```

[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2392 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 2392

  To amend the Internal Revenue Code of 1986 to reinstate a 5-percent 
   investment tax credit, to reduce capital gains taxes, to provide 
certain tax incentives for investments on closed defense bases, and to 
   provide for the use of certain defense funds for the provision of 
  services to certain dislocated defense workers receiving assistance 
                under the Job Training Partnership Act.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             June 10, 1993

    Mr. Zeliff (for himself, Mr. Burton of Indiana, Mr. Hunter, Mr. 
 Solomon, and Mr. Ballenger) introduced the following bill; which was 
  referred jointly to the Committees on Ways and Means, Education and 
                       Labor, and Armed Services

_______________________________________________________________________

                                 A BILL

 
  To amend the Internal Revenue Code of 1986 to reinstate a 5-percent 
   investment tax credit, to reduce capital gains taxes, to provide 
certain tax incentives for investments on closed defense bases, and to 
   provide for the use of certain defense funds for the provision of 
  services to certain dislocated defense workers receiving assistance 
                under the Job Training Partnership Act.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Economic 
Resurgence and Jobs for America Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

                     TITLE I--INVESTMENT TAX CREDIT

SEC. 101. REINSTATEMENT OF 5-PERCENT INVESTMENT TAX CREDIT.

    (a) In General.--Subpart E of part IV of subchapter A of chapter 1 
(relating to rules for computing credit for investment in certain 
depreciable property), as amended by subsection (b)(2), is amended by 
adding at the end the following new section:

``SEC. 50. 5-PERCENT REGULAR INVESTMENT CREDIT.

    ``With respect to any property placed in service after December 31, 
1992--
            ``(1) section 49 shall not apply, and
            ``(2) the regular percentage for purposes of this subpart 
        shall be 5 percent.''
    (b) Conforming Amendments.--
            (1) The table of sections for such subpart E is amended by 
        adding at the end the following new item:

                              ``Sec. 50. 5-percent regular investment 
                                        credit.''
            (2) Section 11813 of the Revenue Reconciliation Act of 1990 
        (Public Law 101-508) is hereby repealed, and the Internal 
        Revenue Code of 1986 shall be applied and administered as if 
        such section (and the amendments made by such section) had 
        never been enacted.

                 TITLE II--CAPITAL GAINS TAX REDUCTION

SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAINS RATE.

    (a) General Rule.--Subsection (h) of section 1 (relating to maximum 
capital gains rate) is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--If a taxpayer has a net capital 
gain for any taxable year, then the tax imposed by this section shall 
not exceed the sum of--
            ``(1) a tax computed at the rates and in the same manner as 
        if this subsection had not been enacted on the taxable income 
        reduced by the net capital gain, plus
            ``(2) a tax equal to the sum of--
                    ``(A) 7.5 percent of so much of the net capital 
                gain as does not exceed--
                            ``(i) the maximum amount of taxable income 
                        to which the 15-percent rate applies under the 
                        table applicable to the taxpayer, reduced by
                            ``(ii) the taxable income to which 
                        paragraph (1) applies, plus
                    ``(B) 15 percent of the net capital gain in excess 
                of the net capital gain to which subparagraph (A) 
                applies.''
    (b) Phase-out of Personal Exemptions and Limitation on Deduction of 
Itemized Deductions Not to Result From Net Capital Gain.--
            (1)(A) Subparagraphs (A) and (B) of section 151(d)(3) 
        (relating to phaseout of exemption amount) are each amended by 
        inserting ``modified'' before ``adjusted gross income''.
            (B) Paragraph (3) of section 151(d) of such Code is amended 
        by redesignating subparagraphs (D) and (E) as subparagraphs (E) 
        and (F), respectively, and by inserting after subparagraph (C) 
        the following new subparagraph:
                    ``(D) Modified adjusted gross income.--For purposes 
                of this paragraph, the term `modified adjusted gross 
                income' means adjusted gross income reduced by the net 
                capital gain.''
            (2) Subsection (a) of section 68 (relating to overall 
        limitation on itemized deductions) is amended by inserting 
        ``(reduced by the net capital gain)'' after ``adjusted gross 
        income''.
    (c) Technical Amendments.--
            (1) Paragraph (1) of section 170(e) is amended by striking 
        ``the amount of gain'' in the material following subparagraph 
        (B)(ii) and inserting ``13/28 (19/34 in the case of a 
        corporation) of the amount of gain''.
            (2)(A) The second sentence of section 7518(g)(6)(A) is 
        amended by striking ``28 percent (34 percent in the case of a 
        corporation)'' and inserting ``15 percent''.
            (B) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, is amended by striking ``28 percent 
        (34 percent in the case of a corporation)'' and inserting ``15 
        percent''.

SEC. 202. REDUCTION IN CORPORATE CAPITAL GAINS RATE.

    (a) General Rule.--Section 1201 (relating to alternative tax for 
corporations) is amended by striking subsection (a) and inserting the 
following:
    ``(a) General Rule.--If for any taxable year a corporation has a 
net capital gain, then, in lieu of the tax imposed by section 11, 511, 
or 831(a) (whichever applies), there is hereby imposed a tax (if such 
tax is less than the tax imposed by such section) which shall consist 
of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        net capital gain, at the same rates and in the same manner as 
        if this subsection had not been enacted, plus
            ``(2) a tax of 15 percent of the net capital gain.''
    (b) Technical Amendments.--
            (1) Clause (iii) of section 852(b)(3)(D) is amended by 
        striking ``66 percent'' and inserting ``85 percent''.
            (2) Paragraphs (1) and (2) of section 1445(e) are each 
        amended by striking ``34 percent'' and inserting ``15 
        percent''.

