINITIONS.—In this section: 

18 (1) DEGREE.—The term ‘‘degree’’ means an as19 sociate’s or bachelor’s degree awarded by an institu20 tion of higher education. 

21 (2) INSTITUTION OF HIGHER EDUCATION.—The 

22 term ‘‘institution of higher education’’ has the 

23 meaning given the term in section 101 of the Higher 

24 Education Act of 1965 (20 U.S.C. 1001). 


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1 (3) QUALIFYING AREA.—The term ‘‘qualifying 

2 area’’ means an area with respect to which a major 

3 disaster has been declared by the President under 

4 section 401 of the Robert T. Stafford Disaster Relief 

5 and Emergency Assistance Act (FEMA–1699–DR) 

6 by reason of severe storms and tornados beginning 

7 on May 4, 2007, and determined by the President 

8 to warrant individual or public assistance from the 

9 Federal Government under such Act. 

10 (4) SECRETARY.—The term ‘‘Secretary’’ means 

11 the Secretary of Education. 

12 (b) PROGRAM.— 

13 (1) IN GENERAL.—The Secretary shall carry 

14 out a program of assuming the obligation to repay, 

15 pursuant to subsection (c), a loan made, insured, or 

16 guaranteed under part B, D, or E of title IV of the 

17 Higher Education Act of 1965 (20 U.S.C. 1071 et 

18 seq., 20 U.S.C. 1087a et seq., and 20 U.S.C. 

19 1087aa et seq.), excluding loans made under section 

20 428B of such Act or comparable loans made under 

21 part D of such Act, for any borrower who— 

22 (A) completes a degree; 

23 (B) resides in a qualifying area; and 

24 (C) is employed in a qualifying area. 


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1 (2) REGULATIONS.—The Secretary is author2 ized to prescribe such regulations as may be nec3 essary to carry out the provisions of this section. 

4 (c) LOAN REPAYMENT.— 

5 (1) IN GENERAL.—The Secretary shall assume 

6 the obligation to repay, for each of the first 5 years 

7 of the residency and employment described in sub8 paragraphs (B) and (C) of subsection (b)(1) that 

9 occur after the date of enactment of this section, 10 

10 percent of the total amount of all loans made to a 

11 student under the provisions of the Higher Edu12 cation Act of 1965 as described in subsection (b)(1), 

13 up to a maximum amount of $2,000 each year. 

14 (2) CONSTRUCTION.—Nothing in this section 

15 shall be construed to authorize the refunding of any 

16 repayment of a loan made under part B, D, or E 

17 of title IV of the Higher Education Act of 1965. 

18 (3) INTEREST.—If a portion of a loan is repaid 

19 by the Secretary under this section for any year, the 

20 proportionate amount of interest on such loan which 

21 accrues for such year shall be repaid by the Sec22 retary so long as the total amount repaid by the 

23 Secretary in any 1 year does not exceed $2,000. 

24 (d) REPAYMENT TO ELIGIBLE LENDERS.—The Sec25 retary shall pay to each eligible lender or holder for each 


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1 fiscal year an amount equal to the aggregate amount of 

2 loans which are subject to repayment pursuant to this sec3 tion for such year. 

4 (e) APPLICATION FOR REPAYMENT.— 

5 (1) IN GENERAL.—An eligible borrower desiring 

6 loan repayment under this section shall submit a 

7 complete and accurate application to the Secretary 

8 at such time, in such manner, and containing such 

9 information as the Secretary may require. 

10 (2) CONDITIONS.—An eligible borrower may 

11 apply for loan repayment under this section after 

12 completing each year of qualifying residency and em13 ployment. The eligible borrower shall receive forbear14 ance while engaged in qualifying residency and em15 ployment unless the borrower is in deferment while 

16 so engaged. 

17 (f) DEFINITION OF ELIGIBLE BORROWER.—In this 

18 section the term ‘‘eligible borrower’’ means any borrower 

19 who is not in default on any of the borrower’s student 

20 loans under part B, D, or E of title IV of the Higher 

21 Education Act of 1965. 

22 (g) AUTHORIZATION OF APPROPRIATIONS.— 

23 (1) LOAN REPAYMENT.—There are authorized 

24 to be appropriated to carry out this section such 

25 sums as may be necessary. 


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1 (2) PERKINS LOAN FUNDS.—There are author2 ized to be appropriated such sums as may be nec3 essary for Federal capital contributions to student 

4 loan funds established under part E of title IV of 

5 the Higher Education Act of 1965. 

6 (h) REPAYMENT EXCLUDED FROM GROSS IN7 COME.—Section 108(f)(1) (relating to student loans) is 

8 amended by inserting ‘‘or pursuant to section 201 of the 

9 Disaster Tax Relief Act of 2007’’ after ‘‘employers’’. 

10 (i) APPLICATION OF SECTION.—This section shall 

11 apply to applications for repayment made after the date 

12 of the enactment of this Act and before the date which 

13 is 5 years after such date of enactment. 

14 SEC. 202. CREDIT FOR CERTAIN RURAL HOMEBUYERS. 

15 (a) IN GENERAL.—Subpart A of part IV of sub16 chapter A of chapter 1 (relating to nonrefundable personal 

17 credits) is amended by inserting before section 26 the fol18 lowing new section: 

19 ‘‘SEC. 25E. PURCHASE OF RESIDENCES BY CERTAIN RURAL 

20 HOMEBUYERS. 

21 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in22 dividual who purchases a qualified residence in a quali23 fying area during any taxable year, there shall be allowed 

24 as a credit against the tax imposed by this chapter for 

25 the taxable year an amount equal to the lesser of— 


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1 ‘‘(1) 10 percent of the purchase price of the 

2 residence, or 

3 ‘‘(2) $5,000. 

4 ‘‘(b) LIMITATIONS.— 

5 ‘‘(1) LIMITATION BASED ON AMOUNT OF

6 TAX.—The credit allowed under subsection (a) for 

7 any taxable year shall not exceed the excess of— 

8 ‘‘(A) the sum of the regular tax liability 

9 (as defined in section 26(b)) plus the tax im10 posed by section 55, over 

11 ‘‘(B) the sum of the credits allowable 

12 under this subpart (other than this section and 

13 section 23) and section 27 for the taxable year. 

14 ‘‘(2) MARRIED INDIVIDUALS FILING JOINTLY.— 

15 In the case of a husband and wife who file a joint 

16 return, the credit under this section is allowable only 

17 if the residence is a qualified residence with respect 

18 to both the husband and wife, and the amount speci19 fied under subsection (a)(2) shall apply to the joint 

20 return. 

21 ‘‘(3) MARRIED INDIVIDUALS FILING SEPA22 RATELY.—In the case of a married individual filing 

23 a separate return, subsection (a)(2) shall be applied 

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


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1 ‘‘(4) OTHER TAXPAYERS.—If 2 or more individ2 uals who are not married purchase a qualified resi3 dence, the amount of the credit allowed under sub4 section (a) shall be allocated among such individuals 

5 in such manner as the Secretary may prescribe, ex6 cept that the total amount of the credits allowed to 

7 all such individuals shall not exceed $5,000. 

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

9 ‘‘(1) QUALIFIED RESIDENCE.—The term ‘quali10 fied residence’ has the same meaning as when used 

11 in section 163(h). 

12 ‘‘(2) QUALIFYING AREA.—The term ‘qualifying 

13 area’ means an area with respect to which a major 

14 disaster has been declared by the President under 

15 section 401 of the Robert T. Stafford Disaster Relief 

16 and Emergency Assistance Act (FEMA–1699–DR) 

17 by reason of severe storms and tornados beginning 

18 on May 4, 2007, and determined by the President 

19 to warrant individual or public assistance from the 

20 Federal Government under such Act. 

21 ‘‘(3) PURCHASE AND PURCHASE PRICE.—The 

22 terms ‘purchase’ and ‘purchase price’ have the 

23 meanings provided by section 1400C(e). 

24 ‘‘(d) CARRYFORWARD OF UNUSED CREDIT.—If the 

25 credit allowable under subsection (a) for any taxable year 


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1 exceeds the limitation imposed by subsection (b)(1) for 

2 such taxable year reduced by the sum of the credits allow3 able under this subpart (other than this section and sec4 tion 23), such excess shall be carried to the succeeding 

5 taxable year and added to the credit allowable under sub6 section (a) for such taxable year. 

7 ‘‘(e) REPORTING.—If the Secretary requires informa8 tion reporting under section 6045 by a person described 

9 in subsection (e)(2) thereof to verify the eligibility of tax10 payers for the credit allowable by this section, the excep11 tion provided by section 6045(e)(5) shall not apply. 

12 ‘‘(f) RECAPTURE OF CREDIT IN CASE OF CERTAIN

13 SALES.— 

14 ‘‘(1) IN GENERAL.—Except as provided in para15 graph (5), if the taxpayer disposes of a qualified res16 idence with respect to the purchase of which a credit 

17 was allowed under subsection (a) at any time within 

18 5 years after the date the taxpayer acquired the 

19 property, then the tax imposed under this chapter 

20 for the taxable year in which the disposition occurs 

21 is increased by the credit recapture amount. 

22 ‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur23 poses of paragraph (1), the credit recapture amount 

24 is an amount equal to the sum of— 


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1 ‘‘(A) the applicable recapture percentage of 

2 the amount of the credit allowed to the tax3 payer under this section, plus 

4 ‘‘(B) interest at the overpayment rate es5 tablished under section 6621 on the amount de6 termined under subparagraph (A) for each 

7 prior taxable year for the period beginning on 

8 the due date for filing the return for the prior 

9 taxable year involved. 

10 No deduction shall be allowed under this chapter for 

11 interest described in subparagraph (B). 

