460
‘‘(II) to make the State and local
commitments described in subsection
(d); and
‘‘(III) to provide assurances satis-
factory to the Secretary of Housing
and Urban Development that such
commitments will be fulfilled,
‘‘(ii) a nomination regarding such
area is submitted in such a manner and in
such form, and contains such information,
as the Secretary of Housing and Urban De-
velopment shall by regulation prescribe; and
‘‘(iii) the Secretary of Housing and
Urban Development determines that any in-
formation furnished is reasonably accurate.
‘‘(5) NOMINATION
PROCESS
FOR
INDIAN
RES-
ERVATIONS.—For purposes of this subchapter, in the
case of a nominated area on an Indian reservation,
the reservation governing body (as determined by the
Secretary of the Interior) shall be treated as being
both the State and local governments with respect to
such area.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
461
‘‘(1) IN GENERAL.—Any designation of an area
as a renewal community shall remain in effect during
the period beginning on the date of the designation
and ending on the earliest of—
‘‘(A) December 31, 2007,
‘‘(B) the termination date designated by the
State and local governments in their nomina-
tion, or
‘‘(C) the date the Secretary of Housing and
Urban Development revokes such designation.
‘‘(2) REVOCATION OF DESIGNATION.—The Sec-
retary of Housing and Urban Development may re-
voke the designation under this section of an area if
such Secretary determines that the local government
or the State in which the area is located—
‘‘(A) has modified the boundaries of the
area, or
‘‘(B) is not complying substantially with, or
fails to make progress in achieving, the State or
local commitments, respectively, described in
subsection (d).
‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate a nominated
area as a renewal community under subsection (a)
462
only if the area meets the requirements of paragraphs
(2) and (3) of this subsection.
‘‘(2) AREA REQUIREMENTS.—A nominated area
meets the requirements of this paragraph if—
‘‘(A) the area is within the jurisdiction of
one or more local governments;
‘‘(B) the boundary of the area is contin-
uous; and
‘‘(C) the area—
‘‘(i) has a population, of at least—
‘‘(I) 4,000 if any portion of such
area (other than a rural area described
in subsection (a)(2)(B)(i)) is located
within a metropolitan statistical area
(within 
the 
meaning 
of 
section
143(k)(2)(B)) which has a population
of 50,000 or greater; or
‘‘(II) 1,000 in any other case; or
‘‘(ii) is entirely within an Indian res-
ervation (as determined by the Secretary of
the Interior).
‘‘(3) ELIGIBILITY
REQUIREMENTS.—A nomi-
nated area meets the requirements of this paragraph
if the State and the local governments in which it is
located certify (and the Secretary of Housing and
463
Urban Development, after such review of supporting
data as he deems appropriate, accepts such certifi-
cation) that—
‘‘(A) the area is one of pervasive poverty,
unemployment, and general distress;
‘‘(B) the unemployment rate in the area, as
determined by the most recent available data,
was at least 11⁄2 times the national unemploy-
ment rate for the period to which such data re-
late;
‘‘(C) the poverty rate for each population
census tract within the nominated area is at
least 20 percent; and
‘‘(D) in the case of an urban area, at least
70 percent of the households living in the area
have incomes below 80 percent of the median in-
come of households within the jurisdiction of the
local government (determined in the same man-
ner as under section 119(b)(2) of the Housing
and Community Development Act of 1974).
‘‘(4) CONSIDERATION
OF
HIGH
INCIDENCE
OF
CRIME.—The Secretary of Housing and Urban Devel-
opment shall take into account, in selecting nomi-
nated areas for designation as renewal communities
464
under this section, the extent to which such areas have
a high incidence of crime.
‘‘(5) CONSIDERATION OF COMMUNITIES IDENTI-
FIED IN GAO STUDY.—The Secretary of Housing and
Urban Development shall take into account, in select-
ing nominated areas for designation as renewal com-
munities under this section, if the area has census
tracts identified in the May 12, 1998, report of the
Government Accounting Office regarding the identi-
fication of economically distressed areas.
‘‘(d) REQUIRED STATE AND LOCAL COMMITMENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if—
‘‘(A) the local government and the State in
which the area is located agree in writing that,
during any period during which the area is a re-
newal community, such governments will follow
a specified course of action which meets the re-
quirements of paragraph (2) and is designed to
reduce the various burdens borne by employers or
employees in such area; and
‘‘(B) the economic growth promotion re-
quirements of paragraph (3) are met.
465
‘‘(2) COURSE OF ACTION.—
‘‘(A) IN
GENERAL.—A course of action
meets the requirements of this paragraph if such
course of action is a written document, signed by
a State (or local government) and neighborhood
organizations, which evidences a partnership be-
tween such State or government and community-
based organizations and which commits each sig-
natory to specific and measurable goals, actions,
and timetables. Such course of action shall in-
clude at least five of the following:
‘‘(i) A reduction of tax rates or fees ap-
plying within the renewal community.
‘‘(ii) An increase in the level of effi-
ciency of local services within the renewal
community.
‘‘(iii) Crime reduction strategies, such
as crime prevention (including the provi-
sion of such services by nongovernmental
entities).
‘‘(iv) Actions to reduce, remove, sim-
plify, or streamline governmental require-
ments applying within the renewal commu-
nity.
466
‘‘(v) Involvement in the program by
private entities, organizations, neighborhood
organizations, and community groups, par-
ticularly those in the renewal community,
including a commitment from such private
entities to provide jobs and job training for,
and technical, financial, or other assistance
to, employers, employees, and residents from
the renewal community.
‘‘(vi) State or local income tax benefits
for fees paid for services performed by a
nongovernmental entity which were for-
merly performed by a governmental entity.
‘‘(vii) The gift (or sale at below fair
market value) of surplus real property (such
as land, homes, and commercial or indus-
trial structures) in the renewal community
to neighborhood organizations, community
development corporations, or private com-
panies.
‘‘(B) RECOGNITION OF PAST EFFORTS.—For
purposes of this section, in evaluating the course
of action agreed to by any State or local govern-
ment, the Secretary of Housing and Urban De-
velopment shall take into account the past efforts
467
of such State or local government in reducing the
various burdens borne by employers and employ-
ees in the area involved.
‘‘(3) ECONOMIC GROWTH PROMOTION REQUIRE-
MENTS.—The economic growth promotion require-
ments of this paragraph are met with respect to a
nominated area if the local government and the State
in which such area is located certify in writing that
such government and State, respectively, have re-
pealed or otherwise will not enforce within the area,
if such area is designated as a renewal community—
‘‘(A) licensing requirements for occupations
that do not ordinarily require a professional de-
gree;
‘‘(B) zoning restrictions on home-based
businesses which do not create a public nuisance;
‘‘(C) permit requirements for street vendors
who do not create a public nuisance;
‘‘(D) zoning or other restrictions that im-
pede the formation of schools or child care cen-
ters; and
‘‘(E) franchises or other restrictions on com-
petition for businesses providing public services,
including but not limited to taxicabs, jitneys,
cable television, or trash hauling,
468
except to the extent that such regulation of businesses
and occupations is necessary for and well-tailored to
the protection of health and safety.
‘‘(e) COORDINATION WITH TREATMENT OF EMPOWER-
MENT ZONES AND ENTERPRISE COMMUNITIES.—For pur-
poses of this title, if there are in effect with respect to the
same area both—
‘‘(1) a designation as a renewal community; and
‘‘(2) a designation as an empowerment zone or
enterprise community,
both of such designations shall be given full effect with re-
spect to such area.
‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this subchapter—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as a renewal commu-
nity, any reference to, or requirement of, this section
shall apply to all such governments.
‘‘(2) STATE.—The term ‘State’ includes Puerto
Rico, the Virgin Islands of the United States, Guam,
American Samoa, the Northern Mariana Islands, and
any other possession of the United States.
‘‘(3) LOCAL GOVERNMENT.—The term ‘local gov-
ernment’ means—
469
‘‘(A) any county, city, town, township, par-
ish, village, or other general purpose political
subdivision of a State;
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the Secretary of Housing and Urban Develop-
ment; and
‘‘(C) the District of Columbia.
‘‘(4) APPLICATION OF RULES RELATING TO CEN-
SUS TRACTS AND CENSUS DATA.—The rules of sections
1392(b)(4) and 1393(a)(9) shall apply.
‘‘PART II—RENEWAL COMMUNITY CAPITAL GAIN;
RENEWAL COMMUNITY BUSINESS
‘‘Sec. 1400F. Renewal community capital gain.
‘‘Sec. 1400G. Renewal community business defined.
‘‘SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.
‘‘(a) GENERAL RULE.—Gross income does not include
any qualified capital gain recognized on the sale or ex-
change of a qualified community asset held for more than
5 years.
‘‘(b) QUALIFIED COMMUNITY ASSET.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified commu-
nity asset’ means—
‘‘(A) any qualified community stock;
470
‘‘(B) any qualified community partnership
interest; and
‘‘(C) any qualified community business
property.
‘‘(2) QUALIFIED COMMUNITY STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified commu-
nity stock’ means any stock in a domestic cor-
poration if—
‘‘(i) such stock is acquired by the tax-
payer after December 31, 2000, and before
January 1, 2008, at its original issue (di-
rectly or through an underwriter) from the
corporation solely in exchange for cash;
‘‘(ii) as of the time such stock was
issued, such corporation was a renewal
community business (or, in the case of a
new corporation, such corporation was
being organized for purposes of being a re-
newal community business); and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a renewal
community business.
471
‘‘(B) REDEMPTIONS.—A rule similar to the
rule of section 1202(c)(3) shall apply for pur-
poses of this paragraph.
‘‘(3) QUALIFIED COMMUNITY PARTNERSHIP IN-
TEREST.—The term ‘qualified community partner-
ship interest’ means any capital or profits interest in
a domestic partnership if—
‘‘(A) such interest is acquired by the tax-
payer after December 31, 2000, and before Janu-
ary 1, 2008;
‘‘(B) as of the time such interest was ac-
quired, such partnership was a renewal commu-
nity business (or, in the case of a new partner-
ship, such partnership was being organized for
purposes of being a renewal community busi-
ness); and
‘‘(C) 
during 
substantially 
all 
of 
the
taxpayer’s holding period for such interest, such
partnership qualified as a renewal community
business.