SEC. 203. REDUCTION OF MINIMUM TAX RATE ON CAPITAL GAINS.

    Subparagraph (A) of section 55(b)(1) (relating to tentative minimum 
tax) is amended to read as follows:
                    ``(A) the sum of--
                            ``(i) 15 percent of the lesser of--
                                    ``(I) the net capital gain 
                                (determined with the adjustments 
                                provided in this part), or
                                    ``(II) so much of the alternative 
                                minimum taxable income for the taxable 
                                year as exceeds the exemption amount, 
                                plus
                            ``(ii) 20 percent (24 percent in the case 
                        of a taxpayer other than a corporation) of the 
                        amount (if any) by which the excess referred to 
                        in clause (i)(II) exceeds the net capital gain 
                        (as so determined), reduced by''.

SEC. 204. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN 
              OR LOSS.

    (a) In General.--Part II of subchapter O of chapter 1 (relating to 
basis rules of general application) is amended by inserting after 
section 1021 the following new section:

``SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING 
              GAIN OR LOSS.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted basis.--Except 
        as provided in paragraph (2), if an indexed asset which has 
        been held for more than 1 year is sold or otherwise disposed 
        of, for purposes of this title the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The deduction for 
        depreciation, depletion, and amortization shall be determined 
        without regard to the application of paragraph (1) to the 
        taxpayer or any other person.
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, the term 
        `indexed asset' means--
                    ``(A) stock in a corporation, and
                    ``(B) tangible property (or any interest therein), 
                which is a capital asset of property used in the trade 
                or business (as defined in section 1231(b)).
            ``(2) Certain property excluded.--For purposes of this 
        section, the term `indexed asset' does not include--
                    ``(A) Creditor's interest.--Any interest in 
                property which is in the nature of a creditor's 
                interest.
                    ``(B) Options.--Any option or other right to 
                acquire an interest in property.
                    ``(C) Net lease property.--In the case of a lessor, 
                net lease property (within the meaning of subsection 
                (h)(1)).
                    ``(D) Certain preferred stock.--Stock which is 
                fixed and preferred as to dividends and does not 
                participate in corporate growth to any significant 
                extent.
                    ``(E) Stock in certain corporations.--Stock in--
                            ``(i) an S corporation (within the meaning 
                        of section 1361),
                            ``(ii) a personal holding company (as 
                        defined in section 542), and
                            ``(iii) a foreign corporation.
            ``(3) Exception for stock in foreign corporation which is 
        regularly traded on national or regional exchange.--Clause 
        (iii) of paragraph (2)(E) shall not apply to stock in a foreign 
        corporation the stock of which is listed on the New York Stock 
        Exchange, the American Stock Exchange, or any domestic regional 
        exchange for which quotations are published on a regular basis 
        other than--
                    ``(A) stock of a foreign investment company (within 
                the meaning of section 1246(b)), and
                    ``(B) stock in a foreign corporation held by a 
                United States person who meets the requirements of 
                section 1248(a)(2).
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) Indexed basis.--The indexed basis for any asset is--
                    ``(A) the adjusted basis of the asset, multiplied 
                by
                    ``(B) the applicable inflation ratio.
            ``(2) Applicable inflation ratio.--The applicable inflation 
        ratio for any asset is the percentage arrived at by dividing--
                    ``(A) the gross national product deflator for the 
                calendar quarter in which the disposition takes place, 
                by
                    ``(B) the gross national product deflator for the 
                calendar quarter in which the asset was acquired by the 
                taxpayer (or, if later, the calendar quarter ending 
                December 31, 1992).
        The applicable inflation ratio shall not be taken into account 
        unless it is greater than 1. The applicable inflation ratio for 
        any asset shall be rounded to the nearest one-tenth of 1 
        percent.
            ``(3) Gross national product deflator.--The gross national 
        product deflator for any calendar quarter is the implicit price 
        deflator for the gross national product for such quarter (as 
        shown in the 1st revision thereof).
            ``(4) Secretary to publish tables.--The Secretary shall 
        publish tables specifying the applicable inflation ratios for 
        each calendar quarter.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Treatment as separate asset.--In the case of any 
        asset, the following shall be treated as a separate asset:
                    ``(A) a substantial improvement to property,
                    ``(B) in the case of stock of a corporation, a 
                substantial contribution to capital, and
                    ``(C) any other portion of an asset to the extent 
                that separate treatment of such portion is appropriate 
                to carry out the purposes of this section.
            ``(2) Assets which are not indexed assets throughout 
        holding period.--
                    ``(A) In general.--The applicable inflation ratio 
                shall be appropriately reduced for calendar months at 
                any time during which the asset was not an indexed 
                asset.
                    ``(B) Certain short sales.--For purposes of 
                applying subparagraph (A), an asset shall be treated as 
                not an indexed asset for any short sale period during 
                which the taxpayer or the taxpayer's spouse sells short 
                property substantially identical to the asset. For 
                purposes of the preceding sentence, the short sale 
                period begins on the day after the substantially 
                identical property is sold and ends on the closing date 
                for the sale.
            ``(3) Treatment of certain distributions.--A distribution 
        with respect to stock in a corporation which is not a dividend 
        shall be treated as a disposition.
            ``(4) Section cannot increase ordinary loss.--To the extent 
        that (but for this paragraph) this section would create or 
        increase a net ordinary loss to which section 1231(a)(2) 
        applies or an ordinary loss to which any other provision of 
        this title applies, such provision shall not apply. The 
        taxpayer shall be treated as having a long-term capital loss in 
        an amount equal to the amount of the ordinary loss to which the 
        preceding sentence applies.
