I
105TH CONGRESS
1ST SESSION
H. R. 2254
To amend the Internal Revenue Code of 1986 to allow a credit against
income tax for equity investments in community development financial
institutions.
IN THE HOUSE OF REPRESENTATIVES
JULY 24, 1997
Mr. KENNEDY of Massachusetts (for himself, Ms. WATERS, Mr. BECERRA,
Mr. BONIOR, Mr. GONZALEZ, Mr. BARRETT of Wisconsin, Ms. BROWN
of Florida, Mr. BROWN of California, Ms. CARSON, Mr. COYNE, Mr.
DAVIS of Illinois, Mr. DEFAZIO, Mr. FALEOMAVAEGA, Mr. FATTAH, Mr.
FILNER, Mr. FLAKE, Mr. FRANK of Massachusetts, Mr. GUTIERREZ, Mr.
HINCHEY, Mr. HINOJOSA, Mr. JACKSON of Illinois, Ms. KILPATRICK, Mr.
MCDERMOTT, Ms. MCKINNEY, Mr. MARTINEZ, Mrs. MEEK of Florida,
Ms. MILLENDER-MCDONALD, Mr. OLVER, Ms. ROYBAL-ALLARD, Mr.
SANDERS, Mr. SCOTT, and Mr. WAXMAN) 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 allow a
credit against income tax for equity investments in com-
munity development financial institutions.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. CREDIT FOR QUALIFIED EQUITY INVESTMENTS
IN COMMUNITY DEVELOPMENT FINANCIAL
INSTITUTIONS.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business-related credits) is amended by
adding at the end the following new section:
‘‘SEC. 45D. QUALIFIED EQUITY INVESTMENTS IN COMMU-
NITY 
DEVELOPMENT 
FINANCIAL 
INSTITU-
TIONS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the community development financial institution invest-
ment credit for any taxable year is an amount equal to
the applicable percentage of the qualified equity invest-
ment made by the taxpayer during the taxable year.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the term ‘applicable percentage’ means,
with respect to any investment, 25 percent, or, if the
CDFI Fund establishes a lower percentage with respect
to such investment for purposes of this section, such lower
percentage.
‘‘(c) QUALIFIED EQUITY INVESTMENT.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified equity
investment’ means any stock or partnership interest
in a community development financial institution (as
defined in section 103 of the Community Develop-
ment Banking and Financial Institutions Act of
1994 (12 U.S.C. 4702))—
‘‘(A) if such institution is designated for
purposes of this section by the CDFI Fund,
‘‘(B) if such stock or partnership interest
is acquired by the taxpayer at its original issue
from the institution (directly or through an un-
derwriter) in exchange for money or other prop-
erty, and
‘‘(C) to the extent the amount of such in-
vestment is designated for such purposes by
such Fund.
Rules similar to the rules of section 1202(c)(3) shall
apply for purposes of subparagraph (B).
‘‘(2) CRITERIA
FOR
DESIGNATING
INSTITU-
TIONS.—Designations under paragraph (1)(A) shall
be made in accordance with criteria established by
the CDFI Fund. In establishing such criteria, the
CDFI Fund shall take into account the require-
ments and criteria set forth in sections 105(b) and
107 of such Act.
‘‘(3) CDFI FUND.—The term ‘CDFI Fund’
means the Community Development Financial Insti-
tutions Fund established by section 104 of such Act.
‘‘(d) LIMITATION ON AMOUNT OF CREDIT.—
‘‘(1) IN GENERAL.—The amount of credit de-
termined under this section for any qualified equity
investment shall not exceed the credit amount allo-
cated to such investment by the CDFI Fund.
‘‘(2) OVERALL
LIMITATION.—The aggregate
credit amount which may be allocated by the CDFI
Fund 
under 
this 
section 
shall 
not 
exceed
$100,000,000.
