I

103D CONGRESS

1ST SESSION H. R. 2246

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

to encourage development in certain border areas.

IN THE HOUSE OF REPRESENTATIVES

MAY 25, 1993

Mr. ANDREWS of Texas (for himself and Mr. COLEMAN) 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 to encourage development in certain border

areas.

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

3 SECTION 1. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this Act an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Internal Revenue Code

9 of 1986.
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1 SEC. 2. DESIGNATION AND TREATMENT OF BORDER

2 EMPOWERMENT ZONES AND BORDER ENTER3 PRISE COMMUNITIES.

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

5 taxes and surtaxes) is amended by inserting after sub6 chapter T the following new subchapter:

7 ‘‘Subchapter U—Designation and Treatment

8 of Border Empowerment Zones and Bor9 der Enterprise Communities

‘‘Part I. Designation.

‘‘Part II. Incentives for border empowerment zones and border

enterprise communities.

‘‘Part III. Additional incentives for border empowerment zone.

‘‘Part IV. Regulations.

10 ‘‘PART I—DESIGNATION

‘‘Sec. 1391. Designation procedure.

‘‘Sec. 1392. Eligibility criteria.

‘‘Sec. 1393. Definitions and special rules.

11 ‘‘SEC. 1391. DESIGNATION PROCEDURE.

12 ‘‘(a) IN GENERAL.—From among the border areas

13 nominated for designation under this section, the appro14 priate Secretaries may, in consultation with the Enterprise

15 Board, designate 1 border empowerment zone and 5 bor16 der enterprise communities.

17 ‘‘(b) PERIOD DESIGNATIONS MAY BE MADE.—A des18 ignation may be made under this section only after 1993

19 and before 1996.

20 ‘‘(c) PERIOD FOR WHICH DESIGNATION IS IN EF21 FECT.—
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1 ‘‘(1) IN GENERAL.—Any designation under this

2 section shall remain in effect during the period be3 ginning on the date of the designation and ending

4 on the earliest of—

5 ‘‘(A) the close of the 10th calendar year

6 beginning on or after such date of designation,

7 ‘‘(B) the termination date designated by

8 the State and local governments as provided for

9 in their nomination, or

10 ‘‘(C) the date the appropriate Secretary re11 vokes the designation.

12 ‘‘(2) REVOCATION OF DESIGNATION.—

13 ‘‘(A) IN GENERAL.—The appropriate Sec14 retary, in consultation with the Enterprise

15 Board, may revoke the designation under this

16 section of an area if such Secretary determines

17 that the local government or the State in which

18 it is located—

19 ‘‘(i) has modified the boundaries of

20 the area, or

21 ‘‘(ii) is not complying substantially

22 with, or fails to make progress in achieving

23 the benchmarks set forth in, the strategic

24 plan under subsection (e)(2).
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1 ‘‘(B) APPLICABLE PROCEDURES.—A des2 ignation may be revoked by the appropriate

3 Secretary under subparagraph (A) only after a

4 hearing on the record involving officials of the

5 State or local government involved.

6 ‘‘(d) LIMITATIONS ON DESIGNATIONS.—An area may

7 be designated under subsection (a) only if—

8 ‘‘(1) the area is a border area,

9 ‘‘(2) the area is nominated by 1 or more local

10 governments and the State or States in which it is

11 located for designation under this section,

12 ‘‘(3) such State or States and the local govern13 ments have the authority—

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

15 under this section, and

16 ‘‘(B) to provide the assurances described in

17 paragraph (4),

18 ‘‘(4) such State or States and the local govern19 ments provide written assurances satisfactory to the

20 appropriate Secretary that the strategic plan de21 scribed in the application under subsection (e)(2) for

22 such area will be implemented,

23 ‘‘(5) the appropriate Secretary determines that

24 any information furnished is reasonably accurate,

25 and
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1 ‘‘(6) such State or States and local govern2 ments certify that no portion of the area nominated

3 is already included in an area designated under this

4 section or in an area otherwise nominated to be des5 ignated under this section.

6 ‘‘(e) APPLICATION.—An application for designation

7 as a border empowerment zone or as a border enterprise

8 community shall—

9 ‘‘(1) demonstrate that the nominated area sat10 isfies the eligibility criteria described in section

11 1392,

12 ‘‘(2) include a strategic plan for accomplishing

13 the purposes of this subchapter that—

14 ‘‘(A) describes the coordinated economic,

15 human, community, and physical development

16 plan and related activities proposed for the

17 nominated area,

18 ‘‘(B) describes the process by which the af19 fected community is a full partner in the proc20 ess of developing and implementing the plan

21 and the extent to which local institutions and

22 organizations have contributed to the planning

23 process,

24 ‘‘(C) identifies the amount of State, local,

25 and private resources that will be available in
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1 the nominated area and the private/public part2 nerships to be used, which may include partici3 pation by, and cooperation with, universities,

4 medical centers, and other private and public

5 entities,

6 ‘‘(D) identifies the funding requested

7 under any Federal program in support of the

8 proposed economic, human, community, and

9 physical development and related activities,

10 ‘‘(E) identifies baselines, methods, and

11 benchmarks for measuring the success of carry12 ing out the strategic plan, including the extent

13 to which poor persons and families will be em14 powered to become economically self-sufficient,

15 ‘‘(F) contains a plan for—

16 ‘‘(i) providing water and wastewater

17 services to a substantial portion of any

18 substandard residential subdivisions in the

19 nominated area which lack such services,

20 ‘‘(ii) restraining the construction of

21 substandard housing on undeveloped par22 cels within any existing substandard resi23 dential subdivisions in the nominated area,

24 and
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1 ‘‘(iii) restraining the proliferation of

2 substandard residential subdivisions within

3 the nominated area, and

4 ‘‘(G) does not include any action to assist

5 any establishment in relocating from one area

6 within the United States and outside the nomi7 nated area to the nominated area, except that

8 assistance for the expansion of an existing busi9 ness entity through the establishment of a new

10 branch, affiliate, or subsidiary is permitted if—

11 ‘‘(i) the establishment of the new

12 branch, affiliate, or subsidiary will not re13 sult in a decrease in employment in the

14 area of original location or in any other

15 area where the existing business entity

16 conducts business operations, and

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

18 the new branch, affiliate, or subsidiary is

19 being established with the intention of clos20 ing down the operations of the existing

21 business entity in the area of its original

22 location or in any other area where the ex23 isting business entity conducts business

24 operations, and
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1 ‘‘(3) include such other information as may be

2 required by the appropriate Secretary or the Enter3 prise Board.

4 ‘‘SEC. 1392. ELIGIBILITY CRITERIA.

5 ‘‘(a) IN GENERAL.—A nominated area shall be eligi6 ble for designation under section 1391 only if it meets the

7 following criteria:

8 ‘‘(1) LACK OF INFRASTRUCTURE.—The popu9 lation of the counties in which the nominated area

10 is located increased (as determined by the most re11 cent census data available) by 18 percent or more

12 between 1980 and 1990, without a corresponding ex13 pansion of basic infrastructure such as water and

14 wastewater services, and not less than 20 percent of

15 the population residing within the nominated area

16 resides in substandard residential subdivisions.