            ``(5) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of subsection 
        (a)(1) to an asset while such asset was held by the taxpayer, 
        the date of acquisition of such asset by the taxpayer shall be 
        treated as not earlier than the date of the most recent such 
        prior application.
            ``(6) Collapsible corporations.--The application of section 
        341(a) (relating to collapsible corporations) shall be 
        determined without regard to this section.
    ``(e) Certain Conduit Entities.--
            ``(1) Regulated investment companies; real estate 
        investment trusts; common trust funds.--
                    ``(A) In general.--Stock in a qualified investment 
                entity shall be an indexed asset for any calendar month 
                in the same ratio as the fair market value of the 
                assets held by such entity at the close of such month 
                which are indexed assets bears to the fair market value 
                of all assets of such entity at the close of such 
                month.
                    ``(B) Ratio of 90 percent or more.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 90 percent or 
                more, such ratio for such month shall be 100 percent.
                    ``(C) Ratio of 10 percent or less.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 10 percent or 
                less, such ratio for such month shall be zero.
                    ``(D) Valuation of assets in case of real estate 
                investment trusts.--Nothing in this paragraph shall 
                require a real estate investment trust to value its 
                assets more frequently than once each 36 months (except 
                where such trust ceases to exist). The ratio under 
                subparagraph (A) for any calendar month for which there 
                is no valuation shall be the trustee's good faith 
                judgment as to such valuation.
                    ``(E) Qualified investment entity.--For purposes of 
                this paragraph, the term `qualified investment entity' 
                means--
                            ``(i) a regulated investment company 
                        (within the meaning of section 851),
                            ``(ii) a real estate investment trust 
                        (within the meaning of section 856), and
                            ``(iii) a common trust fund (within the 
                        meaning of section 584).
            ``(2) Partnerships.--In the case of a partnership, the 
        adjustment made under subsection (a) at the partnership level 
        shall be passed through to the partners.
            ``(3) Subchapter s corporations.--In the case of an 
        electing small business corporation, the adjustment under 
        subsection (a) at the corporate level shall be passed through 
        to the shareholders.
    ``(f) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to any sale 
        or other disposition of property between related persons except 
        to the extent that the basis of such property in the hands of 
        the transferee is a substituted basis.
            ``(2) Related persons defined.--For purposes of this 
        section, the term `related persons' means--
                    ``(A) persons bearing a relationship set forth in 
                section 267(b), and
                    ``(B) persons treated as single employer under 
                subsection (b) or (c) of section 414.
    ``(g) Transfers To Increase Indexing Adjustment or Depreciation 
Allowance.--If any person transfers cash, debt, or any other property 
to another person and the principal purpose of such transfer is--
            ``(1) to secure or increase an adjustment under subsection 
        (a), or
            ``(2) to increase (by reason of an adjustment under 
        subsection (a)) a deduction for depreciation, depletion, or 
        amortization,
the Secretary may disallow part or all of such adjustment or increase.
    ``(h) Definitions.--For purposes of this section--
            ``(1) Net lease property defined.--The term `net lease 
        property' means leased real property where--
                    ``(A) the term of the lease (taking into account 
                options to renew) was 50 percent or more of the useful 
                life of the property, and
                    ``(B) for the period of the lease, the sum of the 
                deductions with respect to such property which are 
                allowable to the lessor solely by reason of section 162 
                (other than rents and reimbursed amounts with respect 
                to such property) is 15 percent or less of the rental 
                income produced by such property.
            ``(2) Stock includes interest in common trust fund.--The 
        term `stock in a corporation' includes any interest in a common 
        trust fund (as defined in section 584(a)).
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of such chapter 1 is amended by inserting after the item 
relating to section 1021 the following new item:

                              ``Sec. 1022. Indexing of certain assets 
                                        for purposes of determining 
                                        gain or loss.''
    (c) Adjustment To Apply for Purposes of Determining Earnings and 
Profits.--Subsection (f) of section 312 (relating to effect on earnings 
and profits of gain or loss and of receipt of tax-free distributions) 
is amended by adding at the end the following new paragraph:
            ``(3) Effect on earnings and profits of indexed basis.--

                                ``For substitution of indexed basis for 
adjusted basis in the case of the disposition of certain assets after 
December 31, 1992, see section 1022(a)(1).''

SEC. 205. INDEXING OF LIMITATION ON CAPITAL LOSSES OF INDIVIDUALS.

    Section 1211 (relating to limitation on capital losses) is amended 
by adding at the end the following new subsection:
    ``(c) Indexation of Limitation on Noncorporate Taxpayers.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1992, the $3,000 and $1,500 
        amounts under subsection (b)(1) shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the applicable inflation adjustment for the 
                calendar year in which the taxable year begins.
            ``(2) Applicable inflation adjustment.--For purposes of 
        paragraph (1), the applicable inflation adjustment for any 
        calendar year is the percentage (if any) by which--
                    ``(A) the gross national product deflator for the 
                last calendar quarter of the preceding calendar year, 
                exceeds
                    ``(B) the gross national product deflator for the 
                last calendar quarter of 1991.
        For purposes of this paragraph, the term `gross national 
        product deflator' has the meaning given such term by section 
        1022(c)(3).''

SEC. 206. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this title shall apply to sales or exchanges 
occurring after December 31, 1992.
    (b) Indexing of Loss Limitation.--The amendment made by section 205 
shall apply to taxable years beginning after December 31, 1992

    TITLE III--INCENTIVES FOR REDEVELOPMENT OF CLOSED MILITARY BASES

SEC. 301. TAX INCENTIVES FOR INVESTMENTS ON CLOSED MILITARY BASES.

