I

105TH CONGRESS

1ST SESSION H. R. 522

To amend the Internal Revenue Code of 1986 to permit the issuance of

tax-exempt bonds for the economic development of distressed communities.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 4, 1997

Mr. COYNE 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 permit

the issuance of tax-exempt bonds for the economic development of distressed communities.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Economic Revitaliza5 tion Act of 1997’’.

6 SEC. 2. DISTRESSED COMMUNITY ECONOMIC DEVELOP7 MENT BONDS.

8 (a) IN GENERAL.—Paragraph (1) of section 141(e)

9 of the Internal Revenue Code of 1986 (defining qualified
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1 bond) is amended by striking ‘‘or’’ at the end of subpara2 graph (F), by striking the period at the end of subpara3 graph (G) and inserting ‘‘, or’’, and by adding at the end

4 thereof the following new subparagraph:

5 ‘‘(H) a distressed community economic de6 velopment bond.’’

7 (b) DISTRESSED COMMUNITY ECONOMIC DEVELOP8 MENT BOND DEFINED.—

9 (1) IN GENERAL.—Section 144 of such Code is

10 amended by adding at the end thereof the following

11 new subsection:

12 ‘‘(d) DISTRESSED COMMUNITY ECONOMIC DEVELOP13 MENT BOND.—For purposes of this subpart—

14 ‘‘(1) IN GENERAL.—The term ‘distressed com15 munity economic development bond’ means any bond

16 issued as part of an issue 95 percent or more of the

17 net proceeds of which are to be used for distressed

18 community economic development purposes.

19 ‘‘(2) DISTRESSED COMMUNITY ECONOMIC DE20 VELOPMENT PURPOSES.—For purposes of this sub21 section, the net proceeds of any issue shall be treat22 ed as used for distressed community economic devel23 opment purposes to the extent such proceeds are

24 used—
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1 ‘‘(A) to provide qualified economic develop2 ment facilities or land which is functionally re3 lated and subordinate to such facilities, or

4 ‘‘(B) to provide working capital required in

5 connection with the establishment of a qualified

6 business in a distressed community or the ex7 pansion of such a business in such a commu8 nity.

9 ‘‘(3) QUALIFIED ECONOMIC DEVELOPMENT FA10 CILITIES.—For purposes of this subsection, the term

11 ‘qualified economic development facilities’ means any

12 property to which section 168 applies (or would

13 apply but for section 179) if—

14 ‘‘(A) such property was acquired by pur15 chase (as defined in section 179(d)(2)) after the

16 date on which the designation of the distressed

17 community took effect,

18 ‘‘(B) the original use of which in the dis19 tressed community commences with the person

20 to whom the financing is provided under the

21 issue, and

22 ‘‘(C) substantially all the use of which is in

23 a distressed community and in the active con24 duct of a qualified business.
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1 For purposes of the preceding sentence, rules similar

2 to the rules of subsections (a)(2) and (b) of section

3 1397C shall apply.

4 ‘‘(4) QUALIFIED BUSINESS.—For purposes of

5 this subsection—

6 ‘‘(A) IN GENERAL.—Except as otherwise

7 provided in this paragraph, the term ‘qualified

8 business’ means any trade or business.

9 ‘‘(B) RENTAL OF REAL PROPERTY.—The

10 rental of any building or structure located in a

11 distressed community shall be treated as a

12 qualified business if and only if—

13 ‘‘(i) the property is not residential

14 rental property (as defined in section

15 168(e)(2), and

16 ‘‘(ii) at least 50 percent of the gross

17 rental income from the building or struc18 ture is from other qualified businesses in

19 such community.

20 ‘‘(C) RENTAL OF TANGIBLE PERSONAL

21 PROPERTY.—The rental of tangible personal

22 property shall be treated as a qualified business

23 if and only if substantially all of the rental of

24 such property is by qualified businesses in the
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1 distressed community or by individual residents

2 of the distressed community.

3 ‘‘(D) TREATMENT OF BUSINESS HOLDING

4 INTANGIBLES.—The term ‘qualified business’

5 shall not include any trade or business consist6 ing predominantly of the development or hold7 ing of intangibles for sale or license.