A rule similar to the rule of paragraph (2)(B) shall
apply for purposes of this paragraph.
‘‘(4) QUALIFIED
COMMUNITY
BUSINESS
PROP-
ERTY.—
472
‘‘(A) IN
GENERAL.—The term ‘qualified
community business property’ means tangible
property if—
‘‘(i) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after December 31, 2000, and be-
fore January 1, 2008;
‘‘(ii) the original use of such property
in the renewal community 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 in a renewal community business of the
taxpayer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—The requirements of clauses (i)
and (ii) of subparagraph (A) shall be treated as
satisfied with respect to—
‘‘(i) property which is substantially
improved (within the meaning of section
1400B(b)(4)(B)(ii)) by the taxpayer before
January 1, 2008; and
‘‘(ii) any land on which such property
is located.
473
‘‘(c) CERTAIN RULES TO APPLY.—Rules similar to the
rules of paragraphs (5), (6), and (7) of subsection (b), and
subsections (e), (f ), and (g), of section 1400B shall apply
for purposes of this section.
‘‘SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘For purposes of this part, the term ‘renewal commu-
nity business’ means any entity or proprietorship which
would be a qualified business entity or qualified proprietor-
ship under section 1397B if—
‘‘(1) references to renewal communities were sub-
stituted for references to empowerment zones in such
section; and
‘‘(2) ‘80 percent’ were substituted for ‘50 percent’
in subsections (b)(2) and (c)(1) of such section.
‘‘PART III—FAMILY DEVELOPMENT ACCOUNTS
‘‘Sec. 1400H. Family development accounts for renewal community
EITC recipients.
‘‘Sec. 1400I. Designation of earned income tax credit payments for
deposit to family development account.
‘‘SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RE-
NEWAL COMMUNITY EITC RECIPIENTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction—
‘‘(A) in the case of a qualified individual,
the amount paid in cash for the taxable year by
474
such individual to any family development ac-
count for such individual’s benefit; and
‘‘(B) in the case of any person other than
a qualified individual, the amount paid in cash
for the taxable year by such person to any fam-
ily development account for the benefit of a
qualified individual but only if the amount so
paid is designated for purposes of this section by
such individual.
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowable
as a deduction to any individual for any taxable
year by reason of paragraph (1)(A) shall not ex-
ceed the lesser of—
‘‘(i) $2,000, or
‘‘(ii) an amount equal to the com-
pensation includible in the individual’s
gross income for such taxable year.
‘‘(B) PERSONS DONATING TO FAMILY DE-
VELOPMENT
ACCOUNTS
OF
OTHERS.—The
amount which may be designated under para-
graph (1)(B) by any qualified individual for
any taxable year of such individual shall not ex-
ceed $1,000.
475
‘‘(3) SPECIAL RULES FOR CERTAIN MARRIED IN-
DIVIDUALS.—Rules similar to rules of section 219(c)
shall apply to the limitation in paragraph (2)(A).
‘‘(4) COORDINATION WITH IRAS.—No deduction
shall be allowed under this section for any taxable
year to any person by reason of a payment to an ac-
count for the benefit of a qualified individual if any
amount is paid for such taxable year into an indi-
vidual retirement account (including a Roth IRA) for
the benefit of such individual.
‘‘(5) ROLLOVERS.—No deduction shall be allowed
under this section with respect to any rollover con-
tribution.
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of a fam-
ily development account shall be included in gross in-
come by the payee or distributee, as the case may be.
‘‘(2) EXCLUSION OF QUALIFIED FAMILY DEVEL-
OPMENT
DISTRIBUTIONS.—Paragraph (1) shall not
apply to any qualified family development distribu-
tion.
‘‘(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBU-
TION.—For purposes of this section—
476
‘‘(1) IN GENERAL.—The term ‘qualified family
development distribution’ means any amount paid or
distributed out of a family development account
which would otherwise be includible in gross income,
to the extent that such payment or distribution is
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse or
dependent (as defined in section 152) of such holder.
‘‘(2) QUALIFIED
FAMILY
DEVELOPMENT
EX-
PENSES.—The term ‘qualified family development ex-
penses’ means any of the following:
‘‘(A) Qualified higher education expenses.
‘‘(B) Qualified first-time homebuyer costs.
‘‘(C) Qualified business capitalization costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) 
QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ has the meaning given
such term by section 72(t)(7), determined by
treating postsecondary vocational educational
schools as eligible educational institutions.
‘‘(B) POSTSECONDARY
VOCATIONAL
EDU-
CATION SCHOOL.—The term ‘postsecondary voca-
478
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expenditures
included in a qualified plan, including capital,
plant, equipment, working capital, and inven-
tory expenses.
‘‘(C) 
QUALIFIED
BUSINESS.—The 
term
‘qualified business’ means any trade or business
other than any trade or business—
‘‘(i) which consists of the operation of
any 
facility 
described 
in 
section
144(c)(6)(B), or
‘‘(ii) which contravenes any law.
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which meets
such requirements as the Secretary may specify.
‘‘(6) QUALIFIED MEDICAL EXPENSES.—The term
‘qualified medical expenses’ means any amount paid
during the taxable year, not compensated for by in-
surance or otherwise, for medical care (as defined in
section 213(d)) of the taxpayer, his spouse, or his de-
pendent (as defined in section 152).
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a family
development account of a taxpayer into another such
account established for the benefit of—
479
‘‘(A) such taxpayer, or
‘‘(B) any qualified individual who is—
‘‘(i) the spouse of such taxpayer, or
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer.
Rules similar to the rules of section 408(d)(3) shall
apply for purposes of this paragraph.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Any family development ac-
count is exempt from taxation under this subtitle un-
less such account has ceased to be a family develop-
ment account by reason of paragraph (2). Notwith-
standing the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business income of
charitable, etc., organizations). Notwithstanding any
other provision of this title (including chapters 11
and 12), the basis of any person in such an account
is zero.
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall apply.
‘‘(3) OTHER RULES TO APPLY.—Rules similar to
the rules of paragraphs (4), (5), and (6) of section
408(d) shall apply for purposes of this section.
480
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For purposes
of this title, the term ‘family development account’ means
a trust created or organized in the United States for the
exclusive benefit of a qualified individual or his bene-
ficiaries, but only if the written governing instrument cre-
ating the trust meets the following requirements:
‘‘(1) Except in the case of a qualified rollover (as
defined in subsection (c)(7))—
‘‘(A) no contribution will be accepted unless
it is in cash; and
‘‘(B) contributions will not be accepted for
the taxable year in excess of $3,000.
‘‘(2) The requirements of paragraphs (2) through
(6) of section 408(a) are met.
‘‘(f ) QUALIFIED INDIVIDUAL.—For purposes of this
section, the term ‘qualified individual’ means, for any tax-
able year, an individual—
‘‘(1) who is a bona fide resident of a renewal
community throughout the taxable year; and
‘‘(2) to whom a credit was allowed under section
32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensation’
has the meaning given such term by section 219(f )(1).
481
‘‘(2) MARRIED INDIVIDUALS.—The maximum de-
duction under subsection (a) shall be computed sepa-
rately for each individual, and this section shall be
applied without regard to any community property
laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer shall
be deemed to have made a contribution to a family
development account on the last day of the preceding
taxable year if the contribution is made on account
of such taxable year and is made not later than the
time prescribed by law for filing the return for such
taxable year (not including extensions thereof).
‘‘(4) EMPLOYER
PAYMENTS; 
CUSTODIAL
AC-
COUNTS.—Rules similar to the rules of sections
219(f )(5) and 408(h) shall apply for purposes of this
section.
‘‘(5) REPORTS.—The trustee of a family develop-
ment account shall make such reports regarding such
account to the Secretary and to the individual for
whom the account is maintained with respect to con-
tributions (and the years to which they relate), dis-
tributions, and such other matters as the Secretary
may require under regulations. The reports required
by this paragraph—
482
‘‘(A) shall be filed at such time and in such
manner as the Secretary prescribes in such regu-
lations; and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year to
which such reports relate; and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(6) INVESTMENT IN COLLECTIBLES TREATED AS
DISTRIBUTIONS.—Rules similar to the rules of section
408(m) shall apply for purposes of this section.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED FAMILY DEVELOPMENT EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distributed
from a family development account and is not used
exclusively to pay qualified family development ex-
penses for the holder of the account or the spouse or
dependent (as defined in section 152) of such holder,
the tax imposed by this chapter for the taxable year
of such distribution shall be increased by 10 percent
of the portion of such amount which is includible in
gross income.
483
‘‘(2) EXCEPTION FOR CERTAIN DISTRIBUTIONS.—
Paragraph (1) shall not apply to distributions which
are—
‘‘(A) made on or after the date on which the
account holder attains age 591⁄2,
‘‘(B) made to a beneficiary (or the estate of
the account holder) on or after the death of the
account holder, or
‘‘(C) attributable to the account holder’s
being disabled within the meaning of section
72(m)(7).
‘‘(i) APPLICATION OF SECTION.—This section shall
apply to amounts paid to a family development account
for any taxable year beginning after December 31, 2000,
and before January 1, 2008.
‘‘SEC. 1400I. DESIGNATION OF EARNED INCOME TAX CREDIT
PAYMENTS FOR DEPOSIT TO FAMILY DEVEL-
OPMENT ACCOUNT.
‘‘(a) IN GENERAL.—With respect to the return of any
qualified individual (as defined in section 1400H(f )) for
the taxable year of the tax imposed by this chapter, such
individual may designate that a specified portion (not less
than $1) of any overpayment of tax for such taxable year
which is attributable to the earned income tax credit shall
be deposited by the Secretary into a family development ac-
484
count of such individual. The Secretary shall so deposit
such portion designated under this subsection.
‘‘(b) MANNER AND TIME OF DESIGNATION.—A des-
ignation under subsection (a) may be made with respect
to any taxable year—
‘‘(1) at the time of filing the return of the tax
imposed by this chapter for such taxable year, or
‘‘(2) at any other time (after the time of filing
the return of the tax imposed by this chapter for such
taxable year) specified in regulations prescribed by
the Secretary.
