I
104TH CONGRESS
2D SESSION
H. R. 3467
To amend the Internal Revenue Code of 1986 to allow the designation
of renewal communities, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 16, 1996
Mr. WATTS of Oklahoma (for himself, Mr. TALENT, Mrs. MYRICK, Mr. ENG-
LISH of Pennsylvania, Mr. WELDON of Florida, Mr. KNOLLENBERG, Mr.
KOLBE, Mr. RIGGS, Mr. CHABOT, Mr. CHAMBLISS, Mr. COBURN, Mr.
FLANAGAN, Mr. GUTKNECHT, Mr. LARGENT, Mr. LATOURETTE, Mr.
NORWOOD, Mrs. SEASTRAND, Mr. SOUDER, Mr. STOCKMAN, Mr.
THORNBERRY, Mr. WELLER, Mr. WICKER, Mr. BAKER of Louisiana, Mr.
BALLENGER, Mr. BARTLETT of Maryland, Mr. BARTON of Texas, Mr.
BLUTE, Mr. BURTON of Indiana, Mr. CALVERT, Mr. DOOLITTLE, Mr.
DORNAN, Mr. EMERSON, Mr. HASTERT, Mr. HAYES, Mr. HOEKSTRA, Mr.
HOKE, Mr. HUTCHINSON, Mr. KING, Mr. KINGSTON, Mr. LEWIS of Ken-
tucky, Mr. LINDER, Mr. MCCRERY, Mr. SHAYS, Mr. WAMP, Mr.
MCINTOSH, Mr. DELAY, and Mr. TAYLOR of North Carolina) introduced
the following bill; which was referred to the Committee on Ways and
Means, and in addition to the Committees on Economic and Educational
Opportunities, Banking and Financial Services, and Commerce, for a pe-
riod to be subsequently determined by the Speaker, in each case for con-
sideration of such provisions as fall within the jurisdiction of the commit-
tee concerned
A BILL
To amend the Internal Revenue Code of 1986 to allow the
designation of renewal communities, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as ‘‘Sav-
ing Our Children: The American Community Renewal Act
of 1996’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Findings and purpose.
TITLE I—DESIGNATION AND TREATMENT OF RENEWAL
COMMUNITIES
Sec. 101. Short title.
Sec. 102. Statement of purpose.
Sec. 103. Designation and treatment of renewal communities.
Sec. 104. Evaluation and reporting requirements.
Sec. 105. Interaction with other Federal programs.
Sec. 106. Deduction for contributions to family development accounts allowable
whether or not taxpayer itemizes.
Sec. 107. Allowance of commercial revitalization credit.
Sec. 108. Conforming and clerical amendments.
TITLE II—ADDITIONAL TAX PROVISIONS
Sec. 201. Work opportunity tax credit.
Sec. 202. Credit for certain charitable contributions.
Sec. 203. Deduction for charitable contributions to be allowed to individuals
who do not itemize deductions.
TITLE III—PREVENTION AND TREATMENT OF SUBSTANCE
ABUSE
Sec. 301. Prevention and treatment of substance abuse; services provided
through religious organizations.
TITLE IV—LOW-INCOME EDUCATIONAL OPPORTUNITY
SCHOLARSHIP PROGRAM
Sec. 401. Short title.
Sec. 402. Findings; precedents.
Sec. 403. Purposes.
Sec. 404. Plan submission; requirements.
Sec. 405. Uses of funds.
Sec. 406. Scholarship program.
Sec. 407. Allocation of funds among renewal communities.
Sec. 408. Parental right of choice in education.
Sec. 409. Eligible schools.
Sec. 410. Administration of program and treatment of funds.
Sec. 411. Contributions to scholarship program from other sources.
Sec. 412. Use of excess funds for additional educational purposes.
Sec. 413. Evaluation.
Sec. 414. Effect on other programs.
Sec. 415. Judicial review.
Sec. 416. Definitions.
Sec. 417. Authorization of appropriations.
TITLE V—ADDITIONAL INCENTIVES FOR RENEWAL
COMMUNITIES
Sec. 501. CRA credit for investments in community development organizations
located in renewal communities.
Sec. 502. FDA user fee amendment.
SEC. 2. FINDINGS AND PURPOSE.
(a) FINDINGS.—The Congress makes the following
findings:
(1) Many of the Nation’s urban centers are
places with high levels of poverty, high rates of wel-
fare dependency, high crime rates, poor schools, and
joblessness.
(2) Federal tax incentives and regulatory re-
forms can encourage economic growth, job creation,
and small business formation in many urban centers.
(3) Encouraging private sector investment in
America’s economically distressed urban and rural
areas is essential to breaking the cycle of poverty
and the related ills of crime, drug abuse, illiteracy,
welfare dependency, and unemployment.
(b) PURPOSE.—The purpose of this Act is to increase
job creation, small business expansion and formation, edu-
cational opportunities, and homeownership, and to foster
moral renewal, in economically depressed areas by provid-
ing Federal tax incentives, regulatory reforms, school re-
form pilot projects, and homeownership incentives.
TITLE 
I—DESIGNATION 
AND
TREATMENT 
OF 
RENEWAL
COMMUNITIES
SEC. 101. SHORT TITLE.
This title may be cited as the ‘‘Renewing American
Communities Act of 1996’’.
SEC. 102. STATEMENT OF PURPOSE.
It is the purpose of this title to provide for the estab-
lishment of renewal communities in order to stimulate the
creation of new jobs, particularly for disadvantaged work-
ers and long-term unemployed individuals, and to promote
revitalization of economically distressed areas primarily by
providing or encouraging—
(1) tax relief at the Federal, State, and local
levels;
(2) regulatory relief at the Federal, State, and
local levels; and
(3) improved local services and an increase in
the economic stake of renewal community residents
in their own community and its development, par-
ticularly through the increased involvement of pri-
vate, local, and neighborhood organizations.
SEC. 103. DESIGNATION AND TREATMENT OF RENEWAL
COMMUNITIES.
(a) IN GENERAL.—Chapter 1 of the Internal Reve-
nue Code of 1986 is amended by adding at the end the
following new subchapter:
‘‘Subchapter W—Renewal Communities
‘‘Part I.
Designation.
‘‘Part II.
Renewal community capital gain and stock.
‘‘Part III. Family development accounts.
‘‘Part IV.
Additional Incentives.
‘‘PART I—DESIGNATION
‘‘Sec. 1400. Designation of Renewal Communities.
‘‘SEC. 1400. DESIGNATION OF RENEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this title,
the term ‘renewal community’ means any area—
‘‘(A) which is nominated by one or more
local governments and the State or States in
which it is located for designation as a renewal
community (hereinafter in this section referred
to as a ‘nominated area’), and
‘‘(B) which the Secretary of Housing and
Urban Development, after consultation with—
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury; the
Director of the Office of Management and
Budget; and the Administrator of the
Small Business Administration, and
‘‘(ii) in the case of an area on an In-
dian reservation, the Secretary of the Inte-
rior,
designates as a renewal community.
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 100 nominated areas as
renewal communities.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under para-
graph (1), at least 10 percent must be areas—
‘‘(i) which are within a local govern-
ment jurisdiction or jurisdictions with a
population of less than 50,000 (as deter-
mined under the most recent census data
available),
‘‘(ii) which are outside of a metropoli-
tan statistical area (within the meaning of
section 143(k)(2)(B)), or
‘‘(iii) which are determined by the
Secretary of Housing and Urban Develop-
ment, after consultation with the Secretary
of Commerce, to be rural areas.
‘‘(C) ADDITIONAL DESIGNATIONS TO RE-
PLACE REVOKED DESIGNATIONS.—
‘‘(i) IN GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate one additional area under subpara-
graph (A) to replace each area for which
the designation is revoked under subsection
(b)(2), but in no event may more than 100
areas designated under this subsection
bear designations as renewal communities
at any time.
‘‘(ii) EXTENSION OF TIME LIMIT ON
DESIGNATIONS.—In the case of any des-
ignation made under this subparagraph,
paragraph (4)(B) shall be applied by sub-
stituting ‘36-month’ for ‘24-month’.
‘‘(3) AREAS
DESIGNATED
BASED
SOLELY
ON
DEGREE OF POVERTY, ETC.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this section, the nominated areas
designated as renewal communities under this
subsection shall be those nominated areas with
the highest average ranking with respect to the
this section, after consultation with the officials
described in paragraph (1)(B)—
‘‘(i) the procedures for nominating an
area under paragraph (1)(A),
‘‘(ii) the parameters relating to the
size and population characteristics of a re-
newal community, and
‘‘(iii) the manner in which nominated
areas will be evaluated based on the cri-
teria specified in subsection (d).
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate nominated areas as renewal communities
only during the 24-month period beginning on
the first day of the first month following the
month in which the regulations described in
subparagraph (A) are prescribed.
‘‘(C) PROCEDURAL RULES.—The Secretary
of Housing and Urban Development shall not
make any designation of a nominated area as a
renewal community under paragraph (2) un-
less—
‘‘(i) the local governments and the
State in which the nominated area is lo-
cated have the authority—
‘‘(I) to nominate such area for
designation as a renewal community,
‘‘(II) to make the State and local
commitments described in subsection
(d), and
‘‘(III) to provide assurances sat-
isfactory 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
Development shall by regulation prescribe,
and
‘‘(iii) the Secretary of Housing and
Urban Development determines that any
information furnished is reasonably accu-
rate.
‘‘(5) NOMINATION PROCESS FOR INDIAN RES-
ERVATIONS.—For purposes of this subchapter, in
the case of a nominated area on an Indian reserva-
tion, the reservation governing body (as determined
by the Secretary of the Interior) shall be treated as
being both the State and local governments with re-
spect to such area.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
‘‘(1) IN GENERAL.—Any designation of an area
as a renewal community shall remain in effect dur-
ing the period beginning on the date of the designa-
tion and ending on the earliest of—
‘‘(A) December 31 of the 7th calendar year
following the calendar year in which such date
occurs,
‘‘(B) the termination date designated by
the State and local governments in their nomi-
nation pursuant to subsection (a)(4)(C)(ii), or
‘‘(C) the date the Secretary of Housing
and Urban Development revokes such designa-
tion under paragraph (2).
‘‘(2) REVOCATION OF DESIGNATION.—The Sec-
retary of Housing and Urban Development may,
after—
‘‘(A) consultation with the officials de-
scribed in subsection (a)(1)(B) (and the Sec-
retary of Education if notification required
under section 404 of the Low-Income Edu-
cational Opportunity Scholarship Act of 1996 is
received), and
‘‘(B) a hearing on the record involving offi-
cials of the State or local government involved
(or both, if applicable),
revoke the designation of an area if the Secretary of
Housing and Urban Development determines that
the local government or State in which the area is
located is not complying substantially with the State
or local commitments, respectively, described in sub-
section (d).
‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—
‘‘(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 the area meets the requirements of para-
graphs (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
a local government,
‘‘(B) the boundary of the area is continu-
ous, and
‘‘(C) the area—
(i) has a population, as determined by
the most recent census data available, of at
least—
‘‘(I) 4,000 if any portion of such
area (other than a rural area de-
scribed in subsection (a)(2)(B)(i)) is
located within a metropolitan statis-
tical area (within the meaning of sec-
tion 143(k)(2)(B)) which has a popu-
lation 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
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 area is located wholly within the
jurisdiction of a local government which is eligi-
ble for Federal assistance under section 119 of
the Housing and Community Development Act
of 1974, as in effect on the date of the enact-
ment of this section,
‘‘(C) the unemployment rate in the area,
as determined by the appropriate available
data, was at least 11⁄2 times the national unem-
ployment rate for the period to which such data
relate,
‘‘(D) the poverty rate (as determined by
the most recent census data available) for each
population census tract (or where not tracted,
the equivalent county division as defined by the
Bureau of the Census for the purpose of defin-
ing poverty areas) within the area was at least
20 percent for the period to which such data re-
late, and
‘‘(E) at least 70 percent of the households
living in the area have incomes below 80 per-
cent of the median income of households within
the jurisdiction of the local government (deter-
mined in the same manner as under section
119(b)(2) of the Housing and Community De-
velopment Act of 1974).
‘‘(d) REQUIRED
STATE
AND
LOCAL
COMMIT-
MENTS.—
‘‘(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
renewal community, such governments will—
‘‘(i) follow a specified course of action
which meets the requirements of para-
graph (2) and is designed to reduce the
various burdens borne by employers or em-
ployees in such area, and
‘‘(ii) comply with the requirements of
the Low-Income Educational Opportunity
Scholarship Act of 1996, and
‘‘(B) the economic growth promotion re-
quirements of paragraph (3) are met.
‘‘(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 between such State or government
and community-based organizations and which
commits each signatory to specific and measur-
able goals, actions, and timetables. Such course
of action shall include at least five of the follow-
ing:
‘‘(i) A reduction of tax rates or fees
applying 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.
‘‘(v) Involvement in the program by
private entities, organizations, neighbor-
hood 
organizations, 
and 
community
groups, particularly 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 bene-
fits 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 realty (such as
land, homes, and commercial or industrial
structures) in the renewal community to
neighborhood organizations, community de-
velopment corporations, or private compa-
nies.
‘‘(B) RECOGNITION OF PAST EFFORTS.—
For purposes of this section, in evaluating the
course of action agreed to by any State or local
government, the Secretary of Housing and
Urban Development shall take into account the
past efforts of such State or local government
in reducing the various burdens borne by em-
ployers and employees 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
repealed or otherwise will not enforce within the
area, if such area is designated as a renewal commu-
nity—
(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 nui-
sance,
(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
competition for businesses providing public
services, including but not limited to taxicabs,
jitneys, cable television, or trash hauling,
except to the extent that such regulation of busi-
nesses and occupations is necessary for and well-tai-
lored to the protection of health and safety.
‘‘(e) SPECIAL RULES FOR EMPOWERMENT ZONES
AND ENTERPRISE COMMUNITIES DESIGNATED AS RE-
NEWAL COMMUNITIES.—
‘‘(1) IN GENERAL.—Any empowerment zone or
enterprise community which is designated as a re-
newal community under this section shall be treated
as if its designation as an empowerment zone or en-
terprise community ended (except as provided in
paragraph (2)) on the date of such designation as a
renewal community.
‘‘(2) ENTERPRISE ZONE FACILITY BONDS.—In
the case of an empowerment zone or enterprise com-
munity described in paragraph (1), designation as
an empowerment zone or enterprise community shall
be treated as ended, for purposes of applying section
1394, with respect to obligations issued after the
date of designation as a renewal community, except
that designation as an empowerment zone or enter-
prise community shall not be treated as ended with
respect to any obligation (or series of obligations) is-
sued to refund an obligation issued before such date,
if the refunding obligation meets the requirements of
subclauses 
(I), 
(II), 
and 
(III) 
of 
section
144(a)(12)(A)(ii).