8 ‘‘(E) CERTAIN BUSINESSES EXCLUDED.—

9 The term ‘qualified business’ shall not include

10 any trade or business consisting of—

11 ‘‘(i) the operation of any facility de12 scribed in subsection (c)(6)(B), or

13 ‘‘(ii) operating a trade or business the

14 principal activity of which is farming

15 (within the meaning of subparagraph (A)

16 or (B) of section 2032A(e)(5)), but only if,

17 as of the close of the preceding taxable

18 year, the sum of the following exceeds

19 $500,000—

20 ‘‘(I) the aggregate unadjusted

21 bases (or, if greater, the fair market

22 value) of the assets owned by the tax23 payer and used in such trade or busi24 ness, and
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1 ‘‘(II) the aggregate value of the

2 assets leased by the taxpayer and

3 used in such trade or business.

4 For purposes of subclause (II), rules simi5 lar to the rules of section 1397(b) shall

6 apply.

7 ‘‘(5) DISTRESSED COMMUNITY.—For purposes

8 of this subsection, the term ‘distressed community’

9 means, with respect to periods in any calendar year,

10 any area—

11 ‘‘(A) which is the area over which a gen12 eral purpose local governmental unit has juris13 diction and which is designated for purposes of

14 this subsection by the governing body of such

15 unit, and

16 ‘‘(B) which (as of the beginning of such

17 year) meets the requirements of clause (i), (ii),

18 or (iii) of this subparagraph:

19 ‘‘(i) CHRONIC ECONOMIC DISTRESS.—

20 An area meets the requirements of this

21 clause if—

22 ‘‘(I) the area has experienced

23 population loss (as determined by the

24 1990 or subsequent census data) of

25 not less than 5 percent, or
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1 ‘‘(II) the area has experienced an

2 average unemployment rate over the

3 last 5 years (as determined by the

4 Bureau of Labor Statistics) of not

5 less than 8 percent.

6 ‘‘(ii) SLOW JOB GROWTH.—An area

7 meets the requirements of this clause if,

8 over the last 5 years—

9 ‘‘(I) the area has experienced job

10 growth in the retail and manufactur11 ing sectors of less than 3 percent, or

12 ‘‘(II) if data are available only

13 for the manufacturing sector, the

14 community has experienced no job

15 growth in such sector, or if data are

16 available only for the retail sector, the

17 area has experienced job growth in

18 such sector of less than 8.5 percent.

19 ‘‘(iii) MAJOR BASE CLOSING.—An

20 area meets the requirements of this clause

21 if—

22 ‘‘(I) there has been a military

23 base closing within its boundaries or

24 adjacent thereto within the last 2
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1 years which has resulted, or will re2 sult, in the loss of not less than 500

3 jobs, or

4 ‘‘(II) there has been an official

5 notification of a military base closing

6 within its boundaries or adjacent

7 thereto within the next 6 months,

8 which will result in the loss of not less

9 than 500 jobs.

10 ‘‘(6) PROHIBITION OF ASSISTANCE FOR BUSI11 NESS RELOCATIONS.—

12 ‘‘(A) IN GENERAL.—This subsection shall

13 not apply to any bonds issued as part of an

14 issue if any of the proceeds of such an issue are

15 used to assist any establishment in relocating

16 from an area outside the distressed community

17 to the distressed community.

18 ‘‘(B) EXCEPTION.—The limitation estab19 lished in subparagraph (A) shall not be con20 strued to prohibit assistance for the expansion

21 of an existing business entity through the estab22 lishment of a new branch affiliate, or subsidiary

23 if—
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1 ‘‘(i) the establishment of the new

2 branch, affiliate, or subsidiary will not re3 sult in a decrease in employment in the

4 area of original location or in any other

5 area where the existing business entity

6 conducts business operations, and

7 ‘‘(ii) there is no reason to believe that

8 the new branch, affiliate, or subsidiary is

9 being established with the intention of clos10 ing down the operations of the existing

11 business entity in the area of its original

12 location or in any other area where the ex13 isting business entity conducts business op14 erations.’’

15 (2) CLERICAL AMENDMENTS.—

16 (A) The section heading for section 144 is

17 amended by striking ‘‘QUALIFIED REDEVEL18 OPMENT BOND.’’ and inserting ‘‘ETC.’’.

19 (B) The table of sections for subpart A of

20 part IV of subchapter B of chapter 1 is amend21 ed by striking ‘‘qualified redevelopment bond.’’

22 in the item relating to section 144 and inserting

23 ‘‘etc.’’.