Such designation shall be made in such manner as the Sec-
retary prescribes by regulations.
‘‘(c) PORTION ATTRIBUTABLE
TO EARNED INCOME
TAX CREDIT.—For purposes of subsection (a), an overpay-
ment for any taxable year shall be treated as attributable
to the earned income tax credit to the extent that such over-
payment does not exceed the credit allowed to the taxpayer
under section 32 for such taxable year.
‘‘(d) OVERPAYMENTS TREATED AS REFUNDED.—For
purposes of this title, any portion of an overpayment of tax
designated under subsection (a) shall be treated as being
refunded to the taxpayer as of the last date prescribed for
filing the return of tax imposed by this chapter (determined
485
without regard to extensions) or, if later, the date the return
is filed.
‘‘(e) TERMINATION.—This section shall not apply to
any taxable year beginning after December 31, 2007.
‘‘PART IV—ADDITIONAL INCENTIVES
‘‘Sec. 1400K. Commercial revitalization deduction.
‘‘Sec. 1400L. Increase in expensing under section 179.
‘‘SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.
‘‘(a) GENERAL RULE.—At the election of the taxpayer,
either—
‘‘(1) one-half of any qualified revitalization ex-
penditures chargeable to capital account with respect
to any qualified revitalization building shall be allow-
able as a deduction for the taxable year in which the
building is placed in service, or
‘‘(2) a deduction for all such expenditures shall
be allowable ratably over the 120-month period begin-
ning with the month in which the building is placed
in service.
The deduction provided by this section with respect to such
expenditure shall be in lieu of any depreciation deduction
otherwise allowable on account of such expenditure.
‘‘(b) QUALIFIED REVITALIZATION BUILDINGS AND EX-
PENDITURES.—For purposes of this section—
486
‘‘(1) QUALIFIED
REVITALIZATION
BUILDING.—
The term ‘qualified revitalization building’ means
any building (and its structural components) if—
‘‘(A) such building is located in a renewal
community and is placed in service after Decem-
ber 31, 2000;
‘‘(B) a commercial revitalization deduction
amount is allocated to the building under sub-
section (d); and
‘‘(C) depreciation (or amortization in lieu
of depreciation) is allowable with respect to the
building (without regard to this section).
‘‘(2) 
QUALIFIED
REVITALIZATION
EXPENDI-
TURE.—
‘‘(A) IN GENERAL.—The term ‘qualified re-
vitalization expenditure’ means any amount
properly chargeable to capital account—
‘‘(i) for property for which deprecia-
tion is allowable under section 168 (without
regard to this section) and which is—
‘‘(I) nonresidential real property;
or
‘‘(II) an addition or improvement
to property described in subclause (I);
487
‘‘(ii) in connection with the construc-
tion of any qualified revitalization building
which was not previously placed in service
or in connection with the substantial reha-
bilitation (within the meaning of section
47(c)(1)(C)) of a building which was placed
in service before the beginning of such reha-
bilitation; and
‘‘(iii) for land (including land which
is functionally related to such property and
subordinate thereto).
‘‘(B) DOLLAR LIMITATION.—The aggregate
amount which may be treated as qualified revi-
talization expenditures with respect to any
qualified revitalization building for any taxable
year shall not exceed the excess of—
‘‘(i) $10,000,000, reduced by
‘‘(ii) any such expenditures with re-
spect to the building taken into account by
the taxpayer or any predecessor in deter-
mining the amount of the deduction under
this section for all preceding taxable years.
‘‘(C) CERTAIN
EXPENDITURES
NOT
IN-
CLUDED.—The term ‘qualified revitalization ex-
penditure’ does not include—
488
‘‘(i) ACQUISITION COSTS.—The costs of
acquiring any building or interest therein
and any land in connection with such
building to the extent that such costs exceed
30 percent of the qualified revitalization ex-
penditures determined without regard to
this clause.
‘‘(ii) 
CREDITS.—Any 
expenditure
which the taxpayer may take into account
in computing any credit allowable under
this title unless the taxpayer elects to take
the expenditure into account only for pur-
poses of this section.
‘‘(c) WHEN EXPENDITURES TAKEN INTO ACCOUNT.—
Qualified revitalization expenditures with respect to any
qualified revitalization building shall be taken into account
for the taxable year in which the qualified revitalization
building is placed in service. For purposes of the preceding
sentence, a substantial rehabilitation of a building shall be
treated as a separate building.
‘‘(d) LIMITATION ON AGGREGATE DEDUCTIONS AL-
LOWABLE WITH RESPECT TO BUILDINGS LOCATED IN A
STATE.—
‘‘(1) IN GENERAL.—The amount of the deduction
determined under this section for any taxable year
489
with respect to any building shall not exceed the com-
mercial revitalization deduction amount (in the case
of an amount determined under subsection (a)(2), the
present value of such amount as determined under the
rules of section 42(b)(2)(C) by substituting ‘100 per-
cent’ for ‘72 percent’ in clause (ii) thereof) allocated
to such building under this subsection by the commer-
cial revitalization agency. Such allocation shall be
made at the same time and in the same manner as
under paragraphs (1) and (7) of section 42(h).
‘‘(2) COMMERCIAL REVITALIZATION DEDUCTION
AMOUNT FOR AGENCIES.—
‘‘(A) IN GENERAL.—The aggregate commer-
cial revitalization deduction amount which a
commercial revitalization agency may allocate
for any calendar year is the amount of the State
commercial revitalization deduction ceiling de-
termined under this paragraph for such calendar
year for such agency.
‘‘(B) STATE COMMERCIAL REVITALIZATION
DEDUCTION CEILING.—The State commercial re-
vitalization deduction ceiling applicable to any
State—
490
‘‘(i) for each calendar year after 2000
and before 2008 is $6,000,000 for each re-
newal community in the State; and
‘‘(ii) zero for each calendar year there-
after.
‘‘(C) COMMERCIAL REVITALIZATION AGEN-
CY.—For purposes of this section, the term ‘com-
mercial revitalization agency’ means any agency
authorized by a State to carry out this section.
‘‘(e) RESPONSIBILITIES OF COMMERCIAL REVITALIZA-
TION AGENCIES.—
‘‘(1) PLANS FOR ALLOCATION.—Notwithstanding
any other provision of this section, the commercial re-
vitalization deduction amount with respect to any
building shall be zero unless—
‘‘(A) such amount was allocated pursuant
to a qualified allocation plan of the commercial
revitalization agency which is approved (in ac-
cordance with rules similar to the rules of section
147(f )(2) (other than subparagraph (B)(ii)
thereof)) by the governmental unit of which such
agency is a part; and
‘‘(B) such agency notifies the chief executive
officer (or its equivalent) of the local jurisdiction
within which the building is located of such allo-
491
cation and provides such individual a reasonable
opportunity to comment on the allocation.
‘‘(2) QUALIFIED ALLOCATION PLAN.—For pur-
poses of this subsection, the term ‘qualified allocation
plan’ means any plan—
‘‘(A) which sets forth selection criteria to be
used to determine priorities of the commercial
revitalization agency which are appropriate to
local conditions;
‘‘(B) which considers—
‘‘(i) the degree to which a project con-
tributes to the implementation of a strategic
plan that is devised for a renewal commu-
nity through a citizen participation process;
‘‘(ii) the amount of any increase in
permanent, full-time employment by reason
of any project; and
‘‘(iii) the active involvement of resi-
dents and nonprofit groups within the re-
newal community; and
‘‘(C) which provides a procedure that the
agency (or its agent) will follow in monitoring
compliance with this section.
‘‘(f ) REGULATIONS.—For purposes of this section, the
Secretary shall, by regulations, provide for the application
492
of rules similar to the rules of section 49 and subsections
(a) and (b) of section 50.
‘‘(g) TERMINATION.—This section shall not apply to
any building placed in service after December 31, 2007.
‘‘SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.
‘‘(a) GENERAL RULE.—In the case of a renewal com-
munity business (as defined in section 1400G), for purposes
of section 179—
‘‘(1) the limitation under section 179(b)(1) shall
be increased by the lesser of—
‘‘(A) $35,000; or
‘‘(B) the cost of section 179 property which
is qualified renewal property placed in service
during the taxable year; and
‘‘(2) the amount taken into account under sec-
tion 179(b)(2) with respect to any section 179 prop-
erty which is qualified renewal property shall be 50
percent of the cost thereof.
‘‘(b) RECAPTURE.—Rules similar to the rules under
section 179(d)(10) shall apply with respect to any qualified
renewal property which ceases to be used in a renewal com-
munity by a renewal community business.
‘‘(c) QUALIFIED RENEWAL PROPERTY.—For purposes
of this section—
493
‘‘(1) IN GENERAL.—The term ‘qualified renewal
property’ means any property to which section 168
applies (or would apply but for section 179) if—
‘‘(A) such property was acquired by the tax-
payer by purchase (as defined in section
179(d)(2)) after December 31, 2000, and before
January 1, 2008; and
‘‘(B) such property would be qualified zone
property (as defined in section 1397C) if ref-
erences to renewal communities were substituted
for references to empowerment zones in section
1397C.
‘‘(2) CERTAIN RULES TO APPLY.—The rules of
subsections (a)(2) and (b) of section 1397C shall
apply for purposes of this section.’’.
SEC. 603. EXTENSION OF EXPENSING OF ENVIRONMENTAL
REMEDIATION COSTS TO RENEWAL COMMU-
NITIES.
(a) EXTENSION.—Paragraph (2) of section 198(c) (de-
fining targeted area) is amended by redesignating subpara-
graph (C) as subparagraph (D) and by inserting after sub-
paragraph (B) the following new subparagraph:
‘‘(C) RENEWAL COMMUNITIES INCLUDED.—
Except as provided in subparagraph (B), such
term shall include a renewal community (as de-
494
fined in section 1400E) with respect to expendi-
tures paid or incurred after December 31,
2000.’’.
