I 

110TH CONGRESS 

1ST SESSION H. R. 1340 

To amend the Internal Revenue Code of 1986 to promote freedom, fairness, 

and economic opportunity by establishing National Enterprise Zones to 

promote prosperity in economically depressed areas. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 6, 2007 

Mr. FORTUN ̃O introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to promote 

freedom, fairness, and economic opportunity by establishing National Enterprise Zones to promote prosperity 

in economically depressed areas. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘National Enterprise Zone Act of 2007’’. 

6 (b) TABLE OF CONTENTS.—The table of contents for 

7 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Findings. 

Sec. 3. National Enterprise Zones. 

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Sec. 4. Study. 

Sec. 5. Effective date. 

1 SEC. 2. FINDINGS. 

2 The Congress finds that the establishment of a Na3 tional Enterprise Zone program that offers a substantial 

4 tax incentive to corporations, including controlled foreign 

5 corporations in a possession of the United States, partner6 ships, and sole proprietorships conducting an active busi7 ness within such zones and electing to participate will 

8 achieve— 

9 (1) a higher level of private sector economic ac10 tivity necessary to alleviate poverty and unemploy11 ment in economically depressed regions of the 

12 United States, including the possessions of the 

13 United States; 

14 (2) the removal of tax disincentives to do busi15 ness in economically depressed areas and thus pro16 mote economic growth, development, employment, a 

17 higher standard of living and a higher quality of life 

18 in economically depressed areas; 

19 (3) improved taxation of business investment in 

20 plant, equipment and inventories in economically de21 pressed areas, encouraging businesses to operate in 

22 those areas; and 

23 (4) comparable tax treatment of businesses in 

24 economically depressed areas in all parts of the 

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1 United States and its possessions, thereby promoting 

2 universal economic prosperity. 

3 SEC. 3. NATIONAL ENTERPRISE ZONES. 

4 (a) IN GENERAL.—Subchapter Y of chapter 1 of the 

5 Internal Revenue Code of 1986 is amended by adding at 

6 the end the following new part: 

7 ‘‘PART III—NATIONAL ENTERPRISE ZONES 

‘‘Sec. 1400U. National Enterprise Zone designation procedure. 

‘‘Sec. 1400U–1. National Enterprise Zone eligibility criteria. 

‘‘Sec. 1400U–2. Effect of National Enterprise Zone designation on individuals, 

estates and trusts conducting an active trade or business within a national enterprise zone. 

‘‘Sec. 1400U–3. National Enterprise Zone individual taxable income. 

‘‘Sec. 1400U–4. Effect of National Enterprise Zone designation on corporations. 

‘‘Sec. 1400U–5. National Enterprise Zone corporate taxable income. 

‘‘Sec. 1400U–6. Conduct of an active trade or business within a National Enterprise Zone by corporations, partnerships, and sole proprietors. 

‘‘Sec. 1400U–7. Definitions and special rules. 

8 ‘‘SEC. 1400U. NATIONAL ENTERPRISE ZONE DESIGNATION 

9 PROCEDURE. 

10 ‘‘(a) DESIGNATED ZONE.—The Secretary shall des11 ignate the areas in the United States and possessions of 

12 the United States that meet the requirements of section 

13 1400U–1 and publish a list of such designated zones. 

14 ‘‘(b) EFFECTIVE DATE OF ZONE DESIGNATION.— 

15 The effective date of the designation of any zone as a Na16 tional Enterprise Zone pursuant to this section shall be 

17 January 1 of the year following its designation. 

18 ‘‘(c) ELIGIBILITY REVIEW.—Between January 1 and 

19 April 30 of the year after the release of the decennial cenmstockstill on PROD1PC66 with BILLS

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1 sus, the Secretary shall undertake a review of each Na2 tional Enterprise Zone designation whereby the Secretary 

3 shall determine whether the zone continues to meet the 

4 National Enterprise Zone Eligibility Criteria established 

5 by section 1400U–1. If this review determines that a Na6 tional Enterprise Zone no longer meets the National En7 terprise Zone Eligibility Criteria established by section 

8 1400U–1, then the Secretary shall revoke the designation 

9 effective at the end of the calendar year. Not later than 

10 June 30 after said determination, the Secretary shall issue 

11 a notice to all taxpayers making National Enterprise Zone 

12 elections with respect to said zone in the taxpayer’s pre13 vious taxable year that the designation will be revoked at 

14 the end of the calendar year for said National Enterprise 

15 Zone. The Secretary shall publish the decennial eligibility 

16 review results for all National Enterprise Zones no later 

17 than June 30. 