    (a) General Rule.--Chapter 1 (relating to normal taxes and 
surtaxes) is amended by inserting after subchapter T the following new 
subchapter:

    ``Subchapter U--Investment Incentives for Closed Military Bases

                              ``Sec. 1391. Exclusion of gain from 
                                        closed military base 
                                        investments.
                              ``Sec. 1392. Modification of passive loss 
                                        rules.
                              ``Sec. 1393. Additional incentives.
                              ``Sec. 1394. Closed base business 
                                        defined.
                              ``Sec. 1395. Qualified closed military 
                                        base defined.
                              ``Sec. 1396. Regulations.

``SEC. 1391. EXCLUSION OF GAIN FROM CLOSED MILITARY BASE INVESTMENTS.

    ``(a) General Rule.--Gross income shall not include 100 percent of 
any qualified capital gain recognized on the sale or exchange of a 
qualified closed base asset held for more than 5 years.
    ``(b) Qualified Closed Base Asset.--For purposes of this section--
            ``(1) In general.--The term `qualified closed base asset' 
        means--
                    ``(A) any qualified stock,
                    ``(B) any qualified business property, and
                    ``(C) any qualified partnership interest.
        Such term shall not include any property acquired by the 
        taxpayer after November 30, 1997.
            ``(2) Qualified stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified stock' means any 
                stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer on original issue from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was a closed base 
                        business (or, in the case of a new corporation, 
                        such corporation was being organized for 
                        purposes of being a closed base business), and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a closed base 
                        business.
                    ``(B) Redemptions.--The term `qualified stock' 
                shall not include any stock acquired from a corporation 
                which made a substantial stock redemption or 
                distribution (without a bona fide business purpose 
                therefor) in an attempt to avoid the purposes of this 
                section.
            ``(3) Qualified business property.--
                    ``(A) In general.--The term `qualified business 
                property' means any property if--
                            ``(i) such property was acquired by the 
                        taxpayer by purchase (as defined in section 
                        179(d)(2)) after the date on which the closure 
                        of the military base occurred,
                            ``(ii) the original use of such property on 
                        a qualified closed military base commences with 
                        the taxpayer, and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such property, 
                        substantially all of the use of such property 
                        was within a qualified closed military base and 
                        in a closed base business of the taxpayer.
                    ``(B) Special rule for substantial improvements.--
                The requirements of clauses (i) and (ii) of 
                subparagraph (A) shall be treated as satisfied with 
                respect to--
                            ``(i) property which is substantially 
                        improved by the taxpayer, and
                            ``(ii) any land on which such property is 
                        located.
                For purposes of the preceding sentence, property shall 
                be treated as substantially improved by the taxpayer 
                if, during any 24-month period beginning after the date 
                on which closure of the military base occurred, 
                additions to basis with respect to such property in the 
                hands of the taxpayer exceed the greater of (i) an 
                amount equal to the adjusted basis at the beginning of 
                such 24-month period in the hands of the taxpayer, or 
                (ii) $5,000.
                    ``(C) Limitation on land.--The term `qualified 
                business property' shall not include land which is not 
                an integral part of a qualified business.
            ``(4) Qualified partnership interest.--The term `qualified 
        partnership interest' means any interest in a partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                from the partnership solely in exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was a closed base business (or, in the 
                case of a new partnership, such partnership was being 
                organized for purposes of being a closed base 
                business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a closed base business.
        A rule similar to the rule of paragraph (2)(B) shall apply for 
        purposes of this paragraph.
            ``(5) Treatment of subsequent purchasers.--The term 
        `qualified closed base asset' includes any property which would 
        be a qualified closed base asset but for paragraph (2)(A)(i), 
        (3)(A)(ii), or (4)(A) in the hands of the taxpayer if such 
        property was a qualified closed base asset in the hands of any 
        prior holder.
            ``(6) 10-year safe harbor.--If any property ceases to be a 
        qualified closed base asset by reason of paragraph (2)(A)(iii), 
        (3)(A)(iii), or (4)(C) after the 10-year period beginning on 
        the date the taxpayer acquired such property, such property 
        shall continue to be treated as meeting the requirements of 
        such paragraph; except that the amount of gain to which 
        subsection (a) applies on any sale or exchange of such property 
        shall not exceed the amount which would be qualified capital 
        gain had such property been sold on the date of such cessation.
    ``(c) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified capital gain.--Except as otherwise provided 
        in this subsection, the term `qualified capital gain' means any 
        long-term capital gain.
            ``(2) Certain gain on real property not qualified.--The 
        term `qualified capital gain' shall not include any gain which 
        would be treated as ordinary income under section 1250 if 
        section 1250 applied to all depreciation rather than the 
        additional depreciation.
    ``(d) Treatment of Pass-Thru Entities.--
            ``(1) Sales and exchanges.--Gain on the sale or exchange of 
        an interest in a pass-thru entity held by the taxpayer (other 
        than an interest in an entity which was a closed base business 
        during substantially all of the period the taxpayer held such 
        interest) for more than 5 years shall be treated as gain 
        described in subsection (a) to the extent such gain is 
        attributable to amounts which would be qualified capital gain 
        on qualified closed base assets (determined as if such assets 
        had been sold on the date of the sale or exchange) held by such 
        entity for more than 5 years and throughout the period the 
        taxpayer held such interest. A rule similar to the rule of 
        paragraph (2)(C) shall apply for purposes of the preceding 
        sentence.
            ``(2) Income inclusions.--
                    ``(A) In general.--Any amount included in income by 
                reason of holding an interest in a pass-thru entity 
                (other than an entity which was a closed base business 
                during substantially all of the period the taxpayer 
                held the interest to which such inclusion relates) 
                shall be treated as gain described in subsection (a) if 
                such amount meets the requirements of subparagraph (B).