(b) EXTENSION OF TERMINATION DATE FOR RENEWAL
COMMUNITIES.—Subsection (h) of section 198 is amended
by inserting before the period ‘‘(December 31, 2007, in the
case of a renewal community, as defined in section
1400E).’’.
SEC. 604. EXTENSION OF WORK OPPORTUNITY TAX CREDIT
FOR RENEWAL COMMUNITIES.
(a) EXTENSION.—Subsection (c) of section 51 (relating
to termination) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(5) EXTENSION OF CREDIT FOR RENEWAL COM-
MUNITIES.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who begins work for the employer after
the date contained in paragraph (4)(B), for pur-
poses of section 38—
‘‘(i) in lieu of applying subsection (a),
the amount of the work opportunity credit
determined under this section for the tax-
able year shall be equal to—
‘‘(I) 15 percent of the qualified
first-year wages for such year; and
495
‘‘(II) 30 percent of the qualified
second-year wages for such year;
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$10,000’ for ‘$6,000’;
‘‘(iii) paragraph (4)(B) shall be ap-
plied by substituting for the date contained
therein the last day for which the designa-
tion under section 1400E of the renewal
community referred to in subparagraph
(B)(i) is in effect; and
‘‘(iv) rules similar to the rules of sec-
tion 51A(b)(5)(C) shall apply.
‘‘(B) QUALIFIED FIRST- AND SECOND-YEAR
WAGES.—For purposes of subparagraph (A)—
‘‘(i) IN GENERAL.—The term ‘qualified
wages’ means, with respect to each 1-year
period referred to in clause (ii) or (iii), as
the case may be, the wages paid or incurred
by the employer during the taxable year to
any individual but only if—
‘‘(I) the employer is engaged in a
trade or business in a renewal commu-
nity throughout such 1-year period;
‘‘(II) the principal place of abode
of such individual is in such renewal
496
community throughout such 1-year pe-
riod; and
‘‘(III) substantially all of the serv-
ices which such individual performs for
the employer during such 1-year period
are performed in such renewal commu-
nity.
‘‘(ii) QUALIFIED FIRST-YEAR WAGES.—
The term ‘qualified first-year wages’ means,
with respect to any individual, qualified
wages attributable to service rendered dur-
ing the 1-year period beginning with the
day the individual begins work for the em-
ployer.
‘‘(iii) 
QUALIFIED
SECOND-YEAR
WAGES.—The term ‘qualified second-year
wages’ means, with respect to any indi-
vidual, qualified wages attributable to serv-
ice rendered during the 1-year period begin-
ning on the day after the last day of the 1-
year period with respect to such individual
determined under clause (ii).’’.
(b) CONGRUENT TREATMENT OF RENEWAL COMMU-
NITIES AND ENTERPRISE ZONES FOR PURPOSES OF YOUTH
RESIDENCE REQUIREMENTS.—
497
(1) HIGH-RISK YOUTH.—Subparagraphs (A)(ii)
and (B) of section 51(d)(5) are each amended by
striking ‘‘empowerment zone or enterprise commu-
nity’’ and inserting ‘‘empowerment zone, enterprise
community, or renewal community’’.
(2) QUALIFIED
SUMMER
YOUTH
EMPLOYEE.—
Clause (iv) of section 51(d)(7)(A) is amended by
striking ‘‘empowerment zone or enterprise commu-
nity’’ and inserting ‘‘empowerment zone, enterprise
community, or renewal community’’.
(3) HEADINGS.—Paragraphs (5)(B) and (7)(C)
of section 51(d) are each amended by inserting ‘‘OR
COMMUNITY’’ in the heading after ‘‘ZONE’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to individuals who
begin work for the employer after December 31, 2000.
SEC. 605. CONFORMING AND CLERICAL AMENDMENTS.
(a) DEDUCTION FOR CONTRIBUTIONS TO FAMILY DE-
VELOPMENT ACCOUNTS ALLOWABLE WHETHER OR NOT
TAXPAYER ITEMIZES.—Subsection (a) of section 62 (relat-
ing to adjusted gross income defined) is amended by insert-
ing after paragraph (19) the following new paragraph:
‘‘(20) FAMILY
DEVELOPMENT
ACCOUNTS.—The
deduction allowed by section 1400H(a)(1).’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
498
(1) TAX
IMPOSED.—Subsection (a) of section
4973 is amended by striking ‘‘or’’ at the end of para-
graph (3), adding ‘‘or’’ at the end of paragraph (4),
and inserting after paragraph (4) the following new
paragraph:
‘‘(5) a family development account (within the
meaning of section 1400H(e)),’’.
(2) EXCESS CONTRIBUTIONS.—Section 4973 is
amended by adding at the end the following new sub-
section:
‘‘(g) FAMILY DEVELOPMENT ACCOUNTS.—For pur-
poses of this section, in the case of family development ac-
counts, the term ‘excess contributions’ means the sum of—
‘‘(1) the excess (if any) of—
‘‘(A) the amount contributed for the taxable
year to the accounts (other than a qualified roll-
over, as defined in section 1400H(c)(7)), over
‘‘(B) the amount allowable as a deduction
under section 1400H for such contributions; and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year reduced by the
sum of—
‘‘(A) the distributions out of the accounts
for the taxable year which were included in the
499
gross income of the payee under section
1400H(b)(1);
‘‘(B) the distributions out of the accounts
for the taxable year to which rules similar to the
rules of section 408(d)(5) apply by reason of sec-
tion 1400H(d)(3); and
‘‘(C) the excess (if any) of the maximum
amount allowable as a deduction under section
1400H for the taxable year over the amount con-
tributed to the account for the taxable year.
For purposes of this subsection, any contribution which is
distributed from the family development account in a dis-
tribution to which rules similar to the rules of section
408(d)(4) apply by reason of section 1400H(d)(3) shall be
treated as an amount not contributed.’’.
(c) TAX
ON PROHIBITED TRANSACTIONS.—Section
4975 is amended—
(1) by adding at the end of subsection (c) the fol-
lowing new paragraph:
‘‘(6) SPECIAL RULE FOR FAMILY DEVELOPMENT
ACCOUNTS.—An individual for whose benefit a family
development account is established and any contrib-
utor to such account shall be exempt from the tax im-
posed by this section with respect to any transaction
concerning such account (which would otherwise be
500
taxable under this section) if, with respect to such
transaction, the account ceases to be a family develop-
ment account by reason of the application of section
1400H(d)(2) to such account.’’; and
(2) in subsection (e)(1), by striking ‘‘or’’ at the
end of subparagraph (E), by redesignating subpara-
graph (F) as subparagraph (G), and by inserting
after subparagraph (E) the following new subpara-
graph:
‘‘(F) a family development account de-
scribed in section 1400H(e), or’’.
(d) INFORMATION RELATING TO CERTAIN TRUSTS AND
ANNUITY
PLANS.—Subsection (c) of section 6047 is
amended—
(1) by inserting ‘‘or section 1400H’’ after ‘‘sec-
tion 219’’; and
(2) by inserting ‘‘, of any family development
account described in section 1400H(e),’’, after ‘‘sec-
tion 408(a)’’.
(e) INSPECTION OF APPLICATIONS FOR TAX EXEMP-
TION.—Clause (i) of section 6104(a)(1)(B) is amended by
inserting ‘‘a family development account described in sec-
tion 1400H(e),’’ after ‘‘section 408(a),’’.
(f ) FAILURE TO PROVIDE REPORTS ON FAMILY DE-
VELOPMENT ACCOUNTS.—Paragraph (2) of section 6693(a)
501
is amended by striking ‘‘and’’ at the end of subparagraph
(C), by striking the period and inserting ‘‘, and’’ at the
end of subparagraph (D), and by adding at the end the
following new subparagraph:
‘‘(E) section 1400H(g)(6) (relating to fam-
ily development accounts).’’.
(g) CONFORMING AMENDMENTS REGARDING COMMER-
CIAL REVITALIZATION DEDUCTION.—
(1) Section 172 is amended by redesignating
subsection ( j) as subsection (k) and by inserting after
subsection (i) the following new subsection:
‘‘( j) NO CARRYBACK OF SECTION 1400K DEDUCTION
BEFORE DATE OF THE ENACTMENT.—No portion of the net
operating loss for any taxable year which is attributable
to any commercial revitalization deduction determined
under section 1400K may be carried back to a taxable year
ending before the date of the enactment of section 1400K.’’.
(2) Subparagraph (B) of section 48(a)(2) is
amended by inserting ‘‘or commercial revitalization’’
after ‘‘rehabilitation’’ each place it appears in the
text and heading.
(3) Subparagraph (C) of section 469(i)(3) is
amended—
(A) by inserting ‘‘or section 1400K’’ after
‘‘section 42’’; and
502
(B) by inserting ‘‘AND COMMERCIAL REVI-
TALIZATION DEDUCTION’’ after ‘‘CREDIT’’ in the
heading.
(h) CLERICAL
AMENDMENTS.—The table of sub-
chapters for chapter 1 is amended by adding at the end
the following new item:
‘‘Subchapter X. Renewal Communities.’’.
Subtitle B—Timber Incentives
SEC. 611. TEMPORARY SUSPENSION OF MAXIMUM AMOUNT
OF AMORTIZABLE REFORESTATION EXPENDI-
TURES.
(a) INCREASE IN DOLLAR LIMITATION.—Paragraph
(1) of section 194(b) (relating to amortization of reforest-
ation expenditures) is amended by striking ‘‘$10,000
($5,000’’ and inserting ‘‘$25,000 ($12,500’’.
(b) TEMPORARY SUSPENSION OF INCREASED DOLLAR
LIMITATION.—Subsection (b) of section 194(b) (relating to
amortization of reforestation expenditures) is amended by
adding at the end the following new paragraph:
‘‘(5) SUSPENSION
OF
DOLLAR
LIMITATION.—
Paragraph (1) shall not apply to taxable years begin-
ning after December 31, 2000, and before January 1,
2004.