18 ‘‘(d) EFFECT OF REVOCATION OF DESIGNATION.— 

19 An electing taxpayer with respect to a National Enterprise 

20 Zone whose designation is revoked continues to qualify for 

21 the Individual or Corporate Alternative National Enter22 prise Zone tax under sections 1400U–2 and 1400U–4 

23 until the end of the taxpayer’s 12th taxable year following 

24 the year of zone designation revocation. 

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1 ‘‘SEC. 1400U–1. NATIONAL ENTERPRISE ZONE ELIGIBILITY 

2 CRITERIA. 

3 ‘‘(a) NATIONAL ENTERPRISE ZONE ELIGIBILITY

4 CRITERIA.—A National Enterprise Zone must— 

5 ‘‘(1) have greater than 50,000 residents; 

6 ‘‘(2) have a poverty rate two times the national 

7 poverty rate; and 

8 ‘‘(3) have an unemployment rate 2 times the 

9 national average unemployment rate. 

10 ‘‘(b) NO OVERLAP WITH EXISTING ZONES OF DIF11 FERENT TYPE.—No part of a National Enterprise Zone 

12 may also be a part of an Empowerment Zone, Enterprise 

13 Community (Subchapter U zones), or District of Columbia 

14 Enterprise Zone (Subchapter W zones). 

15 ‘‘SEC. 1400U–2. EFFECT OF NATIONAL ENTERPRISE ZONE 

16 DESIGNATION ON INDIVIDUALS, ESTATES 

17 AND TRUSTS CONDUCTING AN ACTIVE TRADE 

18 OR BUSINESS WITHIN A NATIONAL ENTER19 PRISE ZONE. 

20 ‘‘(a) INDIVIDUAL ALTERNATIVE NATIONAL ENTER21 PRISE ZONE TAX.—In the case of a taxpayer other than 

22 a corporation, if, for any taxable year, the taxpayer has 

23 National Enterprise Zone individual taxable income, then, 

24 in lieu of any tax imposed by section 1 or section 55, the 

25 taxpayer may elect to pay a tax which shall consist of the 

26 sum of— 

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1 ‘‘(1) a tax computed on the taxpayer’s taxable 

2 income reduced by the amount of National Enter3 prise Zone tentative individual taxable income (if 

4 greater than zero), at the rates and in the manner 

5 as if this subsection had not been enacted, plus 

6 ‘‘(2) a tax of 12 percent of the National Enter7 prise Zone individual taxable income. 

8 ‘‘(b) YEARS FOR WHICH ELECTION IS EFFECTIVE.— 

9 An election under subsection (a) shall be effective for the 

10 three taxable years of the electing taxpayer following the 

11 year in which the election is made and for all succeeding 

12 taxable years of such taxpayer, unless— 

13 ‘‘(1) the taxpayer ceases to have National En14 terprise Zone taxable income, 

15 ‘‘(2) the taxpayer revokes the election (after the 

16 initial three-year period), or 

17 ‘‘(3) the period described in section 1400U(d) 

18 has expired. 

19 ‘‘(c) EFFECT OF CESSATION OF BUSINESS OPER20 ATIONS IN ZONE DURING INITIAL THREE-YEAR PE21 RIOD.—If a taxpayer has made an election under this sec22 tion and if such election has been terminated or revoked 

23 under subsection (b)(1) due to cessation of business in the 

24 zone during any of the three years immediately after the 

25 year in which the election is made, such taxpayer shall 

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1 be treated as having been subject to tax under chapter 

2 1 at the otherwise applicable rate for individuals for the 

3 years the alternative National Enterprise Zone tax was ap4 plicable. 

