‘‘(6) the enterprise zone employment credit de-
termined under section 1394(a).’’
(d) OTHER AMENDMENTS.—
(1)(A) Section 172(d)(2) (relating to modifica-
tions with respect to net operating loss deduction) is
amended to read as follows:
‘‘(2) CAPITAL
GAINS
AND
LOSSES
OF
TAX-
PAYERS OTHER THAN CORPORATIONS.—In the case
of a taxpayer other than a corporation—
‘‘(A) the amount deductible on account of
losses from sales or exchanges of capital assets
shall not exceed the amount includable on ac-
count of gains from sales or exchanges of cap-
ital assets; and
‘‘(B) the exclusion provided by section
1397 shall not be allowed.’’
(B) Subparagraph (B) of section 172(d)(4) is
amended by inserting ‘‘, (2)(B),’’ after ‘‘paragraph
(1)’’.
(2) Subsection (c) of section 381 (relating to
carryovers in certain corporate acquisitions) is
amended by adding at the end the following new
paragraph:
‘‘(26) ENTERPRISE
ZONE
PROVISIONS.—The
acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this sec-
tion and subchapter U, and under such regulations
as may be prescribed by the Secretary) the items re-
quired to be taken into account for purposes of sub-
chapter U in respect of the distributor or transferor
corporation.’’
(3) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain described in section
1397(a), proper adjustment shall be made for any
exclusion allowable to the estate or trust under sec-
tion 1397. In the case of a trust, the deduction al-
lowed by this subsection shall be subject to section
681 (relating to unrelated business income).’’
(4) Paragraph (3) of section 643(a) is amended
by adding at the end thereof the following new sen-
tence: ‘‘The exclusion under section 1397 shall not
be taken into account.’’
(5) Paragraph (4) of section 691(c) is amended
by striking ‘‘1201, and 1211’’ and inserting ‘‘1201,
1397, and 1211’’.
(6) The second sentence of paragraph (2) of
section 871(a) is amended by inserting ‘‘such gains
and losses shall be determined without regard to sec-
tion 1397 and’’ after ‘‘except that’’.
(7) Paragraph (1) of section 1371(d) (relating
to coordination with investment credit recapture) is
amended by inserting before the period at the end
the 
following 
‘‘and 
for 
purposes 
of 
section
1394(d)(3)’’.
(8) Subsection (a) of section 1016 (relating to
adjustments to basis) is amended by striking ‘‘and’’
at the end of paragraph (23), by striking the period
at the end of paragraph (24) and inserting a semi-
colon, and by adding at the end thereof the following
new paragraphs:
‘‘(25) in the case of stock with respect to which
a deduction was allowed under section 1396(a), to
the extent provided in section 1396(e); and
‘‘(26) in the case of property the acquisition of
which resulted under section 1397A in the non-
recognition of any part of the gain realized on the
sale or exchange of other property, to the extent pro-
vided in section 1397A(e).’’
(9) Section 1223 (relating to holding period of
property) is amended by redesignating paragraph
(15) as paragraph (16) and by inserting after para-
graph (14) the following new paragraph:
‘‘(15) In determining the period for which the
taxpayer has held property the acquisition of which
resulted under section 1397A in the nonrecognition
of any part of the gain realized on the sale or ex-
change of any qualified zone asset (as defined in sec-
tion 1397A(b)), there shall be included the period
for which such asset had been held as of the date
of such sale or exchange.’’
SEC. 104. EFFECTIVE DATE.
(a) GENERAL RULE.—The amendments made by this
subtitle shall take effect on the date of the enactment of
this Act.
(b) REQUIREMENT FOR RULES.—Not later than the
date 4 months after the date of the enactment of this Act,
the appropriate Secretaries shall issue rules—
(1) establishing the procedures for nominating
areas for designation as tax enterprise zones,
(2) establishing a method for comparing the
factors listed in section 1392(d) of the Internal Rev-
enue Code of 1986 (as added by this part), and
(3) providing that State and local governments
shall have at least 30 days after such rules are pub-
lished to file applications for nominated areas before
such applications are evaluated and compared and
any area designated as a tax enterprise zone.
Subtitle B—Redevelopment Bonds
for Tax Enterprise Zones
SEC. 111. SPECIAL RULES FOR REDEVELOPMENT BONDS
PROVIDING FINANCING FOR TAX ENTER-
PRISE ZONES.
(a) IN GENERAL.—Subsection (c) of section 144 (re-
lating 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 60-month period begin-
ning on the date a tax enterprise zone is des-
ignated—
‘‘(A) 
TREATMENT
AS
DESIGNATED
BLIGHTED
AREA.—Such tax enterprise zone
shall be treated as a designated blighted area
during such 60-month period (or, if shorter, the
period such designation is in effect). 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 require-
ments of paragraph (2)(B) shall be treated as
met with respect to a financed area that is
within a tax enterprise zone if the general pur-
pose governmental unit guarantees the payment
of principal and interest on the issue either di-
rectly 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 earn-
ings on such proceeds.