(c) CONFORMING AMENDMENT.—Paragraph (1) of sec-
tion 48(b) is amended by striking ‘‘section 194(b)(1)’’ and
503
inserting ‘‘section 194(b)(1) and without regard to section
194(b)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
TITLE VII—REAL ESTATE
PROVISIONS
Subtitle A—Improvements in Low-
Income Housing Credit
SEC. 701. MODIFICATION OF STATE CEILING ON LOW-IN-
COME HOUSING CREDIT.
(a) IN GENERAL.—Clauses (i) and (ii) of section
42(h)(3)(C) (relating to State housing credit ceiling) are
amended to read as follows:
‘‘(i) the unused State housing credit
ceiling (if any) of such State for the pre-
ceding calendar year,
‘‘(ii) the greater of—
‘‘(I) the applicable amount under
subparagraph (H) multiplied by the
State population, or
‘‘(II) $2,000,000,’’.
(b) APPLICABLE AMOUNT.—Paragraph (3) of section
42(h) (relating to housing credit dollar amount for agen-
504
cies) is amended by adding at the end the following new
subparagraph:
‘‘(H) APPLICABLE AMOUNT OF STATE CEIL-
ING.—For purposes of subparagraph (C)(ii), the
applicable amount shall be determined under the
following table:
‘‘For calendar year:
The applicable amount is:
2001 .................................................................................... $1.35
2002 ....................................................................................
1.45
2003 ....................................................................................
1.55
2004 and thereafter ...........................................................
1.65.’’.
(c) ADJUSTMENT OF STATE CEILING FOR INCREASES
IN COST-OF-LIVING.—Paragraph (3) of section 42(h) (relat-
ing to housing credit dollar amount for agencies), as
amended by subsection (c), is amended by adding at the
end the following new subparagraph:
‘‘(I) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of a
calendar year after 2004, the $2,000,000 in
subparagraph (C) and the $1.65 amount in
subparagraph (H) shall each be increased
by an amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjustment
determined under section 1(f )(3) for
such calendar year by substituting ‘cal-
505
endar year 2003’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(ii) ROUNDING.—
‘‘(I) In the case of the amount in
subparagraph (C), any increase under
clause (i) which is not a multiple of
$5,000 shall be rounded to the next
lowest multiple of $5,000.
‘‘(II) In the case of the amount in
subparagraph (H), any increase under
clause (i) which is not a multiple of 5
cents shall be rounded to the next low-
est multiple of 5 cents.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 42(h)(3)(C), as amended by sub-
section (a), is amended—
(A) by striking ‘‘clause (ii)’’ in the matter
following clause (iv) and inserting ‘‘clause (i)’’,
and
(B) by striking ‘‘clauses (i)’’ in the matter
following clause (iv) and inserting ‘‘clauses (ii)’’.
(2) Section 42(h)(3)(D)(ii) is amended—
(A) by striking ‘‘subparagraph (C)(ii)’’ and
inserting ‘‘subparagraph (C)(i)’’, and
506
(B) by striking ‘‘clauses (i)’’ in subclause
(II) and inserting ‘‘clauses (ii)’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to calendar years after 2000.
SEC. 702. MODIFICATION OF CRITERIA FOR ALLOCATING
HOUSING CREDITS AMONG PROJECTS.
(a) SELECTION CRITERIA.—Subparagraph (C) of sec-
tion 42(m)(1) (relating to certain selection criteria must
be used) is amended—
(1) by inserting ‘‘, including whether the project
includes the use of existing housing as part of a com-
munity revitalization plan’’ before the comma at the
end of clause (iii), and
(2) by striking clauses (v), (vi), and (vii) and
inserting the following new clauses:
‘‘(v) tenant populations with special
housing needs,
‘‘(vi) public housing waiting lists,
‘‘(vii) tenant populations of individ-
uals with children, and
‘‘(viii) projects intended for eventual
tenant ownership.’’.
(b) PREFERENCE FOR COMMUNITY REVITALIZATION
PROJECTS LOCATED
IN QUALIFIED CENSUS TRACTS.—
Clause (ii) of section 42(m)(1)(B) is amended by striking
507
‘‘and’’ at the end of subclause (I), by adding ‘‘and’’ at the
end of subclause (II), and by inserting after subclause (II)
the following new subclause:
‘‘(III) projects which are located
in qualified census tracts (as defined
in subsection (d)(5)(C)) and the devel-
opment of which contributes to a con-
certed 
community 
revitalization
plan,’’.
SEC. 703. ADDITIONAL RESPONSIBILITIES OF HOUSING
CREDIT AGENCIES.
(a) MARKET STUDY; PUBLIC DISCLOSURE OF RATION-
ALE FOR NOT FOLLOWING CREDIT ALLOCATION PRIOR-
ITIES.—Subparagraph (A) of section 42(m)(1) (relating to
responsibilities of housing credit agencies) is amended by
striking ‘‘and’’ at the end of clause (i), by striking the pe-
riod at the end of clause (ii) and inserting a comma, and
by adding at the end the following new clauses:
‘‘(iii) a comprehensive market study of
the housing needs of low-income individuals
in the area to be served by the project is
conducted before the credit allocation is
made and at the developer’s expense by a
disinterested party who is approved by such
agency, and
508
‘‘(iv) a written explanation is avail-
able to the general public for any allocation
of a housing credit dollar amount which is
not made in accordance with established
priorities and selection criteria of the hous-
ing credit agency.’’.
(b) SITE VISITS.—Clause (iii) of section 42(m)(1)(B)
(relating to qualified allocation plan) is amended by insert-
ing before the period ‘‘and in monitoring for noncompliance
with habitability standards through regular site visits’’.
SEC. 704. MODIFICATIONS TO RULES RELATING TO BASIS
OF BUILDING WHICH IS ELIGIBLE FOR CRED-
IT.
(a) ADJUSTED BASIS TO INCLUDE PORTION OF CER-
TAIN BUILDINGS USED BY LOW-INCOME INDIVIDUALS WHO
ARE NOT TENANTS AND BY PROJECT EMPLOYEES.—Para-
graph (4) of section 42(d) (relating to special rules relating
to determination of adjusted basis) is amended—
(1) by striking ‘‘subparagraph (B)’’ in subpara-
graph (A) and inserting ‘‘subparagraphs (B) and
(C)’’,
(2) by redesignating subparagraph (C) as sub-
paragraph (D), and
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph:
509
‘‘(C) INCLUSION
OF
BASIS
OF
PROPERTY
USED TO PROVIDE SERVICES FOR CERTAIN NON-
TENANTS.—
‘‘(i) IN GENERAL.—The adjusted basis
of any building located in a qualified cen-
sus tract (as defined in paragraph (5)(C))
shall be determined by taking into account
the adjusted basis of property (of a char-
acter subject to the allowance for deprecia-
tion and not otherwise taken into account)
used throughout the taxable year in pro-
viding any community service facility.
‘‘(ii) LIMITATION.—The increase in the
adjusted basis of any building which is
taken into account by reason of clause (i)
shall not exceed 10 percent of the eligible
basis of the qualified low-income housing
project of which it is a part. For purposes
of the preceding sentence, all community
service facilities which are part of the same
qualified low-income housing project shall
be treated as one facility.
‘‘(iii) COMMUNITY
SERVICE
FACIL-
ITY.—For purposes of this subparagraph,
the term ‘community service facility’ means
510
any facility designed to serve primarily in-
dividuals whose income is 60 percent or less
of area median income (within the meaning
of subsection (g)(1)(B)).’’.
(b) CERTAIN NATIVE AMERICAN HOUSING ASSISTANCE
DISREGARDED IN DETERMINING WHETHER BUILDING IS
FEDERALLY SUBSIDIZED FOR PURPOSES OF THE LOW-IN-
COME HOUSING CREDIT.—Subparagraph (E) of section
42(i)(2) (relating to determination of whether building is
federally subsidized) is amended—
(1) in clause (i), by inserting ‘‘or the Native
American Housing Assistance and Self-Determination
Act of 1996 (25 U.S.C. 4101 et seq.) (as in effect on
October 1, 1997)’’ after ‘‘this subparagraph)’’, and
(2) in the subparagraph heading, by inserting
‘‘OR NATIVE AMERICAN HOUSING ASSISTANCE’’ after
‘‘HOME ASSISTANCE’’.
SEC. 705. OTHER MODIFICATIONS.
(a) ALLOCATION
OF CREDIT LIMIT
TO CERTAIN
BUILDINGS.—
(1) The first sentence of section 42(h)(1)(E)(ii) is
amended by striking ‘‘(as of’’ the first place it ap-
pears and inserting ‘‘(as of the later of the date which
is 6 months after the date that the allocation was
made or’’.
511
(2) The last sentence of section 42(h)(3)(C) is
amended by striking ‘‘project which’’ and inserting
‘‘project which fails to meet the 10 percent test under
paragraph (1)(E)(ii) on a date after the close of the
calendar year in which the allocation was made or
which’’.
(b) DETERMINATION OF WHETHER BUILDINGS ARE
LOCATED IN HIGH COST AREAS.—The first sentence of sec-
tion 42(d)(5)(C)(ii)(I) is amended—
(1) by inserting ‘‘either’’ before ‘‘in which 50
percent’’, and
(2) by inserting before the period ‘‘or which has
a poverty rate of at least 25 percent’’.
SEC. 706. CARRYFORWARD RULES.
(a) IN GENERAL.—Clause (ii) of section 42(h)(3)(D)
(relating to unused housing credit carryovers allocated
among certain States) is amended by striking ‘‘the excess’’
and all that follows and inserting ‘‘the excess (if any) of—
‘‘(I) the unused State housing
credit ceiling for the year preceding
such year, over
‘‘(II) the aggregate housing credit
dollar 
amount 
allocated 
for 
such
year.’’.
512
(b) CONFORMING AMENDMENT.—The second sentence
of section 42(h)(3)(C) (relating to State housing credit ceil-
ing) is amended by striking ‘‘clauses (i) and (iii)’’ and in-
serting ‘‘clauses (i) through (iv)’’.
SEC. 707. EFFECTIVE DATE.
