I

103D CONGRESS

1ST SESSION H. R. 1958

To amend the Internal Revenue Code of 1986 to provide tax incentives

with respect to enterprise zones and areas affected by military base

closings or reductions in military base employment.

IN THE HOUSE OF REPRESENTATIVES

MAY 4, 1993

Mr. CLYBURN (for himself, Mrs. MEEK, Mr. HASTINGS, and Mr. FIELDS of

Louisiana) 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 provide

tax incentives with respect to enterprise zones and areas

affected by military base closings or reductions in military base employment.

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 TITLE I—PROVISIONS RELATING

2 TO DISTRESSED URBAN AND

3 RURAL AREAS

4 SEC. 101. STATEMENT OF PURPOSE.

5 It is the purpose of this title to establish a demonstra6 tion program of providing incentives for the creation of

7 tax enterprise zones in order—

8 (1) to revitalize economically and physically dis9 tressed areas, primarily by encouraging the forma10 tion of new businesses and the retention and expan11 sion of existing businesses,

12 (2) to promote meaningful employment for tax

13 enterprise zone residents, and

14 (3) to encourage individuals to reside in the tax

15 enterprise zones in which they are employed.

16 Subtitle A—Designation and Tax

17 Incentives

18 SEC. 102. DESIGNATION AND TREATMENT OF URBAN TAX

19 ENTERPRISE ZONES AND RURAL DEVELOP20 MENT INVESTMENT ZONES.

21 (a) IN GENERAL.—Chapter 1 (relating to normal

22 taxes and surtaxes) is amended by inserting after sub23 chapter T the following new subchapter:
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1 ‘‘Subchapter U—Designation and Treatment

2 of Tax Enterprise Zones

‘‘Part I. Designation of tax enterprise zones.

‘‘Part II. Incentives for tax enterprise zones.

3 ‘‘PART I—DESIGNATION OF TAX ENTERPRISE

4 ZONES

‘‘Sec. 1391. Designation procedure.

‘‘Sec. 1392. Eligibility and selection criteria.

‘‘Sec. 1393. Definitions and special rules.

5 ‘‘SEC. 1391. DESIGNATION PROCEDURE.

6 ‘‘(a) IN GENERAL.—For purposes of this title, the

7 term ‘tax enterprise zone’ means any area which is, under

8 this part—

9 ‘‘(1) nominated by 1 or more local governments

10 and the State in which it is located for designation

11 as a tax enterprise zone, and

12 ‘‘(2) designated by—

13 ‘‘(A) the Secretary of Housing and Urban

14 Development in the case of an urban tax enter15 prise zone, or

16 ‘‘(B) the Secretary of Agriculture, in con17 sultation with the Secretary of Commerce, in

18 the case of a rural development investment

19 zone.

20 ‘‘(b) NUMBER OF DESIGNATIONS.—

21 ‘‘(1) AGGREGATE LIMIT.—The appropriate Sec22 retaries may designate in the aggregate 50 nomi-
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1 nated areas as tax enterprise zones under this sec2 tion, subject to the availability of eligible nominated

3 areas. Not more than 25 urban tax enterprise zones

4 may be designated and not more than 25 rural de5 velopment investment zones may be designated.

6 Such designations may be made only during cal7 endar years after 1991 and before 1997.

8 ‘‘(2) ANNUAL LIMITS.—

9 ‘‘(A) URBAN TAX ENTERPRISE ZONES.—

10 The number of urban tax enterprise zones des11 ignated under paragraph (1)—

12 ‘‘(i) before 1994 shall not exceed 8,

13 ‘‘(ii) before 1995 shall not exceed 15,

14 and

15 ‘‘(iii) before 1996 shall not exceed 21.

16 ‘‘(B) RURAL DEVELOPMENT INVESTMENT

17 ZONES.—The number of rural development in18 vestment zones designated under paragraph

19 (1)—

20 ‘‘(i) before 1994 shall not exceed 8,

21 ‘‘(ii) before 1995 shall not exceed 15,

22 and

23 ‘‘(iii) before 1996 shall not exceed 21.

24 ‘‘(3) ADVANCE DESIGNATIONS PERMITTED.—

25 For purposes of this subchapter, a designation dur-
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1 ing any calendar year shall be treated as made on

2 January 1 of the following calendar year if the ap3 propriate Secretary, in making such designation,

4 specifies that such designation is effective as

5 of such January 1.

6 ‘‘(c) LIMITATIONS ON DESIGNATIONS.—The appro7 priate Secretary may not make any designation under sub8 section (a) unless—

9 ‘‘(1) the local governments and the State in

10 which the nominated area is located have the au11 thority—

12 ‘‘(A) to nominate the area for designation

13 as a tax enterprise zone, and

14 ‘‘(B) to provide assurances satisfactory to

15 the appropriate Secretary that the commit16 ments under section 1392(c) will be fulfilled,

17 ‘‘(2) a nomination of the area is submitted

18 within a reasonable time before the calendar year for

19 which designation as a tax enterprise zone is sought

20 (or, if later, a reasonable time after the date of the

21 enactment of this subchapter),

22 ‘‘(3) the appropriate Secretary determines that

23 any information furnished is reasonably accurate,

24 and
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1 ‘‘(4) the State and local governments certify

2 that no portion of the area nominated is already in3 cluded in a tax enterprise zone or in an area other4 wise nominated to be a tax enterprise zone.

5 ‘‘(d) PERIOD FOR WHICH DESIGNATION IS IN EF6 FECT.—

7 ‘‘(1) IN GENERAL.—Any designation of an area

8 as a tax enterprise zone shall remain in effect during

9 the period beginning on the date of the designation

10 and ending on the earliest of—

11 ‘‘(A) December 31 of the 15th calendar

12 year following the calendar year in which such

13 date occurs,

14 ‘‘(B) the termination date designated by

15 the State and local governments as provided for

16 in their nomination, or

17 ‘‘(C) the date the appropriate Secretary re18 vokes the designation under paragraph (2).

19 ‘‘(2) REVOCATION OF DESIGNATION.—

20 ‘‘(A) IN GENERAL.—The appropriate Sec21 retary shall revoke the designation of an area

22 as a tax enterprise zone if such Secretary deter23 mines that the local government or the State in

24 which it is located—
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1 ‘‘(i) has modified the boundaries of

2 the area, or

3 ‘‘(ii) is not complying substantially

4 with the State and local commitments pur5 suant to section 1392(c).

6 ‘‘(B) APPLICABLE PROCEDURES.—A des7 ignation may be revoked by the appropriate

8 Secretary under subparagraph (A) only after a

9 hearing on the record involving officials of the

10 State or local government involved.

11 ‘‘SEC. 1392. ELIGIBILITY AND SELECTION CRITERIA.

12 ‘‘(a) IN GENERAL.—The appropriate Secretary may

13 make a designation of any nominated area under section

14 1391 only on the basis of the eligibility and selection cri15 teria set forth in this section.

16 ‘‘(b) ELIGIBILITY CRITERIA.—

17 ‘‘(1) URBAN TAX ENTERPRISE ZONES.—A nom18 inated area which is not a rural area shall be eligible

19 for designation under section 1391 only if it meets

20 the following criteria:

21 ‘‘(A) POPULATION.—The nominated area

22 has a population (as determined by the most re23 cent census data available) of not less than

24 4,000.
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1 ‘‘(B) DISTRESS.—The nominated area is

2 one of pervasive poverty, unemployment, and

3 general distress.

4 ‘‘(C) SIZE.—The nominated area—

5 ‘‘(i) does not exceed 20 square miles,

6 ‘‘(ii) has a boundary which is continu7 ous, or consists of not more than 3 non8 contiguous parcels within the same metro9 politan area,

10 ‘‘(iii) is located entirely within 1

11 State, and

12 ‘‘(iv) does not include any portion of

13 a central business district (as such term is

14 used for purposes of the most recent Cen15 sus of Retail Trade).

16 ‘‘(D) UNEMPLOYMENT RATE.—The unem17 ployment rate (as determined by the appro18 priate available data) is not less than 1.5 times

19 the national unemployment rate.

20 ‘‘(E) POVERTY RATE.—The poverty rate

21 (as determined by the most recent census data

22 available) for not less than 90 percent of the

23 population census tracts (or where not tracted,

24 the equivalent county divisions as defined by

25 the Bureau of the Census for the purposes of
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1 defining poverty areas) within the nominated

2 area is not less than 20 percent.

3 ‘‘(F) COURSE OF ACTION.—There has been

4 adopted for the nominated area a course of ac5 tion which meets the requirements of subsection

6 (c).

7 ‘‘(2) RURAL DEVELOPMENT INVESTMENT

8 ZONES.—A nominated area which is a rural area

9 shall be eligible for designation under section 1391

10 only if it meets the following criteria:

11 ‘‘(A) POPULATION.—The nominated area

12 has a population (as determined by the most re13 cent census data available) of not less than

14 1,000.

15 ‘‘(B) DISTRESS.—The nominated area is

16 one of general distress.

17 ‘‘(C) SIZE.—The nominated area—

18 ‘‘(i) does not exceed 10,000 square

19 miles,

20 ‘‘(ii) consists of areas within not more

21 than 4 contiguous counties,

22 ‘‘(iii) has a boundary which is contin23 uous, or consists of not more than 3 non24 contiguous parcels, and
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1 ‘‘(iv) is located entirely within 1

2 State.

3 ‘‘(D) ADDITIONAL CRITERIA.—Not less

4 than 2 of the following criteria:

5 ‘‘(i) UNEMPLOYMENT RATE.—The cri6 terion set forth in paragraph (1)(D).

7 ‘‘(ii) POVERTY RATE.—The criterion

8 set forth in paragraph (1)(E).