‘‘(f) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as a renewal com-
munity, any reference to, or requirement of, this sec-
tion 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
government’ means—
‘‘(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 Devel-
opment, and
‘‘(C) the District of Columbia.
‘‘PART II—RENEWAL COMMUNITY CAPITAL GAIN
AND STOCK
‘‘Sec. 1400A. Renewal community capital gain.
‘‘Sec. 1400B. Renewal community stock.
‘‘Sec. 1400C. Renewal community business defined.
‘‘SEC. 1400A. RENEWAL COMMUNITY CAPITAL GAIN.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude any qualified capital gain recognized on the sale or
exchange 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 com-
munity asset’ means—
‘‘(A) any qualified community stock,
‘‘(B) any qualified community business
property, and
‘‘(C) any qualified community partnership
interest.
‘‘(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 on original issue from the corpora-
tion solely in exchange for cash,
‘‘(ii) as of the time such stock was is-
sued, such corporation was a renewal com-
munity business (or, in the case of a new
corporation, such corporation was being or-
ganized for purposes of being a renewal
community business), and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a renewal
community business.
‘‘(B) EXCLUSION OF STOCK FOR WHICH
DEDUCTION
UNDER
SECTION
1400B
AL-
LOWED.—The term ‘qualified community stock’
shall not include any stock the basis of which
is reduced under section 1400B.
‘‘(C) REDEMPTIONS.—The term ‘qualified
community stock’ shall not include any stock
acquired from a corporation which made a sub-
stantial stock redemption or distribution (with-
out a bona fide business purpose therefor) in an
attempt to avoid the purposes of this section.
‘‘(3) QUALIFIED COMMUNITY BUSINESS PROP-
ERTY.—
‘‘(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 the date on which
the designation of the renewal community
took effect,
‘‘(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 prop-
erty, substantially all of the use of such
property was in a renewal community busi-
ness of the taxpayer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—
‘‘(i) IN GENERAL.—The requirements
of clauses (i) and (ii) of subparagraph (A)
shall be treated as satisfied with respect
to—
‘‘(I) property which is substan-
tially improved by the taxpayer, and
‘‘(II) any land on which such
property is located.
‘‘(ii) SUBSTANTIAL IMPROVEMENT.—
For purposes of clause (i), property shall
be treated as substantially improved by the
taxpayer only if, during any 24-month pe-
riod beginning after the date on which the
designation of the renewal community took
effect, additions to basis with respect to
such property in the hands of the taxpayer
exceed the greater of—
‘‘(I) an amount equal to the ad-
justed basis at the beginning of such
24-month period in the hands of the
taxpayer, or
‘‘(II) $5,000.
‘‘(C) LIMITATION
ON
LAND.—The term
‘qualified community business property’ shall
not include land which is not an integral part
of a renewal community business.
‘‘(4) QUALIFIED COMMUNITY PARTNERSHIP IN-
TEREST.—The term ‘qualified community partner-
ship interest’ means any interest in a partnership
if—
‘‘(A) such interest is acquired by the tax-
payer from the partnership solely in exchange
for cash,
‘‘(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 tax-
payer’s holding period for such interest, such
partnership qualified as a renewal community
business.
A rule similar to the rule of paragraph (2)(C) shall
apply for purposes of this paragraph.
‘‘(5) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified community asset’ in-
cludes any property which would be a qualified com-
munity asset but for paragraph (2)(A)(i), (3)(A)(ii),
or (4)(A) in the hands of the taxpayer if such prop-
erty was a qualified community asset in the hands
of all prior holders.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified community asset by reason
of paragraph (2)(A)(iii), (3)(A)(iii), or (4)(C) after
the 10-year period beginning on the date the tax-
payer acquired such property, such property shall
continue to be treated as meeting the requirements
of such paragraph; except that the amount of gain
to which subsection (a) applies on any sale or ex-
change of such property shall not exceed the amount
taxpayer held such interest. A rule similar to the
rule of paragraph (2)(C) shall apply for purposes of
the preceding sentence.
‘‘(2) INCOME INCLUSIONS.—
‘‘(A) IN GENERAL.—Any amount included
in income by reason of holding an interest in a
pass-thru entity (other than an entity which
was a renewal community business during sub-
stantially all of the period the taxpayer held the
interest to which such inclusion relates) shall be
treated as gain described in subsection (a) if
such amount meets the requirements of sub-
paragraph (B).
‘‘(B) REQUIREMENTS.—An amount meets
the requirements of this subparagraph if—
‘‘(i) such amount is attributable to
qualified capital gain recognized on the
sale or exchange by the pass-thru entity of
property which is a qualified community
asset in the hands of such entity and
which was held by such entity for the pe-
riod required under subsection (a), and
‘‘(ii) such amount is includible in the
gross income of the taxpayer by reason of
the holding of an interest in such entity
which was held by the taxpayer on the date
on which such pass-thru entity acquired
such asset and at all times thereafter be-
fore the disposition of such asset by such
pass-thru entity.
‘‘(C) LIMITATION
BASED
ON
INTEREST
ORIGINALLY
HELD
BY
TAXPAYER.—Subpara-
graph (A) shall not apply to any amount to the
extent such amount exceeds the amount to
which subparagraph (A) would have applied if
such amount were determined by reference to
the interest the taxpayer held in the pass-thru
entity on the date the qualified community
asset was acquired.
‘‘(3) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(e) SALES
AND EXCHANGES
OF INTERESTS
IN
PARTNERSHIPS
AND
S CORPORATIONS
WHICH
ARE
QUALIFIED COMMUNITY BUSINESSES.—In the case of the
sale or exchange of an interest in a partnership, or of
stock in an S corporation, which was a renewal community
business during substantially all of the period the taxpayer
held such interest or stock, the amount of qualified capital
gain shall be determined without regard to—
‘‘(1) any intangible, and any land, which is not
an integral part of any qualified business entity (as
defined in section 1400C(b)), and
‘‘(2) gain attributable to periods before the des-
ignation of an area as a renewal community.
‘‘(f) CERTAIN TAX-FREE AND OTHER TRANSFERS.—
For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer of
a qualified community asset to which this subsection
applies, the transferee shall be treated as—
‘‘(A) having acquired such asset in the
same manner as the transferor, and
‘‘(B) having held such asset during any
continuous period immediately preceding the
transfer during which it was held (or treated as
held under this subsection) by the transferor.
‘‘(2) TRANSFERS TO WHICH SUBSECTION AP-
PLIES.—This subsection shall apply to any trans-
fer—
‘‘(A) by gift,
‘‘(B) at death, or
‘‘(C) from a partnership to a partner
thereof, of a qualified community asset with re-
spect to which the requirements of subsection
(d)(2) are met at the time of the transfer (with-
out regard to the 5-year holding requirement).
‘‘(3) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1244(d)(2) shall
apply for purposes of this section.
‘‘SEC. 1400B. RENEWAL COMMUNITY STOCK.
‘‘(a) GENERAL RULE.—At the election of any individ-
ual, the aggregate amount paid by such taxpayer during
the taxable year for the purchase of renewal community
stock shall be allowed as a deduction.
‘‘(b) LIMITATIONS.—
‘‘(1) CEILING.—
‘‘(A) 
IN
GENERAL.—The 
maximum
amount allowed as a deduction under subsection
(a) to a taxpayer shall not exceed—
‘‘(i) $100,000 for any taxable year,
and
‘‘(ii) when added to the aggregate
amount allowed as a deduction under this
section in all prior years, $500,000.
‘‘(B) EXCESS
AMOUNTS.—If the amount
otherwise deductible by any person under sub-
section (a) exceeds the limitation under—
‘‘(i) subparagraph (A)(i), the amount
of such excess shall be treated as an
amount paid in the next taxable year, and
‘‘(ii) subparagraph (A), the deduction
allowed for any taxable year shall be allo-
cated proportionately among the renewal
community stock purchased by such person
on the basis of the respective purchase
prices per share.
‘‘(2) RELATED
PERSONS.—The taxpayer and
members of the taxpayer’s family shall be treated as
one person for purposes of paragraph (1) and the
limitations contained in such paragraph shall be al-
located among the taxpayer and such members in
accordance with their respective purchases of re-
newal community stock. For purposes of this para-
graph, an individual’s family includes only such indi-
vidual’s spouse and minor children.
‘‘(3) PARTIAL TAXABLE YEAR.—If designation
of an area as a renewal community occurs, expires,
or is revoked pursuant to section 1400 on a date
other than the first or last day of the taxable year
of the taxpayer, or in the case of a short taxable
year, the limitations specified in paragraph (1) shall
be adjusted on a pro rata basis (based upon the
number of days).
‘‘(c) RENEWAL COMMUNITY STOCK.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘renewal commu-
nity stock’ means stock of a corporation if—
‘‘(A) such stock is acquired on original
issue from the corporation, and
‘‘(B) such corporation is, at the time of
such issuance, a qualified renewal community
issuer.
‘‘(2) PROCEEDS MUST BE INVESTED IN QUALI-
FIED RENEWAL COMMUNITY PROPERTY.—
‘‘(A) IN GENERAL.—Such term shall in-
clude such stock only to the extent that the pro-
ceeds of such issuance are used by such issuer
during the 12-month period beginning on the
date of issuance to purchase (as defined in sec-
tion 179(d)(2)) qualified renewal community
property.
‘‘(B) QUALIFIED
RENEWAL
COMMUNITY
PROPERTY.—For purposes of this section, the
term ‘qualified renewal community property’
means property to which section 168 applies (or
would apply but for section 179)—
‘‘(i) the original use of which com-
mences in a renewal community with the
issuer, and
‘‘(ii) substantially all of the use of
which is in such renewal community.
‘‘(3) REDEMPTIONS.—The term ‘renewal com-
munity stock’ shall not include any stock acquired
from a corporation which made a substantial stock
redemption or distribution (without a bona fide busi-
ness purpose therefor) in an attempt to avoid the
purposes of this section.
‘‘(d) QUALIFIED RENEWAL COMMUNITY ISSUER.—
For purposes of this section, the term ‘qualified renewal
community issuer’ means any domestic C corporation if—
‘‘(1) such corporation is a corporation described
in section 1400C(b) or, in the case of a new corpora-
tion, such corporation is being organized for pur-
poses of being such a corporation,
‘‘(2) such corporation does not have more than
one class of stock,
‘‘(3) the sum of—
‘‘(A) the money,
‘‘(B) the aggregate unadjusted bases of
property owned by such corporation, and
‘‘(C) the value of property leased to the
corporation (as determined under regulations
prescribed by the Secretary),
does not exceed $50,000,000, and
‘‘(4) more than 20 percent of the total voting
power, and 20 percent of the total value, of the
stock of such corporation is owned directly by indi-
viduals or estates or indirectly by individuals
through partnerships or trusts.
The determination under paragraph (3) shall be made as
of the time of issuance of the stock in question but shall
include amounts received for such stock.
‘‘(e) DISPOSITIONS OF STOCK.—
‘‘(1) BASIS REDUCTION.—For purposes of this
title, the basis of any renewal community stock shall
be reduced by the amount of the deduction allowed
under this section with respect to such stock.
‘‘(2) DEDUCTION
RECAPTURED
AS
ORDINARY
INCOME.—For purposes of section 1245—
‘‘(A) any stock the basis of which is re-
duced under paragraph (1) (and any other
property the basis of which is determined in
whole or in part by reference to the adjusted
basis of such stock) shall be treated as section
1245 property, and
‘‘(B) any reduction under paragraph (1)
shall be treated as a deduction allowed for de-
preciation.
If an exchange of any stock described in paragraph
(1) qualifies under section 354(a), 355(a), or
356(a), the amount of gain recognized under section
1245 by reason of this paragraph shall not exceed
the amount of gain recognized in the exchange (de-
termined without regard to this paragraph).
‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI-
TIONS.—For purposes of determining the amount
treated as ordinary income under section 1245 by
reason of paragraph (2), paragraph (3) of section
1245(b) (relating to certain tax-free transactions)
shall not apply.
‘‘(4) INTEREST
CHARGED
IF
DISPOSITION
WITHIN 5 YEARS OF PURCHASE.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a taxpayer disposes of any re-
newal community stock with respect to
which a deduction was allowed under sub-
section (a) (or any other property the basis
of which is determined in whole or in part
by reference to the adjusted basis of such
stock) before the end of the 5-year period
beginning on the date such stock was pur-
chased by the taxpayer, and
‘‘(ii) section 1245(a) applies to such
disposition by reason of paragraph (2),
then the tax imposed by this chapter for the
taxable year in which such disposition occurs
shall be increased by the amount determined
under subparagraph (B).
‘‘(B) INCREASE
AMOUNT.—For purposes
of subparagraph (A), the amount of the in-
crease shall be equal to the amount of interest
(determined at the rate applicable under section
6621(a)(2)) that would accrue—
‘‘(i) during the period beginning on
the date the stock was purchased by the
taxpayer and ending on the date of such
disposition by the taxpayer, and
‘‘(ii) on an amount equal to the aggre-
gate decrease in tax of the taxpayer result-
ing from the deduction allowed under sub-
section (a) of this section with respect to
such stock.
‘‘(C) SPECIAL RULE.—Any increase in tax
under subparagraph (A) shall not be treated as
a tax imposed by this chapter for purposes of—
‘‘(i) determining the amount of any
credit allowable under this chapter, and
‘‘(ii) determining the amount of the
tax imposed by section 55.
‘‘(f) DISQUALIFICATION.—
‘‘(1) ISSUER CEASES TO QUALIFY.—If, during
the 10-year period beginning on the date renewal
community stock was purchased by the taxpayer, the
issuer of such stock ceases to be a qualified renewal
community issuer (determined without regard to
subsection (d)(3)), then notwithstanding any provi-
sion of this subtitle other than paragraph (2), the
taxpayer shall be treated for purposes of subsection
(e) as disposing of such stock (and any other prop-
erty the basis of which is determined in whole or in
part by reference to the adjusted basis of such
stock) during the taxable year during which such
cessation occurs at its fair market value as of the
1st day of such taxable year.
‘‘(2) CESSATION OF RENEWAL COMMUNITY STA-
TUS
NOT
TO
CAUSE
RECAPTURE.—A corporation
shall not fail to be treated as a qualified renewal
community issuer for purposes of paragraph (1)
solely by reason of the termination or revocation of
a designation as a renewal community, as the case
may be.
‘‘(g) OTHER SPECIAL RULES.—
‘‘(1) APPLICATION
OF
LIMITS
TO
PARTNER-
SHIPS AND S CORPORATIONS.—In the case of a part-
nership or an S corporation, the limitations under
subsection (b) shall apply at the partner and share-
holder level and shall not apply at the partnership
or corporation level.