12 ‘‘(3) APPLICABLE RECAPTURE PERCENTAGE.— 

13 ‘‘(A) IN GENERAL.—For purposes of this 

14 subsection, the applicable recapture percentage 

15 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. 

16 ‘‘(B) YEARS.—For purposes of subpara17 graph (A), year 1 shall begin on the first day 

18 of the taxable year in which the purchase of the 

19 qualified residence described in subsection (a) 

20 occurs. 


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1 ‘‘(4) NO CREDITS AGAINST TAX.—Any increase 

2 in tax under this subsection shall not be treated as 

3 a tax imposed by this chapter for purposes of deter4 mining the amount of any credit under this chapter 

5 or for purposes of section 55. 

6 ‘‘(5) DEATH OF OWNER; CASUALTY LOSS; IN7 VOLUNTARY CONVERSION; ETC.—The provisions of 

8 paragraph (1) do not apply to— 

9 ‘‘(A) a disposition of a qualified residence 

10 made on account of the death of any individual 

11 having a legal or equitable interest therein oc12 curring during the 5-year period to which ref13 erence is made under paragraph (1), 

14 ‘‘(B) a disposition of the old qualified resi15 dence if it is substantially or completely de16 stroyed by a casualty described in section 

17 165(c)(3) or compulsorily or involuntarily con18 verted (within the meaning of section 1033(a)), 

19 or 

20 ‘‘(C) a disposition pursuant to a settlement 

21 in a divorce or legal separation proceeding 

22 where the qualified residence is sold or the 

23 other spouse retains such residence. 

24 ‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub25 title, if a credit is allowed under this section with respect 


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1 to the purchase of any residence, the basis of such resi2 dence shall be reduced by the amount of the credit so al3 lowed.’’. 

4 (b) CONFORMING AMENDMENTS.— 

5 (1) Subsection (a) of section 1016 (relating to 

6 general rule for adjustments to basis) is amended by 

7 striking ‘‘and’’ at the end of paragraph (36), by 

8 striking the period at the end of paragraph (37) and 

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

11 ‘‘(38) in the case of a residence with respect to 

12 which a credit was allowed under section 25E, to the 

13 extent provided in section 25E(g).’’. 

14 (2) Section 23(c)(1) is amended by inserting ‘‘, 

15 25E,’’ after ‘‘25D’’. 

16 (3) Section 25(e)(1)(C) is amended by inserting 

17 ‘‘25E,’’ after ‘‘25D,’’ both places it appears. 

18 (4) Section 1400C(d)(1) is amended by striking 

19 ‘‘and section 25D’’ and inserting ‘‘and sections 25D 

20 and 25E’’. 

21 (5) Section 1400C(d)(2) is amended by striking 

22 ‘‘and 25D’’ and inserting ‘‘25D, and 25E’’. 

23 (6) The table of sections for subpart A of part 

24 IV of subchapter A of chapter 1 is amended by inVerDate Aug 31 2005 22:41 May 18, 2007 Jkt 059200 PO 00000 Frm 00018 Fmt 6652 Sfmt 6201 E:\BILLS\S1423.IS S1423

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1 serting before the item relating to section 26 the fol2 lowing new item: 

‘‘Sec. 25E. Purchase of residences by certain rural homebuyers.’’. 

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

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

5 enactment of this Act and before the date which is 5 years 

6 after such date of enactment. 

7 SEC. 203. CAPITAL LOSS DEDUCTION ALLOWED WITH RE8 SPECT TO SALE OR EXCHANGE OF PRINCIPAL 

9 RESIDENCE IN CERTAIN RURAL AREAS. 

10 (a) IN GENERAL.—Subsection (c) of section 165 (re11 lating to limitation on losses of individuals) is amended— 

12 (1) by striking ‘‘and’’ at the end of paragraph 

13 (2), 

14 (2) by striking the period at the end of para15 graph (3) and inserting ‘‘; and’’, and 

16 (3) by adding at the end the following new 

17 paragraph: 

18 ‘‘(4) losses arising from the sale or exchange of 

19 the principal residence (within the meaning of sec20 tion 121) of the taxpayer located in a qualifying 

21 area (as defined in section 223(b)(2)), but only if 

22 the principal residence was acquired by the taxpayer 

23 after the date of enactment of this paragraph.’’. 


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1 (b) CONFORMING AMENDMENT.—Section 67(b)(3) is 

2 amended by striking ‘‘paragraph (2) or (3)’’ and inserting 

3 ‘‘paragraph (2), (3), or (4)’’. 

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

5 this section shall apply to sales and exchanges after the 

6 date of the enactment of this Act and before the date 

7 which is 5 years after such date of enactment. 

8 SEC. 204. INDIVIDUAL HOMESTEAD ACCOUNTS. 

9 (a) IN GENERAL.—Subchapter F of chapter 1 (relat10 ing to exempt organizations) is amended by adding at the 

11 end the following new part: 

12 ‘‘PART IX—INDIVIDUAL HOMESTEAD ACCOUNTS 

‘‘Sec. 530A. Individual homestead accounts. 

13 ‘‘SEC. 530A. INDIVIDUAL HOMESTEAD ACCOUNTS. 

14 ‘‘(a) GENERAL RULE.—An individual homestead ac15 count shall be exempt from taxation under this subtitle. 

16 Notwithstanding the preceding sentence, any individual 

17 homestead account shall be subject to the taxes imposed 

18 by section 511 (relating to imposition of tax on unrelated 

19 business income of charitable, etc., organizations). 

20 ‘‘(b) INDIVIDUAL HOMESTEAD ACCOUNT.—For pur21 poses of this title, the term ‘individual homestead account’ 

22 means a trust created or organized in the United States 

23 for the exclusive benefit of a qualified individual or his 


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1 beneficiaries, but only if the written governing instrument 

2 creating the trust meets the following requirements: 

3 ‘‘(1) Except in the case of a qualified rollover 

4 (as defined in subsection (f)(7))— 

5 ‘‘(A) no contribution will be accepted un6 less it is in cash, 

7 ‘‘(B) contributions will not be accepted for 

8 the taxable year in excess of $2,500 (deter9 mined without regard to any contribution made 

10 under subsection (d)), and 

11 ‘‘(C) contributions will not be accepted for 

12 any taxable year following the fifth taxable year 

13 in which the qualified individual has contributed 

14 to any individual homestead account. 

15 ‘‘(2) The requirements of paragraphs (2) 

16 through (6) of section 408(a) are met. 

17 ‘‘(c) QUALIFIED INDIVIDUAL; QUALIFYING AREA.— 

18 For purposes of this section— 

19 ‘‘(1) QUALIFIED INDIVIDUAL.—The term ‘quali20 fied individual’ means, for any taxable year, an indi21 vidual who is a bona fide resident of a qualifying 

22 area. 

23 ‘‘(2) QUALIFYING AREA.—The term ‘qualifying 

24 area’ means an area with respect to which a major 

25 disaster has been declared by the President under 


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1 section 401 of the Robert T. Stafford Disaster Relief 

2 and Emergency Assistance Act (FEMA–1699–DR) 

3 by reason of severe storms and tornados beginning 

4 on May 4, 2007, and determined by the President 

5 to warrant individual or public assistance from the 

6 Federal Government under such Act. 

7 ‘‘(d) MATCHING CONTRIBUTIONS TO INDIVIDUAL

8 HOMESTEAD ACCOUNTS.— 

9 ‘‘(1) IN GENERAL.—Not less than once each 

10 taxable year, the Secretary shall deposit (to the ex11 tent provided in appropriation Acts) into an indi12 vidual Homestead account of each qualified indi13 vidual an amount equal to the applicable percentage 

14 of the sum of the amounts deposited into all of the 

15 individual homestead accounts of such individual 

16 during such taxable year (determined without regard 

17 to any amount contributed under this subsection). 

18 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

19 of this subsection, the applicable percentage with re20 spect to any qualified individual for any taxable year 

21 shall be determined in accordance with the following 

22 tables: 

23 ‘‘(A) In the case of a married individual 

24 (as defined in section 7703) filing a joint re25 turn: 


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‘‘If modified adjusted gross 

income is: 

The applicable percentage 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. 

1 ‘‘(B) In the case of a head of household 

2 (as defined in section 2(b)): 

‘‘If modified adjusted gross 

income is: 

The applicable percentage 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. 

3 ‘‘(C) In the case of any other individual: 

‘‘If modified adjusted gross 

income is: 

The applicable percentage 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. 

4 For purposes of this paragraph, the term ‘modified 

5 adjusted gross income’ has the meaning given such 

6 term by section 86(b)(2). 

7 ‘‘(3) EXCLUSION FROM INCOME.—Except as 

8 otherwise provided in this section, gross income shall 

9 not include any amount deposited into an individual 

10 homestead account under paragraph (1). 

11 ‘‘(4) FORFEITURE OF MATCHING CONTRIBU12 TIONS IN THE CASE OF CERTAIN DISTRIBUTIONS.— 

13 In the event of a distribution from an individual 

14 homestead account before the date described in sub15 section (f)(1)(A) (other than a distribution described 

16 in subsection (e)(2)(A)), the account holder shall 


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•S 1423 IS

1 forfeit the corresponding matching contributions and 

2 interest earned on the matching contributions, un3 less such distribution is recontributed to such ac4 count within 6 months of such distribution. 

5 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.— 

6 ‘‘(1) INCLUSION OF AMOUNTS IN GROSS IN7 COME.—Except as otherwise provided in this sub8 section, any amount paid or distributed out of an in9 dividual homestead account shall be includible in the 

10 gross income of the payee or distributee, as the case 

11 may be, in the manner as provided in section 72. 

12 For purposes of the preceding sentence, distributions 

13 which are includible in gross income shall be treated 

14 as first attributable to amounts contributed under 

15 subsection (d) to the extent thereof. 

