II 

108TH CONGRESS 

1ST SESSION S. 1936

To amend the Internal Revenue Code of 1986 to exclude from unrelated 

business taxable income the gain or loss on the sale or exchange of 

certain brownfield sites, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 24, 2003

Mr. BAUCUS (for himself, Mr. INHOFE, Mrs. DOLE, and Mr. ROCKEFELLER) 

introduced the following bill; which was read twice and referred to the 

Committee on Finance 

A BILL

To amend the Internal Revenue Code of 1986 to exclude 

from unrelated business taxable income the gain or loss 

on the sale or exchange of certain brownfield sites, and 

for other purposes.

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

3 SECTION 1. EXCLUSION OF GAIN OR LOSS ON SALE OR EX4 CHANGE OF CERTAIN BROWNFIELD SITES 

5 FROM UNRELATED BUSINESS TAXABLE IN6 COME. 

7 (a) IN GENERAL.—Subsection (b) of section 512 of 

8 the Internal Revenue Code of 1986 (relating to unrelated 
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1 business taxable income) is amended by adding at the end 

2 the following new paragraph: 

3 ‘‘(18) TREATMENT OF GAIN OR LOSS ON SALE

4 OR EXCHANGE OF CERTAIN BROWNFIELD SITES.—

5 ‘‘(A) IN GENERAL.—Notwithstanding para6 graph (5)(B), there shall be excluded any gain 

7 or loss from the qualified sale, exchange, or 

8 other disposition of any qualifying brownfield 

9 property by an eligible taxpayer. 

10 ‘‘(B) ELIGIBLE TAXPAYER.—For purposes 

11 of this paragraph—

12 ‘‘(i) IN GENERAL.—The term ‘eligible 

13 taxpayer’ means, with respect to a prop14 erty, any organization exempt from tax 

15 under section 501(a) which—

16 ‘‘(I) acquires from an unrelated 

17 person a qualifying brownfield prop18 erty, and 

19 ‘‘(II) pays or incurs eligible re20 mediation expenditures with respect to 

21 such property in an amount which ex22 ceeds the greater of $550,000 or 12 

23 percent of the fair market value of the 

24 property at the time such property 

25 was acquired by the eligible taxpayer, 
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1 determined as if there was not a pres2 ence of a hazardous substance, pollut3 ant, or contaminant on the property 

4 which is complicating the expansion, 

5 redevelopment, or reuse of the prop6 erty. 

7 ‘‘(ii) EXCEPTION.—Such term shall 

8 not include any organization which is—

9 ‘‘(I) potentially liable under sec10 tion 107 of the Comprehensive Envi11 ronmental Response, Compensation, 

12 and Liability Act of 1980 with respect 

13 to the qualifying brownfield property, 

14 ‘‘(II) affiliated with any other 

15 person which is so potentially liable 

16 through any direct or indirect familial 

17 relationship or any contractual, cor18 porate, or financial relationship (other 

19 than a contractual, corporate, or fi20 nancial relationship which is created 

21 by the instruments by which title to 

22 any qualifying brownfield property is 

23 conveyed or financed or by a contract 

24 of sale of goods or services), or 
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1 ‘‘(III) the result of a reorganiza2 tion of a business entity which was so 

3 potentially liable. 

4 ‘‘(C) QUALIFYING BROWNFIELD PROP5 ERTY.—For purposes of this paragraph—

6 ‘‘(i) IN GENERAL.—The term ‘quali7 fying brownfield property’ means any real 

8 property which is certified, before the tax9 payer incurs any eligible remediation ex10 penditures (other than to obtain a Phase I 

11 environmental site assessment), by an ap12 propriate State agency (within the mean13 ing of section 198(c)(4)) in the State in 

14 which such property is located as a 

15 brownfield site within the meaning of sec16 tion 101(39) of the Comprehensive Envi17 ronmental Response, Compensation, and 

18 Liability Act of 1980 (as in effect on the 

19 date of the enactment of this paragraph). 

20 ‘‘(ii) REQUEST FOR CERTIFICATION.—

21 Any request by an eligible taxpayer for a 

22 certification described in clause (i) shall in23 clude a sworn statement by the eligible 

24 taxpayer and supporting documentation of 

25 the presence of a hazardous substance, pol-
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1 lutant, or contaminant on the property 

2 which is complicating the expansion, rede3 velopment, or reuse of the property given 

4 the property’s reasonably anticipated fu5 ture land uses or capacity for uses of the 

6 property (including a Phase I environ7 mental site assessment and, if applicable, 

8 evidence of the property’s presence on a 

9 local, State, or Federal list of brownfields 

10 or contaminated property) and other envi11 ronmental assessments prepared or ob12 tained by the taxpayer. 