17 ‘‘(2) DISTRESS.—The nominated area is one of

18 pervasive poverty, unemployment, and general dis19 tress.

20 ‘‘(3) SIZE.—The nominated area—

21 ‘‘(A) does not exceed 1,000 square miles,

22 ‘‘(B) has a boundary which is continuous,

23 or, except in the case of an area located in more

24 than 1 State, consists of not more than 3 non25 contiguous parcels,
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1 ‘‘(C) is located entirely within no more

2 than 3 contiguous States, and

3 ‘‘(D) does not include any portion of a

4 central business district (as such term is used

5 for purposes of the most recent Census of Re6 tail Trade) unless the poverty rate for each

7 population census tract in such district is not

8 less than 35 percent (30 percent in the case of

9 an enterprise community).

10 ‘‘(4) POVERTY RATE.—The poverty rate—

11 ‘‘(A) for each population census tract with12 in the nominated area is not less than 20 per13 cent,

14 ‘‘(B) for at least 90 percent of the popu15 lation census tracts within the nominated area

16 is not less than 25 percent, and

17 ‘‘(C) for at least 50 percent of the popu18 lation census tracts within the nominated area

19 is not less than 35 percent.

20 ‘‘(b) SPECIAL RULES RELATING TO DETERMINATION

21 OF POVERTY RATE.—For purposes of subsection (a)(4)—

22 ‘‘(1) TREATMENT OF CENSUS TRACTS WITH

23 SMALL POPULATIONS.—
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1 ‘‘(A) TRACTS WITH NO POPULATION.—In

2 the case of a population census tract with no

3 population—

4 ‘‘(i) such tract shall be treated as hav5 ing a poverty rate which meets the require6 ments of subparagraphs (A) and (B) of

7 subsection (a)(4), but

8 ‘‘(ii) such tract shall be treated as

9 having a zero poverty rate for purposes of

10 applying subparagraph (C) thereof.

11 ‘‘(B) TRACTS WITH POPULATIONS OF LESS

12 THAN 2,000.—A population census tract with a

13 population of less than 2,000 shall be treated as

14 having a poverty rate which meets the require15 ments of subparagraphs (A) and (B) of sub16 section (a)(4) if more than 75 percent of such

17 tract is zoned for commercial or industrial use.

18 ‘‘(2) DISCRETION TO ADJUST REQUIRE19 MENTS.—Where necessary to carry out the purposes

20 of this subchapter, the appropriate Secretary may

21 reduce by 5 percentage points one of the following

22 thresholds for not more than 10 percent of the popu23 lation census tracts (or, if fewer, 5 population cen24 sus tracts) in the nominated area:
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1 ‘‘(A) The 20 percent threshold in sub2 section (a)(4)(A).

3 ‘‘(B) The 25 percent threshold in sub4 section (a)(4)(B).

5 ‘‘(C) The 35 percent threshold in sub6 section (a)(4)(C).

7 If the appropriate Secretary elects to reduce the

8 threshold under subparagraph (C) for a border en9 terprise community, such Secretary may (in lieu of

10 applying the preceding sentence) reduce by 10 per11 centage points the threshold under subparagraph

12 (C) for 3 population census tracts.

13 ‘‘(3) EACH NONCONTIGUOUS AREA MUST SAT14 ISFY POVERTY RATE RULE.—A nominated area may

15 not include a noncontiguous parcel unless such par16 cel separately meets (subject to paragraphs (1) and

17 (2)) the criteria set forth in subsection (a)(4).

18 ‘‘(4) AREAS NOT WITHIN CENSUS TRACTS.—In

19 the case of an area which is not tracted for popu20 lation census tracts, the equivalent county divisions

21 (as defined by the Bureau of the Census for pur22 poses of defining poverty areas) shall be used for

23 purposes of determining poverty rates.

24 ‘‘(c) FACTORS TO CONSIDER.—From among the

25 nominated areas eligible for designation under section
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1 1391 by the appropriate Secretary, such appropriate Sec2 retary shall make designations of the border empowerment

3 zone and border enterprise communities on the basis of—

4 ‘‘(1) the effectiveness of the strategic plan sub5 mitted pursuant to section 1391(e)(2) and the as6 surances made pursuant to section 1391(d)(3), and

7 ‘‘(2) criteria specified by the Enterprise Board.

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

9 ‘‘(a) IN GENERAL.—For purposes of this sub10 chapter—

11 ‘‘(1) APPROPRIATE SECRETARY.—The term ‘ap12 propriate Secretary’ means—

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

14 Development in the case of any nominated area

15 which is located in an urban area,

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

17 case of any nominated area which is located in

18 a rural area, and

19 ‘‘(C) the Secretary of the Interior in the

20 case of any nominated area which is located in

21 an Indian reservation.

22 ‘‘(2) ENTERPRISE BOARD.—The term ‘Enter23 prise Board’ means any board hereafter established

24 and designated for purposes of this subchapter as

25 the ‘Enterprise Board’.
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1 ‘‘(3) RURAL AREA.—The term ‘rural area’

2 means any area which is—

3 ‘‘(A) outside of a metropolitan statistical

4 area (within the meaning of section

5 143(k)(2)(B)), or

6 ‘‘(B) determined by the Secretary of Agri7 culture, after consultation with the Secretary of

8 Commerce, to be a rural area.

9 ‘‘(4) URBAN AREA.—The term ‘urban area’

10 means an area which is not a rural area.

11 ‘‘(5) INDIAN RESERVATION.—

12 ‘‘(A) IN GENERAL.—The term ‘Indian res13 ervation’ means a reservation as defined in—

14 ‘‘(i) section 3(d) of the Indian Financ15 ing Act of 1974 (25 U.S.C. 1452(d)), or

16 ‘‘(ii) section 4(10) of the Indian Child

17 Welfare Act of 1978 (25 U.S.C.

18 1903(10)).

19 ‘‘(B) GOVERNMENTS.—In the case of an

20 area in an Indian reservation, the reservation

21 governing body (as determined by the Secretary

22 of the Interior) shall be deemed to be both the

23 State and local governments with respect to

24 such area.
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1 ‘‘(6) BORDER AREA.—The term ‘border area’

2 means an area which is located in one or more coun3 ties each of which is located adjacent to an inter4 national border.

5 ‘‘(7) SUBSTANDARD RESIDENTIAL SUBDIVI6 SION.—The term ‘substandard residential subdivi7 sion’ means a residential area—

8 ‘‘(A) which at the time it was first occu9 pied by a substantial number of residents,

10 lacked basic infrastructure such as water or

11 wastewater services, and

12 ‘‘(B) the residents of which are exposed to

13 greatly increased health risks by reason of liv14 ing conditions in such residential area or in

15 nearby residential areas.

16 In determining whether the condition of subpara17 graph (B) is met, the Secretary of Housing and

18 Urban Development shall take into account data re19 garding communicable disease rates, studies by

20 qualified engineering firms, and other relevant fac21 tors.

22 ‘‘(8) LOCAL GOVERNMENT.—The term ‘local

23 government’ means—
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1 ‘‘(A) any county, city, town, township, par2 ish, village, or other general purpose political

3 subdivision of a State,

4 ‘‘(B) any limited purpose political subdivi5 sion of a State which is involved in the plan de6 scribed in section 1391(e)(2)(F), and

7 ‘‘(C) any combination of political subdivi8 sions described in subparagraphs (A) and (B)

9 recognized by the appropriate Secretary.