Except as otherwise provided in this subtitle, the
amendments made by this subtitle shall apply to—
(1) housing credit dollar amounts allocated after
December 31, 2000, and
(2) buildings placed in service after such date to
the extent paragraph (1) of section 42(h) of the Inter-
nal Revenue Code of 1986 does not apply to any
building by reason of paragraph (4) thereof, but only
with respect to bonds issued after such date.
Subtitle B—Provisions Relating to
Real Estate Investment Trusts
PART I—TREATMENT OF INCOME AND SERVICES
PROVIDED BY TAXABLE REIT SUBSIDIARIES
SEC. 711. MODIFICATIONS TO ASSET DIVERSIFICATION
TEST.
(a) IN
GENERAL.—Subparagraph (B) of section
856(c)(4) is amended to read as follows:
‘‘(B)(i) not more than 25 percent of the
value of its total assets is represented by securi-
513
ties (other than those includible under subpara-
graph (A)), and
‘‘(ii) except with respect to a taxable REIT
subsidiary and securities includible under sub-
paragraph (A)—
‘‘(I) not more than 5 percent of the
value of its total assets is represented by se-
curities of any one issuer,
‘‘(II) the trust does not hold securities
possessing more than 10 percent of the total
voting power of the outstanding securities of
any one issuer, and
‘‘(III) the trust does not hold securities
having a value of more than 10 percent of
the total value of the outstanding securities
of any one issuer.’’.
(b) EXCEPTION FOR STRAIGHT DEBT SECURITIES.—
Subsection (c) of section 856 is amended by adding at the
end the following new paragraph:
‘‘(7) STRAIGHT DEBT SAFE HARBOR IN APPLYING
PARAGRAPH (4).—Securities of an issuer which are
straight debt (as defined in section 1361(c)(5) without
regard to subparagraph (B)(iii) thereof) shall not be
taken 
into 
account 
in 
applying 
paragraph
(4)(B)(ii)(III) if—
514
‘‘(A) the issuer is an individual, or
‘‘(B) the only securities of such issuer which
are held by the trust or a taxable REIT sub-
sidiary of the trust are straight debt (as so de-
fined), or
‘‘(C) the issuer is a partnership and the
trust holds at least a 20 percent profits interest
in the partnership.’’.
SEC. 712. TREATMENT OF INCOME AND SERVICES PRO-
VIDED BY TAXABLE REIT SUBSIDIARIES.
(a) INCOME FROM TAXABLE REIT SUBSIDIARIES NOT
TREATED AS IMPERMISSIBLE TENANT SERVICE INCOME.—
Clause (i) of section 856(d)(7)(C) (relating to exceptions to
impermissible tenant service income) is amended by insert-
ing ‘‘or through a taxable REIT subsidiary of such trust’’
after ‘‘income’’.
(b) CERTAIN INCOME FROM TAXABLE REIT SUBSIDI-
ARIES NOT EXCLUDED FROM RENTS FROM REAL PROP-
ERTY.—
(1) IN GENERAL.—Subsection (d) of section 856
(relating to rents from real property defined) is
amended by adding at the end the following new
paragraphs:
‘‘(8) SPECIAL RULE FOR TAXABLE REIT SUBSIDI-
ARIES.—For purposes of this subsection, amounts
515
paid to a real estate investment trust by a taxable
REIT subsidiary of such trust shall not be excluded
from rents from real property by reason of paragraph
(2)(B) if the requirements of either of the following
subparagraphs are met:
‘‘(A) LIMITED RENTAL EXCEPTION.—The re-
quirements of this subparagraph are met with
respect to any property if at least 90 percent of
the leased space of the property is rented to per-
sons other than taxable REIT subsidiaries of
such trust and other than persons described in
section 856(d)(2)(B). The preceding sentence
shall apply only to the extent that the amounts
paid to the trust as rents from real property (as
defined in paragraph (1) without regard to
paragraph (2)(B)) from such property are sub-
stantially comparable to such rents made by the
other tenants of the trust’s property for com-
parable space.
‘‘(B) EXCEPTION FOR CERTAIN LODGING FA-
CILITIES.—The requirements of this subpara-
graph are met with respect to an interest in real
property which is a qualified lodging facility
leased by the trust to a taxable REIT subsidiary
of the trust if the property is operated on behalf
516
of such subsidiary by a person who is an eligible
independent contractor.
‘‘(9) ELIGIBLE
INDEPENDENT
CONTRACTOR.—
For purposes of paragraph (8)(B)—
‘‘(A) IN GENERAL.—The term ‘eligible inde-
pendent contractor’ means, with respect to any
qualified lodging facility, any independent con-
tractor if, at the time such contractor enters into
a management agreement or other similar serv-
ice contract with the taxable REIT subsidiary to
operate the facility, such contractor (or any re-
lated person) is actively engaged in the trade or
business of operating qualified lodging facilities
for any person who is not a related person with
respect to the real estate investment trust or the
taxable REIT subsidiary.
‘‘(B) SPECIAL RULES.—Solely for purposes
of this paragraph and paragraph (8)(B), a per-
son shall not fail to be treated as an independent
contractor with respect to any qualified lodging
facility by reason of any of the following:
‘‘(i) The taxable REIT subsidiary
bears the expenses for the operation of the
facility pursuant to the management agree-
ment or other similar service contract.
517
‘‘(ii) The taxable REIT subsidiary re-
ceives the revenues from the operation of
such facility, net of expenses for such oper-
ation and fees payable to the operator pur-
suant to such agreement or contract.
‘‘(iii) The real estate investment trust
receives income from such person with re-
spect to another property that is attrib-
utable to a lease of such other property to
such person that was in effect as of the later
of—
‘‘(I) January 1, 1999, or
‘‘(II) the earliest date that any
taxable REIT subsidiary of such trust
entered into a management agreement
or other similar service contract with
such person with respect to such quali-
fied lodging facility.
‘‘(C) 
RENEWALS, 
ETC., 
OF
EXISTING
LEASES.—For 
purposes 
of 
subparagraph
(B)(iii)—
‘‘(i) a lease shall be treated as in effect
on January 1, 1999, without regard to its
renewal after such date, so long as such re-
newal is pursuant to the terms of such lease
518
as in effect on whichever of the dates under
subparagraph (B)(iii) is the latest, and
‘‘(ii) a lease of a property entered into
after whichever of the dates under subpara-
graph (B)(iii) is the latest shall be treated
as in effect on such date if—
‘‘(I) on such date, a lease of such
property from the trust was in effect,
and
‘‘(II) under the terms of the new
lease, such trust receives a substan-
tially similar or lesser benefit in com-
parison to the lease referred to in sub-
clause (I).
‘‘(D) QUALIFIED LODGING FACILITY.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘qualified
lodging facility’ means any lodging facility
unless wagering activities are conducted at
or in connection with such facility by any
person who is engaged in the business of ac-
cepting wagers and who is legally author-
ized to engage in such business at or in con-
nection with such facility.
519
‘‘(ii) LODGING
FACILITY.—The term
‘lodging facility’ means a hotel, motel, or
other establishment more than one-half of
the dwelling units in which are used on a
transient basis.
‘‘(iii) CUSTOMARY AMENITIES AND FA-
CILITIES.—The term ‘lodging facility’ in-
cludes customary amenities and facilities
operated as part of, or associated with, the
lodging facility so long as such amenities
and facilities are customary for other prop-
erties of a comparable size and class owned
by other owners unrelated to such real estate
investment trust.
‘‘(E) OPERATE
INCLUDES
MANAGE.—Ref-
erences in this paragraph to operating a prop-
erty shall be treated as including a reference to
managing the property.
‘‘(F) RELATED PERSON.—Persons shall be
treated as related to each other if such persons
are treated as a single employer under subsection
(a) or (b) of section 52.’’.
(2) CONFORMING
AMENDMENT.—Subparagraph
(B) of section 856(d)(2) is amended by inserting ‘‘ex-
cept as provided in paragraph (8),’’ after ‘‘(B)’’.
520
(3) DETERMINING
RENTS
FROM
REAL
PROP-
ERTY.—
(A)(i) Paragraph (1) of section 856(d) is
amended by striking ‘‘adjusted bases’’ each place
it occurs and inserting ‘‘fair market values’’.
(ii) The amendment made by this subpara-
graph shall apply to taxable years beginning
after December 31, 2000.
(B)(i) Clause (i) of section 856(d)(2)(B) is
amended by striking ‘‘number’’ and inserting
‘‘value’’.
(ii) The amendment made by this subpara-
graph shall apply to amounts received or accrued
in taxable years beginning after December 31,
2000, except for amounts paid pursuant to leases
in effect on July 12, 1999, or pursuant to a
binding contract in effect on such date and at all
times thereafter.
SEC. 713. TAXABLE REIT SUBSIDIARY.
(a) IN GENERAL.—Section 856 is amended by adding
at the end the following new subsection:
‘‘(l) TAXABLE REIT SUBSIDIARY.—For purposes of
this part—
‘‘(1) IN GENERAL.—The term ‘taxable REIT sub-
sidiary’ means, with respect to a real estate invest-
521
ment trust, a corporation (other than a real estate in-
vestment trust) if—
‘‘(A) such trust directly or indirectly owns
stock in such corporation, and
‘‘(B) such trust and such corporation joint-
ly elect that such corporation shall be treated as
a taxable REIT subsidiary of such trust for pur-
poses of this part.
Such an election, once made, shall be irrevocable un-
less both such trust and corporation consent to its rev-
ocation. Such election, and any revocation thereof,
may be made without the consent of the Secretary.
‘‘(2) 35 PERCENT OWNERSHIP IN ANOTHER TAX-
ABLE
REIT
SUBSIDIARY.—The term ‘taxable REIT
subsidiary’ includes, with respect to any real estate
investment trust, any corporation (other than a real
estate investment trust) with respect to which a tax-
able REIT subsidiary of such trust owns directly or
indirectly—
‘‘(A) securities possessing more than 35 per-
cent of the total voting power of the outstanding
securities of such corporation, or
‘‘(B) securities having a value of more than
35 percent of the total value of the outstanding
securities of such corporation.
522
The preceding sentence shall not apply to a qualified
REIT subsidiary (as defined in subsection (i)(2)).
The rule of section 856(c)(7) shall apply for purposes
of subparagraph (B).