16 ‘‘(2) EXCLUSION OF CATASTROPHIC MEDICAL

17 EXPENSE DISTRIBUTIONS IN FIRST FIVE YEARS AND

18 QUALIFIED INDIVIDUAL HOMESTEAD DISTRIBUTIONS

19 THEREAFTER.—Paragraph (1) shall not apply to— 

20 ‘‘(A) any distribution described in section 

21 72(t)92)(B) before the date described in sub22 section (f)(1)(A), but only to the extent such 

23 distribution does not exceed the balance in the 

24 account as of the date of such distribution, reVerDate Aug 31 2005 22:41 May 18, 2007 Jkt 059200 PO 00000 Frm 00024 Fmt 6652 Sfmt 6201 E:\BILLS\S1423.IS S1423

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•S 1423 IS

1 duced by any matching contribution under sub2 section (d), and 

3 ‘‘(B) any qualified individual homestead 

4 distribution. 

5 ‘‘(f) QUALIFIED INDIVIDUAL HOMESTEAD DISTRIBU6 TION.—For purposes of this section— 

7 ‘‘(1) IN GENERAL.—The term ‘qualified indi8 vidual homestead distribution’ means any amount 

9 paid or distributed out of an individual homestead 

10 account which would otherwise be includible in gross 

11 income, to the extent that such payment or distribu12 tion— 

13 ‘‘(A) is paid or distributed after the 5-tax14 able year period beginning with the first taxable 

15 year in which the qualified individual made a 

16 contribution to the individual homestead ac17 count (including any predecessor account), and 

18 ‘‘(B) is used exclusively to pay qualified in19 dividual homestead expenses for the qualified 

20 individual or the spouse or dependent (as de21 fined in section 152) of such individual. 

22 ‘‘(2) QUALIFIED INDIVIDUAL HOMESTEAD EX23 PENSES.—The term ‘qualified individual homestead 

24 expenses’ means any of the following: 

25 ‘‘(A) Qualified higher education expenses. 


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•S 1423 IS

1 ‘‘(B) Qualified first-time homebuyer costs. 

2 ‘‘(C) Qualified business capitalization 

3 costs. 

4 ‘‘(D) Qualified medical expenses. 

5 ‘‘(E) Qualified rollovers. 

6 ‘‘(3) QUALIFIED HIGHER EDUCATION EX7 PENSES.— 

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

9 higher education expenses’ has the meaning 

10 given such term by section 72(t)(7), determined 

11 by treating postsecondary vocational edu12 cational schools as eligible educational institu13 tions. 

14 ‘‘(B) POSTSECONDARY VOCATIONAL EDU15 CATION SCHOOL.—The term ‘postsecondary vo16 cational educational school’ means an area vo17 cational education school (as defined in sub18 paragraph (C) or (D) of section 521(4) of the 

19 Carl D. Perkins Vocational and Applied Tech20 nology Education Act (20 U.S.C. 2471(4))) 

21 which is in any State (as defined in section 

22 521(33) of such Act), as such sections are in 

23 effect on the date of the enactment of this sec24 tion. 


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•S 1423 IS

1 ‘‘(C) COORDINATION WITH OTHER BENE2 FITS.—The amount of qualified higher edu3 cation expenses for any taxable year shall be re4 duced as provided in section 25A(g)(2). 

5 ‘‘(4) QUALIFIED FIRST-TIME HOMEBUYER

6 COSTS.—The term ‘qualified first-time homebuyer 

7 costs’ means qualified acquisition costs (as defined 

8 in section 72(t)(8) without regard to subparagraph 

9 (B) thereof) with respect to a principal residence 

10 (within the meaning of section 121) located in a 

11 qualifying area for a qualified first-time homebuyer 

12 (as defined in section 72(t)(8)). 

13 ‘‘(5) QUALIFIED BUSINESS CAPITALIZATION

14 COSTS.— 

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

16 business capitalization costs’ means qualified 

17 expenditures for the capitalization of a qualified 

18 business pursuant to a qualified plan. 

19 ‘‘(B) QUALIFIED EXPENDITURES.—The 

20 term ‘qualified expenditures’ means expendi21 tures included in a qualified plan, including 

22 capital, plant, equipment, working capital, and 

23 inventory expenses. 

24 ‘‘(C) QUALIFIED BUSINESS.—The term 

25 ‘qualified business’ means any trade or business 


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•S 1423 IS

1 located in a qualifying area other than any 

2 trade or business— 

3 ‘‘(i) which consists of the operation of 

4 any facility described in section 

5 144(c)(6)(B), or 

6 ‘‘(ii) which contravenes any law. 

7 Rules similar to the rules under subsection (b) 

8 or (c) of section 1397C shall apply to any quali9 fied business under this section. 

10 ‘‘(D) QUALIFIED PLAN.—The term ‘quali11 fied plan’ means a business plan which meets 

12 such requirements as the Secretary may specify. 

13 ‘‘(6) QUALIFIED MEDICAL EXPENSES.—The 

14 term ‘qualified medical expenses’ means any amount 

15 paid during the taxable year, not compensated for by 

16 insurance or otherwise, for medical care (as defined 

17 in section 213(d)) of the taxpayer, his spouse, or his 

18 dependent (as defined in section 152). 

19 ‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali20 fied rollover’ means any amount paid from an indi21 vidual homestead account of a taxpayer into another 

22 such account established for the benefit of— 

23 ‘‘(A) such taxpayer, or 

24 ‘‘(B) any qualified individual who is— 

25 ‘‘(i) the spouse of such taxpayer, or 


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•S 1423 IS

1 ‘‘(ii) any dependent (as defined in sec2 tion 152) of the taxpayer. 

3 Rules similar to the rules of section 408(d)(3) shall 

4 apply for purposes of this paragraph. 

5 ‘‘(g) TAX TREATMENT OF ACCOUNTS.— 

6 ‘‘(1) LOSS OF EXEMPTION IN CASE OF PROHIB7 ITED TRANSACTIONS.—For purposes of this section, 

8 rules similar to the rules of section 408(e) shall 

9 apply. 

10 ‘‘(2) OTHER RULES TO APPLY.—Rules similar 

11 to the rules of paragraphs (4), (5), and (6) of sec12 tion 408(d) shall apply for purposes of this section. 

13 ‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.— 

14 For purposes of this section— 

15 ‘‘(1) ALL ACCOUNTS TREATED AS ONE AC16 COUNT.—All individual homestead accounts of a 

17 qualified individual shall be treated as 1 account. 

18 ‘‘(2) TIME WHEN CONTRIBUTIONS DEEMED

19 MADE.—A taxpayer shall be deemed to have made a 

20 contribution to an individual homestead account on 

21 the last day of the preceding taxable year if the con22 tribution is made on account of such taxable year 

23 and is made not later than the time prescribed by 

24 law for filing the return for such taxable year (not 

25 including extensions thereof). 


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•S 1423 IS

1 ‘‘(3) CUSTODIAL ACCOUNTS.—Rules similar to 

2 the rules of section 408(h) shall apply. 

3 ‘‘(4) REPORTS.—The trustee of an individual 

4 homestead account shall make such reports regard5 ing such account to the Secretary and to the indi6 vidual for whom the account is maintained with re7 spect to contributions (and the years to which they 

8 relate), distributions, and such other matters as the 

9 Secretary may require under regulations. The re10 ports required by this paragraph— 

11 ‘‘(A) shall be filed at such time and in 

12 such manner as the Secretary prescribes in 

13 such regulations, and 

14 ‘‘(B) shall be furnished to individuals— 

15 ‘‘(i) not later than January 31 of the 

16 calendar year following the calendar year 

17 to which such reports relate, and 

18 ‘‘(ii) in such manner as the Secretary 

19 prescribes in such regulations. 

20 ‘‘(5) INVESTMENT IN COLLECTIBLES TREATED

21 AS DISTRIBUTIONS.—Rules similar to the rules of 

22 section 408(m) shall apply. 

23 ‘‘(i) DESIGNATION OF EARNED INCOME TAX CREDIT

24 PAYMENTS FOR DEPOSIT TO INDIVIDUAL HOMESTEAD

25 ACCOUNT.— 


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•S 1423 IS

1 ‘‘(1) IN GENERAL.—With respect to the return 

2 of any qualified individual for the taxable year of the 

3 tax imposed by this chapter, such individual may 

4 designate that a specified portion (not less than $1) 

5 of any overpayment of tax for such taxable year 

6 which is attributable to the earned income tax credit 

7 shall be deposited by the Secretary into an individual 

8 homestead account of such individual. The Secretary 

9 shall so deposit such portion designated under this 

10 subsection. 

11 ‘‘(2) MANNER AND TIME OF DESIGNATION.—A 

12 designation under paragraph (1) may be made with 

13 respect to any taxable year— 

14 ‘‘(A) at the time of filing the return of the 

15 tax imposed by this chapter for such taxable 

16 year, or 

17 ‘‘(B) at any other time (after the time of 

18 filing the return of the tax imposed by this 

19 chapter for such taxable year) specified in regu20 lations prescribed by the Secretary. 

21 Such designation shall be made in such manner as 

22 the Secretary prescribes by regulations. 

23 ‘‘(3) PORTION ATTRIBUTABLE TO EARNED IN24 COME TAX CREDIT.—For purposes of this sub25 section, an overpayment for any taxable year shall 


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•S 1423 IS

1 be treated as attributable to the earned income tax 

2 credit to the extent that such overpayment does not 

3 exceed the credit allowed to the taxpayer under sec4 tion 32 for such taxable year. 