9 ‘‘(iii) JOB LOSS.—The amount of

10 wages attributable to employment in the

11 area, and subject to tax under section

12 3301 during the preceding calendar year,

13 is not more than 95 percent of such wages

14 during the 5th preceding calendar year.

15 ‘‘(iv) OUT-MIGRATION.—The popu16 lation of the area decreased (as determined

17 by the most recent census data available)

18 by 10 percent or more between 1980 and

19 1990.

20 ‘‘(E) COURSE OF ACTION.—There has been

21 adopted for the nominated area a course of ac22 tion which meets the requirements of subsection

23 (c).

24 ‘‘(3) AREAS WITHIN INDIAN RESERVATIONS IN25 ELIGIBLE.—A nominated area shall not be eligible
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1 for designation under section 1391 if any portion of

2 such area is within an Indian reservation.

3 ‘‘(c) REQUIRED STATE AND LOCAL COURSE OF

4 ACTION.—

5 ‘‘(1) IN GENERAL.—No nominated area may be

6 designated as a tax enterprise zone unless the local

7 government and the State in which it is located

8 agree in writing that, during any period during

9 which the area is a tax enterprise zone, the govern10 ments will follow a specified course of action de11 signed to reduce the various burdens borne by em12 ployers or employees in the area.

13 ‘‘(2) COURSE OF ACTION.—The course of action

14 under paragraph (1) may be implemented by both

15 governments and private nongovernmental entities,

16 may not be funded from proceeds of any Federal

17 program (other than discretionary proceeds), and

18 may include—

19 ‘‘(A) a certification by the State insurance

20 commissioner (or similar State official) that

21 basic commercial property insurance of a type

22 comparable to that insurance generally in force

23 in urban or rural areas, whichever is applicable,

24 throughout the State is available to businesses

25 within the tax enterprise zone,
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1 ‘‘(B) a reduction of tax rates or fees apply2 ing within the tax enterprise zone,

3 ‘‘(C) an increase in the level, or efficiency

4 of delivery, of local public services within the

5 tax enterprise zone,

6 ‘‘(D) actions to reduce, remove, simplify,

7 or streamline government paperwork require8 ments applicable within the tax enterprise zone,

9 ‘‘(E) the involvement in the program by

10 public authorities or private entities, organiza11 tions, neighborhood associations, and commu12 nity groups, particularly those within the nomi13 nated area, including a written commitment to

14 provide jobs and job training for, and technical,

15 financial, or other assistance to, employers, em16 ployees, and residents of the nominated area,

17 ‘‘(F) the giving of special preference to

18 contractors owned and operated by members of

19 any socially and economically disadvantaged

20 group (within the meaning of section 8(a) of

21 the Small Business Act (15 U.S.C. 637(a)),

22 ‘‘(G) the gift (or sale at below fair market

23 value) of surplus land in the tax enterprise zone

24 to neighborhood organizations agreeing to oper25 ate a business on the land,
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1 ‘‘(H) the establishment of a program

2 under which employers within the tax enterprise

3 zone may purchase health insurance for their

4 employees on a pooled basis,

5 ‘‘(I) the establishment of a program to en6 courage local financial institutions to satisfy

7 their obligations under the Community Rein8 vestment Act of 1977 (12 U.S.C. 2901 et seq.)

9 by making loans to enterprise zone businesses,

10 with emphasis on startup and other small-busi11 ness concerns (as defined in section 3(a) of the

12 Small Business Act (15 U.S.C. 632(a)),

13 ‘‘(J) the giving of special preference to

14 qualified low-income housing projects located in

15 tax enterprise zones, in the allocation of the

16 State housing credit ceiling applicable under

17 section 42, and

18 ‘‘(K) the giving of special preference to fa19 cilities located in tax enterprise zones, in the al20 location of the State ceiling on private activity

21 bonds applicable under section 146.

22 ‘‘(3) RECOGNITION OF PAST EFFORTS.—In

23 evaluating courses of action agreed to by any State

24 or local government, the appropriate Secretary shall

25 take into account the past efforts of the State or
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1 local government in reducing the various burdens

2 borne by employers and employees in the area in3 volved.

4 ‘‘(4) PROHIBITION OF ASSISTANCE FOR BUSI5 NESS RELOCATIONS.—

6 ‘‘(A) IN GENERAL.—The course of action

7 implemented under paragraph (1) may not in8 clude any action to assist any establishment in

9 relocating from 1 area to another area.

10 ‘‘(B) EXCEPTION.—The limitation estab11 lished in subparagraph (A) shall not be con12 strued to prohibit assistance for the expansion

13 of an existing business entity through the estab14 lishment of a new branch, affiliate, or subsidi15 ary if—

16 ‘‘(i) the establishment of the new

17 branch, affiliate, or subsidiary will not re18 sult in an increase in unemployment in the

19 area of original location or in any other

20 area where the existing business entity

21 conducts business operations, and

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

23 the new branch, affiliate, or subsidiary is

24 being established with the intention of clos25 ing down the operations of the existing
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1 business entity in the area of its original

2 location or in any other area where the ex3 isting business entity conducts business op4 erations.

5 ‘‘(d) SELECTION CRITERIA.—From among the nomi6 nated areas eligible for designation under subsection (b)

7 by the appropriate Secretary, such appropriate Secretary

8 shall make designations of tax enterprise zones on the

9 basis of the following factors (each of which is to be given

10 equal weight):

11 ‘‘(1) STATE AND LOCAL COMMITMENTS.—The

12 strength and quality of the commitments which have

13 been promised as part of the course of action rel14 ative to the fiscal ability of the nominating State

15 and local governments.

16 ‘‘(2) IMPLEMENTATION OF COURSE OF AC17 TION.—The effectiveness and enforceability of the

18 guarantees that the course of action will actually be

19 carried out, including the specificity with which the

20 commitments under paragraph (1) are described in

21 order that the applicable Secretary will be better

22 able to determine annually under section

23 1391(d)(2)(A)(ii) whether the commitments are

24 being carried out.
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1 ‘‘(3) PRIVATE COMMITMENTS.—The level of

2 commitments by private entities of additional re3 sources and contributions to the economy of the

4 nominated area, including the creation of new or ex5 panded business activities.

6 ‘‘(4) AVERAGE RANKINGS.—The average rank7 ing with respect to—

8 ‘‘(A) the criteria set forth in subpara9 graphs (D) and (E) of subsection (b)(1), in the

10 case of an area which is not a rural area, or

11 ‘‘(B) the 2 criteria set forth in subsection

12 (b)(2)(D) that give the area a higher average

13 ranking, in the case of a rural area.

14 ‘‘(5) REVITALIZATION POTENTIAL.—The poten15 tial for the revitalization of the nominated area as

16 a result of zone designation, taking into account

17 particularly the number of jobs to be created and re18 tained.

19 ‘‘SEC. 1393. DEFINITIONS AND SPECIAL RULES.

20 For purposes of this subchapter—

21 ‘‘(1) URBAN TAX ENTERPRISE ZONE.—The

22 term ‘urban tax enterprise zone’ means a tax enter23 prise zone which meets the requirements of section

24 1392(b)(1).
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1 ‘‘(2) RURAL DEVELOPMENT INVESTMENT

2 ZONE.—The term ‘rural development investment

3 zone’ means a tax enterprise zone which meets the

4 requirements of section 1392(b)(2).

5 ‘‘(3) GOVERNMENTS.—If more than 1 local gov6 ernment seeks to nominate an area as a tax enter7 prise zone, any reference to, or requirement of, this

8 subchapter shall apply to all such governments.

9 ‘‘(4) LOCAL GOVERNMENT.—The term ‘local

10 government’ means—

11 ‘‘(A) any county, city, town, township, par12 ish, village, or other general purpose political

13 subdivision of a State, and

14 ‘‘(B) any combination of political subdivi15 sions described in subparagraph (A) recognized

16 by the appropriate Secretary.

17 ‘‘(5) NOMINATED AREA.—The term ‘nominated

18 area’ means an area which is nominated by 1 or

19 more local governments and the State in which it is

20 located for designation as a tax enterprise zone

21 under this subchapter.

22 ‘‘(6) RURAL AREA.—The term ‘rural area’

23 means any area which is—
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1 ‘‘(A) outside of a metropolitan statistical

2 area (within the meaning of section

3 143(k)(2)(B)), or

4 ‘‘(B) determined by the Secretary of Agri5 culture, after consultation with the Secretary of

6 Commerce, to be a rural area.

7 ‘‘(7) APPROPRIATE SECRETARY.—The term ‘ap8 propriate Secretary’ means—

9 ‘‘(A) the Secretary of Housing and Urban

10 Development in the case of urban tax enterprise

11 zones, and

12 ‘‘(B) the Secretary of Agriculture in the

13 case of rural development investment zones.

14 ‘‘(8) STATE-CHARTERED DEVELOPMENT COR15 PORATIONS.—An area shall be treated as nominated

16 by a State and a local government if it is nominated

17 by an economic development corporation chartered

18 by the State.

19 ‘‘PART II—INCENTIVES FOR TAX ENTERPRISE

20 ZONES

‘‘Subpart A. Enterprise zone employment credit.

‘‘Subpart B. Investment incentives.

‘‘Subpart C. Regulations.

21 ‘‘Subpart A—Enterprise Zone Employment Credit

‘‘Sec. 1394. Enterprise zone employment credit.

‘‘Sec. 1395. Other definitions and special rules.
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1 ‘‘SEC. 1394. ENTERPRISE ZONE EMPLOYMENT CREDIT.

2 ‘‘(a) AMOUNT OF CREDIT.—For purposes of section

3 38, the amount of the enterprise zone employment credit

4 determined under this section with respect to any em5 ployer for any taxable year is 15 percent of the qualified

6 zone wages paid or incurred during such taxable year.