13 ‘‘(D) QUALIFIED SALE, EXCHANGE, OR

14 OTHER DISPOSITION.—For purposes of this 

15 paragraph—

16 ‘‘(i) IN GENERAL.—A sale, exchange, 

17 or other disposition of property shall be 

18 considered as qualified if—

19 ‘‘(I) such property is transferred 

20 by the eligible taxpayer to an unre21 lated person, and 

22 ‘‘(II) within 1 year of such trans23 fer the eligible taxpayer has received a 

24 certification from the Environmental 

25 Protection Agency or an appropriate
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1 State agency (within the meaning of 

2 section 198(c)(4)) in the State in 

3 which such property is located that, as 

4 a result of the eligible taxpayer’s re5 mediation actions, such property 

6 would not be treated as a qualifying 

7 brownfield property in the hands of 

8 the transferee. 

9 ‘‘(ii) REQUEST FOR CERTIFICATION.—

10 Any request by an eligible taxpayer for a 

11 certification described in clause (i) shall be 

12 made not later than the date of the trans13 fer and shall include a sworn statement by 

14 the eligible taxpayer certifying the fol15 lowing: 

16 ‘‘(I) Remedial actions which com17 ply with all applicable or relevant and 

18 appropriate requirements (consistent 

19 with section 121(d) of the Com20 prehensive Environmental Response, 

21 Compensation, and Liability Act of 

22 1980) have been substantially com23 pleted, such that there are no haz24 ardous substances, pollutants, or con25 taminants which complicate the ex-
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1 pansion, redevelopment, or reuse of 

2 the property given the property’s rea3 sonably anticipated future land uses 

4 or capacity for uses of the property. 

5 ‘‘(II) The reasonably anticipated 

6 future land uses or capacity for uses 

7 of the property are more economically 

8 productive or environmentally bene9 ficial than the uses of the property in 

10 existence on the date of the certifi11 cation described in subparagraph 

12 (C)(i). For purposes of the preceding 

13 sentence, use of property as a landfill 

14 or other hazardous waste facility shall 

15 not be considered more economically 

16 productive or environmentally bene17 ficial. 

18 ‘‘(III) A remediation plan has 

19 been implemented to bring the prop20 erty into compliance with all applica21 ble local, State, and Federal environ22 mental laws, regulations, and stand23 ards and to ensure that the remedi24 ation protects human health and the 

25 environment. 
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1 ‘‘(IV) The remediation plan de2 scribed in subclause (III), including 

3 any physical improvements required to 

4 remediate the property, is either com5 plete or substantially complete, and, if 

6 substantially complete, sufficient mon7 itoring, funding, institutional controls, 

8 and financial assurances have been 

9 put in place to ensure the complete 

10 remediation of the property in accord11 ance with the remediation plan as 

12 soon as is reasonably practicable after 

13 the sale, exchange, or other disposi14 tion of such property. 

15 ‘‘(V) Public notice that such re16 quest for certification would be made 

17 was completed before the date of such 

18 request. Such notice shall be in the 

19 same form and manner as required 

20 for public participation required under 

21 section 117(a) of the Comprehensive 

22 Environmental Response, Compensa23 tion, and Liability Act of 1980 (as in 

24 effect on the date of the enactment of 

25 this paragraph). 
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1 ‘‘(iii) ATTACHMENT TO TAX RE2 TURNS.—A copy of each of the requests 

3 for certification described in clause (ii) of 

4 subparagraph (C) and this subparagraph 

5 shall be included in the tax return of the 

6 eligible taxpayer (and, where applicable, of 

7 the qualifying partnership) for the taxable 

8 year during which the transfer occurs. 

9 ‘‘(E) ELIGIBLE REMEDIATION EXPENDI10 TURES.—For purposes of this paragraph—

11 ‘‘(i) IN GENERAL.—The term ‘eligible 

12 remediation expenditures’ means, with re13 spect to any qualifying brownfield prop14 erty, any amount paid or incurred by the 

15 eligible taxpayer to an unrelated third per16 son to obtain a Phase I environmental site 

17 assessment of the property, and any 

18 amount so paid or incurred after the date 

19 of the certification described in subpara20 graph (C)(i) for goods and services nec21 essary to obtain a certification described in 

22 subparagraph (D)(i) with respect to such 

23 property, including expenditures—

24 ‘‘(I) to manage, remove, control, 

25 contain, abate, or otherwise remediate 
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1 a hazardous substance, pollutant, or 

2 contaminant on the property, 

3 ‘‘(II) to obtain a Phase II envi4 ronmental site assessment of the 

5 property, including any expenditure to 

6 monitor, sample, study, assess, or oth7 erwise evaluate the release, threat of 

8 release, or presence of a hazardous 

9 substance, pollutant, or contaminant 

10 on the property, 

11 ‘‘(III) to obtain environmental 

12 regulatory certifications and approvals 

13 required to manage the remediation 

14 and monitoring of the hazardous sub15 stance, pollutant, or contaminant on 

16 the property, and 

17 ‘‘(IV) regardless of whether it is 

18 necessary to obtain a certification de19 scribed in subparagraph (D)(i)(II), to 

20 obtain remediation cost-cap or stop21 loss coverage, re-opener or regulatory 

22 action coverage, or similar coverage 

23 under environmental insurance poli24 cies, or financial guarantees required
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1 to manage such remediation and mon2 itoring. 