5 ‘‘(4) OVERPAYMENTS TREATED AS RE6 FUNDED.—For purposes of this title, any portion of 

7 an overpayment of tax designated under paragraph 

8 (1) shall be treated as being refunded to the tax9 payer as of the last date prescribed for filing the re10 turn of tax imposed by this chapter (determined 

11 without regard to extensions) or, if later, the date 

12 the return is filed. 

13 ‘‘(j) PENALTY FOR DISTRIBUTIONS NOT USED FOR

14 QUALIFIED INDIVIDUAL HOMESTEAD EXPENSES.— 

15 ‘‘(1) IN GENERAL.—If any amount is distrib16 uted from an individual homestead account and is 

17 not used exclusively to pay qualified individual 

18 homestead expenses for the holder of the account or 

19 the spouse or dependent (as defined in section 152) 

20 of such holder, the tax imposed by this chapter for 

21 the taxable year of such distribution shall be in22 creased by 10 percent of such amount which is in23 cludible in gross income. For purposes of the pre24 ceding sentence, distributions which are includible in 

25 gross income shall be treated as first attributable to 


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•S 1423 IS

1 amounts contributed under subsection (d) to the ex2 tent thereof. 

3 ‘‘(2) EXCEPTION FOR CERTAIN DISTRIBU4 TIONS.—Paragraph (1) shall not apply to distribu5 tions which are— 

6 ‘‘(A) made on or after the date on which 

the account holder attains age 591 7 ⁄2, 

8 ‘‘(B) made to a beneficiary (or the estate 

9 of the account holder) on or after the death of 

10 the account holder, 

11 ‘‘(C) attributable to the account holder’s 

12 being disabled within the meaning of section 

13 72(m)(7), or 

14 ‘‘(D) described in subsection (e)(2)(A). 

15 ‘‘(k) APPLICATION OF SECTION.—This section shall 

16 apply with respect to any individual homestead account 

17 established after the date of the enactment of the Kansas 

18 Disaster Tax Relief Assistance Act and before the date 

19 which is 5 years after such date of enactment.’’. 

20 (b) TAX ON EXCESS CONTRIBUTIONS.— 

21 (1) TAX IMPOSED.—Subsection (a) of section 

22 4973 is amended by striking ‘‘or’’ at the end of 

23 paragraph (4), by redesignating paragraph (5) as 

24 paragraph (6), and by inserting after paragraph (4) 

25 the following new paragraph: 


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•S 1423 IS

1 ‘‘(5) an individual homestead account (within 

2 the meaning of section 530A(b)), or’’. 

3 (2) EXCESS CONTRIBUTIONS.—Section 4973 is 

4 amended by adding at the end the following sub5 section: 

6 ‘‘(h) INDIVIDUAL HOMESTEAD ACCOUNTS.—For pur7 poses of this section, in the case of individual homestead 

8 accounts, the term ‘excess contributions’ means the sum 

9 of— 

10 ‘‘(1) the excess (if any) of— 

11 ‘‘(A) the amount contributed for the tax12 able year to the accounts (other than a quali13 fied rollover, as defined in section 530A(f)(7), 

14 or a contribution under section 530A(d)), over 

15 ‘‘(B) the amount allowable under section 

16 530A for such contributions, and 

17 ‘‘(2) the amount determined under this sub18 section for the preceding taxable year reduced by the 

19 sum of— 

20 ‘‘(A) the distributions out of the accounts 

21 for the taxable year which were included in the 

22 gross income of the payee under section 

23 530A(e)(1), 

24 ‘‘(B) the distributions out of the accounts 

25 for the taxable year to which rules similar to 


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•S 1423 IS

1 the rules of section 408(d)(5) apply by reason 

2 of section 530A(g)(2), and 

3 ‘‘(C) the excess (if any) of the maximum 

4 amount allowable as a contribution under sec5 tion 530A for the taxable year over the amount 

6 contributed to the account for the taxable year 

7 (other than a contribution under section 

8 530A(d)). 

9 For purposes of this subsection, any contribution which 

10 is distributed from the individual homestead account in 

11 a distribution to which rules similar to the rules of section 

12 408(d)(4) apply by reason of section 530A(g)(2) shall be 

13 treated as an amount not contributed.’’. 

14 (c) TAX ON PROHIBITED TRANSACTIONS.—Section 

15 4975 is amended— 

16 (1) by adding at the end of subsection (c) the 

17 following paragraph: 

18 ‘‘(7) SPECIAL RULE FOR INDIVIDUAL HOME19 STEAD ACCOUNTS.—An individual for whose benefit 

20 an individual homestead account is established and 

21 any contributor to such account shall be exempt 

22 from the tax imposed by this section with respect to 

23 any transaction concerning such account (which 

24 would otherwise be taxable under this section) if, 

25 with respect to such transaction, the account ceases 


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•S 1423 IS

1 to be an individual homestead account by reason of 

2 the application of section 530A(g)(1) to such ac3 count.’’, and 

4 (2) in subsection (e)(1), by striking ‘‘or’’ at the 

5 end of subparagraph (F), by redesignating subpara6 graph (G) as subparagraph (H), and by inserting 

7 after subparagraph (F) the following new subpara8 graph: 

9 ‘‘(G) an individual homestead account de10 scribed in section 530A(b), or’’. 

11 (d) INFORMATION RELATING TO CERTAIN TRUSTS

12 AND ANNUITY PLANS.—Subsection (c) of section 6047 is 

13 amended— 

14 (1) by inserting ‘‘or section 530A’’ after ‘‘sec15 tion 219’’, and 

16 (2) by inserting ‘‘, of any individual homestead 

17 account described in section 530A(b),’’, after ‘‘sec18 tion 408(a)’’. 

19 (e) INSPECTION OF APPLICATIONS FOR TAX EXEMP20 TION.—Clause (i) of section 6104(a)(1)(B) is amended by 

21 inserting ‘‘an individual homestead account described in 

22 section 530A(b),’’ after ‘‘section 408(a),’’. 

23 (f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

24 HOMESTEAD ACCOUNTS.—Paragraph (2) of section 

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•S 1423 IS

1 paragraph (D), by striking the period and inserting ‘‘, 

2 and’’ at the end of subparagraph (E), and by inserting 

3 after subparagraph (E) the following new subparagraph: 

4 ‘‘(F) section 530A(h)(4) (relating to indi5 vidual homestead accounts).’’. 

6 (g) CLERICAL AMENDMENT.—The table of parts for 

7 subchapter F of chapter 1 is amended by adding at the 

8 end the following new item: 

‘‘PART IX. INDIVIDUAL HOMESTEAD ACCOUNTS’’. 

9 TITLE III—INCENTIVES FOR 

10 MAIN STREET BUSINESSES 

11 SEC. 301. RURAL INVESTMENT TAX CREDIT. 

12 (a) IN GENERAL.—Subpart D of part IV of sub13 chapter A of chapter 1 (relating to business related cred14 its) is amended by adding at the end the following new 

15 section: 

16 ‘‘SEC. 42A. RURAL INVESTMENT CREDIT. 

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

18 amount of the rural investment credit determined under 

19 this section for any taxable year in the credit period shall 

20 be an amount equal to the applicable percentage of the 

21 eligible basis of each qualified rural investment building. 

22 ‘‘(b) APPLICABLE PERCENTAGE: 70 PERCENT

23 PRESENT VALUE CREDIT FOR NEW BUILDINGS; 30 PER24 CENT PRESENT VALUE CREDIT FOR EXISTING BUILD25 INGS.—For purposes of this section— 


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•S 1423 IS

1 ‘‘(1) IN GENERAL.—The term ‘applicable per2 centage’ means the appropriate percentage pre3 scribed by the Secretary for the earlier of— 

4 ‘‘(A) the first month of the credit period 

5 with respect to a rural investment building, or 

6 ‘‘(B) at the election of the taxpayer, the 

7 month in which the taxpayer and the rural in8 vestment credit agency enter into an agreement 

9 with respect to such building (which is binding 

10 on such agency, the taxpayer, and all successors 

11 in interest) as to the rural investment credit 

12 dollar amount to be allocated to such building. 

13 A month may be elected under subparagraph (B) 

14 only if the election is made not later than the 5th 

15 day after the close of such month. Such an election, 

16 once made, shall be irrevocable. 

17 ‘‘(2) METHOD OF PRESCRIBING PERCENT18 AGES.—The percentages prescribed by the Secretary 

19 for any month shall be percentages which will yield 

20 over a 10-year period amounts of credit under sub21 section (a) which have a present value equal to— 

22 ‘‘(A) 70 percent of the eligible basis of a 

23 new building, and 

24 ‘‘(B) 30 percent of the eligible basis of an 

25 existing building. 


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•S 1423 IS

1 ‘‘(3) METHOD OF DISCOUNTING.—The present 

2 value under paragraph (2) shall be determined— 

3 ‘‘(A) as of the last day of the 1st year of 

4 the 10-year period referred to in paragraph (2), 

5 ‘‘(B) by using a discount rate equal to 72 

6 percent of the average of the annual Federal 

7 mid-term rate and the annual Federal long8 term rate applicable under section 1274(d)(1) 

9 to the month applicable under subparagraph 

10 (A) or (B) of paragraph (1) and compounded 

11 annually, and 

12 ‘‘(C) by assuming that the credit allowable 

13 under this section for any year is received on 

14 the last day of such year. 

15 ‘‘(c) ELIGIBLE BASIS; QUALIFIED RURAL INVEST16 MENT BUILDING.—For purposes of this section— 

17 ‘‘(1) ELIGIBLE BASIS.— 

18 ‘‘(A) IN GENERAL.—The eligible basis of 

19 any qualified rural investment building for any 

20 taxable year shall be determined under rules 

21 similar to the rules under section 42(d), except 

22 that— 

23 ‘‘(i) the determination of the adjusted 

24 basis of any building shall be made as of 

25 the beginning of the credit period, and 


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•S 1423 IS

1 ‘‘(ii) such basis shall include develop2 ment costs properly attributable to such 

3 building. 