7 ‘‘(b) QUALIFIED ZONE WAGES.—

8 ‘‘(1) IN GENERAL.—For purposes of this sec9 tion, the term ‘qualified zone wages’ means any

10 wages paid or incurred by an employer for services

11 performed by an employee while such employee is a

12 qualified zone employee.

13 ‘‘(2) ONLY FIRST $20,000 OF WAGES PER YEAR

14 TAKEN INTO ACCOUNT.—With respect to each quali15 fied zone employee, the amount of qualified zone

16 wages which may be taken into account for the tax17 able year shall not exceed $20,000.

18 ‘‘(3) COORDINATION WITH TARGETED JOBS

19 CREDIT.—The term ‘qualified zone wages’ shall not

20 include wages attributable to service rendered during

21 the 1-year period beginning with the day the individ22 ual begins work for the employer if any portion of

23 such wages is taken into account in determining the

24 credit under section 51.

25 ‘‘(c) QUALIFIED ZONE EMPLOYEE.—For purposes of

26 this section—
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the term ‘qualified zone em3 ployee’ means, with respect to any period, any em4 ployee of an employer if—

5 ‘‘(A) substantially all of the services per6 formed during such period by such employee for

7 such employer are performed within a tax en8 terprise zone in a trade or business of the em9 ployer, and

10 ‘‘(B) the principal place of abode of such

11 employee while performing such services is

12 within such tax enterprise zone.

13 ‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—

14 The term ‘qualified zone employee’ shall not in15 clude—

16 ‘‘(A) any individual described in subpara17 graph (A), (B), or (C) of section 51(i)(1),

18 ‘‘(B) any 5-percent owner (as defined in

19 section 416(i)(1)(B)),

20 ‘‘(C) any individual employed by the em21 ployer at any facility described in section

22 144(c)(6)(B), and

23 ‘‘(D) any individual employed by the em24 ployer in a trade or business the principal activ25 ity of which is farming (within the meaning of
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1 subparagraphs (A) or (B) of section

2 2032A(e)(5)), but only if, as of the close of the

3 taxable year, the sum of—

4 ‘‘(i) the aggregate unadjusted bases

5 (or, if greater, the fair market value) of

6 the assets owned by the employer which

7 are used in such a trade or business, and

8 ‘‘(ii) the aggregate value of assets

9 leased by the employer which are used in

10 such a trade or business (as determined

11 under regulations prescribed by the Sec12 retary),

13 exceeds $500,000.

14 ‘‘(d) EARLY TERMINATION OF EMPLOYMENT BY EM15 PLOYER.—

16 ‘‘(1) IN GENERAL.—If the employment of any

17 employee is terminated by the taxpayer before the

18 day 1 year after the day on which such employee

19 began work for the employer—

20 ‘‘(A) no wages with respect to such em21 ployee shall be taken into account under sub22 section (a) for the taxable year in which such

23 employment is terminated, and

24 ‘‘(B) the tax under this chapter for the

25 taxable year in which such employment is ter-
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1 minated shall be increased by the aggregate

2 credits (if any) allowed under section 38(a) for

3 prior taxable years by reason of wages taken

4 into account with respect to such employee.

5 ‘‘(2) CARRYBACKS AND CARRYOVERS AD6 JUSTED.—In the case of any termination of employ7 ment to which paragraph (1) applies, the carrybacks

8 and carryovers under section 39 shall be properly

9 adjusted.

10 ‘‘(3) SUBSECTION NOT TO APPLY IN CERTAIN

11 CASES.—

12 ‘‘(A) IN GENERAL.—Paragraph (1) shall

13 not apply to—

14 ‘‘(i) a termination of employment of

15 an employee who voluntarily leaves the em16 ployment of the taxpayer,

17 ‘‘(ii) a termination of employment of

18 an individual who before the close of the

19 period referred to in paragraph (1) be20 comes disabled to perform the services of

21 such employment unless such disability is

22 removed before the close of such period

23 and the taxpayer fails to offer reemploy24 ment to such individual, or
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1 ‘‘(iii) a termination of employment of

2 an individual if it is determined under the

3 applicable State unemployment compensa4 tion law that the termination was due to

5 the misconduct of such individual.

6 ‘‘(B) CHANGES IN FORM OF BUSINESS.—

7 For purposes of paragraph (1), the employment

8 relationship between the taxpayer and an em9 ployee shall not be treated as terminated—

10 ‘‘(i) by a transaction to which section

11 381(a) applies if the employee continues to

12 be employed by the acquiring corporation,

13 or

14 ‘‘(ii) by reason of a mere change in

15 the form of conducting the trade or busi16 ness of the taxpayer if the employee con17 tinues to be employed in such trade or

18 business and the taxpayer retains a sub19 stantial interest in such trade or business.

20 ‘‘(4) SPECIAL RULE.—Any increase in tax

21 under paragraph (1) shall not be treated as a tax

22 imposed by this chapter for purposes of—

23 ‘‘(A) determining the amount of any credit

24 allowable under this chapter, and
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1 ‘‘(B) determining the amount of the tax

2 imposed by section 55.

3 ‘‘SEC. 1395. OTHER DEFINITIONS AND SPECIAL RULES.

4 ‘‘(a) WAGES.—For purposes of this subpart, the term

5 ‘wages’ has the same meaning as when used in section

6 51.

7 ‘‘(b) CONTROLLED GROUPS.—For purposes of this

8 subpart—

9 ‘‘(1) all employers treated as a single employer

10 under subsection (a) or (b) of section 52 shall be

11 treated as a single employer for purposes of this

12 subpart, and

13 ‘‘(2) the credit (if any) determined under sec14 tion 1394 with respect to each such employer shall

15 be its proportionate share of the wages giving rise

16 to such credit.

17 ‘‘(c) CERTAIN OTHER RULES MADE APPLICABLE.—

18 For purposes of this subpart, rules similar to the rules

19 of section 51(k) and subsections (c), (d), and (e) of section

20 52 shall apply.

21 ‘‘(d) NOTICE OF AVAILABILITY OF ADVANCE PAY22 MENT OF EARNED INCOME CREDIT.—Each employer

23 shall take reasonable steps to notify all qualified zone em24 ployees of the availability to eligible individuals of receiv-
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1 ing advanced payments of the credit under section 32 (re2 lating to the earned income credit).

3 ‘‘Subpart B—Investment Incentives

‘‘Sec. 1396. Deduction for purchase of enterprise zone stock.

‘‘Sec. 1397. 50 percent exclusion for gain from new zone investments.

‘‘Sec. 1397A. Nonrecognition of gain from new zone investments.

‘‘Sec. 1397B. Other incentives.

‘‘Sec. 1397C. Enterprise zone business defined.

4 ‘‘SEC. 1396. DEDUCTION FOR PURCHASE OF ENTERPRISE

5 ZONE STOCK.

6 ‘‘(a) GENERAL RULE.—In the case of an individual,

7 there shall be allowed as a deduction an amount equal to

8 50 percent of the aggregate amount paid in cash by the

9 taxpayer during the taxable year for the purchase of enter10 prise zone stock.

11 ‘‘(b) LIMITATION.—

12 ‘‘(1) IN GENERAL.—The maximum amount al13 lowed as a deduction under subsection (a) to a tax14 payer for the taxable year shall not exceed the lesser

15 of—

16 ‘‘(A) $25,000, or

17 ‘‘(B) the excess of $250,000 over the

18 amount allowed as a deduction under this sec19 tion to the taxpayer for all prior taxable years.

20 ‘‘(2) EXCESS AMOUNTS.—If the amount other21 wise deductible by any person under subsection (a)

22 exceeds the limitation under paragraph (1)(A)—
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1 ‘‘(A) the amount of such excess shall be

2 treated as an amount paid to which subsection

3 (a) applies during the next taxable year, and

4 ‘‘(B) the deduction allowed for any taxable

5 year shall be allocated proportionately among

6 the enterprise zone stock purchased by such

7 person on the basis of the respective purchase

8 prices per share.

9 ‘‘(3) AGGREGATION WITH FAMILY MEMBERS.—

10 The taxpayer and members of the taxpayer’s family

11 shall be treated as one person for purposes of para12 graph (1), and the limitations contained in such

13 paragraph shall be allocated among the taxpayer and

14 such members in accordance with their respective

15 purchases of enterprise zone stock. For purposes of

16 this paragraph, an individual’s family includes only

17 such individual’s spouse and minor children.

18 ‘‘(c) ENTERPRISE ZONE STOCK.—For purposes of

19 this section—

20 ‘‘(1) IN GENERAL.—The term ‘enterprise zone

21 stock’ means stock of a corporation if—

22 ‘‘(A) such stock is acquired on original

23 issue from the corporation, and

24 ‘‘(B) such corporation is, at the time of

25 issue, a qualified enterprise zone issuer.
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1 ‘‘(2) PROCEEDS MUST BE INVESTED IN QUALI2 FIED ENTERPRISE ZONE PROPERTY.—

3 ‘‘(A) IN GENERAL.—Such term shall in4 clude such stock only to the extent that the pro5 ceeds of such issuance are used by such issuer

6 during the 12-month period beginning on the

7 date of issuance to purchase (as defined in sec8 tion 179(d)(2)) qualified enterprise zone prop9 erty.

10 ‘‘(B) QUALIFIED ENTERPRISE ZONE PROP11 ERTY.—For purposes of this section, the term

12 ‘qualified enterprise zone property’ means prop13 erty to which section 168 applies—

14 ‘‘(i) the original use of which in a tax

15 enterprise zone commences with the issuer,

16 and

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

18 which is in a tax enterprise zone.