‘‘(C) EXPANSION
OF
REDEVELOPMENT
PURPOSES.—
‘‘(i) IN GENERAL.—The term ‘redevel-
opment purposes’ includes the making of
loans to any enterprise zone business (as
defined in section 1397B) for—
‘‘(I) the acquisition of land with-
in the tax enterprise zone for use in
such business, or
‘‘(II) the acquisition, construc-
tion, reconstruction, or improvement
by such business of land, or property
of a character subject to the allowance
for depreciation, for use in such busi-
ness.
‘‘(ii) $2,500,000 LIMITATION.—Clause
(i) shall apply to loans made to any enter-
prise zone 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; REPAY-
MENTS
MUST
BE
USED
FOR
REDEMP-
TIONS.—Clause (i) shall apply only to
loans—
‘‘(I) made during the 18-month
period beginning on the date of issu-
ance of the issue financing such loan,
‘‘(II) repayments of principal on
which are used not later than the
close of the 1st semiannual period be-
ginning after the date the repayment
is received to redeem bonds which are
part of such issue, and
‘‘(III) the effective rate of inter-
est on which does not exceed the yield
on the issue by more than 0.125 per-
centage 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 resi-
dential real property.
‘‘(v) COORDINATION
WITH
RESTRIC-
TIONS ON USE OF PROCEEDS.—Paragraphs
(6) and (8) shall apply notwithstanding
clause (i); except that in applying para-
graph (6), subsection (a)(8) shall be treat-
ed 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 ex-
ceeds the principal amount of loans to which
subparagraph (C)(i) applies, an amount of pro-
ceeds equal to such excess shall be used not
later than the close of the 1st semiannual pe-
riod 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 RE-
QUIRED.—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 sen-
tence.
‘‘(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-month period be-
ginning on the date such financing was
provided—
‘‘(I) such property ceases to be in
use in an enterprise zone business (as
defined in section 1397B), or
‘‘(II) substantially all of the use
of such property ceases to be in a tax
enterprise zone,
there is hereby imposed on the trade or
business to which such financing was pro-
vided 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 out-
standing) 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 or revocation of a tax
enterprise zone designation.
‘‘(iii) 
EXCEPTION
FOR
BANK-
RUPTCY.—Clause (i) shall not apply to any
cessation resulting from bankruptcy.’’
(b) VOLUME CAP ONLY CHARGED WITH 50 PER-
CENT
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—
‘‘(A) 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 tax enterprise
zone, and
‘‘(B) during the 60-month period begin-
ning on the date of the designation of such
zone.’’
(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 be-
ginning 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 an en-
terprise zone business (as defined in sec-
tion 1397B), or
‘‘(ii) substantially all of the use of the
property (determined in accordance with
subchapter U) with respect to which the fi-
nancing was provided ceases to be in a tax
enterprise zone.
The preceding sentence shall not apply solely by
reason of the termination or revocation of a tax
enterprise zone designation.
‘‘(B) EXCEPTION FOR BANKRUPTCY.—This
paragraph shall not apply to any cessation re-
sulting from bankruptcy.’’
TITLE II—AREAS AFFECTED BY
MILITARY BASE CLOSINGS OR
REDUCTIONS 
IN 
MILITARY
BASE EMPLOYMENT TREATED
AS ENTERPRISE ZONES
SEC. 201. ENTERPRISE ZONE TREATMENT.
(a) IN GENERAL.—Subchapter U of chapter 1 (relat-
ing to designation and treatment of tax enterprise zones),
as added by title I, is amended by adding at the end there-
of the following new part:
‘‘PART III—AREAS AFFECTED BY MILITARY BASE
CLOSINGS OR REDUCTIONS IN MILITARY
BASE EMPLOYMENT TREATED AS ENTER-
PRISE ZONES
‘‘Sec. 1398E. Treatment of areas affected by military base clos-
ings, etc.
‘‘SEC. 1398E. TREATMENT OF AREAS AFFECTED BY MILI-
TARY BASE CLOSINGS, ETC.
‘‘(a) IN GENERAL.—For purposes of part II of this
subchapter and section 144(c)(9), the term ‘tax enterprise
zone’ includes—
‘‘(1) each military installation selected for clo-
sure or substantial realignment under a base closure
law, and
‘‘(2) so much of the area around such an instal-
lation as the Secretary of Commerce determines is
adversely affected by such closure or realignment.
‘‘(b) TIME OF DESIGNATIONS.—
‘‘(1) IN GENERAL.—An area treated as a tax
enterprise zone under subsection (a) shall be treated
as designated—
‘‘(A) in a case described in subsection
(a)(1), on the date which is 60 days after the
date on which the installation is recommended
for closure or substantial realignment in a base
closure report transmitted to the Congress by