10 ‘‘(9) NOMINATED AREA.—The term ‘nominated

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

12 more local governments and the State or States in

13 which it is located for designation under section

14 1391.

15 ‘‘(10) GOVERNMENTS.—If more than 1 State or

16 local government seeks to nominate an area under

17 this part, any reference to, or requirement of, this

18 subchapter shall apply to all such governments.

19 ‘‘(11) SPECIAL RULE.—An area shall be treated

20 as nominated by a State and a local government if

21 it is nominated by such other entity as may be speci22 fied by the Enterprise Board.

23 ‘‘(12) USE OF CENSUS DATA.—Population and

24 poverty rate shall be determined by the most recent

25 decennial census data available.
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1 ‘‘(b) BORDER EMPOWERMENT ZONE; BORDER EN2 TERPRISE COMMUNITY.—For purposes of this title, the

3 terms ‘border empowerment zone’ and ‘border enterprise

4 community’ mean areas designated as such under section

5 1391.

6 ‘‘PART II—INCENTIVES FOR BORDER

7 EMPOWERMENT ZONES AND BORDER EN8 TERPRISE COMMUNITIES

‘‘Sec. 1394. Incentives.

9 ‘‘SEC. 1394. INCENTIVES.

10 ‘‘(a) INCREASE IN LOW INCOME HOUSING CREDIT.—

11 For purposes of section 42(d)(5)(C), a building shall be

12 treated as located in a qualified census tract if—

13 ‘‘(1) such building is located in a census tract

14 having a poverty rate of at least 30 percent (deter15 mined in accordance with section 1393(a)(10)), and

16 ‘‘(2) such building is located in a border

17 empowerment zone or border enterprise community.

18 ‘‘(b) TAX EXEMPT ENTERPRISE ZONE FACILITY

19 BONDS.—

20 ‘‘(1) IN GENERAL.—For purposes of part IV of

21 subchapter B of chapter 1 (relating to tax exemption

22 requirements for State and local bonds), the term

23 ‘exempt facility bond’ includes any bond issued as

24 part of an issue 95 percent or more of the net pro-
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1 ceeds (as defined in section 150(a)(3)) of which are

2 to be used to provide any enterprise zone facility.

3 ‘‘(2) ENTERPRISE ZONE FACILITY.—For pur4 poses of this subsection—

5 ‘‘(A) IN GENERAL.—The term ‘enterprise

6 zone facility’ means any qualified zone property

7 the principal user of which is an enterprise zone

8 business (as defined in section 1399B), and any

9 land which is functionally related and subordi10 nate to such property.

11 ‘‘(B) QUALIFIED ZONE PROPERTY.—The

12 term ‘qualified zone property’ has the meaning

13 given such term by section 1399(c); except

14 that—

15 ‘‘(i) section 1399(c)(3) shall not

16 apply, and

17 ‘‘(ii) the references to a border

18 empowerment zone shall be treated as in19 cluding references to border enterprise

20 communities.

21 ‘‘(3) LIMITATION ON AMOUNT OF BONDS.—

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

23 not apply to any issue if the aggregate amount

24 of outstanding enterprise zone facility bonds al-
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1 locable to any enterprise zone business (taking

2 into account such issue) exceeds—

3 ‘‘(i) $3,000,000 with respect to any 1

4 border empowerment zone or border enter5 prise community, or

6 ‘‘(ii) $20,000,000 with respect to the

7 border empowerment zone and all border

8 enterprise communities.

9 ‘‘(B) AGGREGATE ENTERPRISE ZONE FA10 CILITY BOND BENEFIT.—For purposes of sub11 paragraph (A), the aggregate amount of out12 standing enterprise zone facility bonds allocable

13 to any business shall be determined under rules

14 similar to the rules of section 144(a)(10), tak15 ing into account only bonds to which paragraph

16 (1) applies.

17 ‘‘(4) ACQUISITION OF LAND AND EXISTING

18 PROPERTY PERMITTED.—The requirements of sec19 tions 147(c)(1)(A) and 147(d) shall not apply to any

20 bond described in paragraph (1).

21 ‘‘(5) PARTIAL EXEMPTION FROM VOLUME

22 CAP.—Only for purposes of section 146, the term

23 ‘private activity bond’ shall not include 50 percent of

24 any bond issued as part of an issue described in

25 paragraph (1).
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1 ‘‘(6) PENALTY FOR CEASING TO MEET RE2 QUIREMENTS.—

3 ‘‘(A) FAILURES CORRECTED.—An issue

4 which fails to meet 1 or more of the require5 ments of paragraphs (1) and (2) shall be

6 treated as meeting such requirements if—

7 ‘‘(i) the issuer and any principal user

8 in good faith attempted to meet such re9 quirements, and

10 ‘‘(ii) any failure to meet such require11 ments is corrected within a reasonable pe12 riod after such failure is first discovered.

13 ‘‘(B) LOSS OF DEDUCTIONS WHERE FACIL14 ITY CEASES TO BE QUALIFIED.—No deduction

15 shall be allowed under this chapter for interest

16 on any financing provided from any bond to

17 which paragraph (1) applies with respect to any

18 facility to the extent such interest accrues dur19 ing the period beginning on the first day of the

20 calendar year which includes the date on

21 which—

22 ‘‘(i) substantially all of the facility

23 with respect to which the financing was

24 provided ceases to be used in an border
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1 empowerment zone or border enterprise

2 community, or

3 ‘‘(ii) the principal user of such facility

4 ceases to be an enterprise zone business

5 (as defined in section 1399B, but treating

6 references to the border empowerment

7 zones as including references to border en8 terprise communities).

9 ‘‘(C) EXCEPTION IF ZONE CEASES.—Sub10 paragraphs (A) and (B) shall not apply solely

11 by reason of the termination or revocation of a

12 designation as a border empowerment zone or a

13 border enterprise community.

14 ‘‘(D) EXCEPTION FOR BANKRUPTCY.—

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

16 any cessation resulting from bankruptcy.

17 ‘‘(c) ENTERPRISE ZONE FACILITY BONDS NOT SUB18 JECT TO INTEREST DEDUCTION LIMITATIONS ON FINAN19 CIAL INSTITUTIONS.—Any tax-exempt bond described in

20 subsection (b)(1)—

21 ‘‘(1) shall be treated as acquired before August

22 8, 1986, for purposes of sections 265(b) and

23 291(e)(1)(B), and
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1 ‘‘(2) shall not be taken into account in deter2 mining whether any issuer is a qualified small issuer

3 for purposes of section 265(b).

4 ‘‘(d) ADDITIONAL LOW-INCOME HOUSING CREDIT

5 AMOUNT.—

6 ‘‘(1) IN GENERAL.—Each State which includes

7 a border empowerment zone or border enterprise

8 community shall receive an additional State housing

9 credit ceiling amount for purposes of section 42 of

10 $818,000 for each such zone or community.