4 ‘‘(B) DEVELOPMENT COSTS.—For pur5 poses of subparagraph (A)(ii), the term ‘devel6 opment costs’ includes— 

7 ‘‘(i) site preparation costs, 

8 ‘‘(ii) State and local impact fees, 

9 ‘‘(iii) reasonable development costs, 

10 ‘‘(iv) professional fees related to basis 

11 items, 

12 ‘‘(v) construction financing costs re13 lated to basis items other than land, and 

14 ‘‘(vi) on-site and adjacent improve15 ments required by State and local govern16 ments. 

17 ‘‘(2) QUALIFIED RURAL INVESTMENT BUILD18 ING.—The term ‘qualified rural investment building’ 

19 means any building which is part of a qualified rural 

20 investment project at all times during the period— 

21 ‘‘(A) beginning on the 1st day in the com22 pliance period on which such building is part of 

23 such an investment project, and 

24 ‘‘(B) ending on the last day of the compli25 ance period with respect to such building. 


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•S 1423 IS

1 ‘‘(d) REHABILITATION EXPENDITURES TREATED AS

2 SEPARATE NEW BUILDING.—Rehabilitation expenditures 

3 paid or incurred by the taxpayer with respect to any build4 ing shall be treated for purposes of this section as a sepa5 rate new building under the rules of section 42(e). 

6 ‘‘(e) DEFINITION AND SPECIAL RULES RELATING TO

7 CREDIT PERIOD.— 

8 ‘‘(1) CREDIT PERIOD DEFINED.—For purposes 

9 of this section, the term ‘credit period’ means, with 

10 respect to any building, the period of 10 taxable 

11 years beginning with the taxable year in which the 

12 building is first placed in service. 

13 ‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT

14 PERIOD.— 

15 ‘‘(A) IN GENERAL.—The credit allowable 

16 under subsection (a) with respect to any build17 ing for the 1st taxable year of the credit period 

18 shall be determined by multiplying such credit 

19 by the fraction— 

20 ‘‘(i) the numerator of which is the 

21 number of full months of such year during 

22 which such building was in service, and 

23 ‘‘(ii) the denominator of which is 12. 

24 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL25 LOWED IN 11TH YEAR.—Any reduction by reaVerDate Aug 31 2005 22:41 May 18, 2007 Jkt 059200 PO 00000 Frm 00041 Fmt 6652 Sfmt 6201 E:\BILLS\S1423.IS S1423

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•S 1423 IS

1 son of subparagraph (A) in the credit allowable 

2 (without regard to subparagraph (A)) for the 

3 1st taxable year of the credit period shall be al4 lowable under subsection (a) for the 1st taxable 

5 year following the credit period. 

6 ‘‘(3) CREDIT PERIOD FOR EXISTING BUILDINGS

7 NOT TO BEGIN BEFORE REHABILITATION CREDIT

8 ALLOWED.—The credit period for an existing build9 ing shall not begin before the 1st taxable year of the 

10 credit period for rehabilitation expenditures with re11 spect to the building. 

12 ‘‘(f) QUALIFIED RURAL INVESTMENT PROJECT; 

13 QUALIFYING AREA.—For purposes of this section— 

14 ‘‘(1) QUALIFIED RURAL INVESTMENT

15 PROJECT.—The term ‘qualified rural investment 

16 project’ means any investment project of 1 or more 

17 qualified rural investment buildings located in a 

18 qualifying area (and, if necessary to the project, any 

19 contiguous county) and selected by the State accord20 ing to its qualified rural investment plan. 

21 ‘‘(2) QUALIFYING AREA.—The term ‘qualifying 

22 area’ means an area with respect to which a major 

23 disaster has been declared by the President under 

24 section 401 of the Robert T. Stafford Disaster Relief 

25 and Emergency Assistance Act (FEMA–1699–DR) 


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•S 1423 IS

1 by reason of severe storms and tornados beginning 

2 on May 4, 2007, and determined by the President 

3 to warrant individual or public assistance from the 

4 Federal Government under such Act. 

5 ‘‘(g) LIMITATION ON AGGREGATE CREDIT ALLOW6 ABLE WITH RESPECT TO INVESTMENT PROJECTS LO7 CATED IN A STATE.— 

8 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT

9 AMOUNT ALLOCATED TO BUILDING.—The amount of 

10 the credit determined under this section for any tax11 able year with respect to any building shall not ex12 ceed the rural investment credit dollar amount allo13 cated to such building under rules similar to the 

14 rules of section 42(h)(1). 

15 ‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY

16 TO ALL TAXABLE YEARS ENDING DURING OR AFTER

17 CREDIT ALLOCATION YEAR.—Any rural investment 

18 credit dollar amount allocated to any building for 

19 any calendar year— 

20 ‘‘(A) shall apply to such building for all 

21 taxable years in the credit period ending during 

22 or after such calendar year, and 

23 ‘‘(B) shall reduce the aggregate rural in24 vestment credit dollar amount of the allocating 

25 agency only for such calendar year. 


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•S 1423 IS

1 ‘‘(3) RURAL INVESTMENT CREDIT DOLLAR

2 AMOUNT FOR AGENCIES.— 

3 ‘‘(A) IN GENERAL.—The aggregate rural 

4 investment credit dollar amount which a rural 

5 investment credit agency may allocate for any 

6 calendar year is the portion of the State rural 

7 investment credit ceiling allocated under this 

8 paragraph for such calendar year to such agen9 cy. 

10 ‘‘(B) STATE CEILING INITIALLY ALLO11 CATED TO STATE RURAL INVESTMENT CREDIT

12 AGENCIES.—Except as provided in subpara13 graphs (D) and (E), the State rural investment 

14 credit ceiling for each calendar year shall be al15 located to the rural investment credit agency of 

16 such State. If there is more than 1 rural invest17 ment credit agency of a State, all such agencies 

18 shall be treated as a single agency. 

19 ‘‘(C) STATE RURAL INVESTMENT CREDIT

20 CEILING.—The State rural investment credit 

21 ceiling applicable to any State and any calendar 

22 year shall be an amount equal to the sum of— 

23 ‘‘(i) the unused State rural investment 

24 credit ceiling (if any) of such State for the 

25 preceding calendar year, 


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•S 1423 IS

1 ‘‘(ii) $1,000,000 for each qualifying 

2 area in the State, 

3 ‘‘(iii) the amount of State rural in4 vestment credit ceiling returned in the cal5 endar year, plus 

6 ‘‘(iv) the amount (if any) allocated 

7 under subparagraph (D) to such State by 

8 the Secretary. 

9 For purposes of clause (i), the unused State 

10 rural investment credit ceiling for any calendar 

11 year is the excess (if any) of the sum of the 

12 amounts described in clauses (ii) through (iv) 

13 over the aggregate rural investment credit dol14 lar amount allocated for such year. For pur15 poses of clause (iii), the amount of State rural 

16 investment credit ceiling returned in the cal17 endar year equals the rural investment credit 

18 dollar amount previously allocated within the 

19 State to any investment project which fails to 

20 meet the 10 percent test under section 

21 42(h)(1)(E)(ii) on a date after the close of the 

22 calendar year in which the allocation was made 

23 or which does not become a qualified rural in24 vestment project within the period required by 

25 this section or the terms of the allocation or to 


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1 any investment project with respect to which an 

2 allocation is canceled by mutual consent of the 

3 rural investment credit agency and the alloca4 tion recipient. 

5 ‘‘(D) UNUSED RURAL INVESTMENT CREDIT

6 CARRYOVERS ALLOCATED AMONG CERTAIN

7 STATES.— 

8 ‘‘(i) IN GENERAL.—The unused rural 

9 investment credit carryover of a State for 

10 any calendar year shall be assigned to the 

11 Secretary for allocation among qualified 

12 States for the succeeding calendar year. 

13 ‘‘(ii) UNUSED RURAL INVESTMENT

14 CREDIT CARRYOVER.—For purposes of this 

15 subparagraph, the unused rural investment 

16 credit carryover of a State for any calendar 

17 year is the excess (if any) of the unused 

18 State rural investment credit ceiling for 

19 such year (as defined in subparagraph 

20 (C)(i)) over the excess (if any) of— 

21 ‘‘(I) the unused State rural in22 vestment credit ceiling for the year 

23 preceding such year, over 


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1 ‘‘(II) the aggregate rural invest2 ment credit dollar amount allocated 

3 for such year. 

4 ‘‘(iii) FORMULA FOR ALLOCATION OF

5 UNUSED RURAL INVESTMENT CREDIT

6 CARRYOVERS AMONG QUALIFIED

7 STATES.—The amount allocated under this 

8 subparagraph to a qualified State for any 

9 calendar year shall be the amount deter10 mined by the Secretary to bear the same 

11 ratio to the aggregate unused rural invest12 ment credit carryovers of all States for the 

13 preceding calendar year as such State’s 

14 population for the calendar year bears to 

15 the population of all qualified States for 

16 the calendar year. For purposes of the pre17 ceding sentence, population shall be deter18 mined in accordance with section 146(j). 

19 ‘‘(iv) QUALIFIED STATE.—For pur20 poses of this subparagraph, the term 

21 ‘qualified State’ means, with respect to a 

22 calendar year, any State— 

23 ‘‘(I) which allocated its entire 

24 State rural investment credit ceiling 

25 for the preceding calendar year, and 


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1 ‘‘(II) for which a request is made 

2 (not later than May 1 of the calendar 

3 year) to receive an allocation under 

4 clause (iii). 