‘‘(2) DEDUCTION NOT ALLOWED TO ESTATES
AND TRUSTS.—Estates and trusts shall not be treat-
ed as individuals for purposes of this section.
‘‘SEC. 1400C. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘renewal community business’ means—
‘‘(1) any qualified business entity, and
‘‘(2) any qualified proprietorship.
Such term shall include any trades or businesses which
would qualify as a renewal community business if such
trades or businesses were separately incorporated. Such
term shall not include any trade or business of producing
property of a character subject to the allowance for deple-
tion under section 611.
‘‘(b) QUALIFIED BUSINESS ENTITY.— For purposes
of this section, the term ‘qualified business entity’ means,
with respect to any taxable year, any corporation or part-
nership if for such year—
‘‘(1) every trade or business of such entity is
the active conduct of a qualified business within a
renewal community,
‘‘(2) at least 80 percent of the total gross in-
come of such entity is derived from the active con-
duct of such business,
‘‘(3) substantially all of the use of the tangible
property of such entity (whether owned or leased) is
within a renewal community,
‘‘(4) substantially all of the intangible property
of such entity is used in, and exclusively related to,
the active conduct of any such business,
‘‘(5) substantially all of the services performed
for such entity by its employees are performed in a
renewal community,
‘‘(6) at least 35 percent of its employees are
residents of a renewal community,
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to collectibles (as defined in
section 408(m)(2)) other than collectibles that are
held primarily for sale to customers in the ordinary
course of such business, and
‘‘(8) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to nonqualified financial prop-
erty.
‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of
this section, the term ‘qualified proprietorship’ means,
with respect to any taxable year, any qualified business
carried on by an individual as a proprietorship if for such
year—
‘‘(1) at least 80 percent of the total gross in-
come of such individual from such business is de-
rived from the active conduct of such business in a
renewal community,
‘‘(2) substantially all of the use of the tangible
property of such individual in such business (wheth-
er owned or leased) is within a renewal community,
‘‘(3) substantially all of the intangible property
of such business is used in, and exclusively related
to, the active conduct of such business,
‘‘(4) substantially all of the services performed
for such individual in such business by employees of
such business are performed in a renewal commu-
nity,
‘‘(5) at least 35 percent of such employees are
residents of a renewal community,
‘‘(6) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable 
to 
collectibles 
(as 
defined 
in 
section
408(m)(2)) other than collectibles that are held pri-
marily for sale to customers in the ordinary course
of such business, and
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable to nonqualified financial property.
For purposes of this subsection, the term ‘employee’ in-
cludes the proprietor.
‘‘(d) QUALIFIED BUSINESS.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified business’
means any trade or business.
‘‘(2) RENTAL OF REAL PROPERTY.—The rental
to others of real property located in a renewal com-
munity shall be treated as a qualified business if and
only if—
‘‘(A) the property is not residential rental
property (as defined in section 168(e)(2)), and
‘‘(B) at least 50 percent of the gross rental
income from the real property is from renewal
community businesses.
‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP-
ERTY.—The rental to others of tangible personal
property shall be treated as a qualified business if
and only if substantially all of the rental of such
property is by renewal community businesses or by
residents of a renewal community.
‘‘(4) TREATMENT OF BUSINESS HOLDING IN-
TANGIBLES.—The term ‘qualified business’ shall not
include any trade or business consisting predomi-
nantly of the development or holding of intangibles
for sale or license.
‘‘(5) CERTAIN
BUSINESSES
EXCLUDED.—The
term ‘qualified business’ shall not include—
‘‘(A) any trade or business consisting of
the operation of any facility described in section
144(c)(6)(B), and
‘‘(B) any trade or business the principal
activity of which is farming (within the meaning
of subparagraphs (A) or (B) of section
2032A(e)(5)), but only if, as of the close of the
preceding taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the taxpayer which are
used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the taxpayer which are used in
such a trade or business,
exceeds $500,000.
‘‘(6) CONTROLLED GROUPS.—For purposes of
paragraph (5)(B), all persons treated as a single em-
ployer under subsection (a) or (b) of section 52 shall
be treated as a single taxpayer.
‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For
purposes of this section, the term ‘nonqualified financial
property’ means debt, stock, partnership interests, op-
tions, futures contracts, forward contracts, warrants, no-
tional principal contracts, annuities, and other similar
property specified in regulations; except that such term
shall not include—
‘‘(1) reasonable amounts of working capital
held in cash, cash equivalents, or debt instruments
with a term of 18 months or less, or
‘‘(2) 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
exceed 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 allowable as a deduction to any person
for any taxable year by reason of paragraph
(1)(B) shall not exceed $1,000 with respect to
any qualified individual.
‘‘(3) SPECIAL RULES FOR CERTAIN MARRIED
INDIVIDUALS.—
‘‘(A) IN GENERAL.—In the case of any in-
dividual with respect to whom a deduction is
otherwise allowable under paragraph (1)(A)—
‘‘(i) who files a joint return for a tax-
able year, and
‘‘(ii) whose spouse is a qualified indi-
vidual and—
‘‘(I) has no compensation (deter-
mined without regard to section 911)
for the taxable year, or
‘‘(II) elects to be treated for pur-
poses of paragraph (2)(A)(ii) as hav-
ing no compensation for the taxable
year,
there shall be allowed as a deduction any
amount paid in cash for the taxable year by the
individual to a family development account es-
tablished for the benefit of the spouse of the in-
dividual.
‘‘(B) LIMITATION.—The amount allowable
as a deduction under subparagraph (A) shall
not exceed the excess of—
‘‘(i) the lesser of—
‘‘(I) $2,250, or
‘‘(II) an amount equal to the
compensation includible in the individ-
ual’s gross income for the taxable
year, over
‘‘(ii) the amount allowable as a deduc-
tion under paragraph (1) for the taxable
year.
In no event shall the amount allowable as a de-
duction under subparagraph (A) exceed $2,000.
‘‘(4) ROLLOVERS.—No deduction shall be al-
lowed under this section with respect to any rollover
contribution.
‘‘(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
family development account shall be included in
gross income 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.
‘‘(3) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (4) and (5) of section 408(d)
shall apply for purposes of this section.
‘‘(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBU-
TION.—For purposes of this section—
‘‘(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
expenses’ means any of the following:
‘‘(A) Qualified postsecondary educational
expenses.
‘‘(B) First-home purchase costs.
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) 
QUALIFIED
POSTSECONDARY
EDU-
CATIONAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
postsecondary 
educational 
expenses’ 
means
postsecondary educational expenses paid to an
eligible educational institution.
‘‘(B) POST-SECONDARY EDUCATIONAL EX-
PENSES.—The term ‘post-secondary educational
expenses’ means tuition, fees, room, board,
books, supplies, and equipment required for the
enrollment or attendance of a student at an eli-
gible educational institution.
‘‘(C) ELIGIBLE
EDUCATIONAL
INSTITU-
TION.—The term ‘eligible educational institu-
tion’ means the following:
‘‘(i) INSTITUTION
OF
HIGHER
EDU-
CATION.—An institution described in sec-
tion 481(a)(1) or 1201(a) of the Higher
Education 
Act 
of 
1965 
(20 
U.S.C.
1088(a)(1), 1141(a)), as such sections are
in effect on the date of the enactment of
this section.
‘‘(ii) POSTSECONDARY
VOCATIONAL
EDUCATION SCHOOL.—An area vocational
education school (as defined in subpara-
graph (C) or (D) of section 521(4) of the
Carl D. Perkins Vocational and Applied
Technology Education Act (20 U.S.C.
2471(4))) which is in any State (as defined
in section 521(33) of such Act), as such
sections are in effect on the date of the en-
actment of this section.
‘‘(D) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified post-
secondary educational expenses for any taxable
vidual if such individual (and, in the case
of a married individual, the individual’s
spouse) has no present ownership interest
in a principal residence during the 3-year
period ending on the date of acquisition of
the principal residence to which this sub-
section applies.
‘‘(ii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date
on which a binding contract to acquire,
construct, or reconstruct the principal resi-
dence to which this subsection applies is
entered into.
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business capitalization costs’ means qualified
expenditures for the capitalization of a qualified
business pursuant to a qualified plan.
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expendi-
tures included in a qualified plan, including
capital, plant, equipment, working capital, and
inventory expenses.
‘‘(C) QUALIFIED
BUSINESS.—The term
‘qualified business’ means any business that
does not contravene any law or public policy (as
determined by the Secretary).
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which—
‘‘(i) is approved by a financial institu-
tion, or by a nonprofit loan fund having
demonstrated fiduciary integrity,
‘‘(ii) includes a description of services
or goods to be sold, a marketing plan, and
projected financial statements, and
‘‘(iii) may require the eligible individ-
ual to obtain the assistance of an experi-
enced entrepreneurial advisor.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
insurance or otherwise, for medical care (as defined
in section 213(d)) of the taxpayer, his spouse, or his
dependent (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—
‘‘(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
unless such account has ceased to be a family devel-
opment account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations).
‘‘(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.
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For pur-
poses 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
beneficiaries, but only if the written governing instrument
creating 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 un-
less it is in cash, and
‘‘(B) contributions will not be accepted for
the taxable year in excess of $2,000 (deter-
mined without regard to any contribution made
under section 1400E (relating to demonstration
program to provide matching amounts in re-
newal communities)).
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or such other person who demonstrates
to the satisfaction of the Secretary that the manner
in which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance in his account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(6) Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 401(a)(9)
and the incidental death benefit requirements of sec-
tion 401(a) shall apply to the distribution of the en-
tire interest of an individual for whose benefit the
trust is maintained.
‘‘(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 sec-
tion 32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty 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 exten-
sions thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to a fam-
ily development account shall be treated as payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a deduction for such
payment is allowable under this section to the em-
ployee.
‘‘(5) ZERO BASIS.—The basis of an individual
in any family development account of such individual
shall be zero.
‘‘(6) CUSTODIAL ACCOUNTS.—For purposes of
this section, a custodial account shall be treated as
a trust if the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates, to the satisfaction of the Sec-
retary, that the manner in which such person will
contributed under section 1400E is the amount
which bears the same ratio to the distributed
amount as the aggregate amount contributed under
section 1400E to all family development accounts of
the individual bears to the aggregate amount con-
tributed to such accounts from all sources.
‘‘(2) EXCEPTION
FOR
CERTAIN
DISTRIBU-
TIONS.—Paragraph (1) shall not apply to distribu-
tions which are—
‘‘(A) made on or after the date on which
the account holder attains age 591⁄2,
‘‘(B) made pursuant to subsection (e)(6),
‘‘(C) made to a beneficiary (or the estate
of the account holder) on or after the death of
the account holder, or
‘‘(D) attributable to the account holder’s
being disabled within the meaning of section
72(m)(7).
‘‘SEC. 1400E. DEMONSTRATION PROGRAM TO PROVIDE
MATCHING CONTRIBUTIONS TO FAMILY DE-
VELOPMENT 
ACCOUNTS 
IN 
CERTAIN 
RE-
NEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this sec-
tion, the term ‘FDA matching demonstration area’
means any renewal community—
‘‘(A) which is nominated under this section
by each of the local governments and States
which nominated such community for designa-
tion as a renewal community under section
1400(a)(1)(A), and
‘‘(B) which the Secretary of Housing and
Urban Development, after consultation with—
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury, the
Director of the Office of Management and
Budget, and the Administrator of the
Small Business Administration, and
‘‘(ii) in the case of a community on an
Indian reservation, the Secretary of the In-
terior,
designates as an FDA matching demonstration
area.
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 25 renewal communities
as FDA matching demonstration areas.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under para-
graph (1), at least 2 must be areas described in
section 1400(a)(2)(B).
‘‘(3) LIMITATIONS ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
The Secretary of Housing and Urban Develop-
ment shall prescribe by regulation no later than
4 months after the date of the enactment of
this section, after consultation with the officials
described in paragraph (1)(B)—
‘‘(i) the procedures for nominating a
renewal 
community 
under 
paragraph
(1)(A) (including procedures for coordinat-
ing such nomination with the nomination
of an area for designation as a renewal
community under section 1400), and
‘‘(ii) the manner in which nominated
renewal communities will be evaluated for
purposes of this section.
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate renewal communities as FDA matching
demonstration areas only during the 24-month
period beginning on the first day of the first
month following the month in which the regula-
tions described in subparagraph (A) are pre-
scribed.
(4) DESIGNATION BASED ON DEGREE OF POV-
ERTY, ETC.—The rules of section 1400(a)(3) shall
apply for purposes of designations of FDA matching
demonstration areas under this section.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—Any designation of a renewal community as an
FDA matching demonstration area shall remain in effect
during the period beginning on the date of such designa-
tion and ending on the date on which such area ceases
to be a renewal community.
‘‘(c) MATCHING CONTRIBUTIONS TO FAMILY DEVEL-
OPMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into a family
development account of each qualified individual (as
defined in section 1400D(f)) who is a resident
throughout the taxable year of an FDA matching
demonstration area an amount equal to the sum of
the amounts deposited into all of the family develop-
ment accounts of such individual during such tax-
able year (determined without regard to any amount
contributed under this section).
‘‘(2) LIMITATIONS.—
‘‘(A) ANNUAL LIMIT.—The Secretary shall
not deposit more than $1000 under paragraph
(1) with respect to any individual for any tax-
able year.
‘‘(B) AGGREGATE
LIMIT.—The Secretary
shall not deposit more than $2000 under para-
graph (1) with respect to any individual.
‘‘(3) EXCLUSION
FROM
INCOME.—Except as
provided in section 1400D, gross income shall not
include any amount deposited into a family develop-
ment account under paragraph (1).
‘‘SEC. 1400F. DESIGNATION OF EARNED INCOME TAX CRED-
IT PAYMENTS FOR DEPOSIT TO FAMILY DE-
VELOPMENT ACCOUNT.
‘‘(a) IN GENERAL.—With respect to the return of any
qualified individual (as defined in section 1400D(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
account 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
Secretary prescribes by regulations.
‘‘(c) PORTION ATTRIBUTABLE TO EARNED INCOME
TAX CREDIT.—For purposes of subsection (a), an over-
payment for any taxable year shall be treated as attrib-
utable to the earned income tax credit to the extent that
such overpayment 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 pre-
scribed for filing the return of tax imposed by this chapter
(determined without regard to extensions) or, if later, the
date the return is filed.
‘‘PART IV—ADDITIONAL INCENTIVES
‘‘Sec. 1400G. Commercial revitalization credit.
‘‘Sec. 1400H. Increase in expensing under section 179.