11 ‘‘(2) ADDITIONAL AMOUNT MUST BE ALLO12 CATED TO BUILDINGS IN DESIGNATED AREAS.—

13 ‘‘(A) IN GENERAL.—The portion of the ad14 ditional amount received under paragraph (1)

15 by reason of any border empowerment zone or

16 border enterprise community which may be ap17 plied to increase the State housing credit ceiling

18 for any calendar year shall not exceed the lesser

19 of—

20 ‘‘(i) the unused portion of such addi21 tional amount with respect to such zone or

22 community, or

23 ‘‘(ii) the aggregate housing credit dol24 lar amount allocated from such ceiling for
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1 such year to buildings located in such zone

2 or community.

3 ‘‘(B) UNUSED PORTION.—For purposes of

4 subparagraph (A), the unused portion for any

5 calendar year of the additional amount received

6 under paragraph (1) is the amount equal to the

7 excess of—

8 ‘‘(i) the additional amount received

9 under paragraph (1) by the State by rea10 son of the zone or community, over

11 ‘‘(ii) the aggregate of the increases in

12 the State housing credit ceiling by reason

13 of such amount for all prior calendar

14 years.

15 ‘‘(3) AVAILABILITY OF ADDITIONAL AMOUNT.—

16 None of the additional amount received under para17 graph (1) may be applied after 1996.

18 ‘‘(4) AREAS LOCATED IN MORE THAN 1

19 STATE.—In the case of a border empowerment zone

20 or border enterprise community which is located in

21 more than 1 State, the $818,000 amount shall be al22 located among such States in proportion to the pop23 ulation of such zone or community which is within

24 each such State.
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1 ‘‘(5) ZONES LOCATED IN CONSTITUTIONAL

2 HOME RULE CITIES.—If any border empowerment

3 zone or border enterprise community is located in a

4 constitutional home rule city (as defined in section

5 42(h)(4)(E)), the additional amount received under

6 paragraph (1) shall be allocated to such city and

7 shall not be taken into account in determining such

8 city’s share of the State housing credit ceiling under

9 section 42(h)(4)(E).

10 ‘‘PART III—ADDITIONAL INCENTIVES FOR

11 BORDER EMPOWERMENT ZONE

‘‘SUBPART A. Empowerment zone employment credit.

‘‘SUBPART B. Zone resident empowerment savings credit.

‘‘SUBPART C. Depreciation and other incentives.

12 ‘‘Subpart A—Empowerment Zone Employment Credit

‘‘Sec. 1396. Empowerment zone employment credit.

‘‘Sec. 1397. Other definitions and special rules.

13 ‘‘SEC. 1396. EMPOWERMENT ZONE EMPLOYMENT CREDIT.

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

15 38, the amount of the empowerment zone employment

16 credit determined under this section with respect to any

17 employer for any taxable year is the applicable percentage

18 of the qualified zone wages paid or incurred during the

19 calendar year which ends with or within such taxable year.

20 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

21 this section, the term ‘applicable percentage’ means the
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1 percentage determined in accordance with the following

2 table:

‘‘In the case of wages paid or The applicable

incurred during calendar year: percentage is:

1994 through 2000 ........................................ 25

2001 ............................................................... 20

2002 ............................................................... 15

2003 ............................................................... 10

2004 ............................................................... 5

3 ‘‘(c) QUALIFIED ZONE WAGES.—

4 ‘‘(1) IN GENERAL.—For purposes of this sec5 tion, the term ‘qualified zone wages’ means any

6 wages paid or incurred by an employer for services

7 performed by an employee while such employee is a

8 qualified zone employee.

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

10 TAKEN INTO ACCOUNT.—With respect to each quali11 fied zone employee, the amount of qualified zone

12 wages which may be taken into account for a cal13 endar year shall not exceed $20,000.

14 ‘‘(3) COORDINATION WITH TARGETED JOBS

15 CREDIT.—

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

17 zone wages’ shall not include wages taken into

18 account in determining the credit under section

19 51.

20 ‘‘(B) COORDINATION WITH PARAGRAPH

21 (2).—The $20,000 amount in paragraph (2)

22 shall be reduced for any calendar year by the
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1 amount of wages paid or incurred during such

2 year which are taken into account in determin3 ing the credit under section 51.

4 ‘‘(d) QUALIFIED ZONE EMPLOYEE.—For purposes of

5 this section—

6 ‘‘(1) IN GENERAL.—Except as otherwise pro7 vided in this subsection, the term ‘qualified zone em8 ployee’ means, with respect to any period, any em9 ployee of an employer if—

10 ‘‘(A) substantially all of the services per11 formed during such period by such employee for

12 such employer are performed within a border

13 empowerment zone in a trade or business of the

14 employer, and

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

16 employee while performing such services is

17 within such border empowerment zone.

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

19 The term ‘qualified zone employee’ shall not in20 clude—

21 ‘‘(A) any individual described in subpara22 graph (A), (B), or (C) of section 51(i)(1),

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

24 section 416(i)(1)(B)),
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1 ‘‘(C) any individual employed by the em2 ployer for less than 90 days,

3 ‘‘(D) any individual employed by the em4 ployer at any facility described in section

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

6 ‘‘(E) any individual employed by the em7 ployer in a trade or business the principal activ8 ity of which is farming (within the meaning of

9 subparagraphs (A) or (B) of section

10 2032A(e)(5)), but only if, as of the close of the

11 taxable year, the sum of—

12 ‘‘(i) the aggregate unadjusted bases

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

14 the assets owned by the employer which

15 are used in such a trade or business, and

16 ‘‘(ii) the aggregate value of assets

17 leased by the employer which are used in

18 such a trade or business (as determined

19 under regulations prescribed by the Sec20 retary),

21 exceeds $500,000.

22 ‘‘(3) SPECIAL RULES RELATED TO TERMI23 NATION OF EMPLOYMENT.—

24 ‘‘(A) IN GENERAL.—Paragraph (2)(C)

25 shall not apply to—
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1 ‘‘(i) a termination of employment of

2 an individual who before the close of the

3 period referred to in paragraph (2)(C) be4 comes disabled to perform the services of

5 such employment unless such disability is

6 removed before the close of such period

7 and the taxpayer fails to offer reemploy8 ment to such individual, or

9 ‘‘(ii) a termination of employment of

10 an individual if it is determined under the

11 applicable State unemployment compensa12 tion law that the termination was due to

13 the misconduct of such individual.

14 ‘‘(B) CHANGES IN FORM OF BUSINESS.—

15 For purposes of paragraph (2)(C), the employ16 ment relationship between the taxpayer and an

17 employee shall not be treated as terminated—

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

19 381(a) applies if the employee continues to

20 be employed by the acquiring corporation,

21 or

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

23 the form of conducting the trade or busi24 ness of the taxpayer if the employee con25 tinues to be employed in such trade or
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1 business and the taxpayer retains a sub2 stantial interest in such trade or business.

3 ‘‘SEC. 1397. OTHER DEFINITIONS AND SPECIAL RULES.

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

5 ‘‘(1) IN GENERAL.—The term ‘wages’ has the

6 same meaning as when used in section 51.

7 ‘‘(2) CERTAIN TRAINING AND EDUCATIONAL

8 BENEFITS.—

9 ‘‘(A) IN GENERAL.—The following

10 amounts shall be treated as wages paid to an

11 employee:

12 ‘‘(i) Any amount paid or incurred by

13 an employer which is excludable from the

14 gross income of an employee under section

15 127, but only to the extent paid or in16 curred to a person not related to the em17 ployer.