5 ‘‘(E) STATE MAY PROVIDE FOR DIF6 FERENT ALLOCATION.—Rules similar to the 

7 rules of section 146(e) (other than paragraph 

8 (2)(B) thereof) shall apply for purposes of this 

9 paragraph. 

10 ‘‘(F) POPULATION.—For purposes of this 

11 paragraph, population shall be determined in 

12 accordance with section 146(j). 

13 ‘‘(G) COST-OF-LIVING ADJUSTMENT.— 

14 ‘‘(i) IN GENERAL.—In the case of a 

15 calendar year after 2007, the $1,000,000 

16 amount in subparagraph (C) shall be in17 creased by an amount equal to— 

18 ‘‘(I) such dollar amount, multi19 plied by 

20 ‘‘(II) the cost-of-living adjust21 ment determined under section 1(f)(3) 

22 for such calendar year by substituting 

23 ‘calendar year 2006’ for ‘calendar 

24 year 1992’ in subparagraph (B) there25 of. 


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1 ‘‘(ii) ROUNDING.—Any increase under 

2 clause (i) which is not a multiple of $5,000 

3 shall be rounded to the next lowest mul4 tiple of $5,000. 

5 ‘‘(4) PORTION OF STATE CEILING SET-ASIDE

6 FOR CERTAIN INVESTMENT PROJECTS INVOLVING

7 QUALIFIED NONPROFIT ORGANIZATIONS.— 

8 ‘‘(A) IN GENERAL.—At least 10 percent of 

9 the State rural investment credit ceiling for any 

10 State for any calendar year shall be allocated to 

11 qualified rural investment projects described in 

12 subparagraph (B). 

13 ‘‘(B) INVESTMENT PROJECTS INVOLVING

14 QUALIFIED NONPROFIT ORGANIZATIONS.—For 

15 purposes of subparagraph (A), a qualified rural 

16 investment project is described in this subpara17 graph if a qualified nonprofit organization is to 

18 materially participate (within the meaning of 

19 section 469(h)) in the development and oper20 ation of the investment project throughout the 

21 compliance period. 

22 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA23 TION.—For purposes of this paragraph, the 

24 term ‘qualified nonprofit organization’ means 

25 any organization if— 


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1 ‘‘(i) such organization is described in 

2 any paragraph of section 501(c) and is ex3 empt from tax under section 501(a), 

4 ‘‘(ii) such organization is determined 

5 by the State rural investment credit agency 

6 not to be affiliated with or controlled by a 

7 for-profit organization, and 

8 ‘‘(iii) 1 of the exempt purposes of 

9 such organization includes the fostering of 

10 rural investment. 

11 ‘‘(D) TREATMENT OF CERTAIN SUBSIDI12 ARIES.— 

13 ‘‘(i) IN GENERAL.—For purposes of 

14 this paragraph, a qualified nonprofit orga15 nization shall be treated as satisfying the 

16 ownership and material participation test 

17 of subparagraph (B) if any qualified cor18 poration in which such organization holds 

19 stock satisfies such test. 

20 ‘‘(ii) QUALIFIED CORPORATION.—For 

21 purposes of clause (i), the term ‘qualified 

22 corporation’ means any corporation if 100 

23 percent of the stock of such corporation is 

24 held by 1 or more qualified nonprofit orgaVerDate Aug 31 2005 22:41 May 18, 2007 Jkt 059200 PO 00000 Frm 00050 Fmt 6652 Sfmt 6201 E:\BILLS\S1423.IS S1423

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1 nizations at all times during the period 

2 such corporation is in existence. 

3 ‘‘(E) STATE MAY NOT OVERRIDE SET4 ASIDE.—Nothing in subparagraph (F) of para5 graph (3) shall be construed to permit a State 

6 not to comply with subparagraph (A) of this 

7 paragraph. 

8 ‘‘(F) CREDITS FOR QUALIFIED NONPROFIT

9 ORGANIZATIONS.— 

10 ‘‘(i) ALLOWANCE OF CREDIT.—Any 

11 credit which would be allowable under sub12 section (a) with respect to a qualified rural 

13 investment building of a qualified nonprofit 

14 organization if such organization were not 

15 exempt from tax under this chapter shall 

16 be treated as a credit allowable under sub17 part C to such organization. 

18 ‘‘(ii) USE OF CREDIT.—A qualified 

19 nonprofit organization may assign, trade, 

20 sell, or otherwise transfer any credit allow21 able to such organization under subpara22 graph (A) to any taxpayer. 

23 ‘‘(iii) CREDIT NOT INCOME.—A trans24 fer under subparagraph (B) of any credit 

25 allowable under subparagraph (A) shall not 


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1 result in income for purposes of section 

2 511. 

3 ‘‘(5) SPECIAL RULES.— 

4 ‘‘(A) BUILDING MUST BE LOCATED WITH5 IN JURISDICTION OF CREDIT AGENCY.—A rural 

6 investment credit agency may allocate its aggre7 gate rural investment credit dollar amount only 

8 to buildings located in the jurisdiction of the 

9 governmental unit of which such agency is a 

10 part. 

11 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

12 LIMIT.—If the aggregate rural investment cred13 it dollar amounts allocated by a rural invest14 ment credit agency for any calendar year exceed 

15 the portion of the State rural investment credit 

16 ceiling allocated to such agency for such cal17 endar year, the rural investment credit dollar 

18 amounts so allocated shall be reduced (to the 

19 extent of such excess) for buildings in the re20 verse of the order in which the allocations of 

21 such amounts were made. 

22 ‘‘(C) CREDIT REDUCED IF ALLOCATED

23 CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT

24 WHICH WOULD BE ALLOWABLE WITHOUT RE25 GARD TO SALES CONVENTION, ETC.— 


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1 ‘‘(i) IN GENERAL.—The amount of 

2 the credit determined under this section 

3 with respect to any building shall not ex4 ceed the clause (ii) percentage of the 

5 amount of the credit which would (but for 

6 this subparagraph) be determined under 

7 this section with respect to such building. 

8 ‘‘(ii) DETERMINATION OF PERCENT9 AGE.—For purposes of clause (i), the 

10 clause (ii) percentage with respect to any 

11 building is the percentage which— 

12 ‘‘(I) the rural investment credit 

13 dollar amount allocated to such build14 ing bears to 

15 ‘‘(II) the credit amount deter16 mined in accordance with clause (iii). 

17 ‘‘(iii) DETERMINATION OF CREDIT

18 AMOUNT.—The credit amount determined 

19 in accordance with this clause is the 

20 amount of the credit which would (but for 

21 this subparagraph) be determined under 

22 this section with respect to the building if 

23 this section were applied without regard to 

24 paragraph (2)(A) of subsection (e). 


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1 ‘‘(D) RURAL INVESTMENT CREDIT AGENCY

2 TO SPECIFY APPLICABLE PERCENTAGE AND

3 MAXIMUM ELIGIBLE BASIS.—In allocating a 

4 rural investment credit dollar amount to any 

5 building, the rural investment credit agency 

6 shall specify the applicable percentage and the 

7 maximum eligible basis which may be taken 

8 into account under this section with respect to 

9 such building. The applicable percentage and 

10 maximum eligible basis so specified shall not ex11 ceed the applicable percentage and eligible basis 

12 determined under this section without regard to 

13 this subsection. 

14 ‘‘(6) OTHER DEFINITIONS.—For purposes of 

15 this subsection— 

16 ‘‘(A) RURAL INVESTMENT CREDIT AGEN17 CY.—The term ‘rural investment credit agency’ 

18 means any agency authorized to carry out this 

19 subsection. 

20 ‘‘(B) POSSESSIONS TREATED AS STATES.— 

21 The term ‘State’ includes a possession of the 

22 United States. 

23 ‘‘(7) PORTION OF STATE CEILING SET-ASIDE

24 FOR QUALIFIED RURAL SMALL BUSINESS INVEST25 MENT CREDITS.—Not more than 20 percent of the 


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•S 1423 IS

1 State rural investment credit ceiling for any State 

2 for any calendar year may be allocated to qualified 

3 rural small business investment credits under section 

4 42B. 

5 ‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur6 poses of this section— 

7 ‘‘(1) COMPLIANCE PERIOD.—The term ‘compli8 ance period’ means, with respect to any building, the 

9 period of 10 taxable years beginning with the 1st 

10 taxable year of the credit period with respect there11 to. 

12 ‘‘(2) NEW BUILDING.—The term ‘new building’ 

13 means a building the original use of which begins 

14 with the taxpayer. 

15 ‘‘(3) EXISTING BUILDING.—The term ‘existing 

16 building’ means any building which is not a new 

17 building. 

18 ‘‘(4) APPLICATION TO ESTATES AND TRUSTS.— 

19 In the case of an estate or trust, the amount of the 

20 credit determined under subsection (a) and any in21 crease in tax under subsection (i) shall be appor22 tioned between the estate or trust and the bene23 ficiaries on the basis of the income of the estate or 

24 trust allocable to each. 

25 ‘‘(i) RECAPTURE OF CREDIT.—If— 


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•S 1423 IS

1 ‘‘(1) as of the close of any taxable year in the 

2 compliance period, the amount of the eligible basis 

3 of any building with respect to the taxpayer is less 

4 than 

5 ‘‘(2) the amount of such basis as of the close 

6 of the preceding taxable year, then the taxpayer’s 

7 tax under this chapter for the taxable year shall be 

8 increased by the credit recapture amount determined 

9 under rules similar to the rules of section 42(j). 