5 ‘‘(d) NEW ELECTION FOLLOWING TERMINATION.— 

6 If a taxpayer has made an election under this section and 

7 if such election has been terminated or revoked under sub8 section (b), such taxpayer shall not be eligible to make 

9 an election under this section for any taxable year before 

10 the 3rd taxable year which begins after the 1st taxable 

11 year for which such termination is effective, unless the 

12 Secretary consents to such election. 

13 ‘‘SEC. 1400U–3. NATIONAL ENTERPRISE ZONE INDIVIDUAL 

14 TAXABLE INCOME. 

15 ‘‘(a) NATIONAL ENTERPRISE ZONE INDIVIDUAL

16 TENTATIVE TAXABLE INCOME.—National Enterprise 

17 Zone tentative individual taxable income shall be equal to 

18 taxable income (as defined by section 63 without regard 

19 to section 179(e)) arising from the conduct of an active 

20 trade or business (as defined in section 1400U–6) within 

21 one or more National Enterprise Zones. 

22 ‘‘(b) NATIONAL ENTERPRISE ZONE INDIVIDUAL

23 TAXABLE INCOME ADJUSTMENTS.—National Enterprise 

24 Zone individual taxable income shall be equal to National 

25 Enterprise Zone individual tentative taxable income less— 

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1 ‘‘(1) expenditures made to acquire inventory 

2 property held in a National Enterprise Zone, and 

3 ‘‘(2) the amount, if any, the taxpayer elects to 

4 deduct pursuant to section 179(e) that exceeds the 

5 limitations in section 179(b). 

6 ‘‘SEC. 1400U–4. EFFECT OF NATIONAL ENTERPRISE ZONE 

7 DESIGNATION ON CORPORATIONS. 

8 ‘‘(a) CORPORATE ALTERNATIVE NATIONAL ENTER9 PRISE ZONE TAX.—In the case of a corporation (other 

10 than an S corporation), if for any taxable year, the tax11 payer has National Enterprise Zone corporate taxable in12 come, then, in lieu of any tax imposed by section 11 or 

13 section 55, the taxpayer may elect to pay a tax which shall 

14 consist of the sum of— 

15 ‘‘(1) a tax computed on taxable income reduced 

16 by the amount of National Enterprise Zone tentative 

17 corporate taxable income (if greater than zero) at 

18 the rates and in the manner as if this subsection 

19 had not been enacted, plus 

20 ‘‘(2) a tax of 12 percent of the National Enter21 prise Zone corporate taxable income. 

22 ‘‘(b) SPECIAL RULE FOR NON-DOMESTIC CORPORA23 TIONS.—In the case of an electing corporation organized 

24 under the laws of a possession of the United States doing 

25 business in a National Enterprise Zone, this section shall 

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1 apply as if such corporation were a domestic corporation 

2 subject to tax under this title. 

3 ‘‘(c) YEARS FOR WHICH ELECTION IS EFFECTIVE.— 

4 An election under subsection (a) shall be effective for the 

5 three taxable years of the electing corporation following 

6 the year in which the election is made and for all suc7 ceeding taxable years of such corporation, unless— 

8 ‘‘(1) the corporation ceases to have National 

9 Enterprise Zone taxable income, 

10 ‘‘(2) the corporation revokes the election, or 

11 ‘‘(3) the period described in section 1400U(d) 

12 has expired. 

13 ‘‘(d) EFFECT OF CESSATION OF BUSINESS OPER14 ATIONS IN ZONE DURING INITIAL THREE-YEAR PE15 RIOD.—If a taxpayer has made an election under this sec16 tion and if such election has been terminated or revoked 

17 under subsection (c)(1) due to cessation of business in the 

18 zone during any of the three years immediately after the 

19 year in which the election is made, such taxpayer shall 

20 be treated as having been subject to tax under chapter 

21 1 at the otherwise applicable rate for domestic corpora22 tions for the years the alternative National Enterprise 

23 Zone tax was applicable. 

24 ‘‘(e) NEW ELECTION BY NATIONAL ENTERPRISE

25 ZONE CORPORATION FOLLOWING TERMINATION.—If an 

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1 electing corporation has made an election under this sec2 tion and if such election has been terminated or revoked 

3 under subsection (c), such corporation (and any successor 

4 corporation) shall not be eligible to make an election under 

5 this section for any taxable year before the 3rd taxable 

6 year which begins after the 1st taxable year for which such 

7 termination is effective, unless the Secretary consents to 

8 such election. 