                    ``(B) Requirements.--An amount meets the 
                requirements of this subparagraph if--
                            ``(i) such amount is attributable to 
                        qualified capital gain recognized on the sale 
                        or exchange by the pass-thru entity of property 
                        which is a qualified closed base asset in the 
                        hands of such entity and which was held by such 
                        entity for the period required under subsection 
                        (a), and
                            ``(ii) such amount is includible in the 
                        gross income of the taxpayer by reason of the 
                        holding of an interest in such entity which was 
                        held by the taxpayer on the date on which such 
                        pass-thru entity acquired such asset and at all 
                        times thereafter before the disposition of such 
                        asset by such pass-thru entity.
                    ``(C) Limitation based on interest originally held 
                by taxpayer.--Subparagraph (A) shall not apply to any 
                amount to the extent such amount exceeds the amount to 
                which subparagraph (A) would have applied if such 
                amount were determined by reference to the interest the 
                taxpayer held in the pass-thru entity on the date the 
                qualified zone asset was acquired.
            ``(3) Pass-thru entity.--For purposes of this subsection, 
        the term `pass-thru entity' means--
                    ``(A) any partnership,
                    ``(B) any S corporation,
                    ``(C) any regulated investment company, and
                    ``(D) any common trust fund.
    ``(e) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which are Closed Base Businesses.--In the case of the sale 
or exchange of an interest in a partnership, or of stock in an S 
corporation, which was a closed base business during substantially all 
of the period the taxpayer held such interest or stock, the amount of 
qualified capital gain shall be determined without regard to--
            ``(1) any intangible, and any land, which is not an 
        integral part of any qualified business, and
            ``(2) gain attributable to periods before the closure of 
        the military base.
    ``(f) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer of a qualified 
        closed base asset to which this subsection applies, the 
        transferee shall be treated as--
                    ``(A) having acquired such asset in the same manner 
                as the transferor, and
                    ``(B) having held such asset during any continuous 
                period immediately preceding the transfer during which 
                it was held (or treated as held under this subsection) 
                by the transferor.
            ``(2) Transfers to which subsection applies.--This 
        subsection shall apply to any transfer--
                    ``(A) by gift,
                    ``(B) at death, or
                    ``(C) from a partnership to a partner thereof of a 
                qualified closed base asset with respect to which the 
                requirements of subsection (d)(2) are met at the time 
                of the transfer (without regard to the 5-year holding 
                requirement).
            ``(3) Certain rules made applicable.--Rules similar to the 
        rules of section 1244(d)(2) shall apply for purposes of this 
        section.
    ``(g) Certain Businesses Treated as Not Qualified Businesses.--For 
purposes of this section, the term `closed base business' has the 
meaning given such term by section 1394; except that, in applying 
section 1394 for such purposes, the term `qualified business' shall not 
include any trade or business of producing property of a character 
subject to the allowance for depletion under section 611.

``SEC. 1392. MODIFICATION OF PASSIVE LOSS RULES.

    ``(a) In General.--If this section applies to any taxpayer for a 
taxable year--
            ``(1) paragraph (2) of section 469(c) shall not apply to 
        any qualified rental real estate activity of such taxpayer for 
        such taxable year, and
            ``(2) this section shall be applied as if each interest of 
        the taxpayer in rental real estate described in subsection (b) 
        were a separate activity.
Notwithstanding paragraph (2), a taxpayer may elect to treat all 
interests in rental real estate described in subsection (b) as one 
activity. Nothing in the preceding provisions of this subsection shall 
be construed as affecting the determination of whether the taxpayer 
materially participates with respect to any interest in a limited 
partnership as a limited partner.
    ``(b) Qualified Rental Real Estate Activity.--For purposes of this 
section, the term `qualified rental real estate activity' means any 
rental real estate activity with respect to any real property which--
            ``(1) is located within a qualified closed base, and
            ``(2) is acquired by the taxpayer after the date on which 
        such base was closed and before December 1, 1998.
    ``(c) Taxpayers To Whom Section Applies.--This section shall apply 
to a taxpayer for a taxable year if more than one-half of the personal 
services performed in trades or businesses by the taxpayer during such 
taxable year are performed in real property trades or businesses in 
which the taxpayer materially participates.
    ``(d) Real Property Trade or Business.--For purposes of this 
section, the term `real property trade or business' means any real 
property development, redevelopment, construction, reconstruction, 
acquisition, conversion, rental, operation, management, leasing, or 
brokerage trade or business.
    ``(e) Special Rules for Subsection (c).--
            ``(1) Closely held c corporations.--In the case of a 
        closely held C corporation, the requirements of subsection (c) 
        shall be treated as met for any taxable year if more than 50 
        percent of the gross receipts of such corporation for such 
        taxable year are derived from real property trades or 
        businesses in which the corporation materially participates.
            ``(2) Personal services as an employee.--For purposes of 
        subsection (c), personal services performed as an employee 
        shall not be treated as performed in real property trades or 
        businesses. The preceding sentence shall not apply if such 
        employee is a 5-percent owner (as defined in section 
        416(i)(1)(B)) in the employer.

``SEC. 1393. ADDITIONAL INCENTIVES.

    ``(a) Increase in Expensing Under Section 179.--In the case of a 
closed base business, section 179(b)(1) shall be applied by 
substituting `$50,000' for `$10,000'; except that any increase under 
this subsection in such dollar amount for any taxable year shall not 
exceed $250,000 reduced by the aggregate additional amount allowed as a 
deduction under section 179 for prior taxable years by reason of this 
subsection. The preceding sentence shall not apply to property acquired 
after November 30, 1997.