‘‘SEC. 1400G. COMMERCIAL REVITALIZATION TAX CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 46,
except as provided in subsection (e), the commercial revi-
talization credit for any taxable year is an amount equal
to the applicable percentage of the qualified revitalization
expenditures with respect to any qualified revitalization
building.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘applicable per-
centage’ means—
‘‘(A) 20 percent for the taxable year in
which a qualified revitalization building is
placed in service, or
‘‘(B) at the election of the taxpayer, 5 per-
cent for each taxable year in the credit period.
The election under subparagraph (B), once made,
shall be irrevocable.
‘‘(2) CREDIT PERIOD.—
‘‘(A) IN GENERAL.—The term ‘credit pe-
riod’ means, with respect to any building, the
period of 10 taxable years beginning with the
taxable year in which the building is placed in
service.
‘‘(B) APPLICABLE RULES.—Rules similar
to the rules under paragraphs (2) and (4) of
section 42(f) shall apply.
‘‘(c) QUALIFIED REVITALIZATION BUILDINGS AND
EXPENDITURES.—For purposes of this section—
‘‘(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 the
designation of such renewal community under
section 1400,
‘‘(B) a commercial revitalization credit
amount is allocated to the building under sub-
section (e), and
‘‘(C) depreciation (or amortization in lieu
of depreciation) is allowable with respect to the
building.
‘‘(2) QUALIFIED
REVITALIZATION
EXPENDI-
TURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
revitalization expenditure’ means any amount
properly chargeable to capital account—
‘‘(i) for property for which deprecia-
tion is allowable under section 168 and
which is—
‘‘(I) nonresidential real property,
or
‘‘(II) an addition or improvement
to property described in subclause (I),
‘‘(ii) in connection with the construc-
tion or substantial rehabilitation or recon-
struction of a qualified revitalization build-
ing, or
‘‘(iii) for the acquisition of land in
connection with the qualified revitalization
building.
‘‘(B) DOLLAR
LIMITATION.—The aggre-
gate amount which may be treated as qualified
revitalization 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 credit under this
section for all preceding taxable years.
‘‘(C) CERTAIN
EXPENDITURES
NOT
IN-
CLUDED.—The term ‘qualified revitalization ex-
penditure’ does not include—
‘‘(i) STRAIGHT
LINE
DEPRECIATION
MUST BE USED.—Any expenditure (other
than with respect to land acquisitions) with
respect to which the taxpayer does not use
the straight line method over a recovery
period determined under subsection (c) or
(g) of section 168. The preceding sentence
shall not apply to any expenditure to the
extent the alternative depreciation system
of section 168(g) applies to such expendi-
ture by reason of subparagraph (B) or (C)
of section 168(g)(1).
‘‘(ii) ACQUISITION COSTS.—The costs
of acquiring any building or interest there-
in and any land in connection with such
building to the extent that such costs ex-
ceed 30 percent of the qualified revitaliza-
tion expenditures determined without re-
gard to this clause.
‘‘(iii) OTHER CREDITS.—Any expendi-
ture which the taxpayer may take into ac-
count in computing any other credit allow-
able under this title unless the taxpayer
elects to take the expenditure into account
only for purposes of this section.
‘‘(5) SUBSTANTIAL
REHABILITATION
OR
RE-
CONSTRUCTION.—For purposes of this subsection, a
rehabilitation or reconstruction shall be treated as a
substantial rehabilitation or reconstruction only if
the qualified revitalization expenditures in connec-
tion with the rehabilitation or reconstruction exceed
25 percent of the fair market value of the building
(and its structural components) immediately before
the rehabilitation or reconstruction.
‘‘(d) WHEN
EXPENDITURES
TAKEN
INTO
AC-
COUNT.—
‘‘(1) IN GENERAL.—Qualified revitalization ex-
penditures with respect to any qualified revitaliza-
tion building shall be taken into account for the tax-
able year in which the qualified revitalization build-
ing is placed in service. For purposes of the preced-
ing sentence, a substantial rehabilitation or recon-
struction of a building shall be treated as a separate
building.
‘‘(2) PROGRESS
EXPENDITURE
PAYMENTS.—
Rules similar to the rules of subsections (b)(2) and
(d) of section 47 shall apply for purposes of this sec-
tion.
‘‘(e) LIMITATION ON AGGREGATE CREDITS ALLOW-
ABLE WITH RESPECT
TO BUILDINGS LOCATED
IN
A
STATE.—
‘‘(1) IN GENERAL.—The amount of the credit
determined under this section for any taxable year
with respect to any building shall not exceed the
commercial revitalization credit amount (in the case
of 
an 
amount 
determined 
under 
subsection
(b)(1)(B), the present value of such amount as de-
termined under the rules of section 42(b)(2)(C)) al-
located to such building under this subsection by the
commercial revitalization credit agency. Such alloca-
tion 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
CREDIT
AMOUNT FOR AGENCIES.—
‘‘(A) IN GENERAL.—The aggregate com-
mercial revitalization credit amount which a
commercial revitalization credit agency may al-
locate for any calendar year is the amount of
the State commercial revitalization credit ceil-
ing determined under this paragraph for such
calendar year for such agency.
‘‘(B) STATE COMMERCIAL REVITALIZATION
CREDIT CEILING.—
‘‘(i) IN
GENERAL.—The State com-
mercial revitalization credit ceiling applica-
ble to any State for any calendar year is
$2,000,000 for each renewal community in
the State.
‘‘(ii) SPECIAL RULE WHERE COMMU-
NITY LOCATED IN MORE THAN 1 STATE.—
If a renewal community is located in more
than 1 State, a State’s share of the
amount specified in clause (i) with respect
to such community shall be an amount
that bears the same ratio to $2,000,000 as
the population in the State bears to the
population in all States in which such com-
munity is located.
‘‘(iii) OTHER SPECIAL RULES.—Rules
similar to the rules of subparagraphs (D),
(E), (F), and (G) of section 42(h)(3) shall
apply for purposes of this subsection.
‘‘(C) COMMERCIAL REVITALIZATION CRED-
IT AGENCY.—For purposes of this section, the
term ‘commercial revitalization credit agency’
means any agency authorized by a State to
carry out this section.
‘‘(f) RESPONSIBILITIES OF COMMERCIAL REVITAL-
IZATION CREDIT AGENCIES.—
‘‘(1) PLANS FOR ALLOCATION.—Notwithstand-
ing any other provision of this section, the commer-
cial revitalization credit 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 credit agency which is approved
(in accordance 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 execu-
tive officer (or its equivalent) of the local juris-
diction within which the building is located of
such allocation and provides such individual a
reasonable opportunity to comment on the allo-
cation.
‘‘(2) QUALIFIED ALLOCATION PLAN.—For pur-
poses of this subsection, the term ‘qualified alloca-
tion plan’ means any plan—
‘‘(A) which sets forth selection criteria to
be used to determine priorities of the commer-
cial revitalization credit agency which are ap-
propriate to local conditions,
‘‘(B) which considers—
‘‘(i) the degree to which a project con-
tributes to the implementation of a strate-
gic plan that is devised for a renewal com-
munity 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.
‘‘(g) TERMINATION.—This section shall not apply to
any building placed in service after December 31, 2002.
‘‘SEC. 1400H. INCREASE IN EXPENSING UNDER SECTION 179.
‘‘(a) GENERAL RULE.—In the case of a renewal com-
munity business (as defined in section 1400C), for pur-
poses 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 quali-
fied renewal property which ceases to be used in a renewal
community by an renewal community business.
‘‘(c) QUALIFIED RENEWAL PROPERTY.—
‘‘(1) GENERAL
RULE.—For purposes of this
section—
‘‘(A) IN
GENERAL.—The term ‘qualified
renewal property’ means any property to which
section 168 applies (or would apply but for sec-
tion 179) if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after the date on which
the designation of the renewal community
took effect,
‘‘(ii) the original use of which in a re-
newal community commences with the tax-
payer, and
‘‘(iii) substantially all of the use of
which is in a renewal community and is in
the active conduct of a qualified business
(as defined in section 1400C(d)) by the
taxpayer in such renewal community.
‘‘(B) SPECIAL
RULE
FOR
SUBSTANTIAL
RENOVATIONS.—In the case of any property
which is substantially renovated by the tax-
payer, the requirements of clauses (i) and (ii)
of subparagraph (A) shall be treated as satis-
fied. For purposes of the preceding sentence,
property shall be treated as substantially ren-
ovated by the taxpayer only if, during any 24-
month period beginning after the date on which
the designation of the renewal community took
effect, additions to basis with respect to such
property in the hands of the taxpayer exceed
the greater of (i) an amount equal to the ad-
justed basis at the beginning of such 24-month
period in the hands of the taxpayer, or (ii)
$5,000.
‘‘(2) SPECIAL RULES FOR SALE-LEASEBACKS.—
For purposes of paragraph (1)(A)(ii), if property is
sold and leased back by the taxpayer within 3
months after the date such property was originally
placed in service, such property shall be treated as
originally placed in service not earlier than the date
on which such property is used under the lease-
back.’’
SEC. 104. EVALUATION AND REPORTING REQUIREMENTS.
Not later than the close of the fourth calendar year
after the year in which the Secretary of Housing and
Urban Development first designates an area as a renewal
community under section 1400 of the Internal Revenue
Code of 1986, and at the close of each fourth calendar
year thereafter, such Secretary shall prepare and submit
to the Congress a report on the effects of such designa-
tions in accomplishing the purposes of this Act.
SEC. 105. INTERACTION WITH OTHER FEDERAL PROGRAMS.
(a) TAX REDUCTIONS.—Any reduction of taxes, with
respect to any renewal community designated under sec-
tion 1400 of the Internal Revenue Code of 1986 (as added
by this title), under any plan of action under section
1400(d) of such Code shall be disregarded in determining
the eligibility of a State or local government for, or the
amount or extent of, any assistance or benefits under any
law of the United States (other than subchapter W of
chapter 1 of such Code).
(b) COORDINATION
WITH
RELOCATION
ASSIST-
ANCE.—The designation of a renewal community under
section 1400 of such Code (as added by this title) shall
not—
(1) constitute approval of a Federal or Feder-
ally assisted program or project (within the meaning
of the Uniform Relocation Assistance and Real
Property Acquisition Policies Act of 1970 (42
U.S.C. 4601 et seq.)), or
(2) entitle any person displaced from real prop-
erty located in such community to any rights or any
benefits under such Act.
(c) RENEWAL COMMUNITIES TREATED AS LABOR
SURPLUS AREAS.—Any area which is designated as a re-
newal community under section 1400 of such Code (as
added by this title) shall be treated for all purposes under
Federal law as a labor surplus area.
SEC. 106. DEDUCTION FOR CONTRIBUTIONS TO FAMILY DE-
VELOPMENT ACCOUNTS ALLOWABLE WHETH-
ER OR NOT TAXPAYER ITEMIZES.
Subsection (a) of section 62 of the Internal Revenue
Code of 1986 (relating to adjusted gross income defined)
is amended by inserting after paragraph (15) the following
new paragraph:
‘‘(16) FAMILY DEVELOPMENT ACCOUNTS.—The
deduction allowed by section 1400D.’’
SEC. 107. ALLOWANCE OF COMMERCIAL REVITALIZATION
CREDIT.
Section 46 of the Internal Revenue Code of 1986 (re-
lating to investment credit) is amended by striking ‘‘and’’
at the end of paragraph (2), by striking the period at the
end of paragraph (3) and inserting ‘‘, and’’, and by adding
at the end the following new paragraph:
‘‘(4) the commercial revitalization credit pro-
vided under section 1400G.’’
SEC. 108. CONFORMING AND CLERICAL AMENDMENTS.
(a) BASIS ADJUSTMENT FOR CERTAIN STOCK.—Sub-
section (a) of section 1016 of the Internal Revenue Code
of 1986 (relating to adjustments to basis) is amended by
striking ‘‘and’’ at the end of paragraph (24), by striking
the period at the end of paragraph (25) and inserting ‘‘,
and’’; and by adding at the end the following new para-
graph:
‘‘(26) to the extent provided in section
1400B(e), in the case of stock with respect to which
a deduction was allowed or allowable under section
1400B(a).’’
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) TAX IMPOSED.—Subsection (a) of section
4973 of such Code is amended by striking ‘‘or’’ at
the end of paragraph (1), adding ‘‘or’’ at the end of
paragraph (2), and inserting after paragraph (2) the
following new paragraph:
‘‘(3) a family development account (within the
meaning of section 1400D(e)),’’
(2) EXCESS CONTRIBUTIONS.—Section 4973 of
such Code is amended by adding at the end the fol-
lowing new subsection:
‘‘(d) FAMILY DEVELOPMENT ACCOUNTS.—For pur-
poses of this section, in the case of a family development
account, the term ‘excess contributions’ means the sum
of—
‘‘(1) the excess (if any) of—
‘‘(A) the amount contributed for the tax-
able year to the account (other than a qualified
rollover, as defined in section 1400D(c)(7), or
a contribution under section 1400E), over
‘‘(B) the amount allowable as a deduction
under section 1400D 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 account
for the taxable year which were included in the
gross income of the payee under section
1400D(b)(1),
‘‘(B) the distributions out of the account
for the taxable year to which rules similar to
the rules of section 408(d)(5) apply by reason
of section 1400D(b)(3), and
‘‘(C) the excess (if any) of the maximum
amount allowable as a deduction under section
1400D for the taxable year over the amount
contributed to the account for the taxable year
(other than a contribution under section
1400E).
For purposes of this subsection, any contribution which
is distributed from the family development account in a
distribution to which rules similar to the rules of section
408(d)(4) apply by reason of section 1400D(b)(3) shall
be treated as an amount not contributed.’’
(3) HEADING.—The heading of section 4973 of
such Code is amended by inserting ‘‘FAMILY DE-
VELOPMENT ACCOUNTS,’’ after ‘‘CONTRACTS,’’.
(c) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL
RULE
FOR
FAMILY
DEVELOP-
MENT ACCOUNTS.—An individual for whose benefit a
family development account is established and any
contributor to such account shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if, with re-
spect to such transaction, the account ceases to be
a family development account by reason of the appli-
cation of section 1400D(d)(2) to such account.’’,
and
(2) by inserting ‘‘, a family development ac-
count described in section 1400D(e),’’ in subsection
(e)(1) after ‘‘described in section 408(a)’’.
(d) INFORMATION RELATING TO CERTAIN TRUSTS
AND ANNUITY PLANS.—Subsection (c) of section 6047 of
such Code is amended—
(1) by inserting ‘‘or section 1400D’’ after ‘‘sec-
tion 219’’, and
(2) by inserting ‘‘, of any family development
account described in section 1400D(e),’’, after ‘‘sec-
tion 408(a)’’.