24 (c) CERTAIN RULES NOT TO APPLY.—
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1 (1) Subsection (h) of section 147 of such Code

2 (relating to certain rules which do not apply) is

3 amended by adding at the end thereof the following

4 new paragraph:

5 ‘‘(3) BONDS FOR DISTRESSED COMMUNITY ECO6 NOMIC DEVELOPMENT FACILITIES.—Subsection

7 (c)(1)(A) shall be applied by substituting ‘50 per8 cent’ for ‘25 percent’ and subsection (d) shall not

9 apply to any bond issued as part of an issue de10 scribed in section 144(d)(1).’’

11 (2) The subsection heading for subsection (h) of

12 section 147 of such Code is amended to read as fol13 lows:

14 ‘‘(h) SPECIAL RULES FOR CERTAIN BONDS.—’’.

15 (d) VOLUME CAP ONLY CHARGED WITH 50 PER16 CENT OF DISTRESSED COMMUNITY ECONOMIC DEVELOP17 MENT BONDS.—Subsection (g) of section 146 of such

18 Code (relating to an exception for certain bonds from vol19 ume cap) is amended by striking ‘‘and’’ at the end of para20 graph (3), by striking the period at the end of paragraph

21 (4) and inserting ‘‘, and’’, and by inserting after para22 graph (4) the following new paragraph:

23 ‘‘(5) 50 percent of any bond issued as part of

24 an issue described in section 144(d)(1) (relating to
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1 distressed community economic development facili2 ties).’’

3 (e) PENALTIES FOR LOANS MADE TO BUSINESSES

4 THAT CEASE TO BE DISTRESSED COMMUNITY ECONOMIC

5 DEVELOPMENT BUSINESSES, ETC.—Subsection (b) of

6 section 150 of such Code (relating to change in use) is

7 amended by adding at the end thereof the following new

8 paragraph:

9 ‘‘(7) DISTRESSED COMMUNITY ECONOMIC DE10 VELOPMENT BONDS.—In the case of any qualified

11 economic development facility with respect to which

12 financing was provided by an issue described in sec13 tion 144(d)(1):

14 ‘‘(A) NO DEDUCTION ALLOWED.—No de15 duction shall be allowed under this chapter for

16 interest on such financing which accrues during

17 the period beginning on the first day of the cal18 endar year which includes the date on which—

19 ‘‘(i) the trade or business to which the

20 financing was provided ceases to be a

21 qualified business, or

22 ‘‘(ii) substantially all of the use of

23 such facility with respect to which the fi24 nancing was provided ceases to be in a dis25 tressed community.
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1 For purposes of this subparagraph, the term

2 ‘distressed community’ means any area which

3 qualifies as a distressed community under sec4 tion 144(d)(5) as of the time the financing was

5 provided without regard to any subsequent rev6 ocation or termination.

7 ‘‘(B) PENALTY IMPOSED ON DISTRESSED

8 COMMUNITY ECONOMIC DEVELOPMENT BUSI9 NESS.—If at any time while such financing is

10 outstanding—

11 ‘‘(i) such facility ceases to be in use in

12 a qualified business, or

13 ‘‘(ii) substantially all of the use of

14 such facility ceases to be in a distressed

15 community (as so defined),

16 there is hereby imposed on such business to

17 which such financing was provided a penalty

18 equal to 1.25 percent of the portion of such fi19 nancing which is outstanding immediately be20 fore such cessation. Such penalty shall be as21 sessed and collected by the Secretary.

22 ‘‘(C) EXCEPTION FOR BANKRUPTCY.—

23 Subparagraphs (A) and (B) shall not apply to

24 any cessation resulting from bankruptcy.’’

25 (f) BANK INTEREST DEDUCTION.—
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1 (1) IN GENERAL.—Clause (ii) of section

2 265(b)(3)(B) of such Code (relating to exception for

3 certain tax-exempt obligations) is amended—

4 (A) by striking ‘‘or’’ at the end of sub5 clause (I),

6 (B) by redesignating subclause (II) as sub7 clause (III), and

8 (C) by inserting after subclause (I) the fol9 lowing new subclause:

10 ‘‘(II) any bond issued as part of

11 an issue described in section

12 144(d)(1), or’’.

13 (2) CONFORMING AGREEMENT.—Subclause (I)

14 of section 265(b)(3)(B)(i) of such Code (defining

15 qualified tax-exempt obligation) is amended by in16 serting ‘‘or is an obligation issued as part of an

17 issue described in section 144(d)(1)’’ after ‘‘issuer’’.

18 (g) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to bonds issued after the date of

20 the enactment of this Act.

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