19 ‘‘(3) REDEMPTIONS.—The term ‘enterprise

20 zone stock’ shall not include any stock acquired from

21 a corporation which made a substantial stock re22 demption or distribution (without a bona fide busi23 ness purpose therefor) in an attempt to avoid the

24 purposes of this section.
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1 ‘‘(d) QUALIFIED ENTERPRISE ZONE ISSUER.—For

2 purposes of this section, the term ‘qualified enterprise

3 zone issuer’ means any domestic C corporation if—

4 ‘‘(1) such corporation is an enterprise zone

5 business or, in the case of a new corporation, such

6 corporation is being organized for purposes of being

7 an enterprise zone business,

8 ‘‘(2) such corporation does not have more than

9 one class of stock,

10 ‘‘(3) the sum of—

11 ‘‘(A) the money,

12 ‘‘(B) the aggregate unadjusted bases of

13 property owned by such corporation, and

14 ‘‘(C) the value of property leased to the

15 corporation (as determined under regulations

16 prescribed by the Secretary),

17 does not exceed $5,000,000, and

18 ‘‘(4) more than 20 percent of the total voting

19 power, and 20 percent of the total value, of the

20 stock of such corporation is owned directly by indi21 viduals or estates or indirectly by individuals

22 through partnerships or trusts.

23 The determination under paragraph (3) shall be made as

24 of the time of issuance of the stock in question but shall

25 include amounts received for such stock.
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1 ‘‘(e) DISPOSITIONS OF STOCK.—

2 ‘‘(1) BASIS REDUCTION.—For purposes of this

3 title, the basis of any enterprise zone stock shall be

4 reduced by the amount of the deduction allowed

5 under this section with respect to such stock.

6 ‘‘(2) DEDUCTION RECAPTURED AS ORDINARY

7 INCOME.—For purposes of section 1245—

8 ‘‘(A) any stock the basis of which is re9 duced under paragraph (1) (and any other

10 property the basis of which is determined in

11 whole or in part by reference to the adjusted

12 basis of such stock) shall be treated as section

13 1245 property, and

14 ‘‘(B) any reduction under paragraph (1)

15 shall be treated as a deduction allowed for de16 preciation.

17 If an exchange of any stock described in paragraph

18 (1) qualifies under section 354(a), 355(a), or

19 356(a), the amount of gain recognized under section

20 1245 by reason of this paragraph shall not exceed

21 the amount of gain recognized in the exchange (de22 termined without regard to this paragraph).

23 ‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI24 TIONS.—For purposes of determining the amount

25 treated as ordinary income under section 1245 by
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1 reason of paragraph (2), paragraph (3) of section

2 1245(b) (relating to certain tax-free transactions)

3 shall not apply.

4 ‘‘(4) INTEREST CHARGED IF DISPOSITION

5 WITHIN 5 YEARS OF PURCHASE.—

6 ‘‘(A) IN GENERAL.—If—

7 ‘‘(i) a taxpayer disposes of any enter8 prise zone stock with respect to which a

9 deduction was allowed under subsection (a)

10 (or any other property the basis of which

11 is determined in whole or in part by ref12 erence to the adjusted basis of such stock)

13 before the end of the 5-year period begin14 ning on the date such stock was purchased

15 by the taxpayer, and

16 ‘‘(ii) section 1245(a) applies to such

17 disposition by reason of paragraph (2),

18 then the tax imposed by this chapter for the

19 taxable year in which such disposition occurs

20 shall be increased by the amount determined

21 under subparagraph (B).

22 ‘‘(B) ADDITIONAL AMOUNT.—For purposes

23 of subparagraph (A), the additional amount

24 shall be equal to the amount of interest (deter-
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1 mined at the rate applicable under section

2 6621(a)(2)) that would accrue—

3 ‘‘(i) during the period beginning on

4 the date the stock was purchased by the

5 taxpayer and ending on the date of such

6 disposition by the taxpayer,

7 ‘‘(ii) on an amount equal to the aggre8 gate decrease in tax of the taxpayer result9 ing from the deduction allowed under this

10 subsection (a) with respect to such stock.

11 ‘‘(C) SPECIAL RULE.—Any increase in tax

12 under subparagraph (A) shall not be treated as

13 a tax imposed by this chapter for purposes of—

14 ‘‘(i) determining the amount of any

15 credit allowable under this chapter, and

16 ‘‘(ii) determining the amount of the

17 tax imposed by section 55.

18 ‘‘(f) DISQUALIFICATION.—

19 ‘‘(1) ISSUER CEASES TO QUALIFY.—If, during

20 the 10-year period beginning on the date enterprise

21 zone stock was purchased by the taxpayer, the issuer

22 of such stock ceases to be a qualified enterprise zone

23 issuer (determined without regard to subsection

24 (d)(3)), then notwithstanding any provision of this

25 subtitle other than paragraph (2), the taxpayer shall
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1 be treated for purposes of subsection (e) as dispos2 ing of such stock (and any other property the basis

3 of which is determined in whole or in part by ref4 erence to the adjusted basis of such stock) during

5 the taxable year during which such cessation occurs

6 at its fair market value as of the 1st day of such

7 taxable year.

8 ‘‘(2) CESSATION OF ENTERPRISE ZONE STATUS

9 NOT TO CAUSE RECAPTURE.—A corporation shall

10 not fail to be treated as a qualified enterprise zone

11 issuer for purposes of paragraph (1) solely by reason

12 of the termination or revocation of a tax enterprise

13 zone designation.

14 ‘‘(g) OTHER SPECIAL RULES.—

15 ‘‘(1) APPLICATION OF LIMITS TO PARTNER16 SHIPS AND S CORPORATIONS.—In the case of a part17 nership or an S corporation, the limitations under

18 subsection (b) shall apply at the partner and share19 holder level and shall not apply at the partnership

20 or corporation level.

21 ‘‘(2) DEDUCTION NOT ALLOWED TO ESTATES

22 AND TRUSTS.—Estates and trusts shall not be treat23 ed as individuals for purposes of this section.
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1 ‘‘SEC. 1397. 50 PERCENT EXCLUSION FOR GAIN FROM NEW

2 ZONE INVESTMENTS.

3 ‘‘(a) GENERAL RULE.—In the case of an individual,

4 gross income shall not include 50 percent of any qualified

5 capital gain recognized on the sale or exchange of a quali6 fied zone asset held for more than 5 years.

7 ‘‘(b) QUALIFIED ZONE ASSET.—For purposes of this

8 section—

9 ‘‘(1) IN GENERAL.—The term ‘qualified zone

10 asset’ means—

11 ‘‘(A) any qualified zone stock,

12 ‘‘(B) any qualified zone business property,

13 and

14 ‘‘(C) any qualified zone partnership inter15 est.

16 ‘‘(2) QUALIFIED ZONE STOCK.—

17 ‘‘(A) IN GENERAL.—Except as provided in

18 subparagraph (B), the term ‘qualified zone

19 stock’ means any stock in a domestic corpora20 tion if—

21 ‘‘(i) such stock is acquired by the tax22 payer on original issue from the corpora23 tion solely in exchange for cash,

24 ‘‘(ii) as of the time such stock was is25 sued, such corporation was an enterprise

26 zone business (or, in the case of a new cor-
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1 poration, such corporation was being orga2 nized for purposes of being an enterprise

3 zone business), and

4 ‘‘(iii) during substantially all of the

5 taxpayer’s holding period for such stock,

6 such corporation qualified as an enterprise

7 zone business.

8 ‘‘(B) EXCLUSION OF STOCK FOR WHICH

9 DEDUCTION UNDER SECTION 1396 ALLOWED.—

10 The term ‘qualified zone stock’ shall not include

11 any stock the basis of which is reduced under

12 section 1396(e)(1).

13 ‘‘(C) REDEMPTIONS.—The term ‘qualified

14 zone stock’ shall not include any stock acquired

15 from a corporation which made a substantial

16 stock redemption or distribution (without a

17 bona fide business purpose therefor) in an at18 tempt to avoid the purposes of this section.

19 ‘‘(3) QUALIFIED ZONE BUSINESS PROPERTY.—

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

21 zone business property’ means tangible property

22 if—

23 ‘‘(i) such property was acquired by

24 the taxpayer by purchase (as defined in

25 section 179(d)(2)) after the date on which
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1 the designation of the tax enterprise zone

2 took effect,

3 ‘‘(ii) the original use of such property

4 in a tax enterprise zone commences with

5 the taxpayer, and

6 ‘‘(iii) during substantially all of the

7 taxpayer’s holding period for such prop8 erty, substantially all of the use of such

9 property was in a tax enterprise zone and

10 in an enterprise zone business of the tax11 payer.

12 ‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM13 PROVEMENTS.—The requirements of clauses (i)

14 and (ii) of subparagraph (A) shall be treated as

15 satisfied with respect to—

16 ‘‘(i) property which is substantially

17 improved by the taxpayer, and

18 ‘‘(ii) any land on which such property

19 is located.

20 For purposes of the preceding sentence, prop21 erty shall be treated as substantially improved

22 by the taxpayer if, during any 24-month period

23 beginning after the date on which the designa24 tion of the tax enterprise zone took effect, addi25 tions to basis with respect to such property in
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1 the hands of the taxpayer exceed the greater of

2 (i) an amount equal to the adjusted basis at the

3 beginning of such 24-month period in the hands

4 of the taxpayer, or (ii) $5,000.

5 ‘‘(C) LIMITATION ON LAND.—The term

6 ‘qualified zone business property’ shall not in7 clude land which is not an integral part of a

8 qualified business (as defined in section

9 1397C(c)).

10 ‘‘(4) QUALIFIED ZONE PARTNERSHIP INTER11 EST.—The term ‘qualified zone partnership interest’

12 means any interest in a partnership if—

13 ‘‘(A) such interest is acquired by the tax14 payer from the partnership solely in exchange

15 for cash,

16 ‘‘(B) as of the time such interest was ac17 quired, such partnership was an enterprise zone

18 business (or, in the case of a new partnership,

19 such partnership was being organized for pur20 poses of being an enterprise zone business), and

21 ‘‘(C) during substantially all of the tax22 payer’s holding period for such interest, such

23 partnership qualified as an enterprise zone

24 business.
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1 A rule similar to the rule of paragraph (2)(C) shall

2 apply for purposes of this paragraph.