‘‘(e) RECAPTURE OF CREDIT WHERE DISPOSITION
OF EQUITY INVESTMENT WITHIN 5 YEARS.—
‘‘(1) IN GENERAL.—If the taxpayer disposes of
any investment with respect to which a credit was
determined under subsection (a) (or any other prop-
erty the basis of which is determined in whole or in
part by reference to the adjusted basis of such in-
vestment) before the end of the 5-year period begin-
ning on the date such investment was made, the tax
imposed by this chapter for the taxable year in
which such disposition occurs shall be increased by
the aggregate decrease in tax of the taxpayer result-
ing from the credit determined under this subsection
(a) with respect to such investment.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to any gift, transfer, or transaction described
in paragraph (1), (2), or (3) of section 1245(b).
‘‘(3) SPECIAL
RULE.—Any increase in tax
under paragraph (1) shall not be treated as a tax
imposed by this chapter for purposes of—
‘‘(A) determining the amount of any credit
allowable under this chapter, and
‘‘(B) determining the amount of the tax
imposed by section 55.
‘‘(f) BASIS REDUCTION.—The basis of any qualified
equity investment shall be reduced by the amount of any
credit determined under this section with respect to such
investment.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section. Such regulations may provide for the recapture
of the credit under this section with respect to investments
in institutions which cease to satisfy the criteria estab-
lished by the CDFI Fund for designation under subsection
(c)(1)(A).
‘‘(h) TERMINATION.—This section shall not apply to
any investment made after December 31, 2006.’’
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 of such Code is
amended by striking ‘‘plus’’ at the end of paragraph (12),
by striking the period at the end of paragraph (13) and
inserting ‘‘, plus’’, and by adding at the end the following
new paragraph:
‘‘(14) the community development financial in-
stitution investment credit determined under section
45D(a).’’
(c) CREDIT ALLOWED AGAINST REGULAR AND MINI-
MUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
of such Code (relating to limitation based on amount
of tax) is amended by redesignating paragraph (3)
as paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) SPECIAL RULES FOR COMMUNITY DEVEL-
OPMENT
FINANCIAL
INSTITUTION
INVESTMENT
CREDIT.—
‘‘(A) IN
GENERAL.—In the case of the
community development financial institution in-
vestment credit—
‘‘(i) this section and section 39 shall
be applied separately with respect to the
credit, and
‘‘(ii) in applying paragraph (1) to the
credit—
‘‘(I) 75 percent of the tentative
minimum tax shall be substituted for
the tentative minimum tax under sub-
paragraph (A) thereof, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the
taxable year (other than the commu-
nity development financial institution
investment credit).
‘‘(B) COMMUNITY
DEVELOPMENT
FINAN-
CIAL INSTITUTION INVESTMENT CREDIT.—For
purposes of this subsection, the term ‘commu-
nity development financial institution invest-
ment credit’ means the credit allowable under
subsection (a) by reason of section 45D(a).’’
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) of such Code is amended
by inserting ‘‘and the community development finan-
cial institution investment credit’’ after ‘‘employ-
ment credit’’.
(d) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 of such Code is amended by adding at the end
the following new paragraph:
‘‘(8) NO CARRYBACK OF COMMUNITY DEVELOP-
MENT FINANCIAL INSTITUTION INVESTMENT CREDIT
BEFORE EFFECTIVE DATE.—No portion of the un-
used business credit for any taxable year which is
attributable to the credit under section 45D may be
carried back to a taxable year ending before the date
of the enactment of section 45D.’’
(e) DEDUCTION FOR UNUSED CREDIT.—Subsection
(c) of section 196 of such Code is amended by striking
‘‘and’’ at the end of paragraph (6), by striking the period
at the end of paragraph (7) and inserting ‘‘, and’’, and
by adding at the end the following new paragraph:
‘‘(8) the community development financial insti-
tution investment credit determined under section
45D(a).’’
(f) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by adding at the end the following new item:
‘‘Sec. 45D. Qualified equity investments in community develop-
ment financial institutions.’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to investments made after the date
of the enactment of this Act.
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