9 ‘‘SEC. 1400U–5. NATIONAL ENTERPRISE ZONE CORPORATE 

10 TAXABLE INCOME. 

11 ‘‘(a) IN GENERAL.—National Enterprise Zone cor12 porate tentative corporate taxable income shall be taxable 

13 income (without regard to section 179(e)) arising from the 

14 conduct of an active trade or business within one or more 

15 National Enterprise Zones. 

16 ‘‘(b) ADJUSTMENTS.—National Enterprise Zone cor17 porate taxable income shall be equal to National Enter18 prise Zone corporate tentative taxable income less— 

19 ‘‘(1) expenditures made to acquire inventory 

20 property held in a National Enterprise Zone, and 

21 ‘‘(2) the amount, if any, the taxpayer elects to 

22 deduct pursuant to 179(e) that exceeds the limita23 tions in section 179(b). 

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1 ‘‘SEC. 1400U–6. CONDUCT OF AN ACTIVE TRADE OR BUSI2 NESS WITHIN A NATIONAL ENTERPRISE ZONE 

3 BY CORPORATIONS, PARTNERSHIPS, AND 

4 SOLE PROPRIETORS. 

5 ‘‘(a) ACTIVE TRADE OR BUSINESS.—For purposes of 

6 this part, the conduct of active trade or business means 

7 the conduct of a trade or business that derives no more 

8 than 25 percent of its gross income from passive activities 

9 (as defined by section 469). 

10 ‘‘(b) INCOME AND EXPENSES WITHIN A NATIONAL

11 ENTERPRISE ZONE.—For purposes of this part— 

12 ‘‘(1) GROSS INCOME.—Gross income from with13 in a National Enterprise Zone shall mean— 

14 ‘‘(A) compensation for labor or services 

15 performed by the electing corporation, partner16 ship, or sole proprietor within a National En17 terprise Zone; 

18 ‘‘(B) rentals or royalties from property lo19 cated in a National Enterprise Zone; 

20 ‘‘(C) gains, profits, and income derived 

21 from the sale of inventory property held within 

22 a National Enterprise Zone; and 

23 ‘‘(D) income from the sale of property that 

24 is produced, created, fabricated, manufactured, 

25 extracted, processed, cured, aged, grown or har26 vested within the National Enterprise Zone. 

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1 ‘‘(2) EXPENSES.—Expenses shall be allocated 

2 and apportioned to the income producing activities 

3 to which they are related. Expenses which are not 

4 allocable or apportioned to any specific income pro5 ducing activities shall be allocated on the basis of 

6 gross income such that the ratio of the expense allo7 cated to the National Enterprise Zone is the same 

8 as the ratio of gross income within the National En9 terprise Zone to all gross income within the United 

10 States and a possession of the United States of the 

11 taxpayer or controlled group (in the case of a cor12 poration that is a member of a controlled group of 

13 corporations as defined in section 1563(a)). 

14 ‘‘(c) ALTERNATIVE FORMULARY METHOD.— 

15 ‘‘(1) IN GENERAL.—A corporation (or con16 trolled group in the case of a corporation that is a 

17 member of a controlled group of corporations (as de18 fined in section 1563(a))), partnership, or sole pro19 prietor that so elects, in a form and manner pre20 scribed by the Secretary, may determine the share of 

21 its income, expense, and other items attributable to 

22 the conduct of an active trade or business within a 

23 National Enterprise Zone by multiplying its appor24 tionment ratio by the amount of the income, ex25 pense, and other items for purposes of determining 

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1 its National Enterprise Zone corporate taxable in2 come. 