3 ‘‘(5) TREATMENT OF SUBSEQUENT PUR4 CHASERS.—The term ‘qualified zone asset’ includes

5 any property which would be a qualified zone asset

6 but for paragraph (2)(A)(i), (3)(A)(ii), or (4)(A) in

7 the hands of the taxpayer if such property was a

8 qualified zone asset in the hands of any prior holder.

9 ‘‘(6) 10-YEAR SAFE HARBOR.—If any property

10 ceases to be a qualified zone asset by reason of para11 graph (2)(A)(iii), (3)(A)(iii), or (4)(C) after the 10-

12 year period beginning on the date the taxpayer ac13 quired such property, such property shall continue to

14 be treated as meeting the requirements of such

15 paragraph; except that the amount of gain to which

16 subsection (a) applies on any sale or exchange of

17 such property shall not exceed the amount which

18 would be qualified capital gain had such property

19 been sold on the date of such cessation.

20 ‘‘(7) TREATMENT OF ZONE TERMINATIONS.—

21 The termination of any designation of an area as a

22 tax enterprise zone shall be disregarded for purposes

23 of determining whether any property is a qualified

24 zone asset.
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1 ‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.—

2 For purposes of this section—

3 ‘‘(1) QUALIFIED CAPITAL GAIN.—Except as

4 otherwise provided in this subsection, the term

5 ‘qualified capital gain’ means any long-term capital

6 gain.

7 ‘‘(2) CERTAIN GAIN ON REAL PROPERTY NOT

8 QUALIFIED.—The term ‘qualified capital gain’ shall

9 not include any gain which would be treated as ordi10 nary income under section 1250 if section 1250 ap11 plied to all depreciation rather than the additional

12 depreciation.

13 ‘‘(3) GAIN ATTRIBUTABLE TO PERIODS AFTER

14 TERMINATION OF ZONE DESIGNATION NOT QUALI15 FIED.—The term ‘qualified capital gain’ shall not in16 clude any gain attributable to periods after the ter17 mination of any designation of an area as a tax en18 terprise zone.

19 ‘‘(d) TREATMENT OF PASS-THRU ENTITIES.—

20 ‘‘(1) SALES AND EXCHANGES.—Gain on the

21 sale or exchange of an interest in a pass-thru entity

22 held by the taxpayer (other than an interest in an

23 entity which was an enterprise zone business during

24 substantially all of the period the taxpayer held such

25 interest) for more than 5 years shall be treated as
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1 gain described in subsection (a) to the extent such

2 gain is attributable to amounts which would be

3 qualified capital gain on qualified zone assets (deter4 mined as if such assets had been sold on the date

5 of the sale or exchange) held by such entity for more

6 than 5 years and throughout the period the taxpayer

7 held such interest. A rule similar to the rule of para8 graph (2)(C) shall apply for purposes of the preced9 ing sentence.

10 ‘‘(2) INCOME INCLUSIONS.—

11 ‘‘(A) IN GENERAL.—Any amount included

12 in income by reason of holding an interest in a

13 pass-thru entity (other than an entity which

14 was an enterprise zone business during substan15 tially all of the period the taxpayer held the in16 terest to which such inclusion relates) shall be

17 treated as gain described in subsection (a) if

18 such amount meets the requirements of sub19 paragraph (B).

20 ‘‘(B) REQUIREMENTS.—An amount meets

21 the requirements of this subparagraph if—

22 ‘‘(i) such amount is attributable to

23 qualified capital gain recognized on the

24 sale or exchange by the pass-thru entity of

25 property which is a qualified zone asset in
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1 the hands of such entity and which was

2 held by such entity for the period required

3 under subsection (a), and

4 ‘‘(ii) such amount is includible in the

5 gross income of the taxpayer by reason of

6 the holding of an interest in such entity

7 which was held by the taxpayer on the date

8 on which such pass-thru entity acquired

9 such asset and at all times thereafter be10 fore the disposition of such asset by such

11 pass-thru entity.

12 ‘‘(C) LIMITATION BASED ON INTEREST

13 ORIGINALLY HELD BY TAXPAYER.—Subpara14 graph (A) shall not apply to any amount to the

15 extent such amount exceeds the amount to

16 which subparagraph (A) would have applied if

17 such amount were determined by reference to

18 the interest the taxpayer held in the pass-thru

19 entity on the date the qualified zone asset was

20 acquired.

21 ‘‘(3) PASS-THRU ENTITY.—For purposes of this

22 subsection, the term ‘pass-thru entity’ means—

23 ‘‘(A) any partnership,

24 ‘‘(B) any S corporation,
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1 ‘‘(C) any regulated investment company,

2 and

3 ‘‘(D) any common trust fund.

4 ‘‘(e) SALES AND EXCHANGES OF INTERESTS IN

5 PARTNERSHIPS AND S CORPORATIONS WHICH ARE

6 QUALIFIED ZONE BUSINESSES.—In the case of the sale

7 or exchange of an interest in a partnership, or of stock

8 in an S corporation, which was an enterprise zone business

9 during substantially all of the period the taxpayer held

10 such interest or stock, the amount of qualified capital gain

11 shall be determined without regard to—

12 ‘‘(1) any intangible, and any land, which is not

13 an integral part of any qualified business (as defined

14 in section 1397C(b)), and

15 ‘‘(2) gain attributable to periods before the des16 ignation of an area as a tax enterprise zone.

17 ‘‘(f) CERTAIN TAX-FREE AND OTHER TRANSFERS.—

18 For purposes of this section—

19 ‘‘(1) IN GENERAL.—In the case of a transfer of

20 a qualified zone asset to which this subsection ap21 plies, the transferee shall be treated as—

22 ‘‘(A) having acquired such asset in the

23 same manner as the transferor, and

24 ‘‘(B) having held such asset during any

25 continuous period immediately preceding the
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1 transfer during which it was held (or treated as

2 held under this subsection) by the transferor.

3 ‘‘(2) TRANSFERS TO WHICH SUBSECTION AP4 PLIES.—This subsection shall apply to any trans5 fer—

6 ‘‘(A) by gift,

7 ‘‘(B) at death, or

8 ‘‘(C) from a partnership to a partner

9 thereof of a qualified zone asset with respect to

10 which the requirements of subsection (d)(2) are

11 met at the time of the transfer (without regard

12 to the 5-year holding requirement).

13 ‘‘(3) CERTAIN RULES MADE APPLICABLE.—

14 Rules similar to the rules of section 1244(d)(2) shall

15 apply for purposes of this section.

16 ‘‘(g) CERTAIN BUSINESSES TREATED AS NOT

17 QUALIFIED BUSINESSES.—For purposes of this section

18 and section 1397A, the term ‘enterprise zone business’ has

19 the meaning given such term by section 1397C except

20 that, in applying section 1397C for such purposes, the

21 term ‘qualified business’ shall not include any trade or

22 business of producing property of a character subject to

23 the allowance for depletion under section 611.
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1 ‘‘SEC. 1397A. NONRECOGNITION OF GAIN FROM NEW ZONE

2 INVESTMENTS.

3 ‘‘(a) GENERAL RULE.—At the election of an individ4 ual, qualified capital gain (within the meaning of section

5 1397) from the sale or exchange of a qualified zone asset

6 shall be recognized only to the extent that—

7 ‘‘(1) the amount realized from such sale or ex8 change, exceeds

9 ‘‘(2) the cost (not heretofore taken into account

10 under this subsection) of any qualified zone asset

11 purchased directly by the taxpayer during the rein12 vestment period.

13 ‘‘(b) QUALIFIED ZONE ASSET.—For purposes of this

14 section—

15 ‘‘(1) IN GENERAL.—The term ‘qualified zone

16 asset’ has the meaning given such term by section

17 1397.

18 ‘‘(2) TIME FOR TESTING.—

19 ‘‘(A) SALES.—In the case of a sale or ex20 change of property, the determination of wheth21 er such property is a qualified zone asset shall

22 be made as of the time of the sale or exchange.

23 ‘‘(B) PURCHASES.—In the case of a pur24 chase of property, the determination of whether

25 such property is a qualified zone asset shall be

26 made as of the time of such purchase.
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1 ‘‘(c) OTHER DEFINITIONS.—For purposes of this

2 section—

3 ‘‘(1) REINVESTMENT PERIOD.—The term ‘rein4 vestment period’ means, with respect to any sale or

5 exchange, the 6-month period beginning on the date

6 of such sale or exchange.

7 ‘‘(2) PURCHASE.—The term ‘purchase’ has the

8 meaning given to such term by section 179(d)(2).

9 ‘‘(d) BUSINESS OR PROPERTY CEASES TO QUAL10 IFY.—

11 ‘‘(1) IN GENERAL.—If, during the 10-year pe12 riod beginning on the date any qualified zone re13 placement asset was purchased by the taxpayer,

14 such asset ceases to be a qualified zone asset, not15 withstanding any provision of this subtitle other

16 than paragraph (3), the taxpayer shall be treated as

17 disposing of such asset during the taxable year dur18 ing which such cessation occurs at its fair market

19 value as of the 1st day of such taxable year.

20 ‘‘(2) LIMITATION ON GAIN RECOGNIZED.—The

21 amount of gain recognized pursuant to paragraph

22 (1) with respect to any asset shall not exceed the

23 lesser of—
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1 ‘‘(A) the amount of gain which was not

2 recognized under subsection (a) by the reason

3 of the purchase of such asset, or

4 ‘‘(B) the excess of the fair market value

5 referred to in paragraph (1) over the adjusted

6 basis of such asset.