(e) INSPECTION OF APPLICATIONS FOR TAX EXEMP-
TION.—Clause (i) of section 6104(a)(1)(B) of such Code
is amended by inserting ‘‘a family development account
described in section 1400D(e),’’ after ‘‘section 408(a),’’.
(f) FAILURE TO PROVIDE REPORTS ON FAMILY DE-
VELOPMENT ACCOUNTS.—Section 6693 of such Code is
amended—
(1) by inserting ‘‘OR ON FAMILY DEVELOP-
MENT
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the
heading of such section, and
(2) by adding at the end of subsection (a) the
following new sentence: ‘‘The person required by sec-
tion 1400D(g)(7) to file a report regarding a family
development account at the time and in the manner
required by such section shall pay a penalty of $50
for each failure unless it is shown that such failure
is due to reasonable cause.’’
(g) CONFORMING AMENDMENTS REGARDING COM-
MERCIAL REVITALIZATION CREDIT.—
(1) Section 39(d) of such Code is amended by
adding at the end the following new paragraph:
‘‘(7) NO CARRYBACK OF SECTION 1400G CREDIT
BEFORE DATE OF ENACTMENT.—No portion of the
unused business credit for any taxable year which is
attributable to any commercial revitalization credit
determined under section 1400G may be carried
back to a taxable year ending before the date of the
enactment of section 1400G.’’
(2) Subparagraph (B) of section 48(a)(2) of
such Code is amended by inserting ‘‘or commercial
revitalization’’ after ‘‘rehabilitation’’ each place it
appears in the text and heading.
(3) Subparagraph (C) of section 49(a)(1) of
such Code is amended by striking ‘‘and’’ at the end
of clause (ii), by striking the period at the end of
clause (iii) and inserting ‘‘, and’’, and by adding at
the end the following new clause:
‘‘(iv) the portion of the basis of any
qualified revitalization building attributable
to qualified revitalization expenditures.’’
(4) Paragraph (2) of section 50(a) of such Code
is amended by inserting ‘‘or 1400G(d)(2)’’ after
‘‘section 47(d)’’ each place it appears.
(5) Subparagraph (A) of section 50(b)(2) of
such Code is amended by inserting ‘‘or qualified re-
vitalization building (respectively)’’ after ‘‘qualified
rehabilitated building’’.
(6) Subparagraph (B) of section 50(a)(2) of
such Code is amended by adding at the end the fol-
lowing new sentence: ‘‘A similar rule shall apply for
purposes of section 1400G.’’
(7) Paragraph (2) of section 50(b) of such Code
is amended by striking ‘‘and’’ at the end of subpara-
graph (C), by striking the period at the end of sub-
paragraph (D) and inserting ‘‘; and’’, and by adding
at the end the following new subparagraph:
‘‘(E) a qualified revitalization building (as
defined in section 1400G) to the extent of the
portion of the basis which is attributable to
qualified revitalization expenditures (as defined
in section 1400G).’’
(8) Subparagraph (C) of section 50(b)(4) of
such Code is amended—
(A) by inserting ‘‘or commercial revitaliza-
tion’’ after ‘‘rehabilitated’’ in the text and head-
ing, and
(B) by inserting ‘‘or commercial revitaliza-
tion’’ after ‘‘rehabilitation’’.
(9) Subparagraph (C) of section 469(i)(3) is
amended—
(A) by inserting ‘‘or section 1400G’’ after
‘‘section 42’’; and
(B) by striking ‘‘CREDIT’’ in the heading
and inserting ‘‘AND COMMERCIAL REVITALIZA-
TION CREDITS’’.
(h) CLERICAL AMENDMENTS.—
(1) The table of subchapters for chapter 1 of
the Internal Revenue Code of 1986 is amended by
adding at the end the following new item:
‘‘Subchapter W. Renewal Communities.’’
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following new item:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, certain section 403(b) contracts, family
development accounts, and certain individual retire-
ment annuities.’’
(3) The table of sections for part I of sub-
chapter B of chapter 68 of such Code is amended
by striking the item relating to section 6693 and in-
serting the following new item:
‘‘Sec. 6693. Failure to provide reports on individual retirement
accounts or annuities or on family development ac-
counts; overstatement of designated nondeductible
contributions.’’
TITLE II—ADDITIONAL TAX
PROVISIONS
SEC. 201. WORK OPPORTUNITY TAX CREDIT.
(a) AMOUNT OF CREDIT.—Subsection (a) of section
51 (relating to amount of credit) is amended by striking
‘‘40 percent’’ and inserting ‘‘35 percent’’.
(b) MEMBERS OF TARGETED GROUPS.—Subsection
(d) of section 51 is amended to read as follows:
‘‘(d) MEMBERS OF TARGETED GROUPS.—For pur-
poses of this subpart—
‘‘(1) IN GENERAL.—An individual is a member
of a targeted group if such individual is—
‘‘(A) a qualified IV–A recipient,
‘‘(B) a qualified veteran,
‘‘(C) a qualified ex-felon,
‘‘(D) a high-risk youth,
‘‘(E) a vocational rehabilitation referral,
‘‘(F) a qualified summer youth employee,
or
‘‘(G) a qualified food stamp recipient.
‘‘(2) QUALIFIED IV–A RECIPIENT.—
‘‘(A) IN
GENERAL.—The term ‘qualified
IV–A recipient’ means any individual who is
certified by the designated local agency as being
a member of a family receiving assistance under
an IV–A program for at least a 9-month period
ending during the 9-month period ending on the
hiring date.
‘‘(B) IV–A PROGRAM.—For purposes of
this paragraph, the term ‘IV–A program’ means
any program providing assistance under a State
plan approved under part A of title IV of the
Social Security Act (relating to assistance for
needy families with minor children) and any
successor of such program.
‘‘(3) QUALIFIED VETERAN.—
‘‘(A) IN
GENERAL.—The term ‘qualified
veteran’ means any veteran who is certified by
the designated local agency as being—
‘‘(i) a member of a family receiving
assistance under an IV–A program (as de-
fined in paragraph (2)(B)) for at least a 9-
month period ending during the 12-month
period ending on the hiring date, or
‘‘(ii) a member of a family receiving
assistance under a food stamp program
under the Food Stamp Act of 1977 for at
least a 3-month period ending during the
12-month period ending on the hiring date.
‘‘(B) VETERAN.—For purposes of subpara-
graph (A), the term ‘veteran’ means any indi-
vidual who is certified by the designated local
agency as—
‘‘(i)(I) having served on active duty
(other than active duty for training) in the
Armed Forces of the United States for a
period of more than 180 days, or
‘‘(II) having been discharged or re-
leased from active duty in the Armed
Forces of the United States for a service-
connected disability, and
‘‘(ii) not having any day during the
60-day period ending on the hiring date
which was a day of extended active duty in
the Armed Forces of the United States.
For purposes of clause (ii), the term ‘extended
active duty’ means a period of more than 90
days during which the individual was on active
duty (other than active duty for training).
‘‘(4) QUALIFIED EX-FELON.—The term ‘quali-
fied ex-felon’ means any individual who is certified
by the designated local agency—
‘‘(A) as having been convicted of a felony
under any statute of the United States or any
State,
‘‘(B) as having a hiring date which is not
more than 1 year after the last date on which
such individual was so convicted or was released
from prison, and
‘‘(C) as being a member of a family which
had an income during the 6 months imme-
diately preceding the earlier of the month in
which such income determination occurs or the
month in which the hiring date occurs, which,
on an annual basis, would be 70 percent or less
of the Bureau of Labor Statistics lower living
standard.
Any determination under subparagraph (C) shall be
valid for the 45-day period beginning on the date
such determination is made.
‘‘(5) HIGH-RISK YOUTH.—
‘‘(A) IN
GENERAL.—The term ‘high-risk
youth’ means any individual who is certified by
the designated local agency—
‘‘(i) as having attained age 18 but not
age 25 on the hiring date, and
‘‘(ii) as having his principal place of
abode within a renewal community.
‘‘(B) YOUTH MUST CONTINUE TO RESIDE
IN RENEWAL COMMUNITY.—In the case of a
high-risk youth, the term ‘qualified wages’ shall
not include wages paid or incurred for services
performed while such youth’s principal place of
abode is outside a renewal community.
‘‘(6) VOCATIONAL
REHABILITATION
REFER-
RAL.—The term ‘vocational rehabilitation referral’
means any individual who is certified by the des-
ignated local agency as—
‘‘(A) having a physical or mental disability
which, for such individual, constitutes or results
in a substantial handicap to employment, and
‘‘(B) having been referred to the employer
upon completion of (or while receiving) rehabili-
tative services pursuant to—
‘‘(i) an individualized written rehabili-
tation plan under a State plan for voca-
tional 
rehabilitation 
services 
approved
under the Rehabilitation Act of 1973, or
‘‘(ii) a program of vocational rehabili-
tation carried out under chapter 31 of title
38, United States Code.
‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
summer youth employee’ means any individ-
ual—
‘‘(i) who performs services for the em-
ployer between May 1 and September 15,
‘‘(ii) who is certified by the designated
local agency as having attained age 16 but
not 18 on the hiring date (or if later, on
May 1 of the calendar year involved),
‘‘(iii) who has not been an employee
of the employer during any period prior to
the 90-day period described in subpara-
graph (B)(i), and
‘‘(iv) who is certified by the des-
ignated local agency as having his principal
place of abode within a renewal commu-
nity.
‘‘(B) SPECIAL RULES FOR DETERMINING
AMOUNT OF CREDIT.—For purposes of applying
this subpart to wages paid or incurred to any
qualified summer youth employee—
‘‘(i) subsection (b)(2) shall be applied
by substituting ‘any 90-day period between
May 1 and September 15’ for ‘the 1-year
period beginning with the day the individ-
ual begins work for the employer’, and
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$3,000’ for ‘$6,000’.
The preceding sentence shall not apply to an in-
dividual who, with respect to the same em-
ployer, is certified as a member of another tar-
geted group after such individual has been a
qualified summer youth employee.
‘‘(C) YOUTH MUST CONTINUE TO RESIDE
IN RENEWAL COMMUNITY.—Paragraph (5)(B)
shall apply for purposes of this paragraph.
‘‘(8) QUALIFIED FOOD STAMP RECIPIENT.—The
term ‘qualified food stamp recipient’ means any indi-
vidual who is certified by the designated local agen-
cy—
‘‘(A) as having attained age 18 but not age
25 on the hiring date, and
‘‘(B) as being a member of a family receiv-
ing assistance under a food stamp program
under the Food Stamp Act of 1977 for at least
a 3-month period ending during the 12-month
period ending on the hiring date.
‘‘(9) HIRING
DATE.—The term ‘hiring date’
means the day the individual is hired by the em-
ployer.
‘‘(10) DESIGNATED LOCAL AGENCY.—The term
‘designated local agency’ means a State employment
security agency established in accordance with the
Act of June 6, 1933, as amended (29 U.S.C.
4949n).
‘‘(11) SPECIAL RULES FOR CERTIFICATIONS.—
‘‘(A) IN
GENERAL.—An individual shall
not be treated as a member of a targeted group
unless—
‘‘(i) on or before the day on which
such individual begins work for the em-
ployer, the employer has received a certifi-
cation from a designated local agency that
such individual is a member of a targeted
group, or
‘‘(ii)(I) on or before the day the indi-
vidual is offered employment with the em-
ployer, a pre-screening notice is completed
by the employer with respect to such indi-
vidual, and
‘‘(II) not later than the 14th day after
the individual begins work for the em-
ployer, the employer submits such notice,
signed by the employer and the individual
under penalties of perjury, to the des-
ignated local agency as part of a written
request for such a certification from such
agency.
For purposes of this paragraph, the term ‘pre-
screening notice’ means a document (in such
form as the Secretary shall prescribe) which
contains information provided by the individual
on the basis of which the employer believes that
the individual is a member of a targeted group.
‘‘(B) INCORRECT CERTIFICATIONS.—If—
‘‘(i) an individual has been certified
by a designated local agency as a member
of a targeted group, and
‘‘(ii) such certification is incorrect be-
cause it was based on false information
provided by such individual,
the certification shall be revoked and wages
paid by the employer after the date on which
notice of revocation is received by the employer
shall not be treated as qualified wages.
‘‘(C) EXPLANATION
OF
DENIAL
OF
RE-
QUEST.—If a designated local agency denies a
request for certification of membership in a tar-
geted group, such agency shall provide to the
person making such request a written expla-
nation of the reasons for such denial.’’
(c) MINIMUM EMPLOYMENT PERIOD.—Paragraph
(3) of section 51(i) (relating to certain individuals ineli-
gible) is amended to read as follows:
‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM-
PLOYMENT PERIOD.—No wages shall be taken into
account under subsection (a) with respect to any in-
dividual unless such individual either—
‘‘(A) is employed by the employer at least
180 days (20 days in the case of a qualified
summer youth employee), or
‘‘(B) has completed at least 250 hours
(120 hours in the case of a qualified summer
youth employee) of services performed for the
employer.’’
(d) TERMINATION PERIOD.—Paragraph (4) of sec-
tion 51(c) (relating to wages defined) is amended to read
as follows:
‘‘(4) TERMINATION PERIOD.—The term ‘wages’
shall not include any amount paid or incurred to an
individual who begins work for the employer after
December 31, 1994, and before January 1, 1996.’’
(e) REDESIGNATION OF CREDIT.—
(1) Sections 38(b)(2) and 51(a) are each
amended by striking ‘‘targeted jobs credit’’ and in-
serting ‘‘work opportunity credit’’.
(2) The subpart heading for subpart F of part
IV of subchapter A of chapter 1 is amended by
striking ‘‘Targeted Jobs Credit’’ and inserting
‘‘Work Opportunity Credit’’.
(3) The table of subparts for such part IV is
amended by striking ‘‘targeted jobs credit’’ and in-
serting ‘‘work opportunity credit’’.
(4) The heading for paragraph (3) of section
1396(c) is amended by striking ‘‘TARGETED JOBS
CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED-
IT’’.
(f) TECHNICAL AMENDMENT.—Paragraph (1) of sec-
tion 51(c) is amended by striking ‘‘, subsection
(d)(8)(D),’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to individuals who begin work for
the employer after December 31, 1995.
SEC. 202. CREDIT FOR CERTAIN CHARITABLE CONTRIBU-
TIONS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to nonrefundable personal credits) is
amended by adding at the end the following new section:
‘‘SEC. 26A. CREDIT FOR CERTAIN CHARITABLE CONTRIBU-
TIONS.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to
75 percent of the qualified charitable contributions which
are paid by the taxpayer during the taxable year.
‘‘(b) LIMITATION.—The credit allowed by subsection
(a) for the taxable year shall not exceed $200 ($400 in
the case of a joint return).