18 ‘‘(ii) In the case of an employee who

19 has not attained the age of 19, any

20 amount paid or incurred by an employer

21 for any youth training program operated

22 by such employer in conjunction with local

23 education officials.

24 ‘‘(B) RELATED PERSON.—A person is re25 lated to any other person if the person bears a
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1 relationship to such other person specified in

2 section 267(b) or 707(b)(1), or such person and

3 such other person are engaged in trades or

4 businesses under common control (within the

5 meaning of subsections (a) and (b) of section

6 52). For purposes of the preceding sentence, in

7 applying section 267(b) or 707(b)(1), ‘10 per8 cent’ shall be substituted for ‘50 percent’.

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

10 subpart—

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

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

13 treated as a single employer for purposes of this

14 subpart, and

15 ‘‘(2) the credit (if any) determined under sec16 tion 1396 with respect to each such employer shall

17 be its proportionate share of the wages giving rise

18 to such credit.

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

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

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

22 52 shall apply.

23 ‘‘(d) NOTICE OF AVAILABILITY OF ADVANCE PAY24 MENT OF EARNED INCOME CREDIT.—Each employer

25 shall take reasonable steps to notify all qualified zone em-
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1 ployees of the availability to eligible individuals of receiv2 ing advanced payments of the credit under section 32 (re3 lating to the earned income credit).

4 ‘‘Subpart B—Zone Resident Empowerment Savings

5 Credit

‘‘Sec. 1398. Zone resident empowerment savings credit.

6 ‘‘SEC. 1398. ZONE RESIDENT EMPOWERMENT SAVINGS

7 CREDIT.

8 ‘‘(a) GENERAL RULE.—For purposes of section 38,

9 the amount of the zone resident empowerment savings

10 credit determined under this section with respect to any

11 employer for any taxable year is 50 percent of the quali12 fied savings contributions for the taxable year.

13 ‘‘(b) QUALIFIED SAVINGS CONTRIBUTIONS.—For

14 purposes of this section—

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

16 contribution’ means any contribution by an employer

17 to a defined contribution plan—

18 ‘‘(A) which is made on behalf of an em19 ployee in connection with services performed by

20 such employee while such employee is a quali21 fied zone employee, and

22 ‘‘(B) with respect to which the employee

23 has a nonforfeitable right.

24 ‘‘(2) LIMITATION BASED ON COMPENSATION.—
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1 ‘‘(A) IN GENERAL.—The qualified savings

2 contributions taken into account with respect to

3 any qualified zone employee for any taxable

4 year shall not exceed an amount equal to 2 per5 cent of so much of the employee’s compensation

6 (as defined in section 414(s)) as does not

7 exceed $35,000.

8 ‘‘(B) ZONE DESIGNATION IN EFFECT FOR

9 PARTIAL YEAR.—If a designation of an area as

10 an empowerment zone is in effect for less than

11 the entire taxable year, the $35,000 amount

12 under subparagraph (A) shall be ratably re13 duced to reflect the portion of the year such

14 designation is not in effect.

15 ‘‘(3) CERTAIN CONTRIBUTIONS EXCLUDED.—

16 The term ‘qualified savings contribution’ shall not

17 include any contribution—

18 ‘‘(A) to a plan subject to the funding re19 quirements of section 412,

20 ‘‘(B) to a tax credit employee stock owner21 ship plan (as defined in section 409(a)) or to an

22 employee stock ownership plan (as defined in

23 section 4975(e)(7)),

24 ‘‘(C) to a stock bonus plan, or
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1 ‘‘(D) which is an elective deferral (within

2 the meaning of section 402(g)(3)).

3 ‘‘(4) SIMPLIFIED EMPLOYEE PENSION.—A con4 tribution to an individual savings plan pursuant to

5 a simplified employee pension (as defined in section

6 408(k)) shall be treated as a contribution to a de7 fined contribution plan.

8 ‘‘(c) EMPLOYER REQUIREMENTS.—This section shall

9 apply to an employer for any taxable year only if—

10 ‘‘(1) the employer elects the application of this

11 section, and

12 ‘‘(2) the plan pursuant to which any qualified

13 savings contribution is made provides that any con14 tribution to such plan (whether or not a qualified

15 savings contribution) may be withdrawn by a quali16 fied zone employee as described in section 72(t)(2)

17 (B) or (D).

18 ‘‘(d) DEFINITIONS.—For purposes of this section—

19 ‘‘(1) QUALIFIED ZONE EMPLOYEE.—The term

20 ‘qualified zone employee’ has the meaning given such

21 term by section 1396(d).

22 ‘‘(2) DEFINED CONTRIBUTION PLAN.—The

23 term ‘defined contribution plan’ means a defined

24 contribution plan (as defined in section 414(i))
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1 which is described in section 401(a) and includes a

2 trust exempt from tax under section 501(a).

3 ‘‘(e) TREATMENT OF PLANS.—A plan shall not be

4 treated as failing to meet any requirement of part I of

5 subchapter D of chapter 1 by reason of permitting with6 drawals required to be permitted under subsection (c)(2).

7 ‘‘Subpart C—Depreciation and Other Incentives

‘‘Sec. 1399. Depreciation benefits.

‘‘Sec. 1399A. Additional exclusion from volume cap for certain enterprise zone facility bonds.

‘‘Sec. 1399B. Enterprise zone business.

8 ‘‘SEC. 1399. DEPRECIATION BENEFITS.

9 ‘‘(a) INCREASE IN EXPENSING UNDER SECTION

10 179.—

11 ‘‘(1) IN GENERAL.—In the case of an enterprise

12 zone business, for purposes of section 179—

13 ‘‘(A) qualified zone property shall be treat14 ed as section 179 property,

15 ‘‘(B) the limitation under section

16 179(b)(1) shall be increased by the lesser of—

17 ‘‘(i) $50,000, or

18 ‘‘(ii) the cost of qualified zone prop19 erty placed in service during the taxable

20 year, and

21 ‘‘(C) section 179(b)(2) shall be applied by

22 substituting ‘by one-half of the amount by

23 which the cost of qualified zone property (other
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1 than real property) and other section 179 prop2 erty’ for ‘by the amount by which the cost of

3 section 179 property’.

4 ‘‘(b) ACCELERATED DEPRECIATION.—

5 ‘‘(1) IN GENERAL.—For purposes of section

6 168(a), with respect to qualified zone property of an

7 enterprise zone business, the applicable recovery pe8 riod shall be determined in accordance with the table

9 contained in paragraph (2) in lieu of the table con10 tained in section 168(c).

11 ‘‘(2) APPLICABLE RECOVERY PERIOD FOR

12 QUALIFIED ZONE PROPERTY.—For purposes of para13 graph (1)—

The applicable

‘‘In the case of: recovery period is:

3-year property ........................................................................ 2 years

5-year property ........................................................................ 3 years

7-year property ........................................................................ 4 years

10-year property ...................................................................... 6 years

15-year property ...................................................................... 9 years

20-year property ...................................................................... 12 years

Nonresidential real property .................................................... 22 years.