3 ‘‘(2) APPORTIONMENT RATIO.—The apportion4 ment ratio shall be the ratio of— 

5 ‘‘(A) the sum of the remaining basis in de6 preciable property held in a National Enterprise 

7 Zone for the entire taxable year, of the inven8 tory property held in a National Enterprise 

9 Zone at the end of the taxable year, and of the 

10 compensation paid to National Enterprise Zone11 based employees during the taxable year, and 

12 ‘‘(B) the sum of the remaining basis in de13 preciable property held in the United States 

14 and its possessions for the entire taxable year, 

15 of the inventory property held in the United 

16 States and its possessions at the end of the tax17 able year, and of the compensation paid to em18 ployees within the United States and its posses19 sions during the taxable year. 

20 ‘‘(3) MANDATORY USE OF ALTERNATIVE FOR21 MULARY METHOD.—If a taxpayer— 

22 ‘‘(A) derives greater than 10 percent of its 

23 gross income from sales to related parties (as 

24 defined in section 1313(c)), or 

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1 ‘‘(B) expenses attributable to purchases 

2 from related parties (as defined in section 

3 1313(c)) account for greater than 10 percent of 

4 its expenses, then said taxpayer shall use the al5 ternative formulary method. 

6 ‘‘SEC. 1400U–7. DEFINITIONS AND SPECIAL RULES. 

7 ‘‘For purposes of this part— 

8 ‘‘(1) POSSESSION OF THE UNITED STATES.— 

9 The term ‘possession of the United States’ means 

10 the Virgin Islands, Guam, American Samoa, the 

11 Commonwealth of Puerto Rico, and the Common12 wealth of the Northern Mariana Islands. 

13 ‘‘(2) INVENTORY.— 

14 ‘‘(A) INVENTORY PROPERTY.—The term 

15 ‘inventory property’ means property described 

16 in section 1221(a)(1) and any expenditures that 

17 were capitalized pursuant to section 263A. 

18 ‘‘(B) NO DOUBLE COUNTING.—The deduc19 tion afforded by section 1400U–3(b)(1) is in 

20 lieu of the deduction provided upon the sale of 

21 inventory property. 

22 ‘‘(3) SPECIAL RULE.—For purposes of a cor23 poration making an election under this part, section 

24 7701(a)(4) shall include an electing corporation ormstockstill on PROD1PC66 with BILLS

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1 ganized under the laws of a possession of the United 

2 States and section 7701(a)(5) shall not apply.’’. 

3 (b) CONFORMING AMENDMENTS.—Section 179 of the 

4 Internal Revenue Code of 1986 is amended by inserting 

5 at the end the following new subsection: 

6 ‘‘(e) NO LIMITATION ON AMOUNT IN NATIONAL EN7 TERPRISE ZONES.— 

8 ‘‘(1) IN GENERAL.—The limitations of sub9 section (b) shall not apply with respect to property 

10 placed in service in a National Enterprise Zone. 

11 ‘‘(2) PROPERTY REMOVED FROM NATIONAL EN12 TERPRISE ZONE.—Property expensed pursuant to 

13 this section that is removed from service within a 

14 National Enterprise Zone but not disposed of by the 

15 taxpayer shall be treated as if it had been, as of the 

16 date of the removal, disposed of by the taxpayer and 

17 repurchased by the taxpayer at a price equal to what 

18 its remaining basis would have been if the election 

19 under this section had not been exercised with re20 spect to the property.’’. 

21 (c) CLERICAL AMENDMENT.—The table of parts for 

22 subchapter Y of chapter 1 of such Code is amended by 

23 inserting after the item relating to part II the following 

24 new item: 

‘‘PART III. NATIONAL ENTERPRISE ZONES.’’. 

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1 SEC. 4. STUDY. 

2 The Secretary shall undertake a study of the Na3 tional Enterprise Zone program established by this Act to 

4 determine its effectiveness in promoting economic growth 

5 and reducing poverty in the designated zone areas. The 

6 study shall be submitted to the Committee on Ways and 

7 Means of the House of Representatives and the Committee 

8 on Finance of the Senate no later than December 31, 

9 2012. 

10 SEC. 5. EFFECTIVE DATE. 

11 The amendments made by this Act shall apply to tax12 able years beginning after December 31, 2007. 

Æ 

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