‘‘(3) EXCEPTIONS.—The term ‘taxable REIT
subsidiary’ shall not include—
‘‘(A) any corporation which directly or in-
directly operates or manages a lodging facility
or a health care facility, and
‘‘(B) any corporation which directly or in-
directly provides to any other person (under a
franchise, license, or otherwise) rights to any
brand name under which any lodging facility or
health care facility is operated.
Subparagraph (B) shall not apply to rights provided
to an eligible independent contractor to operate or
manage a lodging facility if such rights are held by
such corporation as a franchisee, licensee, or in a
similar capacity and such lodging facility is either
owned by such corporation or is leased to such cor-
poration from the real estate investment trust.
‘‘(4) DEFINITIONS.—For purposes of paragraph
(3)—
523
‘‘(A) LODGING FACILITY.—The term ‘lodg-
ing facility’ has the meaning given to such term
by paragraph (9)(D)(ii).
‘‘(B) HEALTH CARE FACILITY.—The term
‘health care facility’ has the meaning given to
such term by subsection (e)(6)(D)(ii).’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of sec-
tion 856(i) is amended by adding at the end the following
new sentence: ‘‘Such term shall not include a taxable REIT
subsidiary.’’.
SEC. 714. LIMITATION ON EARNINGS STRIPPING.
Paragraph (3) of section 163( j) (relating to limitation
on deduction for interest on certain indebtedness) is amend-
ed by striking ‘‘and’’ at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and in-
serting ‘‘, and’’, and by adding at the end the following
new subparagraph:
‘‘(C) any interest paid or accrued (directly
or indirectly) by a taxable REIT subsidiary (as
defined in section 856(l)) of a real estate invest-
ment trust to such trust.’’.
SEC. 715. 100 PERCENT TAX ON IMPROPERLY ALLOCATED
AMOUNTS.
(a) IN GENERAL.—Subsection (b) of section 857 (relat-
ing to method of taxation of real estate investment trusts
524
and holders of shares or certificates of beneficial interest)
is amended by redesignating paragraphs (7) and (8) as
paragraphs (8) and (9), respectively, and by inserting after
paragraph (6) the following new paragraph:
‘‘(7) INCOME FROM REDETERMINED RENTS, RE-
DETERMINED DEDUCTIONS, AND EXCESS INTEREST.—
‘‘(A) IMPOSITION OF TAX.—There is hereby
imposed for each taxable year of the real estate
investment trust a tax equal to 100 percent of re-
determined rents, redetermined deductions, and
excess interest.
‘‘(B) REDETERMINED RENTS.—
‘‘(i) IN GENERAL.—The term ‘redeter-
mined rents’ means rents from real prop-
erty (as defined in subsection 856(d)) the
amount of which would (but for subpara-
graph (E)) be reduced on distribution, ap-
portionment, or allocation under section
482 to clearly reflect income as a result of
services furnished or rendered by a taxable
REIT subsidiary of the real estate invest-
ment trust to a tenant of such trust.
‘‘(ii) EXCEPTION FOR CERTAIN SERV-
ICES.—Clause (i) shall not apply to
amounts received directly or indirectly by a
525
real estate investment trust for services de-
scribed in paragraph (1)(B) or (7)(C)(i) of
section 856(d).
‘‘(iii) EXCEPTION
FOR
DE
MINIMIS
AMOUNTS.—Clause (i) shall not apply to
amounts described in section 856(d)(7)(A)
with respect to a property to the extent such
amounts do not exceed the one percent
threshold described in section 856(d)(7)(B)
with respect to such property.
‘‘(iv) EXCEPTION
FOR
COMPARABLY
PRICED
SERVICES.—Clause (i) shall not
apply to any service rendered by a taxable
REIT subsidiary of a real estate investment
trust to a tenant of such trust if—
‘‘(I) such subsidiary renders a sig-
nificant amount of similar services to
persons other than such trust and ten-
ants of such trust who are unrelated
(within 
the 
meaning 
of 
section
856(d)(8)(F)) to such subsidiary, trust,
and tenants, but
‘‘(II) only to the extent the charge
for such service so rendered is substan-
tially comparable to the charge for the
526
similar services rendered to persons re-
ferred to in subclause (I).
‘‘(v) EXCEPTION FOR CERTAIN SEPA-
RATELY
CHARGED
SERVICES.—Clause (i)
shall not apply to any service rendered by
a taxable REIT subsidiary of a real estate
investment trust to a tenant of such trust
if—
‘‘(I) the rents paid to the trust by
tenants (leasing at least 25 percent of
the net leasable space in the trust’s
property) who are not receiving such
service from such subsidiary are sub-
stantially comparable to the rents paid
by tenants leasing comparable space
who are receiving such service from
such subsidiary, and
‘‘(II) the charge for such service
from such subsidiary is separately
stated.
‘‘(vi) EXCEPTION FOR CERTAIN SERV-
ICES BASED ON SUBSIDIARY’S INCOME FROM
THE SERVICES.—Clause (i) shall not apply
to any service rendered by a taxable REIT
subsidiary of a real estate investment trust
527
to a tenant of such trust if the gross income
of such subsidiary from such service is not
less than 150 percent of such subsidiary’s
direct cost in furnishing or rendering the
service.
‘‘(vii) EXCEPTIONS GRANTED BY SEC-
RETARY.—The Secretary may waive the tax
otherwise imposed by subparagraph (A) if
the trust establishes to the satisfaction of the
Secretary that rents charged to tenants were
established on an arms’ length basis even
though a taxable REIT subsidiary of the
trust provided services to such tenants.
‘‘(C) REDETERMINED
DEDUCTIONS.—The
term ‘redetermined deductions’ means deductions
(other than redetermined rents) of a taxable
REIT subsidiary of a real estate investment
trust if the amount of such deductions would
(but for subparagraph (E)) be decreased on dis-
tribution, apportionment, or allocation under
section 482 to clearly reflect income as between
such subsidiary and such trust.
‘‘(D) EXCESS INTEREST.—The term ‘excess
interest’ means any deductions for interest pay-
ments by a taxable REIT subsidiary of a real es-
528
tate investment trust to such trust to the extent
that the interest payments are in excess of a rate
that is commercially reasonable.
‘‘(E) COORDINATION WITH SECTION 482.—
The imposition of tax under subparagraph (A)
shall be in lieu of any distribution, apportion-
ment, or allocation under section 482.
‘‘(F) REGULATORY AUTHORITY.—The Sec-
retary shall prescribe such regulations as may be
necessary or appropriate to carry out the pur-
poses of this paragraph. Until the Secretary pre-
scribes such regulations, real estate investment
trusts and their taxable REIT subsidiaries may
base their allocations on any reasonable meth-
od.’’.
(b) AMOUNT SUBJECT TO TAX NOT REQUIRED TO BE
DISTRIBUTED.—Subparagraph (E) of section 857(b)(2) (re-
lating to real estate investment trust taxable income) is
amended by striking ‘‘paragraph (5)’’ and inserting ‘‘para-
graphs (5) and (7)’’.
SEC. 716. EFFECTIVE DATE.
(a) IN GENERAL.—The amendments made by this part
shall apply to taxable years beginning after December 31,
2000.
529
(b) TRANSITIONAL RULES RELATED
TO SECTION
711.—
(1) EXISTING ARRANGEMENTS.—
(A) IN GENERAL.—Except as otherwise pro-
vided in this paragraph, the amendment made
by section 711 shall not apply to a real estate
investment trust with respect to—
(i) securities of a corporation held di-
rectly or indirectly by such trust on July
12, 1999,
(ii) securities of a corporation held by
an entity on July 12, 1999, if such trust ac-
quires control of such entity pursuant to a
written binding contract in effect on such
date and at all times thereafter before such
acquisition,
(iii) securities received by such trust
(or a successor) in exchange for, or with re-
spect to, securities described in clause (i) or
(ii) in a transaction in which gain or loss
is not recognized, and
(iv) securities acquired directly or in-
directly by such trust as part of a reorga-
nization (as defined in section 368(a)(1) of
the Internal Revenue Code of 1986) with re-
530
spect to such trust if such securities are de-
scribed in clause (i), (ii), or (iii) with re-
spect to any other real estate investment
trust.
(B) NEW TRADE OR BUSINESS OR SUBSTAN-
TIAL
NEW
ASSETS.—Subparagraph (A) shall
cease to apply to securities of a corporation as
of the first day after July 12, 1999, on which
such corporation engages in a substantial new
line of business, or acquires any substantial
asset, other than—
(i) pursuant to a binding contract in
effect on such date and at all times there-
after before the acquisition of such asset,
(ii) in a transaction in which gain or
loss is not recognized by reason of section
1031 or 1033 of the Internal Revenue Code
of 1986, or
(iii) in a reorganization (as so de-
fined) with another corporation the securi-
ties of which are described in paragraph
(1)(A) of this subsection.
(C) LIMITATION ON TRANSITION RULES.—
Subparagraph (A) shall cease to apply to securi-
ties of a corporation held, acquired, or received,
531
directly or indirectly, by a real estate investment
trust as of the first day after July 12, 1999, on
which such trust acquires any additional securi-
ties of such corporation other than—
(i) pursuant to a binding contract in
effect on July 12, 1999, and at all times
thereafter, or
(ii) in a reorganization (as so defined)
with another corporation the securities of
which are described in paragraph (1)(A) of
this subsection.
(2) TAX-FREE CONVERSION.—If—
(A) at the time of an election for a corpora-
tion to become a taxable REIT subsidiary, the
amendment made by section 711 does not apply
to such corporation by reason of paragraph (1),
and
(B) such election first takes effect before
January 1, 2004,
such election shall be treated as a reorganization
qualifying under section 368(a)(1)(A) of such Code.
PART II—HEALTH CARE REITS
SEC. 721. HEALTH CARE REITS.