7 ‘‘(3) CESSATION OF ENTERPRISE ZONE STATUS

8 NOT TO CAUSE RECAPTURE.—An asset shall not fail

9 to be treated as a qualified zone asset for purposes

10 of paragraph (1) solely by reason of the termination

11 of a tax enterprise zone designation.

12 ‘‘(4) QUALIFIED ZONE REPLACEMENT ASSET.—

13 For purposes of paragraph (1), the term ‘qualified

14 zone replacement asset’ means any qualified zone

15 asset the purchase of which resulted in the non16 recognition of gain under subsection (a) with respect

17 to any other property.

18 ‘‘(e) BASIS OF QUALIFIED ZONE REPLACEMENT

19 ASSET.—If gain from the sale or exchange of any property

20 is not recognized by reason of subsection (a), such gain

21 shall be applied to reduce (in the order acquired) the basis

22 of any qualified zone replacement asset (as defined in sub23 section (d)(4)) purchased during the reinvestment period.

24 ‘‘(f) COORDINATION WITH INSTALLMENT METHOD

25 REPORTING.—This section shall not apply to any gain
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1 from any installment sale (as defined in section 453(b))

2 if section 453(a) applies to such sale.

3 ‘‘(g) STATUTE OF LIMITATIONS.—If any gain is real4 ized by the taxpayer on any sale or exchange to which

5 an election under this section applies, then—

6 ‘‘(1) the statutory period for the assessment of

7 any deficiency with respect to such gain shall not ex8 pire before the expiration of 3 years from the date

9 the Secretary is notified by the taxpayer (in such

10 manner as the Secretary may by regulations pre11 scribe) of—

12 ‘‘(A) the taxpayer’s cost of purchasing any

13 qualified zone replacement asset,

14 ‘‘(B) the taxpayer’s intention not to pur15 chase qualified zone replacement asset within

16 the reinvestment period, or

17 ‘‘(C) a failure to make such purchase with18 in the reinvestment period, and

19 ‘‘(2) such deficiency may be assessed before the

20 expiration of such 3-year period notwithstanding the

21 provisions of any law or rule of law which would oth22 erwise prevent such assessment.

23 ‘‘SEC. 1397B. ADDITIONAL INCENTIVES.

24 ‘‘(a) INCREASE IN EXPENSING UNDER SECTION

25 179.—In the case of an enterprise zone business, section
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1 179(b)(1) shall be applied by substituting ‘$20,000’ for

2 ‘$10,000’.

3 ‘‘(b) ORDINARY LOSS TREATMENT FOR CERTAIN

4 PROPERTY.—

5 ‘‘(1) IN GENERAL.—Loss on any qualified zone

6 asset (as defined in section 1397(b)) held for more

7 than 2 years (5 years in the case of real property)

8 shall be treated as an ordinary loss.

9 ‘‘(2) REAL PROPERTY.—For purposes of para10 graph (1), the term ‘real property’ means any prop11 erty which is section 1250 property (as defined in

12 section 1250(c)).

13 ‘‘(3) SPECIAL RULES.—

14 ‘‘(A) CERTAIN RULES MADE APPLICA15 BLE.—For purposes of this subsection, rules

16 similar to the following rules shall apply:

17 ‘‘(i) Paragraphs (1), (2), and (3) of

18 section 1244(d).

19 ‘‘(ii) Subsections (b)(6), (c)(3), (d),

20 (e), and (f) of section 1397.

21 ‘‘(B) COORDINATION WITH SECTION

22 1231.—Losses treated as ordinary losses by rea23 son of this subsection shall not be taken into

24 account in applying section 1231.
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1 ‘‘SEC. 1397C. ENTERPRISE ZONE BUSINESS DEFINED.

2 ‘‘(a) IN GENERAL.—For purposes of this subpart, the

3 term ‘enterprise zone business’ means—

4 ‘‘(1) any qualified business entity, and

5 ‘‘(2) any qualified proprietorship.

6 ‘‘(b) QUALIFIED BUSINESS ENTITY.—For purposes

7 of this section, the term ‘qualified business entity’ means,

8 with respect to any taxable year, any corporation or part9 nership if for such year—

10 ‘‘(1)(A) every trade or business of such entity

11 is the active conduct of a qualified business within

12 a tax enterprise zone, and

13 ‘‘(B) at least 80 percent of the total gross in14 come of such entity is derived from the active con15 duct of such business,

16 ‘‘(2) substantially all of the use of the tangible

17 property of such entity (whether owned or leased) is

18 within a tax enterprise zone,

19 ‘‘(3) substantially all of the intangible property

20 of such entity is used in, and exclusively related to,

21 the active conduct of any such business,

22 ‘‘(4) substantially all of the services performed

23 for such entity by its employees are performed in a

24 tax enterprise zone,

‘‘(5) at least 1 25 ⁄3 of its employees are residents

26 of a tax enterprise zone,
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1 ‘‘(6) less than 5 percent of the average of the

2 aggregate unadjusted bases of the property of such

3 entity is attributable to collectibles (as defined in

4 section 408(m)(2)) other than collectibles that are

5 held primarily for sale to customers in the ordinary

6 course of such business, and

7 ‘‘(7) less than 5 percent of the average of the

8 aggregate unadjusted bases of the property of such

9 entity is attributable to nonqualified financial prop10 erty.

11 ‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of

12 this section, the term ‘qualified proprietorship’ means,

13 with respect to any taxable year, any qualified business

14 carried on by an individual as a proprietorship if for such

15 year—

16 ‘‘(1) at least 80 percent of the total gross in17 come of such individual from such business is de18 rived from the active conduct of such business in a

19 tax enterprise zone,

20 ‘‘(2) substantially all of the use of the tangible

21 property of such individual in such business (wheth22 er owned or leased) is within a tax enterprise zone,

23 ‘‘(3) substantially all of the intangible property

24 of such business is used in, and exclusively related

25 to, the active conduct of such business,
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1 ‘‘(4) substantially all of the services performed

2 for such individual in such business by employees of

3 such business are performed in a tax enterprise

4 zone,

‘‘(5) at least 1 5 ⁄3 of such employees are residents

6 of a tax enterprise zone,

7 ‘‘(6) less than 5 percent of the average of the

8 aggregate unadjusted bases of the property of such

9 individual which is used in such business is attrib10 utable to collectibles (as defined in section

11 408(m)(2)) other than collectibles that are held pri12 marily for sale to customers in the ordinary course

13 of such business, and

14 ‘‘(7) less than 5 percent of the average of the

15 aggregate unadjusted bases of the property of such

16 individual which is used in such business is attrib17 utable to nonqualified financial property.

18 For purposes of this subsection, the term ‘employee’ in19 cludes the proprietor.

20 ‘‘(d) QUALIFIED BUSINESS.—For purposes of this

21 section—

22 ‘‘(1) IN GENERAL.—Except as otherwise pro23 vided in this subsection, the term ‘qualified business’

24 means any trade or business.
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1 ‘‘(2) RENTAL OF REAL PROPERTY.—The rental

2 to others of real property located in a tax enterprise

3 zone shall be treated as a qualified business if and

4 only if—

5 ‘‘(A) in the case of real property which is

6 not residential rental property (as defined in

7 section 168(e)(2)), the lessee is an enterprise

8 zone business, or

9 ‘‘(B) in the case of residential rental prop10 erty (as so defined)—

11 ‘‘(i) such property was originally

12 placed in service after the date the tax en13 terprise zone was designated, or

14 ‘‘(ii) such property is rehabilitated

15 after such date in a rehabilitation which

16 meets requirements based on the principles

17 of section 42(e)(3).

18 ‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP19 ERTY.—The rental to others of tangible personal

20 property shall be treated as a qualified business if

21 and only if substantially all of the rental of such

22 property is by enterprise zone businesses or by resi23 dents of a tax enterprise zone.

24 ‘‘(4) TREATMENT OF BUSINESS HOLDING IN25 TANGIBLES.—The term ‘qualified business’ shall not
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1 include any trade or business consisting predomi2 nantly of the development or holding of intangibles

3 for sale or license.

4 ‘‘(5) CERTAIN BUSINESSES EXCLUDED.—The

5 term ‘qualified business’ shall not include—

6 ‘‘(A) any trade or business consisting of

7 the operation of any facility described in section

8 144(c)(6)(B), and

9 ‘‘(B) any trade or business the principal

10 activity of which is farming (within the meaning

11 of subparagraphs (A) or (B) of section

12 2032A(e)(5)), but only if, as of the close of the

13 preceding taxable year, the sum of—

14 ‘‘(i) the aggregate unadjusted bases

15 (or, if greater, the fair market value) of

16 the assets owned by the taxpayer which are

17 used in such a trade or business, and

18 ‘‘(ii) the aggregate value of assets

19 leased by the taxpayer which are used in

20 such a trade or business,

21 exceeds $500,000.

22 For purposes of subparagraph (B), rules similar to

23 the rules of section 1395(b) shall apply.

24 ‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For

25 purposes of this section, the term ‘nonqualified financial
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1 property’ means debt, stock, partnership interests, op2 tions, futures contracts, forward contracts, warrants, no3 tional principal contracts, annuities, and other similar

4 property specified in regulations; except that such term

5 shall not include—

6 ‘‘(1) reasonable amounts of working capital

7 held in cash, cash equivalents, or debt instruments

8 with a term of 18 months or less, or

9 ‘‘(2) debt instruments described in section

10 1221(4).

11 ‘‘Subpart C—Regulations

‘‘Sec. 1397C. Regulations.

12 ‘‘SEC. 1397C. REGULATIONS.