10 ‘‘(j) CERTIFICATIONS AND OTHER REPORTS TO SEC11 RETARY.— 

12 ‘‘(1) CERTIFICATION WITH RESPECT TO 1ST

13 YEAR OF CREDIT PERIOD.—Following the close of 

14 the 1st taxable year in the credit period with respect 

15 to any qualified rural investment building, the tax16 payer shall certify to the Secretary (at such time 

17 and in such form and in such manner as the Sec18 retary prescribes)— 

19 ‘‘(A) the taxable year, and calendar year, 

20 in which such building was first placed in serv21 ice, 

22 ‘‘(B) the eligible basis of such building as 

23 of the beginning of the credit period, 

24 ‘‘(C) the maximum applicable percentage 

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1 count by the appropriate rural investment cred2 it agency under subsection (g), 

3 ‘‘(D) the election made under subsection 

4 (f) with respect to the qualified rural invest5 ment project of which such building is a part, 

6 and 

7 ‘‘(E) such other information as the Sec8 retary may require. 

9 In the case of a failure to make the certification re10 quired by the preceding sentence on the date pre11 scribed therefor, unless it is shown that such failure 

12 is due to reasonable cause and not to willful neglect, 

13 no credit shall be allowable by reason of subsection 

14 (a) with respect to such building for any taxable 

15 year ending before such certification is made. 

16 ‘‘(2) ANNUAL REPORTS TO THE SECRETARY.— 

17 The Secretary may require taxpayers to submit an 

18 information return (at such time and in such form 

19 and manner as the Secretary prescribes) for each 

20 taxable year setting forth— 

21 ‘‘(A) the eligible basis for the taxable year 

22 of each qualified rural investment building of 

23 the taxpayer, 

24 ‘‘(B) the information described in para25 graph (1)(C) for the taxable year, and 


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1 ‘‘(C) such other information as the Sec2 retary may require. 

3 The penalty under section 6652(j) shall apply to any 

4 failure to submit the return required by the Sec5 retary under the preceding sentence on the date pre6 scribed therefor. 

7 ‘‘(3) ANNUAL REPORTS FROM RURAL INVEST8 MENT CREDIT AGENCIES.—Each agency which allo9 cates any rural investment credit amount to any 

10 building for any calendar year shall submit to the 

11 Secretary (at such time and in such manner as the 

12 Secretary shall prescribe) an annual report speci13 fying— 

14 ‘‘(A) the amount of rural investment credit 

15 amount allocated to each building for such year, 

16 ‘‘(B) sufficient information to identify each 

17 such building and the taxpayer with respect 

18 thereto, and 

19 ‘‘(C) such other information as the Sec20 retary may require. 

21 The penalty under section 6652(j) shall apply to any 

22 failure to submit the report required by the pre23 ceding sentence on the date prescribed therefor. 

24 ‘‘(k) RESPONSIBILITIES OF RURAL INVESTMENT

25 CREDIT AGENCIES.— 


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1 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT

2 AMONG INVESTMENT PROJECTS.— 

3 ‘‘(A) IN GENERAL.—Notwithstanding any 

4 other provision of this section, the rural invest5 ment credit dollar amount with respect to any 

6 building shall be zero unless— 

7 ‘‘(i) such amount was allocated pursu8 ant to a qualified rural investment plan of 

9 the agency which is approved by the gov10 ernmental unit (in accordance with rules 

11 similar to the rules of section 147(f)(2) 

12 (other than subparagraph (B)(ii) thereof)) 

13 of which such agency is a part, 

14 ‘‘(ii) such agency notifies the chief ex15 ecutive officer (or the equivalent) of the 

16 local jurisdiction within which the building 

17 is located of such investment project and 

18 provides such individual a reasonable op19 portunity to comment on the investment 

20 project, 

21 ‘‘(iii) a comprehensive market study 

22 of the development needs of individuals in 

23 the qualifying area to be served by the in24 vestment project is conducted before the 

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1 oper’s expense by a disinterested party who 

2 is approved by such agency, and 

3 ‘‘(iv) a written explanation is available 

4 to the general public for any allocation of 

5 a rural investment credit dollar amount 

6 which is not made in accordance with es7 tablished priorities and selection criteria of 

8 the rural investment credit agency. 

9 ‘‘(B) QUALIFIED RURAL INVESTMENT

10 PLAN.—For purposes of this section, the term 

11 ‘qualified rural investment plan’ means any 

12 plan— 

13 ‘‘(i) which sets forth selection criteria 

14 to be used to determine priorities of the 

15 rural investment credit agency which are 

16 appropriate to the qualifying area, 

17 ‘‘(ii) which also gives preference in al18 locating rural investment credit dollar 

19 amounts among selected investment 

20 projects to— 

21 ‘‘(I) investment projects that tar22 get those small rural counties with 

23 consistently high rates of net out-mi24 gration, 


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1 ‘‘(II) investment projects that 

2 link the economic development and job 

3 creation efforts of 2 or more small 

4 rural counties with high rates of net 

5 out-migration, and 

6 ‘‘(III) investment projects that 

7 link the economic development and job 

8 creation efforts of 1 or more small 

9 rural counties in the State with high 

10 rates of net out-migration to related 

11 efforts in regions of such State experi12 encing economic growth, and 

13 ‘‘(iii) which provides a procedure that 

14 the agency (or an agent or other private 

15 contractor of such agency) will follow in 

16 monitoring for noncompliance with the 

17 provisions of this section and in notifying 

18 the Internal Revenue Service of such non19 compliance which such agency becomes 

20 aware of and in monitoring for noncompli21 ance through regular site visits. 

22 ‘‘(C) CERTAIN SELECTION CRITERIA MUST

23 BE USED.—The selection criteria set forth in a 

24 qualified rural investment plan must include— 

25 ‘‘(i) investment project location, 


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1 ‘‘(ii) technology and transportation in2 frastructure needs, and 

3 ‘‘(iii) private development trends. 

4 ‘‘(2) CREDIT ALLOCATED TO BUILDING NOT TO

5 EXCEED AMOUNT NECESSARY TO ASSURE INVEST6 MENT PROJECT FEASIBILITY.— 

7 ‘‘(A) IN GENERAL.—The rural investment 

8 credit dollar amount allocated to an investment 

9 project shall not exceed the amount the rural 

10 investment credit agency determines is nec11 essary for the financial feasibility of the invest12 ment project and its viability as a qualified 

13 rural investment project throughout the compli14 ance period. 

15 ‘‘(B) AGENCY EVALUATION.—In making 

16 the determination under subparagraph (A), the 

17 rural investment credit agency shall consider— 

18 ‘‘(i) the sources and uses of funds and 

19 the total financing planned for the invest20 ment project, 

21 ‘‘(ii) any proceeds or receipts expected 

22 to be generated by reason of tax benefits, 

23 ‘‘(iii) the percentage of the rural in24 vestment credit dollar amount used for inVerDate Aug 31 2005 22:41 May 18, 2007 Jkt 059200 PO 00000 Frm 00062 Fmt 6652 Sfmt 6201 E:\BILLS\S1423.IS S1423

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1 vestment project costs other than the cost 

2 of intermediaries, and 

3 ‘‘(iv) the reasonableness of the devel4 opmental and operational costs of the in5 vestment project. 

6 Clause (iii) shall not be applied so as to impede 

7 the development of investment projects in hard8 to-develop areas. 

9 ‘‘(C) DETERMINATION MADE WHEN CRED10 IT AMOUNT APPLIED FOR AND WHEN BUILDING

11 PLACED IN SERVICE.— 

12 ‘‘(i) IN GENERAL.—A determination 

13 under subparagraph (A) shall be made as 

14 of each of the following times: 

15 ‘‘(I) The application for the rural 

16 investment credit dollar amount. 

17 ‘‘(II) The allocation of the rural 

18 investment credit dollar amount. 

19 ‘‘(III) The date the building is 

20 first placed in service. 

21 ‘‘(ii) CERTIFICATION AS TO AMOUNT

22 OF OTHER SUBSIDIES.—Prior to each de23 termination under clause (i), the taxpayer 

24 shall certify to the rural investment credit 

25 agency the full extent of all Federal, State, 


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•S 1423 IS

1 and local subsidies which apply (or which 

2 the taxpayer expects to apply) with respect 

3 to the building. 

4 ‘‘(l) REGULATIONS.—The Secretary shall prescribe 

5 such regulations as may be necessary or appropriate to 

6 carry out the purposes of this section, including regula7 tions— 

8 ‘‘(1) dealing with— 

9 ‘‘(A) investment projects which include 

10 more than 1 building or only a portion of a 

11 building, 

12 ‘‘(B) buildings which are sold in portions, 

13 ‘‘(2) providing for the application of this section 

14 to short taxable years, 

15 ‘‘(3) preventing the avoidance of the rules of 

16 this section, and 

17 ‘‘(4) providing the opportunity for rural invest18 ment credit agencies to correct administrative errors 

19 and omissions with respect to allocations and record 

20 keeping within a reasonable period after their dis21 covery, taking into account the availability of regula22 tions and other administrative guidance from the 

23 Secretary.’’. 

24 (b) CURRENT YEAR BUSINESS CREDIT CALCULA25 TION.—Section 38(b) (relating to current year business 


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•S 1423 IS

1 credit) is amended by striking ‘‘plus’’ at the end of para2 graph (30), by striking the period at the end of paragraph 

3 (31) and inserting ‘‘, plus’’, and by adding at the end the 

4 following new paragraph: 

5 ‘‘(32) the rural investment credit determined 

6 under section 42A(a).’’. 

7 (c) CONFORMING AMENDMENTS.— 

8 (1) Section 55(c)(1) is amended by inserting 

9 ‘‘or subsection (i) or (j) of section 42A’’ after ‘‘sec10 tion 42’’. 

11 (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and 

12 (k)(1) of section 469 are each amended by inserting 

13 ‘‘or 42A’’ after ‘‘section 42’’. 