‘‘(c) QUALIFIED CHARITABLE CONTRIBUTION.—For
purposes of this section, the term ‘qualified charitable con-
tribution’ means any charitable contribution (as defined
in section 170(c)) made in cash to a qualified charity aid-
ing the poor.
‘‘(d) QUALIFIED CHARITY AIDING THE POOR.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified charity aiding the poor’
means, for any taxable year, any organization de-
scribed in section 501(c)(3) and exempt from tax
under section 501(a)—
‘‘(A) which is certified by the Secretary as
meeting the requirements of paragraphs (2),
(3), and (4),
‘‘(B) which is organized under the laws of
the United States or of any State in which the
organization is qualified to operate, and
‘‘(C) which is required, or elects to be
treated as being required, to file returns under
section 6033.
‘‘(2) CHARITY MUST PRIMARILY ASSIST POOR
INDIVIDUALS.—
‘‘(A) IN GENERAL.—An organization meets
the requirements of this paragraph only if the
predominant activity of such organization is the
provision of direct services to individuals whose
annual incomes generally do not exceed 185
percent of the official poverty line (as defined
by the Office of Management and Budget).
‘‘(B) FOOD
AID
AND
HOMELESS
SHEL-
TERS.—Except as otherwise provided in regula-
tions, for purposes of subparagraph (A), serv-
ices to individuals in the form of—
‘‘(i) temporary donations of food or
meals, or
100
‘‘(ii) temporary shelter to homeless in-
dividuals,
shall be treated as provided to individuals de-
scribed in subparagraph (A) if the location and
operation of such services are such that the
service provider may reasonably conclude that
the beneficiaries of such services are predomi-
nantly individuals described in subparagraph
(A).
‘‘(3) EXPENDITURES FOR CHARITABLE SERV-
ICES TO THE POOR.—
‘‘(A) IN GENERAL.—An organization meets
the requirements of this paragraph only if for
the immediately preceding taxable year (and the
Secretary reasonably expects that for the cur-
rent taxable year), except as provided in sub-
paragraph (B), all annual expenditures of the
organization are used to provide the direct serv-
ices referred to in paragraph (2).
‘‘(B) PERMISSIBLE
EXPENDITURES
FOR
ADMINISTRATION AND FUNDRAISING.—An orga-
nization shall not be treated as failing to meet
the requirements of subparagraph (A) with re-
spect to any taxable year by reason of the fact
that 25 percent or less of the annual aggregate
101
expenditures of the organization for such tax-
able year are—
‘‘(i) administrative expenditures in
support of direct services referred to in
paragraph (2), and
‘‘(ii) expenditures for purposes of
fundraising on behalf of the organization
providing direct services referred to in
paragraph (2).
‘‘(4) LIMITATION ON POLITICAL ACTIVITY.—An
organization meets the requirements of this para-
graph only if for the immediately preceding taxable
year (and the Secretary reasonably expects that for
the current taxable year) the organization does not
engage in any of the following:
‘‘(A) Activity for the purpose of influencing
legislation.
‘‘(B) Litigation on behalf of any individual
referred to in paragraph (2).
‘‘(C) Voter registration, political organiz-
ing, public policy advocacy, or public policy re-
search.
‘‘(5) SPECIAL
RULE
FOR
NEW
ORGANIZA-
TIONS.—In the case of an organization which has no
preceding taxable year, paragraphs (3) and (4) shall
102
be applied without regard to the words ‘for the im-
mediately preceding taxable year’.
‘‘(e) 
TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, at the election of
the taxpayer, a contribution which is made not later than
the time prescribed by law for filing the return for the
taxable year (not including extensions thereof) shall be
treated as made on the last day of such taxable year.
‘‘(f) COORDINATION WITH DEDUCTION FOR CHARI-
TABLE CONTRIBUTIONS.—
‘‘(1) CREDIT
IN
LIEU
OF
DEDUCTION.—The
credit provided by subsection (a) for any qualified
charitable contribution shall be in lieu of any deduc-
tion otherwise allowable under this chapter for such
contribution.
‘‘(2) 
ELECTION
TO
HAVE
SECTION
NOT
APPLY.—A taxpayer may elect for any taxable year
to have this section not apply.’’
(b) PUBLIC INSPECTION OF ANNUAL RETURNS.—
Subsection (e) of section 6104 of such Code (relating to
public inspection of certain annual returns and applica-
tions for exemption) is amended by adding at the end the
following new paragraph:
103
‘‘(3) CHARITIES RECEIVING CREDITABLE CON-
TRIBUTIONS REQUIRED TO PROVIDE COPIES OF AN-
NUAL RETURN.—
‘‘(A) IN GENERAL.—Every qualified char-
ity aiding the poor (as defined in section
26A(d)) shall, upon request of an individual
made at an office where such organization’s an-
nual return filed under section 6033 is required
under paragraph (1) to be available for inspec-
tion, provide a copy of such return to such indi-
vidual without charge other than a reasonable
fee for any reproduction and mailing costs. If
the request is made in person, such copies shall
be provided immediately and, if made other
than in person, shall be provided within 30
days.
‘‘(B) PERIOD OF AVAILABILITY.—Subpara-
graph (A) shall apply only during the 3-year pe-
riod beginning on the filing date (as defined in
paragraph (1)(D)) of the return requested.’’
(c) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end the follow-
ing new item:
‘‘Sec. 26A. Credit for certain charitable contributions.’’
104
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made after the
date of the enactment of this Act.
SEC. 203. DEDUCTION FOR CHARITABLE CONTRIBUTIONS
TO BE ALLOWED TO INDIVIDUALS WHO DO
NOT ITEMIZE DEDUCTIONS.
(a) IN GENERAL.—Section 170 of the Internal Reve-
nue Code of 1986 (relating to charitable, etc., contribu-
tions and gifts) is amended by redesignating subsection
(m) as subsection (n) and by inserting after subsection
(l) the following new subsection:
‘‘(m) DEDUCTION FOR INDIVIDUALS NOT ITEMIZING
DEDUCTIONS.—In the case of an individual who does not
itemize deductions for the taxable year, the amount allow-
able under subsection (a) for the taxable year shall be
taken into account as a direct charitable deduction under
section 63.’’
(b) DIRECT CHARITABLE DEDUCTION.—
(1) IN GENERAL.—Subsection (b) of section 63
of such Code is amended by striking ‘‘and’’ at the
end of paragraph (1), by striking the period at the
end of paragraph (2) and inserting ‘‘, and’’, and by
adding at the end the following new paragraph:
‘‘(3) the deduction for charitable contributions
under section 170(m).’’
105
(2) CONFORMING AMENDMENT.—Subsection (d)
of section 63 of such Code is amended by striking
‘‘and’’ at the end of paragraph (1), by striking the
period at the end of paragraph (2) and inserting ‘‘,
and’’, and by adding at the end the following new
paragraph:
‘‘(3) the deduction for charitable contributions
under section 170(m).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
TITLE 
IV—LOW-INCOME 
EDU-
CATIONAL 
OPPORTUNITY
SCHOLARSHIP PROGRAM
SEC. 401. SHORT TITLE.
This title may be cited as the ‘‘Low-Income Edu-
cational Opportunity Act of 1996’’.
SEC. 402. FINDINGS; PRECEDENTS.
(a) FINDINGS.—The Congress finds the following:
(1) Significant improvements in the education
of educationally deprived children can be accom-
plished by—
(A) increasing educational opportunities
for these children by expanding the range of
educational choices that best meet their needs;
106
(B) fostering diversity and competition
among school programs for these children;
(C) providing the families of these children
more of the educational choices already avail-
able to affluent families; and
(D) enhancing the quality of American
education in general by increasing parental in-
volvement in the program and the direction of
the education of these children.
(2) Costs are often much lower in private
schools than corresponding costs in schools operated
solely by the Government.
(3) Not all children are alike and therefore
there is no one school or program that fits the needs
of all children.
(4) The formation of sound values and moral
character is crucial to helping young people escape
from lives of poverty, family break-up, drug abuse,
crime, and school failure.
(5) In addition to offering knowledge and skills,
education should positively contribute to the forma-
tion of the internal norms and values which are vital
to a child’s success in life and to the well being of
society.
107
(6) Schools should help to provide young people
with a sound moral foundation which is consistent
with the values of their parents. To find such a
school, parents need a full range of choice to deter-
mine where their children can best be educated.
(b) PRECEDENTS.—The United States Supreme
Court has determined that programs giving parents choice
and increased input in their children’s education, includ-
ing the choice of a religious education, do not violate the
constitution. The Court has held that as long as the bene-
ficiary, not the Government, decides where education
funds will be spent on such individual’s behalf, Govern-
ment funds can be used for education in a religious insti-
tution because the Government has neither advanced nor
hindered a particular religion and therefore has not vio-
lated the establishment clause of the first amendment. Su-
preme Court precedents include—
(1) Wisconsin v. Yoder, 406 U.S. 205; Pierce v.
Society of Sisters, 268 U.S. 510; Meyer v. Ne-
braska, 262 U.S. 390 which held that parents have
the primary role in and are the primary decision
makers in all areas regarding the education and up-
bringing of their children;
(2) Mueller v. Allen, 463 U.S. 388 which de-
clared a Minnesota tax deduction program that pro-
108
vided State income tax benefits for educational ex-
penditures by parents, including tuition in religiously
affiliated schools, constitutional;
(3) Witters v. Department of Services for the
Blind, 474 U.S. 481 in which the Court ruled unani-
mously that public funds for the vocational training
of the blind could be used at a Bible college for min-
istry training;
(4) Zobrest v. Catalina Foothills School District
(113 S. Ct. 2462) which held that a deaf child could
receive an interpreter, paid for by the Government,
in a private religiously affiliated school under the In-
dividuals With Disabilities Education Act. The case
held that providing an interpreter in a religiously af-
filiated school did not violate the establishment
clause.
SEC. 403. PURPOSES.
The purposes of this title are the following:
(1) To assist renewal communities—
(A) in giving children from low-income
families more choices in selecting elementary
and secondary schools that children from
wealthier families already have;
(B) in improving schools and other aca-
demic programs by financially enhancing the
109
consumer power of low-income families to
choose the schools and programs that they de-
termine best fit the needs of their children;
(C) in engaging low-income parents more
fully in their children’s schooling;
(D) in providing low income parents with
a wide range of choice in selecting a school for
their children, including public schools, private
schools, and private religious schools, without
promoting or discriminating against the choice
of a particular type of school; and
(E) in combating crime, drugs, and illegit-
imacy in low-income communities by encourag-
ing the restoration of moral character.
(2) To demonstrate the effects of State and
local programs that give low-income families more of
the choices in schools (public, private, or religious)
that wealthier families already have.
SEC. 404. PLAN SUBMISSION; REQUIREMENTS.
(a) IN GENERAL.—A community designated as a re-
newal community under section 1400 of the Internal Reve-
nue Code of 1986 shall submit a plan to the Secretary
not later than 60 days after receiving such designation.
Such plan shall include the following:
110
(1) A designation of a public or private office,
agency, or organization that will be responsible for
the establishment and operation of the scholarship
program and for the distribution of assistance to
parents.
(2) A description of the actions to be taken by
the State or renewal community to increase edu-
cational options for low-income children, including—
(A) public school choice programs;
(B) private school choice programs;
(C) quasi-public or charter school pro-
grams; and
(D) programs privatizing services such as
transportation, administration, or food prepara-
tion or distribution.
(3) A description of State and local funds (in-
cluding tax benefits) and non-governmental funds, if
any, that will be available to supplement scholarship
funds provided under this title.
(4) A description of the procedures the appli-
cant will use, including timely and meaningful con-
sultation with private school officials, to encourage
public and private elementary and secondary schools
to participate in the program and to ensure maxi-
mum educational choices for the parents of eligible
111
children and for other children residing in the re-
newal community.
(5) A description of how the applicant will in-
form parents and schools of the scholarship program
and of the choices available to parents under such
program.
(6) A description of procedures the applicant
will use to determine which eligible children will re-
ceive assistance.
(7) An assurance that the applicant will main-
tain such records relating to the scholarship pro-
gram as the Secretary may require and will comply
with the Secretary’s reasonable requests for informa-
tion about the program.
(b) REQUIREMENTS.—In addition to the require-
ments described in subsection (a), a community that is
designated as a renewal community shall establish and op-
erate a Low-Income Educational Opportunity Scholarship
program (referred to in this title as ‘‘scholarship pro-
gram’’) and distribute scholarships to parents during the
first school year beginning on or after the 90th day follow-
ing the day of such designation. Such program shall meet
the following requirements:
(1) To provide a choice of schools to families
with children who reside in the renewal community.
112
(2) To provide assistance to parents of eligible
children to attend public and private elementary and
secondary schools, including religious schools that
serve the designated renewal community.
(3) To allow all or any lawfully operating public
and private elementary or secondary schools, includ-
ing religious schools that serve the renewal commu-
nity to participate in a scholarship program under
this title if such a school so chooses, subject to the
qualifications specified in section 409.
(c) COMPLIANCE.—The Secretary shall notify the
Secretary of Housing and Urban Development if a renewal
community fails to comply with the requirements of sub-
sections (a) or (b). Upon such notification, the Secretary
of Housing and Urban Development may begin a review
for possible revocation of renewal community designation.
SEC. 405. USES OF FUNDS.
A community that receives renewal community des-
ignation under section 1400 of the Internal Revenue Code
of 1986 shall use funds received under this title—
(1) to provide for scholarships to assist in the
payment of tuition and fees at a scholarship school
selected by the parents of an eligible child, and to
pay the reasonable costs of transportation of eligible
children to scholarship or alternative public schools;
113
(2) not to exceed 10 percent, to pay the cost of
administering the educational opportunity scholar-
ship program; or
(3) in accordance with section 412, if an excess
amount of funds are available, to pay for the edu-
cation of children from low-income families attend-
ing public schools.
SEC. 406. SCHOLARSHIP PROGRAM.
(a) ELIGIBLE CHILDREN.—From the amounts made
available under this title, each renewal community shall
provide, to the extent practicable, assistance to a parent
who has applied for assistance and has a child who—
(1) is a member of a family that has a total
family income that does not exceed 185 percent of
the poverty line;
(2) resides in the renewal community; and
(3)(A) seeks to attend an alternative public ele-
mentary or secondary school that participates in the
scholarship program; or
(B) seeks to attend a private or religious ele-
mentary or secondary school that participates in the
scholarship program.
(b) SELECTION AMONG ELIGIBLE CHILDREN.—
(1) IN GENERAL.—In the event that a renewal
community has insufficient funds to provide assist-
114
ance to all eligible children whose parents have ap-
plied for assistance, the renewal community may se-
lect students according to—
(A) random selection;
(B) the date of the parents’ application for
assistance with preference given to parents who
applied earlier; or
(C) any other selection criteria developed
by the renewal community, subject to the limi-
tations provided in subsection (c).