13 ‘‘The Secretary shall prescribe such regulations as

14 may be necessary or appropriate to carry out the purposes

15 of this part, including—

16 ‘‘(1) regulations limiting the benefit of this part

17 in circumstances where such benefits, in combination

18 with benefits provided under other Federal pro19 grams, would result in an activity being 100 percent

20 or more subsidized by the Federal Government,

21 ‘‘(2) regulations preventing abuse of the provi22 sions of this part, and

23 ‘‘(3) regulations dealing with inadvertent fail24 ures of entities to be qualified zone businesses.’’
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1 (b) CLERICAL AMENDMENT.—The table of sub2 chapters for chapter 1 is amended by inserting after the

3 item relating to subchapter T the following new item:

‘‘Subchapter U. Designation and treatment of tax enterprise

zones.’’

4 SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.

5 (a) ENTERPRISE ZONE EMPLOYMENT CREDIT PART

6 OF GENERAL BUSINESS CREDIT.—

7 (1) Subsection (b) of section 38 (relating to

8 current year business credit) is amended by striking

9 ‘‘plus’’ at the end of paragraph (6), by striking the

10 period at the end of paragraph (7) and inserting ‘‘,

11 plus’’, and by adding at the end the following new

12 paragraph:

13 ‘‘(8) the enterprise zone employment credit de14 termined under section 1394(a).’’

15 (2) Subsection (d) of section 39 is amended by

16 adding at the end thereof the following new para17 graph:

18 ‘‘(3) NO CARRYBACK OF SECTION 1394 CREDIT

19 BEFORE ENACTMENT.—No portion of the unused

20 business credit for any taxable year which is attrib21 utable to the enterprise zone employment credit de22 termined under section 1394 may be carried to a

23 taxable year ending before the date of the enactment

24 of section 1394.’’
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1 (b) NONITEMIZERS ALLOWED DEDUCTION FOR EN2 TERPRISE ZONE STOCK.—Subsection (a) of section 62 is

3 amended by adding at the end thereof the following new

4 paragraph:

5 ‘‘(14) ENTERPRISE ZONE STOCK.—The deduc6 tion allowed by section 1396.’’

7 (c) DENIAL OF DEDUCTION FOR PORTION OF WAGES

8 EQUAL TO ENTERPRISE ZONE EMPLOYMENT CREDIT.—

9 (1) Subsection (a) of section 280C (relating to

10 rule for targeted jobs credit) is amended—

11 (A) by striking ‘‘the amount of the credit

12 determined for the taxable year under section

13 51(a)’’ and inserting ‘‘the sum of the credits

14 determined for the taxable year under sections

15 51(a) and 1394(a)’’, and

16 (B) by striking ‘‘TARGETED JOBS CRED17 IT’’ in the subsection heading and inserting

18 ‘‘EMPLOYMENT CREDITS’’.

19 (2) Subsection (c) of section 196 (relating to

20 deduction for certain unused business credits) is

21 amended by striking ‘‘and’’ at the end of paragraph

22 (4), by striking the period at the end of paragraph

23 (5) and inserting ‘‘, and’’, and by adding at the end

24 the following new paragraph:
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1 ‘‘(6) the enterprise zone employment credit de2 termined under section 1394(a).’’

3 (d) OTHER AMENDMENTS.—

4 (1)(A) Section 172(d)(2) (relating to modifica5 tions with respect to net operating loss deduction) is

6 amended to read as follows:

7 ‘‘(2) CAPITAL GAINS AND LOSSES OF TAX8 PAYERS OTHER THAN CORPORATIONS.—In the case

9 of a taxpayer other than a corporation—

10 ‘‘(A) the amount deductible on account of

11 losses from sales or exchanges of capital assets

12 shall not exceed the amount includable on ac13 count of gains from sales or exchanges of cap14 ital assets; and

15 ‘‘(B) the exclusion provided by section

16 1397 shall not be allowed.’’

17 (B) Subparagraph (B) of section 172(d)(4) is

18 amended by inserting ‘‘, (2)(B),’’ after ‘‘paragraph

19 (1)’’.

20 (2) Subsection (c) of section 381 (relating to

21 carryovers in certain corporate acquisitions) is

22 amended by adding at the end the following new

23 paragraph:

24 ‘‘(26) ENTERPRISE ZONE PROVISIONS.—The

25 acquiring corporation shall take into account (to the
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1 extent proper to carry out the purposes of this sec2 tion and subchapter U, and under such regulations

3 as may be prescribed by the Secretary) the items re4 quired to be taken into account for purposes of sub5 chapter U in respect of the distributor or transferor

6 corporation.’’

7 (3) Paragraph (4) of section 642(c) is amended

8 to read as follows:

9 ‘‘(4) ADJUSTMENTS.—To the extent that the

10 amount otherwise allowable as a deduction under

11 this subsection consists of gain described in section

12 1397(a), proper adjustment shall be made for any

13 exclusion allowable to the estate or trust under sec14 tion 1397. In the case of a trust, the deduction al15 lowed by this subsection shall be subject to section

16 681 (relating to unrelated business income).’’

17 (4) Paragraph (3) of section 643(a) is amended

18 by adding at the end thereof the following new sen19 tence: ‘‘The exclusion under section 1397 shall not

20 be taken into account.’’

21 (5) Paragraph (4) of section 691(c) is amended

22 by striking ‘‘1201, and 1211’’ and inserting ‘‘1201,

23 1397, and 1211’’.

24 (6) The second sentence of paragraph (2) of

25 section 871(a) is amended by inserting ‘‘such gains
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1 and losses shall be determined without regard to sec2 tion 1397 and’’ after ‘‘except that’’.

3 (7) Paragraph (1) of section 1371(d) (relating

4 to coordination with investment credit recapture) is

5 amended by inserting before the period at the end

6 the following ‘‘and for purposes of section

7 1394(d)(3)’’.

8 (8) Subsection (a) of section 1016 (relating to

9 adjustments to basis) is amended by striking ‘‘and’’

10 at the end of paragraph (23), by striking the period

11 at the end of paragraph (24) and inserting a semi12 colon, and by adding at the end thereof the following

13 new paragraphs:

14 ‘‘(25) in the case of stock with respect to which

15 a deduction was allowed under section 1396(a), to

16 the extent provided in section 1396(e); and

17 ‘‘(26) in the case of property the acquisition of

18 which resulted under section 1397A in the non19 recognition of any part of the gain realized on the

20 sale or exchange of other property, to the extent pro21 vided in section 1397A(e).’’

22 (9) Section 1223 (relating to holding period of

23 property) is amended by redesignating paragraph

24 (15) as paragraph (16) and by inserting after para25 graph (14) the following new paragraph:
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1 ‘‘(15) In determining the period for which the

2 taxpayer has held property the acquisition of which

3 resulted under section 1397A in the nonrecognition

4 of any part of the gain realized on the sale or ex5 change of any qualified zone asset (as defined in sec6 tion 1397A(b)), there shall be included the period

7 for which such asset had been held as of the date

8 of such sale or exchange.’’

9 SEC. 104. EFFECTIVE DATE.

10 (a) GENERAL RULE.—The amendments made by this

11 subtitle shall take effect on the date of the enactment of

12 this Act.

13 (b) REQUIREMENT FOR RULES.—Not later than the

14 date 4 months after the date of the enactment of this Act,

15 the appropriate Secretaries shall issue rules—

16 (1) establishing the procedures for nominating

17 areas for designation as tax enterprise zones,

18 (2) establishing a method for comparing the

19 factors listed in section 1392(d) of the Internal Rev20 enue Code of 1986 (as added by this part), and

21 (3) providing that State and local governments

22 shall have at least 30 days after such rules are pub23 lished to file applications for nominated areas before

24 such applications are evaluated and compared and

25 any area designated as a tax enterprise zone.
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1 Subtitle B—Redevelopment Bonds

2 for Tax Enterprise Zones

3 SEC. 111. SPECIAL RULES FOR REDEVELOPMENT BONDS

4 PROVIDING FINANCING FOR TAX ENTER5 PRISE ZONES.

6 (a) IN GENERAL.—Subsection (c) of section 144 (re7 lating to qualified redevelopment bonds) is amended by

8 adding at the end thereof the following new paragraph:

9 ‘‘(9) SPECIAL RULES FOR TAX ENTERPRISE

10 ZONES.—For purposes of this subsection, in the case

11 of bonds issued during the 60-month period begin12 ning on the date a tax enterprise zone is des13 ignated—

14 ‘‘(A) TREATMENT AS DESIGNATED

15 BLIGHTED AREA.—Such tax enterprise zone

16 shall be treated as a designated blighted area

17 during such 60-month period (or, if shorter, the

18 period such designation is in effect). Any area

19 designated by reason of the preceding sentence

20 shall not be taken into account in applying

21 paragraph (4)(C).

22 ‘‘(B) SECURITY FOR BONDS.—The require23 ments of paragraph (2)(B) shall be treated as

24 met with respect to a financed area that is

25 within a tax enterprise zone if the general pur-
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1 pose governmental unit guarantees the payment

2 of principal and interest on the issue either di3 rectly or through insurance, a letter of credit,

4 or a similar agreement but only if the cost

5 thereof is financed other than with proceeds of

6 any tax-exempt private activity bond or earn7 ings on such proceeds.

8 ‘‘(C) EXPANSION OF REDEVELOPMENT

9 PURPOSES.—

10 ‘‘(i) IN GENERAL.—The term ‘redevel11 opment purposes’ includes the making of

12 loans to any enterprise zone business (as

13 defined in section 1397B) for—

14 ‘‘(I) the acquisition of land with15 in the tax enterprise zone for use in

16 such business, or

17 ‘‘(II) the acquisition, construc18 tion, reconstruction, or improvement

19 by such business of land, or property

20 of a character subject to the allowance

21 for depreciation, for use in such busi22 ness.

23 ‘‘(ii) $2,500,000 LIMITATION.—Clause

24 (i) shall apply to loans made to any enter25 prise zone business only if the aggregate
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1 principal amount of such loans (whether or

2 not financed by the same issue) does not

3 exceed $2,500,000. For purposes of the

4 preceding sentence, all persons treated as a

5 single employer under subsection (a) or (b)

6 of section 52 shall be treated as 1 person.