14 (3) Section 772(a) is amended by striking 

15 ‘‘and’’ at the end of paragraph (10), by redesig16 nating paragraph (11) as paragraph (12), and by in17 serting after paragraph (10) the following new para18 graph: 

19 ‘‘(11) the rural investment credit determined 

20 under section 42A, and’’. 

21 (4) Section 774(b)(4) is amended by inserting 

22 ‘‘, 42A(i),’’ after ‘‘section 42(j)’’. 

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

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


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•S 1423 IS

1 is amended by inserting after the item relating to section 

2 42 the following new item: 

‘‘Sec. 42A. Rural investment credit.’’. 

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

4 this section shall apply to expenditures made in taxable 

5 years beginning after the date of the enactment of this 

6 Act and before the date which is 5 years after such date 

7 of enactment. 

8 SEC. 302. QUALIFIED RURAL SMALL BUSINESS INVEST9 MENT CREDIT. 

10 (a) IN GENERAL.—Subpart D of part IV of sub11 chapter A of chapter 1 (relating to business related cred12 its), as amended by this Act, is amended by adding at 

13 the end the following new section: 

14 ‘‘SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVEST15 MENT CREDIT. 

16 ‘‘(a) IN GENERAL.—For purposes of section 38, in 

17 the case of a qualified rural small business, the amount 

18 of the qualified rural small business investment credit de19 termined under this section for any taxable year is equal 

20 to 30 percent of the qualified expenditures for the taxable 

21 year of such business. 

22 ‘‘(b) DOLLAR LIMITATION.— 

23 ‘‘(1) IN GENERAL.—The credit allowable under 

24 subsection (a) for any taxable year shall not exceed 

25 the lesser of— 


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•S 1423 IS

1 ‘‘(A) $5,000, or 

2 ‘‘(B) the amount when added to the aggre3 gate credits allowable to the taxpayer under 

4 subsection (a) for all preceding taxable years 

5 does not exceed $25,000. 

6 ‘‘(2) NO DOUBLE CREDIT ALLOWED.—In the 

7 case of any qualified rural small business which 

8 places in service a qualified rural investment build9 ing with respect to which a rural investment credit 

10 is allowed under section 42A for any taxable year, 

11 paragraph (1)(A) shall be applied with respect to 

12 such taxable year by substituting ‘zero’ for ‘$5,000’. 

13 ‘‘(c) QUALIFIED RURAL SMALL BUSINESS.—For 

14 purposes of this section, the term ‘qualified rural small 

15 business’ means any person if such person— 

16 ‘‘(1) employed not more than 5 full-time em17 ployees during the taxable year, 

18 ‘‘(2) materially and substantially participates in 

19 management, 

20 ‘‘(3) is located is a qualifying area, and 

21 ‘‘(4) submitted a qualified business plan with 

22 respect to which the rural investment credit agency 

23 with jurisdiction over such qualifying area has allo24 cated a portion of the State rural investment ceiling 

25 for such taxable year under section 42A(g)(7). 


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1 For purposes of paragraph (1), an employee shall be con2 sidered full-time if such employee is employed at least 30 

3 hours per week for 20 or more calendar weeks in the tax4 able year. 

5 ‘‘(d) QUALIFIED EXPENDITURES.—For purposes of 

6 this section— 

7 ‘‘(1) IN GENERAL.—The term ‘qualified expend8 itures’ means expenditures normally associated with 

9 starting or expanding a business and included in a 

10 qualified business plan, including costs for capital, 

11 plant and equipment, inventory expenses, and wages, 

12 but not including interest costs. 

13 ‘‘(2) ONLY CERTAIN EXPENDITURES INCLUDED

14 FOR EXISTING BUSINESSES.—In the case of a quali15 fied rural small business with respect to which a 

16 credit under subsection (a) was allowed for a pre17 ceding taxable year, such term shall include only so 

18 much of the expenditures described in paragraph (1) 

19 for the taxable year as exceed the aggregate of such 

20 expenditures for the preceding taxable year. 

21 ‘‘(e) QUALIFIED BUSINESS PLAN.—For purposes of 

22 this section, the term ‘qualified business plan’ means a 

23 business plan which— 

24 ‘‘(1) has been approved by the rural investment 

25 credit agency with jurisdiction over the qualifying 


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•S 1423 IS

1 area in which the qualified rural small business is lo2 cated pursuant to such agency’s rural investment 

3 plan, and 

4 ‘‘(2) meets such requirements as the agency 

5 may specify. 

6 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—In the case of 

7 the amount of the credit determined under this section— 

8 ‘‘(1) no deduction or credit shall be allowed for 

9 such amount under any other provision of this chap10 ter, and 

11 ‘‘(2) no increase in the adjusted basis of any 

12 property shall result from such amount. 

13 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur14 poses of this section— 

15 ‘‘(1) any term which is used in this section 

16 which is used in section 42A shall have the meaning 

17 given such term by section 42A, and 

18 ‘‘(2) rules similar to the rules under subsections 

19 (j)(2), (j)(3), and (k) of section 42A shall apply.’’. 

20 (b) CURRENT YEAR BUSINESS CREDIT CALCULA21 TION.—Section 38(b) (relating to current year business 

22 credit), as amended by this Act, is amended by striking 

23 ‘‘plus’’ at the end of paragraph (31), by striking the period 

24 at the end of paragraph (32) and inserting ‘‘, plus’’, and 

25 by adding at the end the following new paragraph: 


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1 ‘‘(33) the qualified rural small business invest2 ment credit determined under section 42B(a).’’. 

3 (c) CLERICAL AMENDMENT.—The table of sections 

4 for subpart D of part IV of subchapter A of chapter 1, 

5 as amended by this Act, is amended by inserting after the 

6 item relating to section 42A the following new item: 

‘‘Sec. 42B. Qualified rural small business investment credit.’’. 

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

8 this section shall apply to expenditures made in taxable 

9 years beginning after the date of the enactment of this 

10 Act and before the date which is 5 years after such date 

11 of enactment. 

12 SEC. 303. ACCELERATED DEPRECIATION FOR RURAL IN13 VESTMENT PROPERTY. 

14 (a) IN GENERAL.—Section 168 is amended by adding 

15 at the end the following new subsection: 

16 ‘‘(m) PROPERTY IN RURAL INVESTMENT

17 PROJECTS.— 

18 ‘‘(1) IN GENERAL.—For purposes of subsection 

19 (a), the applicable recovery period for qualified rural 

20 investment property shall be determined in accord21 ance with the table contained in paragraph (2) in 

22 lieu of the table contained in subsection (c). 

23 ‘‘(2) APPLICABLE RECOVERY PERIOD FOR

24 RURAL INVESTMENT PROPERTY.—For purposes of 

25 paragraph (1)— 


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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. 

1 ‘‘(3) DEDUCTION ALLOWED IN COMPUTING

2 MINIMUM TAX.—For purposes of determining alter3 native minimum taxable income under section 55, 

4 the deduction under subsection (a) for property to 

5 which paragraph (1) applies shall be determined 

6 under this section without regard to any adjustment 

7 under section 56. 

8 ‘‘(4) QUALIFIED RURAL INVESTMENT PROP9 ERTY DEFINED.—For purposes of this subsection— 

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

11 rural investment property’ means property 

12 which is property described in the table in para13 graph (2) and which is— 

14 ‘‘(i) used by the taxpayer predomi15 nantly in the active conduct of a trade or 

16 business within a qualified rural invest17 ment project, 

18 ‘‘(ii) not used or located outside the 

19 qualified rural investment project on a reg20 ular basis, 


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1 ‘‘(iii) not acquired (directly or indi2 rectly) by the taxpayer from a person who 

3 is related to the taxpayer (within the 

4 meaning of section 465(b)(3)(C)), and 

5 ‘‘(iv) not property (or any portion 

6 thereof) placed in service for purposes of 

7 operating any facility described in section 

8 144(c)(6)(B). 

9 ‘‘(B) EXCEPTION FOR ALTERNATIVE DE10 PRECIATION PROPERTY.—The term ‘qualified 

11 rural investment property’ does not include any 

12 property to which the alternative depreciation 

13 system under subsection (g) applies, deter14 mined— 

15 ‘‘(i) without regard to subsection 

16 (g)(7) (relating to election to use alter17 native depreciation system), and 

18 ‘‘(ii) after the application of section 

19 280F(b) (relating to listed property with 

20 limited business use). 

21 ‘‘(C) SPECIAL RULE FOR INFRASTRUCTURE

22 INVESTMENT.— 

23 ‘‘(i) IN GENERAL.—Subparagraph 

24 (A)(ii) shall not apply to qualified infra25 structure property located outside of the 


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1 qualified rural investment project if the 

2 purpose of such property is to connect with 

3 qualified infrastructure property located 

4 within such project. 

5 ‘‘(ii) QUALIFIED INFRASTRUCTURE

6 PROPERTY.—For purposes of this subpara7 graph, the term ‘qualified infrastructure 

8 property’ means qualified rural investment 

9 property (determined without regard to 

10 subparagraph (A)(ii)) which— 

11 ‘‘(I) benefits the qualifying area 

12 infrastructure, 

13 ‘‘(II) is available to the general 

14 public, and 

15 ‘‘(III) is placed in service in con16 nection with the taxpayer’s active con17 duct of a trade or business within a 

18 qualified rural investment project. 

19 Such term includes, but is not limited to, 

20 roads, power lines, water systems, railroad 

21 spurs, and communications facilities. 

22 ‘‘(5) DEFINITIONS.—For purposes of this sub23 section, any term used in this section which is used 

24 in section 42A shall have the meaning given such 

25 term by section 42A.’’. 


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

2 this section shall apply to property placed in service after 

3 the date of the enactment of this Act and before the date 

4 which is 5 years after such date of enactment. 

Æ 


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