(2) PRIORITY.—A renewal community shall give
priority to a parent for a student who received as-
sistance pursuant to this title during the preceding
school year.
(c) CRITERIA FOR SELECTION.—The renewal com-
munity may choose any criteria it wishes in order to make
the selection described in subsection (b), except that such
criteria shall not—
(1) discriminate on the basis of race or religion;
(2) discriminate on the basis of the school or
type of school selected by the parent; or
(3) discriminate against an eligible child be-
cause the parent of the child has chosen to receive
a scholarship to attend an eligible private school
under section 408(b)(1) of this title rather than
115
transportation assistance to attend an alternative
public school under section 408(b)(2).
(d) VALUE OF EACH SCHOLARSHIP.—The renewal
community shall determine the value of scholarships pro-
vided each semester within the renewal community, except
that the value of a scholarship provided by a renewal com-
munity shall not be less than the minimum value specified
in paragraph (1) and shall not exceed the maximum value
specified in paragraph (2).
(1) MINIMUM VALUE.—The minimum value of
a scholarship for a semester shall be the lesser of—
(A) 60 percent of the average per pupil
cost per semester in the public school system or
systems in the renewal community in the pre-
ceding school year; or
(B) the regular tuition and education fees
charged per semester by the scholarship school
chosen by the parent.
(2) MAXIMUM VALUE.—The maximum value of
a scholarship for a semester shall be the average per
pupil cost per semester in the public school system
or systems in the renewal community in the preced-
ing school year.
(3) DISABILITY.—If a student has a disability,
the average per pupil cost per semester in the public
116
school system or systems in the renewal community
in the preceding year shall be calculated using the
same cost for students with the same special needs
or handicapped category for such period of time.
(e) USE OF SCHOLARSHIPS, TRANSPORTATION AS-
SISTANCE.—Funds used to provide assistance to a parent
may be used by a parent only to pay for tuition and fees
or transportation costs at participating schools.
SEC. 407. ALLOCATION OF FUNDS AMONG RENEWAL COM-
MUNITIES.
(a) IN GENERAL.—The funds authorized under sec-
tion 417 shall be allocated to each renewal community by
the Secretary of the Treasury as follows:
(1) 80 percent shall be allocated among renewal
communities according to the formula provided in
subsection (b).
(2) 20 percent shall be allocated among renewal
communities according to the formula provided in
subsection (c).
(b) BASIC FUNDING ALLOCATION.—Each renewal
community, except as provided in subsection (d), shall re-
ceive a percentage of the funds provided under subsection
(a)(1) based on—
118
SEC. 408. PARENTAL RIGHT OF CHOICE IN EDUCATION.
(a) IN GENERAL.—Parents of each child who receives
assistance under this title shall be given a range of choice
of public and private elementary and secondary schools,
including religious schools that serve such community.
(b) TYPES OF ASSISTANCE.—The type of assistance
provided to the parent of a child selected to participate
in the scholarship program shall be determined by the type
of school to which the parent selects to send the child.
(1) SCHOLARSHIP
SCHOOL.—If the parent
elects to have a child attend a private scholarship
school, described in section 409, the parent—
(A) shall receive a scholarship to be used
to pay tuition and other fees at the school; and
(B) shall receive direct or indirect trans-
portation assistance.
(2) ALTERNATIVE PUBLIC SCHOOL.—If the par-
ent elects to have the child attend an alternative
pubic school, the parent shall receive direct or indi-
rect transportation assistance.
(c) NO GUARANTEE OF ADMISSION.—Eligible chil-
dren whose parents have applied to receive a scholarship
under this title shall be subject to the admission criteria
of each scholarship school or alternative public school and
nothing in this title shall be construed to guarantee the
119
right of an eligible child to attend any scholarship school
or alternative public school.
(d) LIMITATION
ON NUMBER
OF CHILDREN AS-
SISTED.—The number of eligible children to receive assist-
ance from a renewal community shall be determined by
the funds available to such renewal community from—
(1) the Federal funds provided under this title;
and
(2) other funds provided by public and private
sources.
(e) PARENTAL NOTIFICATION.—
(1) IN
GENERAL.—Each renewal community
shall provide timely notice of the scholarship pro-
gram to parents of eligible children residing in the
area and to the schools. At a minimum, such notice
shall—
(A) describe the educational opportunity
scholarship program;
(B) describe the eligibility requirements for
scholarships;
(C) describe the selection procedures to be
used if the number of eligible children seeking
to participate in the program exceeds the num-
ber that can be accommodated in the program;
120
(D) provide information about alternative
public schools and scholarship schools, including
information about any admission requirements
or criteria for each school participating in the
scholarship program; and
(E) include the procedures and a schedule
for parents to apply for their eligible children to
participate in the program.
(2) NOTIFICATION
METHODS.—Each renewal
community is encouraged to use a variety of means
to provide information to parents in the community,
including direct distribution, mail, distribution of
materials in publicly frequented places, public adver-
tisements, and cooperative efforts with local commu-
nity groups.
(f) INFORMATION.—Renewal communities, upon re-
quest by any and all schools eligible to become scholarship
schools, shall fully cooperate with such schools in a timely
and reasonable manner to provide information prepared
by the school regarding school choice to parents of eligible
children. Such information shall include, at a minimum,
materials prepared by the school regarding the scholarship
program, selection of schools, and the school itself.
121
SEC. 409. ELIGIBLE SCHOOLS.
(a) STANDARDS.—Each private school located in the
renewal community or within a reasonable transportation
distance of such community is eligible to redeem scholar-
ships and to become a scholarship school if—
(1) the school complies with the antidiscrimina-
tion provisions of section 601 of title VI of the Civil
Rights Act of 1964 (42 U.S.C. 2000) and does not
discriminate on the basis of race;
(2) the school satisfies requirements established
by State and local governments, where applicable,
for curriculum and facilities which applied to private
schools for the area in which the school is located as
of January 1, 1996; and
(3) the school meets the health and safety
standards which applied to private schools as of Jan-
uary 1, 1996, for the community in which the school
is located.
(b) LIMITS ON THE REGULATION OF SCHOOLS.—Any
regulation of a scholarship school shall be subject to the
following limitations:
(1) No additional requirements, regulations, or
burdensome paperwork other than those in effect on
the date of the enactment of this Act or as set forth
or referenced in this title may be imposed upon
scholarship schools.
122
(2) Students who have been enrolled in a schol-
arship school in the preceding school year may be
given an admissions preference over new students
who apply.
(3) No requirements or regulations may pro-
hibit or limit the authority of scholarship schools to
provide religious instruction or education.
(4) Scholarship schools shall be protected by
the rights granted in the Religious Freedom Res-
toration Act of 1993.
(5) Except for the limitation concerning dis-
crimination on the basis of race expressed in sub-
section (a)(1), any school operated by a religious or-
ganization may require its employees to—
(A) adhere to the religious tenets and
teachings of such organization; and
(B) follow any rules of behavior devised by
the organization.
(6) No requirement and regulation shall pro-
hibit a scholarship school from—
(A) admitting students of a single gender;
(B) operating classes which are separated
on the basis of gender; or
123
(C) employing teaching personnel whose
gender the school deems appropriate in the edu-
cation of certain categories of students.
(c) INELIGIBLE
SCHOOLS.—Notwithstanding any
other provision of this title, a school that advocates crimi-
nal behavior or which is operated by an organization which
advocates criminal behavior is ineligible to participate in
the program authorized by this title.
SEC. 410. ADMINISTRATION OF PROGRAM AND TREATMENT
OF FUNDS.
(a) FUNDS NOT AID TO INSTITUTIONS.—The funds
provided for a scholarship under this title is an award of
aid to a family, not to a school or institution. Use of a
scholarship or transportation assistance shall not con-
stitute Federal financial aid or assistance to a school, nor
shall it invoke any regulation of an activity beyond the
regulations explicitly referred to or provided for in this
title.
(b) TREATMENT
OF GRANT FUNDS.—A Federal,
State, or local agency may not take into account, in any
year, Federal funds provided to a renewal community,
school, or to the parents of any child under this title in
determining whether to provide any other funds from Fed-
eral, State, or local resources, or in determining the
amount of such assistance.
124
(c) NO AUTHORIZATION OF FEDERAL REGULATION
OF EDUCATION.—Nothing in this Act shall be construed
to authorize the Secretary to exercise any direction, super-
vision, or control over the curriculum, program of instruc-
tion, administration, or personnel of any educational insti-
tution or school participating in a program under this
title.
(d) PROHIBITION ON STATE DISCRIMINATION IN USE
OF FUNDS.—A State constitution or State law shall not
be construed to prohibit the expenditure of any Federal
funds provided under this title in or by a religious institu-
tion. If a State law or constitution does not allow the ex-
penditure of State or local public funds in or by religious
organizations, the renewal community shall segregate Fed-
eral funds from State or other public funds for purposes
of providing assistance administering the educational op-
portunity scholarship program.
(e) REGULATION
OF
SCHOOLS
NOT
RECEIVING
SCHOLARSHIPS.—A rule or requirement established for
scholarship schools shall not apply to a private school that
chooses not to become a scholarship school.
(f) SCHOLARSHIPS NOT DEEMED INCOME.—Funds
used to provide scholarships shall not be deemed income
of the parents for Federal income tax purposes or for de-
termining eligibility for any other Federal programs.
125
SEC. 411. CONTRIBUTIONS TO SCHOLARSHIP PROGRAM
FROM OTHER SOURCES.
(a) IN GENERAL.—The renewal community is en-
couraged to seek or provide additional funds for scholar-
ships and transportation assistance from other sources, in-
cluding—
(1) local government funds;
(2) State government funds;
(3) contributions from private businesses; and
(4) contributions from private charitable orga-
nizations.
(b) PARENTAL PAYMENTS NOT COUNTED AS MATCH-
ING CONTRIBUTIONS.—For purposes of section 407(c),
payments of tuition and education fees by parents of eligi-
ble children shall not be considered matching contribu-
tions.
SEC. 412. USE OF EXCESS FUNDS FOR ADDITIONAL EDU-
CATIONAL PURPOSES.
(a) IN GENERAL.—If any funds remain after a re-
newal community has provided scholarships to all eligible
children whose parents have applied for assistance in ac-
cordance with this title, the community may use such ex-
cess funds for the general education of children from low-
income families who attend public schools within the re-
newal community, subject to the limitation in subsection
(b).
126
(b) LIMITATION.—A renewal community may not use
excess funds for the purposes described in subsection (a)
if the Secretary determines that the community—
(1) has failed to fully inform the parents or
guardians of eligible children of—
(A) the availability of scholarships; and
(B) the full range of choices of schools
available;
(2) has in any way discouraged or impeded par-
ents of eligible children from using scholarships;
(3) has in any way discouraged or impeded eli-
gible schools from receiving scholarships; or
(4) has unreasonably hindered the establish-
ment of new private schools within the renewal com-
munity.
(c) FORFEITURE OF SURPLUS FUNDS.—In the event
that the Secretary determines that a renewal community
has met one or more of the conditions described in sub-
section (b), the renewal community shall return any excess
funds described in subsection (a) to the Treasury.
SEC. 413. EVALUATION.
(a) IN GENERAL.—The Secretary shall conduct a na-
tional evaluation of the program authorized by this title
not later than 2 years after such program begins and a
second evaluation after 4 years. Such evaluations shall—
127
(1) assess the implementation of assisted pro-
grams and the effect on participants, schools, and
communities in the renewal community, including
parental involvement in, and satisfaction with, the
program and their children’s education;
(2) compare the educational achievement of
children who participate in the scholarship program
with the achievement of similar children who do not
participate in the scholarship program before, dur-
ing, and after the program;
(3) compare educational achievement of chil-
dren who use scholarships to attend schools other
than the ones they would attend in the absence of
the program with educational achievement of chil-
dren who attend the schools scholarship students
would attend in the absence of the program; and
(4) compare graduation rates of children who
use scholarships to attend schools other than the
schools they would attend in the absence of the pro-
gram with graduation rates of children who attend
the schools the scholarship students would attend in
the absence of the program.
(b) NO AUTHORIZATION OF SCHOOL REGULATION.—
The responsibility to evaluate shall not be construed to
authorize the State or local government to exercise any
128
direction, supervision, or control over the curriculum, pro-
gram of instruction, administration, or personnel of any
educational private institution or school participating in
a low-income educational opportunity scholarship program
under this title, except that the school may be required
to provide reasonable information to assist in the evalua-
tion of the program, including standardized tests of stu-
dent achievement, surveys of parental satisfaction with
their child’s education, surveys of student satisfaction, at-
tendance rates, dropout rates, and data on student’s col-
lege enrollment.
SEC. 414. EFFECT ON OTHER PROGRAMS.
Nothing in this Act shall be read to affect the applica-
bility or requirements of part B of the Individuals with
Disabilities Education Act.
SEC. 415. JUDICIAL REVIEW.
(a) PANEL.—In the event of a constitutional chal-
lenge to the program authorized under this title, such
challenge shall be tried immediately by a three judge panel
in the United States District Court of the District of Co-
lumbia and immediate appeal, as of right, may be had in
the Supreme Court of the United States.
(b) REQUEST TO EXPEDITE.—The Supreme Court of
the United States is requested to expedite an appeal re-
quested pursuant to subsection (a).
129
SEC. 416. DEFINITIONS.
Except as otherwise provided, for purposes of this
title—
(1) the term ‘‘alternative public school’’ means
a public school other than the public school in which
the child normally would attend and which is within
reasonable transportation distance from the child’s
residence;
(2) the term ‘‘assistance’’ means either a schol-
arship, transportation assistance, or a scholarship
and transportation assistance provided to parents of
eligible children who participate in the scholarship
program pursuant to this title.
(3) the term ‘‘elementary school’’ means an in-
stitutional day or residential school that provides el-
ementary education, as determined under State law;
(4) the term ‘‘eligible child’’ means a child
whose parents qualify to receive assistance under
section 406;
(5) the term ‘‘lawfully operated elementary
school’’ means an institutional day or residential
school that provides elementary education, as deter-
mined under State law;
(6) the term ‘‘lawfully operated secondary
school’’ means an institutional day or residential
school that provides secondary education, as deter-
130
mined under State law, except that such term does
not include any education beyond grade 12;
(7) the terms ‘‘Low-Income Educational Oppor-
tunity Scholarship’’ and ‘‘scholarship’’ mean a cer-
tificate awarded to a parent of an eligible child
under section 406 to be redeemed at a scholarship
school;
(8) the terms ‘‘local educational agency’’, ‘‘par-
ent’’, and ‘‘State educational agency’’ have the
meanings given such terms in section 14101 of the
Elementary and Secondary Education Act of 1965;
(9) the term ‘‘poverty level’’ means the total in-
come of a family that is at or below the Federal pov-
erty guidelines updated annually in the Federal Reg-
ister by the Department of Health and Human Serv-
ices under authority of section 673(2) of the Omni-
bus Budget Reconciliation Act of 1981 as amended;
(10) the term ‘‘renewal community’’ has the
meaning given such term in section 1400 of the In-
ternal Revenue Code of 1986;
(11) the term ‘‘scholarship program means a
program within the renewal community that provides
scholarships and transportation aid to eligible chil-
dren in accordance with this title.