14 ‘‘(3) DEDUCTION ALLOWED IN COMPUTING

15 MINIMUM TAX.—Paragraph (1) shall apply for pur16 poses of determining alternative minimum taxable

17 income under section 55.

18 ‘‘(c) QUALIFIED ZONE PROPERTY.—For purposes of

19 this section—
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1 ‘‘(1) IN GENERAL.—The term ‘qualified zone

2 property’ means any property to which section 168

3 applies (or would apply but for section 179) if—

4 ‘‘(A) such property was acquired by the

5 taxpayer by purchase (as defined in section

6 179(d)(2)) after the date on which the designa7 tion of the border empowerment zone took ef8 fect,

9 ‘‘(B) the original use of which in a border

10 empowerment zone commences with the tax11 payer, and

12 ‘‘(C) substantially all of the use of which

13 is in a border empowerment zone and is in the

14 active conduct of a trade or business by the tax15 payer in such zone.

16 ‘‘(2) SPECIAL RULE FOR SUBSTANTIAL REN17 OVATIONS.—In the case of any property which is

18 substantially renovated by the taxpayer, the require19 ments of subparagraphs (A) and (B) of paragraph

20 (1) shall be treated as satisfied. For purposes of the

21 preceding sentence, property shall be treated as sub22 stantially renovated by the taxpayer if, during any

23 24-month period beginning after the date on which

24 the designation of the border empowerment zone

25 took effect, additions to basis with respect to such
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1 property in the hands of the taxpayer exceed the

2 greater of (i) an amount equal to the adjusted basis

3 at the beginning of such 24-month period in the

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

5 ‘‘(3) EXCEPTION FOR ALTERNATIVE DEPRECIA6 TION PROPERTY.—The term ‘qualified zone prop7 erty’ does not include any property to which the al8 ternative depreciation system under section 168(g)

9 applies, determined—

10 ‘‘(A) without regard to section 168(g)(7)

11 (relating to election to use alternative deprecia12 tion system), and

13 ‘‘(B) after the application of section

14 280F(b) (relating to listed property with limited

15 business use).

16 ‘‘(d) SPECIAL RULES FOR SALE-LEASEBACKS.—For

17 purposes of subsection (c)(1)(B), if property is sold and

18 leased back by the taxpayer within 3 months after the date

19 such property was originally placed in service, such prop20 erty shall be treated as originally placed in service not ear21 lier than the date on which such property is used under

22 the leaseback.

23 ‘‘(e) RECAPTURE.—Rules similar to the rules under

24 section 179(d)(10) shall apply with respect to any quali-
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1 fied zone property of any business which ceases to be an

2 enterprise zone business.

3 ‘‘SEC. 1399A. ADDITIONAL EXCLUSION FROM VOLUME CAP

4 FOR CERTAIN ENTERPRISE ZONE FACILITY

5 BONDS.

6 ‘‘(a) IN GENERAL.—Section 1394(b)(5) shall be ap7 plied by substituting ‘75 percent’ for ‘50 percent’ in the

8 case of any bond described in section 1394(b)(1) issued

9 as part of an issue 95 percent or more of the net proceeds

10 (as defined in section 150(a)(3)) of which are used to pro11 vide qualified zone property the principal user of which

12 is any enterprise zone business if the ownership require13 ments of subsection (b) are met with respect to such

14 business.

15 ‘‘(b) OWNERSHIP REQUIREMENTS.—The ownership

16 requirements of this subsection are met with respect to

17 an enterprise zone business if—

18 ‘‘(1) in the case of a sole proprietorship, the

19 principal place of abode of the proprietor is in a bor20 der empowerment zone,

21 ‘‘(2) in the case of a corporation, more than 50

22 percent of the stock (by vote and value) in the cor23 poration is owned (directly or indirectly) by individ24 uals whose principal place of abode is in a border

25 empowerment zone, and
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1 ‘‘(3) in the case of a partnership, more than 50

2 percent of the capital and profits interests in the

3 partnership is owned (directly or indirectly) by indi4 viduals whose principal place of abode is in a border

5 empowerment zone.

6 ‘‘SEC. 1399B. ENTERPRISE ZONE BUSINESS DEFINED.

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

8 term ‘enterprise zone business’ means—

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

10 ‘‘(2) any qualified proprietorship.

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

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

13 with respect to any taxable year, any corporation or part14 nership if for such year—

15 ‘‘(1) every trade or business of such entity is

16 the active conduct of a qualified business within a

17 border empowerment zone,

18 ‘‘(2) at least 80 percent of the total gross in19 come of such entity is derived from the active con20 duct of such business,

21 ‘‘(3) substantially all of the use of the tangible

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

23 within a border empowerment zone,
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1 ‘‘(4) substantially all of the intangible property

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

3 the active conduct of any such business,

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

5 for such entity by its employees are performed in a

6 border empowerment zone,

7 ‘‘(6) at least 35 percent of its employees are

8 residents of a border empowerment zone,

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

10 aggregate unadjusted bases of the property of such

11 entity is attributable to collectibles (as defined in

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

13 held primarily for sale to customers in the ordinary

14 course of such business, and

15 ‘‘(8) less than 5 percent of the average of the

16 aggregate unadjusted bases of the property of such

17 entity is attributable to nonqualified financial prop18 erty.

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

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

21 with respect to any taxable year, any qualified business

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

23 year—

24 ‘‘(1) at least 80 percent of the total gross in25 come of such individual from such business is de-
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1 rived from the active conduct of such business in a

2 border empowerment zone,

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

4 property of such individual in such business (wheth5 er owned or leased) is within a border empowerment

6 zone,

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

8 of such business is used in, and exclusively related

9 to, the active conduct of such business,

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

11 for such individual in such business by employees of

12 such business are performed in a border

13 empowerment zone,

14 ‘‘(5) at least 35 percent of such employees are

15 residents of a border empowerment zone,

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

17 aggregate unadjusted bases of the property of such

18 individual which is used in such business is attrib19 utable to collectibles (as defined in section

20 408(m)(2)) other than collectibles that are held pri21 marily for sale to customers in the ordinary course

22 of such business, and

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

24 aggregate unadjusted bases of the property of such
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1 individual which is used in such business is attrib2 utable to nonqualified financial property.

3 For purposes of this subsection, the term ‘employee’ in4 cludes the proprietor.

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

6 section—

7 ‘‘(1) IN GENERAL.—Except as otherwise pro8 vided in this subsection, the term ‘qualified business’

9 means any trade or business.

10 ‘‘(2) RENTAL OF REAL PROPERTY.—The rental

11 to others of real property located in a border

12 empowerment zone shall be treated as a qualified

13 business if and only if—

14 ‘‘(A) the property is not residential rental

15 property (as defined in section 168(e)(2)), and

16 ‘‘(B) at least 50 percent of the gross rental

17 income from the real property is from enter18 prise zone businesses.

19 ‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP20 ERTY.—The rental to others of tangible personal

21 property shall be treated as a qualified business if

22 and only if substantially all of the rental of such

23 property is by enterprise zone businesses or by resi24 dents of a border empowerment zone.
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1 ‘‘(4) TREATMENT OF BUSINESS HOLDING IN2 TANGIBLES.—The term ‘qualified business’ shall not

3 include any trade or business consisting predomi4 nantly of the development or holding of intangibles

5 for sale or license.