3 ‘‘(ii) EXCEPTIONS.—Such term shall 

4 not include—

5 ‘‘(I) any portion of the purchase 

6 price paid or incurred by the eligible 

7 taxpayer to acquire the qualifying 

8 brownfield property, 

9 ‘‘(II) environmental insurance 

10 costs paid or incurred to obtain legal 

11 defense coverage, owner/operator li12 ability coverage, lender liability cov13 erage, professional liability coverage, 

14 or similar types of coverage, 

15 ‘‘(III) any amount paid or in16 curred to the extent such amount is 

17 reimbursed, funded, or otherwise sub18 sidized by grants provided by the 

19 United States, a State, or a political 

20 subdivision of a State for use in con21 nection with the property, proceeds of 

22 an issue of State or local government 

23 obligations used to provide financing 

24 for the property the interest of which 

25 is exempt from tax under section 103, 
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1 or subsidized financing provided (di2 rectly or indirectly) under a Federal, 

3 State, or local program provided in 

4 connection with the property, or 

5 ‘‘(IV) any expenditure paid or in6 curred before the date of the enact7 ment of this paragraph. 

8 For purposes of subclause (III), the Sec9 retary may issue guidance regarding the 

10 treatment of government-provided funds 

11 for purposes of determining eligible reme12 diation expenditures. 

13 ‘‘(F) DETERMINATION OF GAIN OR

14 LOSS.—For purposes of this paragraph, the de15 termination of gain or loss shall not include an 

16 amount treated as gain which is ordinary in17 come with respect to section 1245 or section 

18 1250 property, including amounts deducted as 

19 section 198 expenses which are subject to the 

20 recapture rules of section 198(e), if the tax21 payer had deducted such amounts in the com22 putation of its unrelated business taxable in23 come. 

24 ‘‘(G) SPECIAL RULES FOR PARTNER25 SHIPS.—
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1 ‘‘(i) IN GENERAL.—In the case of an 

2 eligible taxpayer which is a partner of a 

3 qualifying partnership which acquires, re4 mediates, and sells, exchanges, or other5 wise disposes of a qualifying brownfield 

6 property, this paragraph shall apply to the 

7 eligible taxpayer’s distributive share of the 

8 qualifying partnership’s gain or loss from 

9 the sale, exchange, or other disposition of 

10 such property. 

11 ‘‘(ii) QUALIFYING PARTNERSHIP.—

12 The term ‘qualifying partnership’ means a 

13 partnership which—

14 ‘‘(I) has a partnership agreement 

15 which satisfies the requirements of 

16 section 514(c)(9)(B)(vi) at all times 

17 beginning on the date of the first cer18 tification received by the partnership 

19 under subparagraph (C)(i), 

20 ‘‘(II) satisfies the requirements 

21 of subparagraphs (B)(i), (C), (D), and 

22 (E), if ‘qualified partnership’ is sub23 stituted for ‘eligible taxpayer’ each 

24 place it appears therein (except sub25 paragraph (D)(iii)), and 
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1 ‘‘(III) is not an organization 

2 which would be prevented from consti3 tuting an eligible taxpayer by reason 

4 of subparagraph (B)(ii). 

5 ‘‘(iii) REQUIREMENT THAT TAX-EX6 EMPT PARTNER BE A PARTNER SINCE

7 FIRST CERTIFICATION.—This paragraph 

8 shall apply with respect to any eligible tax9 payer which is a partner of a partnership 

10 which acquires, remediates, and sells, ex11 changes, or otherwise disposes of a quali12 fying brownfield property only if such eligi13 ble taxpayer was a partner of the quali14 fying partnership at all times beginning on 

15 the date of the first certification received 

16 by the partnership under subparagraph 

17 (C)(i) and ending on the date of the sale, 

18 exchange, or other disposition of the prop19 erty by the partnership. 

20 ‘‘(iv) REGULATIONS.—The Secretary 

21 shall prescribe such regulations as are nec22 essary to prevent abuse of the require23 ments of this subparagraph, including 

24 abuse through—
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1 ‘‘(I) the use of special allocations 

2 of gains or losses, or 

3 ‘‘(II) changes in ownership of 

4 partnership interests held by eligible 

5 taxpayers. 