131
(12) the term ‘‘scholarship school’’ means a pri-
vate school that chooses to accept educational oppor-
tunity scholarships;
(13) the term ‘‘secondary school’’ means an in-
stitutional day or residential school that provides
secondary education, as determined under State law,
except that such term does not include any edu-
cation beyond grade 12;
(14) the term ‘‘Secretary’’ means the Secretary
of Education;
(15) the term ‘‘State’’ means each of the 50
States, the District of Columbia, and the Common-
wealth of Puerto Rico; and
(16) the term ‘‘transportation assistance’’
means direct or indirect subsidization of the costs of
transporting children participating in the program to
scholarship schools or alternative public schools.
SEC. 417. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated the following
sums: $200,000,000 for fiscal year 1996, $200,000,000
for fiscal year 1997, $200,000,000 for fiscal year 1998,
$400,000,000 for fiscal year 1999, $500,000,000 for fis-
cal 2000, $1,000,000,000 for fiscal year 2001, and
$2,500,000,000 for fiscal year 2002.
132
TITLE 
III—PREVENTION 
AND
TREATMENT OF SUBSTANCE
ABUSE
SEC. 301. PREVENTION AND TREATMENT OF SUBSTANCE
ABUSE; SERVICES PROVIDED THROUGH RELI-
GIOUS ORGANIZATIONS.
Title V of the Public Health Service Act (42 U.S.C.
290aa et seq.) is amended by adding at the end the follow-
ing part:
‘‘PART G—SERVICES PROVIDED THROUGH RELIGIOUS
ORGANIZATIONS
‘‘SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.
‘‘(a) DESIGNATED
PROGRAMS.—Subject to sub-
section (b), this part applies to each program under this
Act that makes awards of Federal financial assistance to
public or private entities for the purpose of carrying out
activities to prevent or treat substance abuse (in this part
referred to as a ‘designated program’). Designated pro-
grams include the program under subpart II of part B
of title XIX (relating to formula grants to the States).
‘‘(b) LIMITATION.—This part does not apply to any
award of Federal financial assistance under a designated
program for a purpose other than the purpose specified
in subsection (a).
133
‘‘(c) DEFINITIONS.—For purposes of this part (and
subject to subsection (b)):
‘‘(1) The term ‘designated award recipient’
means a public or private entity that has received an
award under a designated program (whether the
award is a designated direct award or a designated
subaward).
‘‘(2) The term ‘designated direct award’ means
an award under a designated program that is re-
ceived directly from the Federal Government.
‘‘(3) The term ‘designated subaward’ means an
award of financial assistance made by a non-Federal
entity, which award consists in whole or in part of
Federal financial assistance provided through an
award under a designated program.
‘‘(4) The term ‘designated program’ has the
meaning given such term in subsection (a).
‘‘(5) The term ‘financial assistance’ means a
grant, 
cooperative 
agreement, 
contract, 
or
voucherized assistance.
‘‘(6) The term ‘program beneficiary’ means an
individual who receives program services.
‘‘(7) The term ‘program participant’ has the
meaning given such term in section 582(a)(2).
134
‘‘(8) The term ‘program services’ means treat-
ment for substance abuse, or preventive services re-
garding such abuse, provided pursuant to an award
under a designated program.
‘‘(9) The term ‘religious organization’ means a
nonprofit religious organization.
‘‘(10) 
The 
term 
‘voucherized 
assistance’
means—
‘‘(A) a system of selecting and reimbursing
program services in which—
‘‘(i) the beneficiary is given a docu-
ment or other authorization that may be
used to pay for program services;
‘‘(ii) the beneficiary chooses the orga-
nization that will provide services to him or
her according to rules specified by the des-
ignated award recipient; and
‘‘(iii) the organization selected by the
beneficiary is reimbursed by the designated
award recipient for program services pro-
vided; or
‘‘(B) any other mode of financial assist-
ance to pay for program services in which the
program beneficiary determines the allocation
135
of program funds through his or her selection
of one service provider from among alternatives.
‘‘SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PAR-
TICIPANTS.
‘‘(a) IN GENERAL.—
‘‘(1) SCOPE OF AUTHORITY.—Notwithstanding
any other provision of law, a religious organiza-
tion—
‘‘(A) may be a designated award recipient;
‘‘(B) may make designated subawards to
other public or nonprofit private entities (in-
cluding other religious organizations);
‘‘(C) may provide for the provision of pro-
gram services to program beneficiaries through
the use of voucherized assistance; and
‘‘(D) may be a provider of services under
a designated program, including a provider that
accepts voucherized assistance.
‘‘(2) DEFINITION OF PROGRAM PARTICIPANT.—
For purposes of this part, the term ‘program partici-
pant’ means a public or private entity that has re-
ceived a designated direct award, or a designated
subaward, regardless of whether the entity provides
program services. Such term includes an entity
whose only participation in a designated program is
136
to provide program services pursuant to the accept-
ance of voucherized assistance.
‘‘(b) RELIGIOUS ORGANIZATIONS.—The purpose of
this section is to allow religious organizations to be pro-
gram participants on the same basis as any other non-
profit private provider without impairing the religious
character of such organizations, and without diminishing
the religious freedom of program beneficiaries.
‘‘(c) NONDISCRIMINATION AGAINST RELIGIOUS OR-
GANIZATIONS.—Religious organizations are eligible to be
program participants on the same basis as any other non-
profit private organization so long as activities under the
designated programs are implemented consistent with the
establishment clause of the first amendment to the Con-
stitution of the United States. Neither the Federal Gov-
ernment nor a State receiving funds under such programs
shall discriminate against an organization that is or ap-
plies to be a program participant on the basis that the
organization has a religious character.
‘‘(d) RELIGIOUS CHARACTER AND FREEDOM.—
‘‘(1) 
RELIGIOUS
ORGANIZATIONS.—Notwith-
standing any other provision of law, any religious or-
ganization that is a program participant shall retain
its independence from Federal, State, and local gov-
ernment, including such organization’s control over
137
the definition, development, practice, and expression
of its religious beliefs.
‘‘(2) ADDITIONAL
SAFEGUARDS.—Neither the
Federal Government nor a State shall require a reli-
gious organization to—
‘‘(A) alter its form of internal governance;
or
‘‘(B) remove religious art, icons, scripture,
or other symbols;
in order to be a program participant.
‘‘(e) RIGHTS OF PROGRAM BENEFICIARIES.—With
respect to an individual who is a program beneficiary or
a prospective program beneficiary, if the individual objects
to a program participant on the basis that the participant
is a religious organization, the following applies:
‘‘(1) If the organization received a designated
direct award, the organization shall arrange for the
individual to receive program services through an al-
ternative entity.
‘‘(2) If the organization received a designated
subaward, the non-Federal entity that made the
subaward shall arrange for the individual to receive
the program services through an alternative program
participant.
138
‘‘(3) If the organization is providing services
pursuant to voucherized assistance, the designated
award recipient that operates the voucherized assist-
ance program shall arrange for the individual to re-
ceive the program services through an alternative
provider.
‘‘(4) Arrangements under any of paragraphs
(1) through (3) with an alternative entity shall pro-
vide for program services the monetary value of
which is not less than the monetary value of the pro-
gram services that the individual would have re-
ceived from the religious organization involved.
‘‘(f) NONDISCRIMINATION IN EMPLOYMENT.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), nothing in this section shall be construed
to modify or affect the provisions of any other Fed-
eral or State law or regulation that relates to dis-
crimination in employment on the basis of religion.
‘‘(2) EXCEPTION.—A religious organization
that is a program participant may require that an
employee rendering programs services adhere to—
‘‘(A) the religious tenets and teachings of
such organization; and
‘‘(B) any rules of the organization regard-
ing the use of drugs or alcohol.
139
‘‘(g) 
NONDISCRIMINATION
AGAINST
BENE-
FICIARIES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2) or as otherwise provided in law, a religious
organization that is a program participant shall not
in providing program services discriminate against a
program beneficiary on the basis of religion or reli-
gious belief.
‘‘(2) LIMITATION.—A religious organization
that is a program participant may require a pro-
gram beneficiary who has elected in accordance with
subsection (e) to receive program services from such
organization—
‘‘(A) to actively participate in religious
practice, worship, and instruction; and
‘‘(B) to follow rules of behavior devised by
the organizations that are religious in content
or origin.
‘‘(h) FISCAL ACCOUNTABILITY.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), any religious organization that is a pro-
gram participant shall be subject to the same regula-
tions as other recipients of awards of Federal finan-
cial assistance to account, in accordance with gen-
140
erally accepting auditing principles, for the use of
the funds provided under such awards.
‘‘(2) LIMITED
AUDIT.—With respect to the
award involved, if a religious organization that is a
program participant maintains the Federal funds in
a separate account from non-Federal funds, then
only the Federal funds shall be subject to audit.
‘‘SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN
PURPOSES.
‘‘(a) IN GENERAL.—Except as provided in subsection
(b), no funds provided directly to an entity under a des-
ignated program shall be expended for sectarian worship
or instruction.
‘‘(b) EXCEPTION.—Subsection (a) shall not apply to
assistance provided to or on behalf of a program bene-
ficiary if the beneficiary may choose where such assistance
is redeemed or allocated.
‘‘SEC. 584. ADMINISTRATION OF PROGRAM AND TREAT-
MENT OF FUNDS.
‘‘(a) FUNDS NOT AID TO INSTITUTIONS.—Financial
assistance under a designated program provided to or on
behalf of program beneficiaries is aid to the beneficiary,
not to the organization providing program services. The
receipt by a program beneficiary of program services at
141
the facilities of the organization shall not constitute Fed-
eral financial assistance to the organization involved.
‘‘(b) PROHIBITION ON STATE DISCRIMINATION IN
USE OF FUNDS.—No provision in any State constitution
or State law shall be construed to prohibit the expenditure
of Federal funds under a designated program in a reli-
gious facility or by a religious organization that is a pro-
gram participant. If a State law or constitution would pre-
vent the expenditure of State or local public funds in such
a facility or by such a State or local government, then
the organization shall segregate the Federal funds from
State or other public funds for purposes of carrying out
the designated program.
‘‘SEC. 585. EDUCATIONAL REQUIREMENTS FOR PERSONNEL
IN DRUG TREATMENT PROGRAMS.
‘‘(a) FINDINGS.—The Congress finds that—
‘‘(1) establishing formal educational qualifica-
tion for counselors and other personnel in drug
treatment programs may undermine the effective-
ness of such programs; and
‘‘(2) such formal educational requirements for
counselors and other personnel may hinder or pre-
vent the provision of needed drug treatment services.
‘‘(b) LIMITATION ON EDUCATIONAL REQUIREMENTS
OF PERSONNEL.—
142
‘‘(1) TREATMENT OF RELIGIOUS EDUCATION.—
If any State or local government that is a program
participant imposes formal educational qualifications
on providers of program services that are religious
organizations, such State or local government shall
treat religious education and training of personnel
as having a critical and positive role in the delivery
of program services. In applying educational quali-
fications for personnel in religious organizations,
such State or local government shall give credit for
religious education and training equivalent to credit
given for secular course work in drug treatment or
any other secular subject that is of similar grade
level and duration.
‘‘(2) RESTRICTION
OF
DISCRIMINATION
RE-
QUIREMENTS.—
‘‘(A) IN GENERAL.—Subject to paragraph
(1), a State or local government that is a pro-
gram participant may establish formal edu-
cational qualifications for personnel in organiza-
tions providing program services that contribute
to success in reducing drug use among program
beneficiaries.
‘‘(B) EXCEPTION.—The Secretary shall
waive the application of any educational quali-
143
fication imposed under subparagraph (A) for an
individual religious organization, if the Sec-
retary determines that—
‘‘(i) the religious organization has a
record of prior successful drug treatment
for at least the preceding three years;
‘‘(ii) the educational qualifications
have effectively barred such religious orga-
nization from becoming a program pro-
vider;
‘‘(iii) the organization has applied to
the Secretary to waive the qualifications;
and
‘‘(iv) the State or local government
has failed to demonstrate empirically that
the educational qualifications in question
are necessary to the successful operation of
a drug treatment program.’’.
144
TITLE V—CRA CREDIT FOR IN-
VESTMENTS IN COMMUNITY
DEVELOPMENT 
ORGANIZA-
TIONS LOCATED IN RENEWAL
COMMUNITIES
SEC. 501. CRA CREDIT FOR INVESTMENTS IN COMMUNITY
DEVELOPMENT ORGANIZATIONS LOCATED IN
RENEWAL COMMUNITIES.
Section 804 of the Community Reinvestment Act of
1977 (12 U.S.C. 2903) is amended by adding at the end
the following new subsection:
‘‘(c) INVESTMENTS IN CERTAIN COMMUNITY DEVEL-
OPMENT ORGANIZATIONS.—In assessing and taking into
account, under subsection (a), the record of a regulated
financial institution, the appropriate Federal financial su-
pervisory agency may consider, as a factor, investments
of the institution in, and capital investment, loan partici-
pation, and other ventures undertaken by the institution
in cooperation with, any community development organi-
zation (as defined in section 234 of the Bank Enterprise
Act of 1991) which is located in a renewal community (as
designated under section 1400 of the Internal Revenue
Code of 1986).’’.
145
SEC. 502. FDA USER FEE AMENDMENT.
Section 736(b) of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 379h(b)) is amended by adding at
the end the following:
‘‘(3) RENEWAL
COMMUNITY
EXCEPTION.—
Any—
‘‘(A) business which qualifies as a renewal
community business under section 1400C of the
Internal Revenue Code of 1986, or
‘‘(B) any nonprofit organization,
which is manufacturing a drug for which a fee is re-
quired under subsection (a)(2)(A) and which was de-
veloped in a renewal community designated under
section 1400 of such Code or has pending an appli-
cation or supplement for a drug for which a fee is
required under subsection (a)(2)(B) and which was
developed in a renewal community designated under
section 1400 of such Code shall not be required to
pay any portion of such fee. Any business or non-
profit organization shall not be required to pay any
portion of the fee required under subsection
(a)(1)(A) for a human drug application for a drug
that was developed in a renewal community.’’.
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