7 ‘‘(iii) LOANS MUST BE MADE WITHIN

8 18 MONTHS AFTER BONDS ISSUED; REPAY9 MENTS MUST BE USED FOR REDEMP10 TIONS.—Clause (i) shall apply only to

11 loans—

12 ‘‘(I) made during the 18-month

13 period beginning on the date of issu14 ance of the issue financing such loan,

15 ‘‘(II) repayments of principal on

16 which are used not later than the

17 close of the 1st semiannual period be18 ginning after the date the repayment

19 is received to redeem bonds which are

20 part of such issue, and

21 ‘‘(III) the effective rate of inter22 est on which does not exceed the yield

23 on the issue by more than 0.125 per24 centage points.
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1 In determining the effective rate of interest

2 for purposes of subclause (III), there shall

3 be taken into account all fees, charges, and

4 other amounts (other than amounts for

5 any credit report) borne by the borrower

6 which are attributable to the loan or the

7 bond issue.

8 ‘‘(iv) HOUSING LOANS EXCLUDED.—

9 Clause (i) shall not apply to any loan to be

10 used directly or indirectly to provide resi11 dential real property.

12 ‘‘(v) COORDINATION WITH RESTRIC13 TIONS ON USE OF PROCEEDS.—Paragraphs

14 (6) and (8) shall apply notwithstanding

15 clause (i); except that in applying para16 graph (6), subsection (a)(8) shall be treat17 ed as not including a reference to a facility

18 the primary purpose of which is retail food

19 services.

20 ‘‘(D) ISSUER TO DESIGNATE AMOUNT OF

21 ISSUE TO BE USED FOR LOANS.—Subparagraph

22 (C) shall not apply with respect to any issue

23 unless the issuer designates before the date of

24 issuance the amount of the proceeds of such

25 issue which is to be used for loans to which
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1 subparagraph (C)(i) applies. If such amount ex2 ceeds the principal amount of loans to which

3 subparagraph (C)(i) applies, an amount of pro4 ceeds equal to such excess shall be used not

5 later than the close of the 1st semiannual pe6 riod beginning after the close of the 18-month

7 period referred to in subparagraph (C)(iii) to

8 redeem bonds which are part of such issue.

9 ‘‘(E) DE MINIMIS REDEMPTIONS NOT RE10 QUIRED.—Subparagraphs (C)(iii) and (D) shall

11 not be construed to require amounts of less

12 than $250,000 to be used to redeem bonds. The

13 Secretary may by regulation treat related issues

14 as 1 issue for purposes of the preceding sen15 tence.

16 ‘‘(F) PENALTY.—

17 ‘‘(i) IN GENERAL.—In the case of

18 property with respect to which financing

19 was provided under this paragraph, if at

20 any time during the 10-month period be21 ginning on the date such financing was

22 provided—

23 ‘‘(I) such property ceases to be in

24 use in an enterprise zone business (as

25 defined in section 1397B), or
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1 ‘‘(II) substantially all of the use

2 of such property ceases to be in a tax

3 enterprise zone,

4 there is hereby imposed on the trade or

5 business to which such financing was pro6 vided a penalty equal to 1.25 percent of so

7 much of the face amount of all financing

8 provided (whether or not from the same

9 issue and whether or not such issue is out10 standing) before such cessation to the

11 trade or business using such property.

12 ‘‘(ii) NO PENALTY BY REASON OF

13 ZONE TERMINATION.—No penalty shall be

14 imposed under clause (i) solely by reason

15 of the termination or revocation of a tax

16 enterprise zone designation.

17 ‘‘(iii) EXCEPTION FOR BANK18 RUPTCY.—Clause (i) shall not apply to any

19 cessation resulting from bankruptcy.’’

20 (b) VOLUME CAP ONLY CHARGED WITH 50 PER21 CENT OF TAX ENTERPRISE ZONE REDEVELOPMENT

22 BONDS.—Subsection (g) of section 146 is amended by

23 striking ‘‘and’’ at the end of paragraph (3), by striking

24 the period at the end of paragraph (4) and inserting ‘‘,
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1 and’’, and by adding at the end thereof the following new

2 paragraph:

3 ‘‘(5) 50 percent of any qualified redevelopment

4 bond issued—

5 ‘‘(A) as part of an issue 95 percent or

6 more of the net proceeds of which are to be

7 used for 1 or more redevelopment purposes (as

8 defined in section 144(c)) in a tax enterprise

9 zone, and

10 ‘‘(B) during the 60-month period begin11 ning on the date of the designation of such

12 zone.’’

13 (c) PENALTIES FOR LOANS MADE TO BUSINESSES

14 THAT CEASE TO BE ENTERPRISE ZONE BUSINESSES,

15 ETC.—Subsection (b) of section 150 is amended by adding

16 at the end thereof the following new paragraph:

17 ‘‘(6) ENTERPRISE ZONE REDEVELOPMENT

18 BONDS.—In the case of any financing provided by

19 an issue the interest on which is exempt from tax by

20 reason of section 144(c)(9)—

21 ‘‘(A) IN GENERAL.—No deduction shall be

22 allowed under this chapter for interest on such

23 financing which accrues during the period be24 ginning on the first day of the calendar year

25 which includes the date on which—
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1 ‘‘(i) the trade or business to which the

2 financing was provided ceases to be an en3 terprise zone business (as defined in sec4 tion 1397B), or

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

6 property (determined in accordance with

7 subchapter U) with respect to which the fi8 nancing was provided ceases to be in a tax

9 enterprise zone.

10 The preceding sentence shall not apply solely by

11 reason of the termination or revocation of a tax

12 enterprise zone designation.

13 ‘‘(B) EXCEPTION FOR BANKRUPTCY.—This

14 paragraph shall not apply to any cessation re15 sulting from bankruptcy.’’

16 TITLE II—AREAS AFFECTED BY

17 MILITARY BASE CLOSINGS OR

18 REDUCTIONS IN MILITARY

19 BASE EMPLOYMENT TREATED

20 AS ENTERPRISE ZONES

21 SEC. 201. ENTERPRISE ZONE TREATMENT.

22 (a) IN GENERAL.—Subchapter U of chapter 1 (relat23 ing to designation and treatment of tax enterprise zones),

24 as added by title I, is amended by adding at the end there25 of the following new part:
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1 ‘‘PART III—AREAS AFFECTED BY MILITARY BASE

2 CLOSINGS OR REDUCTIONS IN MILITARY

3 BASE EMPLOYMENT TREATED AS ENTER4 PRISE ZONES

‘‘Sec. 1398E. Treatment of areas affected by military base closings, etc.

5 ‘‘SEC. 1398E. TREATMENT OF AREAS AFFECTED BY MILI6 TARY BASE CLOSINGS, ETC.

7 ‘‘(a) IN GENERAL.—For purposes of part II of this

8 subchapter and section 144(c)(9), the term ‘tax enterprise

9 zone’ includes—

10 ‘‘(1) each military installation selected for clo11 sure or substantial realignment under a base closure

12 law, and

13 ‘‘(2) so much of the area around such an instal14 lation as the Secretary of Commerce determines is

15 adversely affected by such closure or realignment.

16 ‘‘(b) TIME OF DESIGNATIONS.—

17 ‘‘(1) IN GENERAL.—An area treated as a tax

18 enterprise zone under subsection (a) shall be treated

19 as designated—

20 ‘‘(A) in a case described in subsection

21 (a)(1), on the date which is 60 days after the

22 date on which the installation is recommended

23 for closure or substantial realignment in a base

24 closure report transmitted to the Congress by
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1 the President pursuant to section 2903(e) of

2 the Defense Base Closure and Realignment Act

3 of 1990 (part A of title XXIX of Public Law

4 101–510; 10 U.S.C. 2687 note), and

5 ‘‘(B) in a case described in subsection

6 (a)(2), on the date of the determination de7 scribed in subsection (a)(2).

8 ‘‘(2) CLOSURES, ETC., BEFORE ENACTMENT OF

9 INCENTIVES.—In the case of military installations

10 selected for closure or substantial realignment before

11 the date of the enactment of this subchapter, the

12 designation under subsection (a)(1) shall be treated

13 as made on such date.

14 ‘‘(3) DISAPPROVED REPORTS.—Subsection (a)

15 shall apply to any installation by reason of inclusion

16 in any base closure report only if such report is not

17 disapproved by the Congress in a joint resolution en18 acted under section 2908 of the Defense Base Clo19 sure and Realignment Act of 1990.

20 ‘‘(c) TREATMENT OF DESIGNATED INSTALLA21 TIONS.—Tax enterprise zones designated under subsection

22 (a) shall be in addition to the number of tax enterprise

23 zones which may be designated under part I.

24 ‘‘(d) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) BASE CLOSURE LAW.—The term ‘base clo2 sure law’ means—

3 ‘‘(A) the Defense Base Closure and Re4 alignment Act of 1990 (part A of title XXIX of

5 Public Law 101–510; 10 U.S.C. 2687 note);

6 and

7 ‘‘(B) title II of the Defense Authorization

8 Amendments and Base Closure and Realign9 ment Act (Public Law 100–526; 10 U.S.C.

10 2687 note).

11 ‘‘(2) SUBSTANTIAL REALIGNMENT.—The term

12 ‘substantial realignment’ means a reduction in the

13 operation of a military installation such that 50 per14 cent or more of the personnel assigned to or em15 ployed at the military installation, including civilian

16 employees of the Department of Defense and mem17 bers of the Armed Forces, are reassigned or trans18 ferred to another military installation.’’

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

20 subchapter U of chapter 1, as added by title I of this Act,

21 is amended by adding at the end thereof the following new

22 item:

‘‘Part III—Areas affected by military base closings or reductions

in military base employment treated as enterprise

zones.’’

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