(a) SPECIAL FORECLOSURE RULE FOR HEALTH CARE
PROPERTIES.—Subsection (e) of section 856 (relating to
532
special rules for foreclosure property) is amended by adding
at the end the following new paragraph:
‘‘(6) SPECIAL
RULE
FOR
QUALIFIED
HEALTH
CARE
PROPERTIES.—For 
purposes 
of 
this
subsection—
‘‘(A) ACQUISITION
AT
EXPIRATION
OF
LEASE.—The term ‘foreclosure property’ shall in-
clude any qualified health care property ac-
quired by a real estate investment trust as the
result of the termination of a lease of such prop-
erty (other than a termination by reason of a de-
fault, or the imminence of a default, on the
lease).
‘‘(B) GRACE
PERIOD.—In the case of a
qualified health care property which is fore-
closure property solely by reason of subpara-
graph (A), in lieu of applying paragraphs (2)
and (3)—
‘‘(i) the qualified health care property
shall cease to be foreclosure property as of
the close of the second taxable year after the
taxable year in which such trust acquired
such property, and
‘‘(ii) if the real estate investment trust
establishes to the satisfaction of the Sec-
533
retary that an extension of the grace period
in clause (i) is necessary to the orderly leas-
ing or liquidation of the trust’s interest in
such qualified health care property, the Sec-
retary may grant one or more extensions of
the grace period for such qualified health
care property.
Any such extension shall not extend the grace pe-
riod beyond the close of the 6th year after the
taxable year in which such trust acquired such
qualified health care property.
‘‘(C) INCOME
FROM
INDEPENDENT
CON-
TRACTORS.—For purposes of applying para-
graph (4)(C) with respect to qualified health care
property which is foreclosure property by reason
of subparagraph (A) or paragraph (1), income
derived or received by the trust from an inde-
pendent contractor shall be disregarded to the ex-
tent such income is attributable to—
‘‘(i) any lease of property in effect on
the date the real estate investment trust ac-
quired the qualified health care property
(without regard to its renewal after such
date so long as such renewal is pursuant to
534
the terms of such lease as in effect on such
date), or
‘‘(ii) any lease of property entered into
after such date if—
‘‘(I) on such date, a lease of such
property from the trust was in effect,
and
‘‘(II) under the terms of the new
lease, such trust receives a substan-
tially similar or lesser benefit in com-
parison to the lease referred to in sub-
clause (I).
‘‘(D) QUALIFIED
HEALTH
CARE
PROP-
ERTY.—
‘‘(i) IN GENERAL.—The term ‘qualified
health care property’ means any real prop-
erty (including interests therein), and any
personal property incident to such real
property, which—
‘‘(I) is a health care facility, or
‘‘(II) is necessary or incidental to
the use of a health care facility.
‘‘(ii) HEALTH
CARE
FACILITY.—For
purposes of clause (i), the term ‘health care
facility’ means a hospital, nursing facility,
535
assisted living facility, congregate care fa-
cility, qualified continuing care facility (as
defined in section 7872(g)(4)), or other li-
censed facility which extends medical or
nursing or ancillary services to patients
and which, immediately before the termi-
nation, expiration, default, or breach of the
lease of or mortgage secured by such facil-
ity, was operated by a provider of such
services which was eligible for participation
in the medicare program under title XVIII
of the Social Security Act with respect to
such facility.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
PART III—CONFORMITY WITH REGULATED
INVESTMENT COMPANY RULES
SEC. 731. CONFORMITY WITH REGULATED INVESTMENT
COMPANY RULES.
(a) DISTRIBUTION REQUIREMENT.—Clauses (i) and
(ii) of section 857(a)(1)(A) (relating to requirements appli-
cable to real estate investment trusts) are each amended by
striking ‘‘95 percent (90 percent for taxable years beginning
before January 1, 1980)’’ and inserting ‘‘90 percent’’.
536
(b) IMPOSITION
OF
TAX.—Clause (i) of section
857(b)(5)(A) (relating to imposition of tax in case of failure
to meet certain requirements) is amended by striking ‘‘95
percent (90 percent in the case of taxable years beginning
before January 1, 1980)’’ and inserting ‘‘90 percent’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
PART IV—CLARIFICATION OF EXCEPTION FROM
IMPERMISSIBLE TENANT SERVICE INCOME
SEC. 
741. 
CLARIFICATION 
OF 
EXCEPTION 
FOR 
INDE-
PENDENT OPERATORS.
(a) IN GENERAL.—Paragraph (3) of section 856(d)
(relating to independent contractor defined) is amended by
adding at the end the following flush sentence:
‘‘In the event that any class of stock of either the real
estate investment trust or such person is regularly
traded on an established securities market, only per-
sons who own, directly or indirectly, more than 5 per-
cent of such class of stock shall be taken into account
as owning any of the stock of such class for purposes
of applying the 35 percent limitation set forth in sub-
paragraph (B) (but all of the outstanding stock of
such class shall be considered outstanding in order to
537
compute the denominator for purpose of determining
the applicable percentage of ownership).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
PART V—MODIFICATION OF EARNINGS AND
PROFITS RULES
SEC. 751. MODIFICATION OF EARNINGS AND PROFITS
RULES.
(a) RULES FOR DETERMINING WHETHER REGULATED
INVESTMENT COMPANY HAS EARNINGS AND PROFITS FROM
NON-RIC YEAR.—
(1) IN GENERAL.—Subsection (c) of section 852
is amended by adding at the end the following new
paragraph:
‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS
OF SUBSECTION (a)(2)(B).—Any distribution which
is made in order to comply with the requirements of
subsection (a)(2)(B)—
‘‘(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made
from earnings and profits which, but for the dis-
tribution, would result in a failure to meet such
requirements (and allocated to such earnings on
a first-in, first-out basis), and
538
‘‘(B) to the extent treated under subpara-
graph (A) as made from accumulated earnings
and profits, shall not be treated as a distribution
for purposes of subsection (b)(2)(D) and section
855.’’.
(2) CONFORMING
AMENDMENT.—Subparagraph
(A) of section 857(d)(3) is amended to read as follows:
‘‘(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made
from earnings and profits which, but for the dis-
tribution, would result in a failure to meet such
requirements (and allocated to such earnings on
a first-in, first-out basis), and’’.
(b) CLARIFICATION OF APPLICATION OF REIT SPILL-
OVER DIVIDEND RULES
TO DISTRIBUTIONS TO MEET
QUALIFICATION REQUIREMENT.—Subparagraph (B) of sec-
tion 857(d)(3) is amended by inserting before the period
‘‘and section 858’’.
(c) APPLICATION OF DEFICIENCY DIVIDEND PROCE-
DURES.—Paragraph (1) of section 852(e) is amended by
adding at the end the following new sentence: ‘‘If the deter-
mination under subparagraph (A) is solely as a result of
the failure to meet the requirements of subsection (a)(2), the
preceding sentence shall also apply for purposes of applying
subsection (a)(2) to the non-RIC year and the amount re-
539
ferred to in paragraph (2)(A)(i) shall be the portion of the
accumulated earnings and profits which resulted in such
failure.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to distributions after December 31, 2000.
Subtitle C—Private Activity Bond
Volume Cap
SEC. 761. ACCELERATION OF PHASE-IN OF INCREASE IN
VOLUME CAP ON PRIVATE ACTIVITY BONDS.
(a) IN GENERAL.—The table contained in section
146(d)(2) (relating to per capita limit; aggregate limit) is
amended to read as follows:
‘‘Calendar Year
Per Capita
Limit
Aggregate Limit
2001 ............................................................................................
$55.00
$165,000,000
2002 ............................................................................................
60.00
180,000,000
2003 ............................................................................................
65.00
195,000,000
2004, 2005, and 2006 ...............................................................
70.00
210,000,000
2007 and thereafter ...................................................................
75.00
225,000,000.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to calendar years beginning after 2000.
Subtitle D—Exclusion From Gross
Income 
for 
Certain 
Forgiven
Mortgage Obligations
SEC. 771. EXCLUSION FROM GROSS INCOME FOR CERTAIN
FORGIVEN MORTGAGE OBLIGATIONS.
(a) IN GENERAL.—Paragraph (1) of section 108(a)
(relating to exclusion from gross income) is amended by
striking ‘‘or’’ at the end of both subparagraphs (A) and (C),
540
by striking the period at the end of subparagraph (D) and
inserting ‘‘, or’’, and by inserting after subparagraph (D)
the following new subparagraph:
‘‘(E) in the case of an individual, the in-
debtedness discharged is qualified residential in-
debtedness.’’.
(b) QUALIFIED RESIDENTIAL INDEBTEDNESS SHORT-
FALL.—Section 108 (relating to discharge of indebtedness)
is amended by adding at the end the following new sub-
section:
‘‘(h) QUALIFIED RESIDENTIAL INDEBTEDNESS.—
‘‘(1) LIMITATIONS.—The amount excluded under
subparagraph (E) of subsection (a)(1) with respect to
any qualified residential indebtedness shall not exceed
the excess (if any) of—
‘‘(A) the outstanding principal amount of
such indebtedness (immediately before the dis-
charge), over
‘‘(B) the sum of—
‘‘(i) the amount realized from the sale
of the real property securing such indebted-
ness reduced by the cost of such sale, and
‘‘(ii) the outstanding principal amount
of any other indebtedness secured by such
property.
541
‘‘(2) QUALIFIED RESIDENTIAL INDEBTEDNESS.—
‘‘(A) IN GENERAL.—The term ‘qualified res-
idential 
indebtedness’ 
means 
indebtedness
which—
‘‘(i) was incurred or assumed by the
taxpayer in connection with real property
used as the principal residence (within the
meaning of section 121) of the taxpayer and
is secured by such real property,
‘‘(ii) is incurred or assumed to acquire,
construct, reconstruct, or substantially im-
prove such real property, and
‘‘(iii) with respect to which such tax-
payer makes an election to have this para-
graph apply.
‘‘(B) REFINANCED
INDEBTEDNESS.—Such
term shall include indebtedness resulting from
the refinancing of indebtedness under subpara-
graph (A)(ii), but only to the extent the amount
of the indebtedness resulting from such refi-
nancing does not exceed the amount of the refi-
nanced indebtedness.
‘‘(C) EXCEPTIONS.—Such term shall not in-
clude qualified farm indebtedness or qualified
real property business indebtedness.’’.