    ``(b) Ordinary Loss Treatment for Certain Property.--
            ``(1) In general.--Loss on any qualified closed base asset 
        (as defined in section 1391(b)) held for more than 2 years (5 
        years in the case of real property) shall be treated as an 
        ordinary loss.
            ``(2) Real property.--For purposes of paragraph (1), the 
        term `real property' means any property which is section 1250 
        property (as defined in section 1250(c)).
            ``(3) Special rules.--
                    ``(A) Certain rules made applicable.--For purposes 
                of this subsection, rules similar to the following 
                rules shall apply:
                            ``(i) Paragraphs (1), (2), and (3) of 
                        section 1244(d).
                            ``(ii) Subsections (b)(6), (d), (e), and 
                        (f) of section 1391.
                    ``(B) Coordination with section 1231.--Losses 
                treated as ordinary losses by reason of this subsection 
                shall not be taken into account in applying section 
                1231.

``SEC. 1394. CLOSED BASE BUSINESS DEFINED.

    ``(a) In General.--For purposes of this subchapter, the term 
`closed base business' means--
            ``(1) any qualified business entity, and
            ``(2) any qualified proprietorship.
    ``(b) Qualified Business Entity.--For purposes of this section, the 
term `qualified business entity' means, with respect to any taxable 
year, any corporation or partnership if for such year--
            ``(1)(A) every trade or business of such entity is the 
        active conduct of a qualified business within a qualified 
        closed military base, and
            ``(B) at least 80 percent of the total gross income of such 
        entity is derived from the active conduct of such business,
            ``(2) substantially all of the use of the tangible property 
        of such entity (whether owned or leased) is within a qualified 
        closed military base,
            ``(3) substantially all of the intangible property of such 
        entity is used in, and exclusively related to, the active 
        conduct of any such business,
            ``(4) substantially all of the services performed for such 
        entity by its employees are performed within a qualified closed 
        military base,
            ``(5) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to collectibles (as defined in section 408(m)(2)) other than 
        collectibles that are held primarily for sale to customers in 
        the ordinary course of such business, and
            ``(6) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to nonqualified financial property.
    ``(c) Qualified Proprietorship.--For purposes of this section, the 
term `qualified proprietorship' means, with respect to any taxable 
year, any qualified business carried on by an individual as a 
proprietorship if for such year--
            ``(1) at least 80 percent of the total gross income of such 
        individual from such business is derived from the active 
        conduct of such business within a qualified closed base,
            ``(2) substantially all of the use of the tangible property 
        of such individual in such business (whether owned or leased) 
        is within a qualified closed base,
            ``(3) substantially all of the intangible property of such 
        business is used in, and exclusively related to, the active 
        conduct of such business,
            ``(4) substantially all of the services performed for such 
        individual in such business by employees of such business are 
        performed within a qualified closed base,
            ``(5) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to collectibles (as 
        defined in section 408(m)(2)) other than collectibles that are 
        held primarily for sale to customers in the ordinary course of 
        such business, and
            ``(6) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to nonqualified financial 
        property.
For purposes of this subsection, the term `employee' includes the 
proprietor.
    ``(d) Qualified Business.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified business' means any trade or 
        business.
            ``(2) Rental of real property.--The rental to others of 
        real property located in a qualified closed base shall be 
        treated as a qualified business if and only if--
                    ``(A) in the case of real property which is not 
                residential rental property (as defined in section 
                168(e)(2)), the lessee is a closed base business, or
                    ``(B) in the case of residential rental property 
                (as so defined)--
                            ``(i) such property was originally placed 
                        in service after the date the base was closed, 
                        or
                            ``(ii) such property is rehabilitated after 
                        such date in a rehabilitation which meets 
                        requirements based on the principles of section 
                        42(e)(3).
            ``(3) Rental of tangible personal property.--The rental to 
        others of tangible personal property shall be treated as a 
        qualified business if and only if substantially all of the 
        rental of such property is by closed base businesses or by 
        residents of a qualified closed base.
            ``(4) Treatment of business holding intangibles.--The term 
        `qualified business' shall not include any trade or business 
        consisting predominantly of the development or holding of 
        intangibles for sale or license.
            ``(5) Certain businesses excluded.--The term `qualified 
        business' shall not include--
                    ``(A) any trade or business consisting of the 
                operation of any facility described in section 
                144(c)(6)(B), and
                    ``(B) any trade or business the principal activity 
                of which is farming (within the meaning of 
                subparagraphs (A) or (B) of section 2032A(e)(5)), but 
                only if, as of the close of the preceding taxable year, 
                the sum of--
                            ``(i) the aggregate unadjusted bases (or, 
                        if greater, the fair market value) of the 
                        assets owned by the taxpayer which are used in 
                        such a trade or business, and
                            ``(ii) the aggregate value of assets leased 
                        by the taxpayer which are used in such a trade 
                        or business,
                exceeds $500,000.
        For purposes of subparagraph (B), rules similar to the rules of 
        sections 52 (a) and (b) shall apply.
    ``(e) Nonqualified Financial Property.--For purposes of this 
section, the term `nonqualified financial property' means debt, stock, 
partnership interests, options, futures contracts, forward contracts, 
warrants, notional principal contracts, annuities, and other similar 
property specified in regulations; except that such term shall not 
include--
            ``(1) reasonable amounts of working capital held in cash, 
        cash equivalents, or debt instruments with a term of 18 months 
        or less, or
            ``(2) debt instruments described in section 1221(4).

``SEC. 1395. QUALIFIED CLOSED MILITARY BASE DEFINED.