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

7 term ‘qualified business’ shall not include—

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

9 the operation of any facility described in section

10 144(c)(6)(B), and

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

12 activity of which is farming (within the meaning

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

14 2032A(e)(5)), but only if, as of the close of the

15 preceding taxable year, the sum of—

16 ‘‘(i) the aggregate unadjusted bases

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

18 the assets owned by the taxpayer which are

19 used in such a trade or business, and

20 ‘‘(ii) the aggregate value of assets

21 leased by the taxpayer which are used in

22 such a trade or business,

23 exceeds $500,000.

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

25 the rules of section 1397(b) shall apply.
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1 ‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For

2 purposes of this section, the term ‘nonqualified financial

3 property’ means debt, stock, partnership interests, op4 tions, futures contracts, forward contracts, warrants, no5 tional principal contracts, annuities, and other similar

6 property specified in regulations; except that such term

7 shall not include—

8 ‘‘(1) reasonable amounts of working capital

9 held in cash, cash equivalents, or debt instruments

10 with a term of 18 months or less, or

11 ‘‘(2) debt instruments described in section

12 1221(4).

13 ‘‘PART IV—REGULATIONS

‘‘Sec. 1399C. Regulations.

14 ‘‘SEC. 1399C. REGULATIONS.

15 ‘‘The Secretary shall prescribe such regulations as

16 may be necessary or appropriate to carry out the purposes

17 of parts II and III, including—

18 ‘‘(1) regulations limiting the benefit of parts II

19 and III in circumstances where such benefits, in

20 combination with benefits provided under other Fed21 eral programs, would result in an activity being 100

22 percent or more subsidized by the Federal Govern23 ment,
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1 ‘‘(2) regulations preventing abuse of the provi2 sions of parts II and III, and

3 ‘‘(3) regulations dealing with inadvertent fail4 ures of entities to be enterprise zone businesses.’’

5 (b) CLERICAL AMENDMENT.—The table of sub6 chapters for chapter 1 is amended by inserting after the

7 item relating to subchapter T the following new item:

‘‘Subchapter U. Designation and treatment of border

empowerment zones and border enterprise communities.’’

8 SEC. 3. EXPANSION OF TARGETED JOBS CREDIT.

9 (a) ALLOWANCE OF CREDIT FOR HIRING BORDER

10 EMPOWERMENT ZONE RESIDENT.—Paragraph (1) of sec11 tion 51(d) (defining members of targeted groups) is

12 amended by striking ‘‘or’’ at the end of subparagraph (I),

13 by striking the period at the end of subparagraph (J) and

14 inserting ‘‘, or’’, and by adding at the end the following

15 new subparagraph:

16 ‘‘(K) an economically disadvantaged border

17 empowerment zone resident.’’

18 (b) ECONOMICALLY DISADVANTAGED

19 EMPOWERMENT ZONE RESIDENT.—Section 51(d) is

20 amended by redesignating paragraphs (13) through (16)

21 as paragraphs (14) through (17), respectively, and by in22 serting after paragraph (12) the following new paragraph:

23 ‘‘(13) ECONOMICALLY DISADVANTAGED BOR24 DER EMPOWERMENT ZONE RESIDENT.—The term
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1 ‘economically disadvantaged border empowerment

2 zone resident’ means an individual—

3 ‘‘(A) whose principal place of abode while

4 performing services for the employer is within a

5 border empowerment zone, and

6 ‘‘(B) who is certified by the designated

7 local agency as being a member of an economi8 cally disadvantaged family (as determined

9 under paragraph (11)).

10 Such term shall not include a qualified zone em11 ployee (as defined in section 1396(d) without regard

12 to paragraph (2) thereof).’’

13 (c) CONFORMING AMENDMENT.—Subparagraph (C)

14 of section 51(d)(12) is amended by striking ‘‘paragraph

15 (14)’’ and inserting ‘‘paragraph (15)’’.

16 SEC. 4. TECHNICAL AND CONFORMING AMENDMENTS.

17 (a) CERTAIN CREDITS PART OF GENERAL BUSINESS

18 CREDIT.—

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

20 current year business credit) is amended by striking

21 ‘‘plus’’ at the end of paragraph (7), by striking the

22 period at the end of paragraph (8) and inserting a

23 comma, and by adding at the end the following new

24 paragraphs:
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1 ‘‘(9) the empowerment zone employment credit

2 determined under section 1396(a), plus

3 ‘‘(10) the zone resident empowerment savings

4 credit determined under section 1398.’’

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

6 adding at the end the following new paragraph:

7 ‘‘(4) ENTERPRISE ZONE CREDITS.—No portion

8 of the unused business credit which is attributable to

9 the credit determined under section 1396 (relating

10 to empowerment zone employment credit) or section

11 1398 (relating to zone resident empowerment sav12 ings credit) may be carried to any taxable year end13 ing before January 1, 1994.’’

14 (b) DENIAL OF DEDUCTION FOR PORTION OF WAGES

15 EQUAL TO EMPOWERMENT ZONE EMPLOYMENT CRED16 IT.—

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

18 rule for targeted jobs credit) is amended—

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

20 determined for the taxable year under section

21 51(a)’’ and inserting ‘‘the sum of the credits

22 determined for the taxable year under sections

23 51(a) and 1396(a)’’, and
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1 (B) by striking ‘‘TARGETED JOBS CRED2 IT’’ in the subsection heading and inserting

3 ‘‘EMPLOYMENT CREDITS’’.

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

5 deduction for certain unused business credits) is

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

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

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

9 the following new paragraph:

10 ‘‘(6) the empowerment zone employment credit

11 determined under section 1396(a).’’

12 (c) EMPLOYMENT AND SAVINGS CREDITS MAY OFF13 SET 25 PERCENT OF MINIMUM TAX.—

14 (1) IN GENERAL.—Section 38(c) (relating to

15 limitation based on amount of tax) is amended by

16 redesignating paragraph (2) as paragraph (3) and

17 by inserting after paragraph (1) the following new

18 paragraph:

19 ‘‘(2) EMPOWERMENT ZONE CREDITS MAY OFF20 SET 25 PERCENT OF MINIMUM TAX.—

21 ‘‘(A) IN GENERAL.—In the case of the

22 empowerment zone credits—

23 ‘‘(i) this section and section 39 shall

24 be applied separately with respect to such

25 credits, and
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1 ‘‘(ii) for purposes of applying para2 graph (1) to such credits—

3 ‘‘(I) 75 percent of the tentative

4 minimum tax shall be substituted for

5 the tentative minimum tax under sub6 paragraph (A) thereof, and

7 ‘‘(II) the limitation under para8 graph (1) (as modified by subclause

9 (I)) shall be reduced by the credit al10 lowed under subsection (a) for the

11 taxable year (other than the

12 empowerment zone credits).

13 ‘‘(B) EMPOWERMENT ZONE CREDITS.—

14 For purposes of this paragraph, the term

15 ‘empowerment zone credits’ means the portion

16 of the credit under subsection (a) which is at17 tributable to the credits determined under sec18 tion 1396 (relating to empowerment zone em19 ployment credit) and section 1398 (relating to

20 zone resident empowerment savings credit).’’