6 ‘‘(H) SPECIAL RULES FOR MULTIPLE

7 PROPERTIES.—

8 ‘‘(i) IN GENERAL.—An eligible tax9 payer or a qualifying partnership of which 

10 the eligible taxpayer is a partner may 

11 make a 1-time election to apply this para12 graph to more than 1 qualifying brownfield 

13 property by averaging the eligible remedi14 ation expenditures for all such properties 

15 acquired during the election period. If the 

16 eligible taxpayer or qualifying partnership 

17 makes such an election, the election shall 

18 apply to all qualified sales, exchanges, or 

19 other dispositions of qualifying brownfield 

20 properties the acquisition and transfer of 

21 which occur during the period for which 

22 the election remains in effect. 

23 ‘‘(ii) ELECTION.—An election under 

24 clause (i) shall be made with the eligible 

25 taxpayer’s or qualifying partnership’s time-
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1 ly filed tax return (including extensions) 

2 for the first taxable year for which the tax3 payer or qualifying partnership intends to 

4 have the election apply. An election under 

5 clause (i) is effective for the period—

6 ‘‘(I) beginning on the date which 

7 is the first day of the taxable year of 

8 the return in which the election is in9 cluded or a later day in such taxable 

10 year selected by the eligible taxpayer 

11 or qualifying partnership, and 

12 ‘‘(II) ending on the date which is 

13 the earliest of a date of revocation se14 lected by the eligible taxpayer or 

15 qualifying partnership, the date which 

16 is 8 years after the date described in 

17 subclause (I), or, in the case of an 

18 election by a qualifying partnership of 

19 which the eligible taxpayer is a part20 ner, the date of the termination of the 

21 qualifying partnership. 

22 ‘‘(iii) REVOCATION.—An eligible tax23 payer or qualifying partnership may revoke 

24 an election under clause (i)(II) by filing a 

25 statement of revocation with a timely filed 
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1 tax return (including extensions). A rev2 ocation is effective as of the first day of 

3 the taxable year of the return in which the 

4 revocation is included or a later day in 

5 such taxable year selected by the eligible 

6 taxpayer or qualifying partnership. Once 

7 an eligible taxpayer or qualifying partner8 ship revokes the election, the eligible tax9 payer or qualifying partnership is ineligible 

10 to make another election under clause (i) 

11 with respect to any qualifying brownfield 

12 property subject to the revoked election. 

13 ‘‘(I) RECAPTURE.—If an eligible taxpayer 

14 excludes gain or loss from a sale, exchange, or 

15 other disposition of property to which an elec16 tion under subparagraph (H) applies, and such 

17 property fails to satisfy the requirements of this 

18 paragraph, the unrelated business taxable in19 come of the eligible taxpayer for the taxable 

20 year in which such failure occurs shall be deter21 mined by including any previously excluded gain 

22 or loss from such sale, exchange, or other dis23 position allocable to such taxpayer, and interest 

24 shall be determined at the overpayment rate es25 tablished under section 6621 on any resulting 
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1 tax for the period beginning with the due date 

2 of the return for the taxable year during which 

3 such sale, exchange, or other disposition oc4 curred, and ending on the date of payment of 

5 the tax. 

6 ‘‘(J) RELATED PERSONS.—For purposes of 

7 this paragraph, a person shall be treated as re8 lated to another person if—

9 ‘‘(i) such person bears a relationship 

10 to such other person described in section 

11 267(b) (determined without regard to 

12 paragraph (9) thereof), or section 

13 707(b)(1), determined by substituting ‘25 

14 percent’ for ‘50 percent’ each place it ap15 pears therein, and 

16 ‘‘(ii) in the case such other person is 

17 a nonprofit organization, if such person 

18 controls directly or indirectly more than 25 

19 percent of the governing body of such or20 ganization.’’

21 (b) EXCLUSION FROM DEFINITION OF DEBT-FI22 NANCED PROPERTY.—Section 514(b)(1) of the Internal 

23 Revenue Code of 1986 (defining debt-financed property) 

24 is amended by striking ‘‘or’’ at the end of subparagraph 

25 (C), by striking the period at the end of subparagraph (D) 
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1 and inserting ‘‘; or’’, and by inserting after subparagraph 

2 (D) the following new subparagraph: 

3 ‘‘(E) any property the gain or loss from 

4 the sale, exchange, or other disposition of which 

5 would be excluded by reason of the provisions 

6 of section 512(b)(18) in computing the gross 

7 income of any unrelated trade or business.’’. 

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

9 this section shall apply to any gain or loss on the sale, 

10 exchange, or other disposition of any property acquired by 

11 the taxpayer after the date of the enactment of this Act.

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