    For purposes of this subchapter, the term `qualified closed 
military base' means any military installation if--
            ``(1) such installation was closed pursuant to the Defense 
        Base Closure and Realignment Act of 1990 (10 U.S.C. 2687 note), 
        and
            ``(2) the Secretary of Defense certifies to the Secretary 
        that at least 1,000 workers on such installation or in 
        surrounding areas were displaced by reason of such closure.

``SEC. 1396. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes of this subchapter, 
including--
            ``(1) regulations limiting the benefit of this part in 
        circumstances where such benefits, in combination with benefits 
        provided under other Federal programs, would result in an 
        activity being 100 percent or more subsidized by the Federal 
        Government,
            ``(2) regulations preventing abuse of the provisions of 
        this part, and
            ``(3) regulations dealing with inadvertent failures of 
        entities to be closed base businesses.''
    (b) Clerical Amendment.--The table of subchapters for chapter 1 is 
amended by inserting after the item relating to subchapter T the 
following new item:

                              ``Subchapter U. Investment incentives for 
                                        closed military bases.''

SEC. 302. SPECIAL RULES FOR REDEVELOPMENT BONDS PROVIDING FINANCING FOR 
              CLOSED MILITARY BASES.

    (a) In General.--Subsection (c) of section 144 (relating to 
qualified redevelopment bonds) is amended by adding at the end thereof 
the following new paragraph:
            ``(9) Special rules for tax enterprise zones.--For purposes 
        of this subsection, in the case of bonds issued during the 
        period beginning on the date a qualified closed military base 
        is closed and ending on November 30, 1997--
                    ``(A) Treatment as designated blighted area.--Such 
                area shall be treated as a designated blighted area. 
                Any area designated by reason of the preceding sentence 
                shall not be taken into account in applying paragraph 
                (4)(C).
                    ``(B) Security for bonds.--The requirements of 
                paragraph (2)(B) shall be treated as met with respect 
                to a financed area that is within a qualified closed 
                military base if the general purpose governmental unit 
                guarantees the payment of principal and interest on the 
                issue either directly or through insurance, a letter of 
                credit, or a similar agreement but only if the cost 
                thereof is financed other than with proceeds of any 
                tax-exempt private activity bond or earnings on such 
                proceeds.
                    ``(C) Expansion of redevelopment purposes.--
                            ``(i) In general.--The term `redevelopment 
                        purposes' includes the making of loans to any 
                        closed base business (as defined in section 
                        1394) for--
                                    ``(I) the acquisition of land 
                                within the qualified closed base for 
                                use in such business, or
                                    ``(II) the acquisition, 
                                construction, reconstruction, or 
                                improvement by such business of land, 
                                or property of a character subject to 
                                the allowance for depreciation, for use 
                                in such business.
                            ``(ii) $2,500,000 limitation.--Clause (i) 
                        shall apply to loans made to any closed base 
                        business only if the aggregate principal amount 
                        of such loans (whether or not financed by the 
                        same issue) does not exceed $2,500,000. For 
                        purposes of the preceding sentence, all persons 
                        treated as a single employer under subsection 
                        (a) or (b) of section 52 shall be treated as 1 
                        person.
                            ``(iii) Loans must be made within 18 months 
                        after bonds issued; repayments must be used for 
                        redemptions.--Clause (i) shall apply only to 
                        loans--
                                    ``(I) made during the 18-month 
                                period beginning on the date of 
                                issuance of the issue financing such 
                                loan,
                                    ``(II) repayments of principal on 
                                which are used not later than the close 
                                of the 1st semiannual period beginning 
                                after the date the repayment is 
                                received to redeem bonds which are part 
                                of such issue, and
                                    ``(III) the effective rate of 
                                interest on which does not exceed the 
                                yield on the issue by more than 0.125 
                                percentage points.
                        In determining the effective rate of interest 
                        for purposes of subclause (III), there shall be 
                        taken into account all fees, charges, and other 
                        amounts (other than amounts for any credit 
                        report) borne by the borrower which are 
                        attributable to the loan or the bond issue.
                            ``(iv) Housing loans excluded.--Clause (i) 
                        shall not apply to any loan to be used directly 
                        or indirectly to provide residential real 
                        property.
                            ``(v) Coordination with restrictions on use 
                        of proceeds.--Paragraphs (6) and (8) shall 
                        apply notwithstanding clause (i); except that 
                        in applying paragraph (6), subsection (a)(8) 
                        shall be treated as not including a reference 
                        to a facility the primary purpose of which is 
                        retail food services.
                    ``(D) Issuer to designate amount of issue to be 
                used for loans.--Subparagraph (C) shall not apply with 
                respect to any issue unless the issuer designates 
                before the date of issuance the amount of the proceeds 
                of such issue which is to be used for loans to which 
                subparagraph (C)(i) applies. If such amount exceeds the 
                principal amount of loans to which subparagraph (C)(i) 
                applies, an amount of proceeds equal to such excess 
                shall be used not later than the close of the 1st 
                semiannual period beginning after the close of the 18-
                month period referred to in subparagraph (C)(iii) to 
                redeem bonds which are part of such issue.
                    ``(E) De minimis redemptions not required.--
                Subparagraphs (C)(iii) and (D) shall not be construed 
                to require amounts of less than $250,000 to be used to 
                redeem bonds. The Secretary may by regulation treat 
                related issues as 1 issue for purposes of the preceding 
                sentence.