21 (d) CHANGES RELATING TO EMPOWERMENT ZONE

22 RESIDENT EMPOWERMENT SAVINGS CREDIT.—

23 (1) DISALLOWANCE OF DEDUCTION.—Section

24 404 (relating to deduction for certain employer con-
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1 tributions) is amended by adding at the end the fol2 lowing new subsection:

3 ‘‘(m) COORDINATION WITH EMPOWERMENT ZONE

4 CREDIT.—No deduction shall be allowed under this sec5 tion for any qualified employer contribution taken into ac6 count in computing the credit determined under section

7 1398.’’

8 (2) PENALTY-FREE DISTRIBUTIONS.—

9 (A) IN GENERAL.—Paragraph (2) of sec10 tion 72(t) (relating to exceptions to 10-percent

11 additional tax on early distributions from quali12 fied retirement plans) is amended by adding at

13 the end thereof the following new subpara14 graph:

15 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

16 PLANS FOR FIRST HOME PURCHASES OR EDU17 CATIONAL EXPENSES.—

18 ‘‘(i) IN GENERAL.—Distributions to

19 an individual from a qualified retirement

20 plan—

21 ‘‘(I) which are qualified first-time

22 homebuyer distributions (as defined in

23 paragraph (6)),

24 ‘‘(II) to the extent such distribu25 tions do not exceed the qualified high-
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1 er education expenses (as defined in

2 paragraph (7)) of the taxpayer for the

3 taxable year, or

4 ‘‘(III) to the extent such distribu5 tions do not exceed an amount equal

6 to the aggregate investment made by

7 the taxpayer during the taxable year

8 in any enterprise zone business (as

9 defined in section 1399B) that meets

10 the ownership requirements of section

11 1399A(b).

12 ‘‘(ii) LIMITATION.—Clause (i) shall

13 not apply to the extent that the aggregate

14 amount of the distributions described in

15 clause (i) is greater than the excess of—

16 ‘‘(I) the qualified savings con17 tributions (as defined in section

18 1398(b)) of the taxpayer, and any

19 earnings thereon, over

20 ‘‘(II) the aggregate amounts to

21 which clause (i) and the last sentence

22 of paragraph (3)(A) applied for pre23 ceding taxable years.’’
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1 (B) DEFINITIONS.—Section 72(t) is

2 amended by adding at the end thereof the fol3 lowing new paragraphs:

4 ‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS5 TRIBUTIONS.—For purposes of paragraph

6 (2)(D)(i)(I)—

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

8 first-time homebuyer distribution’ means any

9 payment or distribution received by an individ10 ual to the extent such payment or distribution

11 is used by the individual before the close of the

12 60th day after the day on which such payment

13 or distribution is received to pay qualified ac14 quisition costs with respect to a principal resi15 dence of a first-time homebuyer who is such in16 dividual or the spouse of such individual.

17 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

18 For purposes of this paragraph, the term

19 ‘qualified acquisition costs’ means the costs of

20 acquiring, constructing, or reconstructing a res21 idence. Such term includes any usual or reason22 able settlement, financing, or other closing

23 costs.
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1 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

2 DEFINITIONS.—For purposes of this para3 graph—

4 ‘‘(i) FIRST-TIME HOMEBUYER.—The

5 term ‘first-time homebuyer’ means any in6 dividual if—

7 ‘‘(I) such individual (and if mar8 ried, such individual’s spouse) had no

9 present ownership interest in a prin10 cipal residence during the 3-year pe11 riod ending on the date of acquisition

12 of the principal residence to which

13 this paragraph applies, and

14 ‘‘(II) subsection (a)(6), (h), or

15 (k) of section 1034 did not suspend

16 the running of any period of time

17 specified in section 1034 with respect

18 to such individual on the day before

19 the date the distribution is applied

20 pursuant to subparagraph (A)(ii).

21 ‘‘(ii) PRINCIPAL RESIDENCE.—The

22 term ‘principal residence’ has the same

23 meaning as when used in section 1034.

24 ‘‘(iii) DATE OF ACQUISITION.—The

25 term ‘date of acquisition’ means the date—
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1 ‘‘(I) on which a binding contract

2 to acquire the principal residence to

3 which subparagraph (A) applies is en4 tered into, or

5 ‘‘(II) on which construction or re6 construction of such a principal resi7 dence is commenced.

8 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC9 QUISITION.—If any distribution from any quali10 fied retirement plan fails to meet the require11 ments of subparagraph (A) solely by reason of

12 a delay or cancellation of the purchase or con13 struction of the residence, the amount of the

14 distribution may be recontributed to the plan

15 from which it was distributed within 120 days

16 after the date of such distribution.

17 ‘‘(7) QUALIFIED HIGHER EDUCATION EX18 PENSES.—For purposes of paragraph

19 (2)(D)(ii)(II)—

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

21 higher education expenses’ means tuition, fees,

22 books, supplies, and equipment required for the

23 enrollment or attendance of—

24 ‘‘(i) the taxpayer,

25 ‘‘(ii) the taxpayer’s spouse, or
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1 ‘‘(iii) the taxpayer’s child (as defined

2 in section 151(c)(3)) or grandchild,

3 at an eligible educational institution (as defined

4 in section 135(c)(3)).

5 ‘‘(B) COORDINATION WITH SAVINGS BOND

6 PROVISIONS.—The amount of qualified higher

7 education expenses for any taxable year shall be

8 reduced by any amount excludable from gross

9 income under section 135.’’.

10 (C) CONFORMING AMENDMENTS.—

11 (i) Subparagraph (B) of section

12 72(t)(2) is amended by striking ‘‘or (C)’’

13 and inserting ‘‘, (C), or (D)’’.

14 (ii) Section 401(k)(2)(B)(i) is amend15 ed by striking ‘‘or’’ at the end of subclause

16 (III), by striking ‘‘and’’ at the end of

17 subclause (IV) and inserting ‘‘or’’, and by

18 inserting after subclause (IV) the following

19 new subclause:

20 ‘‘(V) subject to the limitation of

21 section 72(t)(2)(D)(ii), the date on

22 which qualified first-time homebuyer

23 distributions (as defined in section

24 72(t)(6)), distributions for qualified

25 higher education expenses (as defined
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1 in section 72(t)(7)), or distributions

2 for investments described in section

3 72(t)(2)(D)(i)(III) are made, and’’.

4 (e) AMENDMENT OF TARGETED JOBS CREDIT.—

5 Subparagraph (A) of section 51(i)(1) is amended by in6 serting ‘‘, or, if the taxpayer is an entity other than a

7 corporation, to any individual who owns, directly or indi8 rectly, more than 50 percent of the capital and profits in9 terests in the entity,’’ after ‘‘of the corporation’’.

10 (f) CARRYOVERS.—Subsection (c) of section 381 (re11 lating to carryovers in certain corporate acquisitions) is

12 amended by adding at the end the following new para13 graph:

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

15 acquiring corporation shall take into account (to the

16 extent proper to carry out the purposes of this sec17 tion and subchapter U, and under such regulations

18 as may be prescribed by the Secretary) the items re19 quired to be taken into account for purposes of sub20 chapter U in respect of the distributor or transferor

21 corporation.’’

22 SEC. 5. EFFECTIVE DATE.

23 The amendments made by this Act shall take effect

24 on the date of the enactment of this Act.
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