                    ``(F) Penalty.--
                            ``(i) In general.--In the case of property 
                        with respect to which financing was provided 
                        under this paragraph, if at any time during the 
                        10-period beginning on the date such financing 
                        was provided--
                                    ``(I) such property ceases to be in 
                                use in a closed base business (as 
                                defined in section 1394), or
                                    ``(II) substantially all of the use 
                                of such property ceases to be in a 
                                qualified closed base,
                        there is hereby imposed on the trade or 
                        business to which such financing was provided a 
                        penalty equal to 1.25 percent of so much of the 
                        face amount of all financing provided (whether 
                        or not from the same issue and whether or not 
                        such issue is outstanding) before such 
                        cessation to the trade or business using such 
                        property.
                            ``(ii) No penalty by reason of zone 
                        termination.--No penalty shall be imposed under 
                        clause (i) solely by reason of the termination 
                        of the treatment of an area as a qualified 
                        closed base.
                            ``(iii) Exception for bankruptcy.--Clause 
                        (i) shall not apply to any cessation resulting 
                        from bankruptcy.''
    (b) Volume Cap Only Charged With 50 Percent of Tax Enterprise Zone 
Redevelopment Bonds.--Subsection (g) of section 146 is amended by 
striking ``and'' at the end of paragraph (3), by striking the period at 
the end of paragraph (4) and inserting ``, and'', and by adding at the 
end thereof the following new paragraph:
            ``(5) 50 percent of any qualified redevelopment bond issued 
        as part of an issue 95 percent or more of the net proceeds of 
        which are to be used for 1 or more redevelopment purposes (as 
        defined in section 144(c)) in a qualified closed base.''
    (c) Penalties for Loans Made to Businesses That Cease To Be 
Enterprise Zone Businesses, Etc.--Subsection (b) of section 150 is 
amended by adding at the end thereof the following new paragraph:
            ``(6) Enterprise zone redevelopment bonds.--In the case of 
        any financing provided by an issue the interest on which is 
        exempt from tax by reason of section 144(c)(9)--
                    ``(A) In general.--No deduction shall be allowed 
                under this chapter for interest on such financing which 
                accrues during the period beginning on the first day of 
                the calendar year which includes the date on which--
                            ``(i) the trade or business to which the 
                        financing was provided ceases to be a closed 
                        base business (as defined in section 1394
                            ``(ii) substantially all of the use of the 
                        property (determined in accordance with 
                        subchapter U) with respect to which the 
                        financing was provided ceases to be in a 
                        qualified closed base.
                The preceding sentence shall not apply solely by reason 
                of the treatment of an area as a qualified closed base.
                    ``(B) Exception for bankruptcy.--This paragraph 
                shall not apply to any cessation resulting from 
                bankruptcy.''
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act.

TITLE IV--USE OF TRANSFERRED DEFENSE FUNDS FOR PROVISION OF SERVICES TO 
 CERTAIN DISLOCATED DEFENSE WORKERS UNDER JOB TRAINING PARTNERSHIP ACT

SEC. 401. USE OF TRANSFERRED DEFENSE FUNDS.

    (a) In General.--Title III of the Job Training Partnership Act (29 
U.S.C. 1651 et seq.) is amended by adding at the end the following new 
section:

``SEC. 327. USE OF TRANSFERRED DEFENSE FUNDS FOR PROVISION OF SERVICES 
              TO CERTAIN DISLOCATED DEFENSE WORKERS.

    ``(a) In General.--From funds transferred under section 402(a) of 
the Economic Resurgence and Jobs for America Act for a fiscal year, the 
Secretary shall allot such funds to a State for the program year ending 
in such fiscal year in accordance with subsection (b) for reimbursement 
of the provision of employment and training assistance under this title 
to individuals who have been terminated, laid off, received notice of 
termination or lay off, or have been notified that they will receive 
notice of termination or layoff due to a closure of a qualified 
military base.
    ``(b) Allotment Among States.--The Secretary shall allot funds 
described in subsection (a) to a State in an amount equal to the 
product of--
            ``(1) $3,810; and
            ``(2) the number of individuals described in subsection (a) 
        receiving employment and training assistance under this title 
        for such program year in such State.
    ``(c) Within State Distribution.--The Governor of a State that 
receives an allotment of funds under subsection (b) shall distribute 
such funds to substate areas for services provided to individuals 
described in such subsection.
    ``(d) Certification Procedures.--The Secretary, in conjunction with 
the Secretary of Defense, shall establish certification procedures to 
determine whether an individual receiving assistance under this title 
is an individual described in subsection (a).
    ``(e) Qualified Military Base Defined.--For purposes of this 
section, the term `qualified military base' means any military 
installation if--
            ``(1) such installation was closed pursuant to the Defense 
        Base Closure and Realignment Act of 1990 (10 U.S.C. 2687 note); 
        and
            ``(2) the Secretary of Defense certifies to the Secretary 
        of Labor that at least 1,000 workers on such installation or in 
        surrounding areas were displaced by reason of such closure.''.
    (b) Conforming Amendment.--The table of contents of the Job 
Training Partnership Act is amended by inserting after the item 
relating to section 326 the following new item:

        ``Sec. 327. Use of transferred defense funds for provision of 
                            services to certain dislocated defense 
                            workers.''.

SEC. 402. TRANSFER OF DEFENSE FUNDS.

    (a) In General.--From funds available to the Secretary of Defense 
for defense reinvestment and economic growth for a fiscal year, the 
Secretary of Defense shall transfer such funds to the Secretary of 
Labor for the program year ending in such fiscal year in an amount 
equal to the sum of the amounts determined under section 327(b) of the 
Job Training Partnership Act for all States receiving an allotment 
under such section for such program year.
    (b) Timely Transfer.--The Secretary of Defense shall transfer funds 
described in subsection (a) to the Secretary of Labor in a timely 
manner.

                                 <all>

HR 2392 IH----2
HR 2392 IH----3
HR 2392 IH----4
HR 2392 IH----5
```