H. R. 2206—83
end of paragraph (15) and inserting a semicolon, by striking 
the period at the end of paragraph (16) and inserting ‘‘; and’’, 
and by inserting after paragraph (16) the following new para-
graph: 
‘‘(17) notwithstanding the preceding provisions of this sub-
section, each spouse’s share of income or loss from a qualified 
joint venture shall be taken into account as provided in section 
761(f) in determining net earnings from self-employment of 
such spouse.’’. 
(2) Subsection (a) of section 211 of the Social Security 
Act (defining net earnings from self-employment) is amended 
by striking ‘‘and’’ at the end of paragraph (14), by striking 
the period at the end of paragraph (15) and inserting ‘‘; and’’, 
and by inserting after paragraph (15) the following new para-
graph: 
‘‘(16) Notwithstanding the preceding provisions of this sub-
section, each spouse’s share of income or loss from a qualified 
joint venture shall be taken into account as provided in section 
761(f) of the Internal Revenue Code of 1986 in determining 
net earnings from self-employment of such spouse.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
Subpart B—Gulf Opportunity Zone Tax Incentives 
SEC. 8221. EXTENSION OF INCREASED EXPENSING FOR QUALIFIED 
SECTION 179 GULF OPPORTUNITY ZONE PROPERTY. 
Paragraph (2) of section 1400N(e) (relating to qualified section 
179 Gulf Opportunity Zone property) is amended—
(1) by striking ‘‘this subsection, the term’’ and inserting: 
‘‘this subsection—
‘‘(A) IN GENERAL.—The term’’, and 
(2) by adding at the end the following new subparagraph: 
‘‘(B) EXTENSION FOR CERTAIN PROPERTY.—In the case 
of property substantially all of the use of which is in 
one or more specified portions of the GO Zone (as defined 
by subsection (d)(6)), such term shall include section 179 
property (as so defined) which is described in subsection 
(d)(2), determined—
‘‘(i) without regard to subsection (d)(6), and 
‘‘(ii) by substituting ‘2008’ for ‘2007’ in subpara-
graph (A)(v) thereof.’’. 
SEC. 8222. EXTENSION AND EXPANSION OF LOW-INCOME HOUSING 
CREDIT RULES FOR BUILDINGS IN THE GO ZONES. 
(a) TIME FOR MAKING LOW-INCOME HOUSING CREDIT ALLOCA-
TIONS.—Subsection (c) of section 1400N (relating to low-income 
housing credit) is amended by redesignating paragraph (5) as para-
graph (6) and by inserting after paragraph (4) the following new 
paragraph: 
‘‘(5) TIME
FOR
MAKING
LOW-INCOME
HOUSING
CREDIT 
ALLOCATIONS.—Section 42(h)(1)(B) shall not apply to an alloca-
tion of housing credit dollar amount to a building located in 
the Gulf Opportunity Zone, the Rita GO Zone, or the Wilma 
GO Zone, if such allocation is made in 2006, 2007, or 2008, 
and such building is placed in service before January 1, 2011.’’.
H. R. 2206—84
(b) EXTENSION OF PERIOD FOR TREATING GO ZONES AS DIF-
FICULT DEVELOPMENT AREAS.—
(1) IN GENERAL.—Subparagraph (A) of section 1400N(c)(3) 
is amended by striking ‘‘2006, 2007, or 2008’’ and inserting 
‘‘the period beginning on January 1, 2006, and ending on 
December 31, 2010’’. 
(2) CONFORMING
AMENDMENT.—Clause (ii) of section 
1400N(c)(3)(B) is amended by striking ‘‘such period’’ and 
inserting ‘‘the period described in subparagraph (A)’’. 
(c) COMMUNITY DEVELOPMENT BLOCK GRANTS NOT TAKEN INTO 
ACCOUNT
IN DETERMINING
IF BUILDINGS ARE FEDERALLY SUB-
SIDIZED.—Subsection (c) of section 1400N (relating to low-income 
housing credit), as amended by this Act, is amended by redesig-
nating paragraph (6) as paragraph (7) and by inserting after para-
graph (5) the following new paragraph: 
‘‘(6) COMMUNITY DEVELOPMENT BLOCK GRANTS NOT TAKEN 
INTO ACCOUNT IN DETERMINING IF BUILDINGS ARE FEDERALLY 
SUBSIDIZED.—For purpose of applying section 42(i)(2)(D) to any 
building which is placed in service in the Gulf Opportunity 
Zone, the Rita GO Zone, or the Wilma GO Zone during the 
period beginning on January 1, 2006, and ending on December 
31, 2010, a loan shall not be treated as a below market Federal 
loan solely by reason of any assistance provided under section 
106, 107, or 108 of the Housing and Community Development 
Act of 1974 by reason of section 122 of such Act or any provision 
of the Department of Defense Appropriations Act, 2006, or 
the Emergency Supplemental Appropriations Act for Defense, 
the Global War on Terror, and Hurricane Recovery, 2006.’’. 
SEC. 8223. SPECIAL TAX-EXEMPT BOND FINANCING RULE FOR REPAIRS 
AND RECONSTRUCTIONS OF RESIDENCES IN THE GO 
ZONES. 
Subsection (a) of section 1400N (relating to tax-exempt bond 
financing) is amended by adding at the end the following new 
paragraph: 
‘‘(7) SPECIAL RULE FOR REPAIRS AND RECONSTRUCTIONS.—
‘‘(A) IN GENERAL.—For purposes of section 143 and 
this subsection, any qualified GO Zone repair or reconstruc-
tion shall be treated as a qualified rehabilitation. 
‘‘(B) QUALIFIED GO ZONE REPAIR OR RECONSTRUCTION.—
For purposes of subparagraph (A), the term ‘qualified GO 
Zone repair or reconstruction’ means any repair of damage 
caused by Hurricane Katrina, Hurricane Rita, or Hurricane 
Wilma to a building located in the Gulf Opportunity Zone, 
the Rita GO Zone, or the Wilma GO Zone (or reconstruction 
of such building in the case of damage constituting destruc-
tion) if the expenditures for such repair or reconstruction 
are 25 percent or more of the mortgagor’s adjusted basis 
in the residence. For purposes of the preceding sentence, 
the mortgagor’s adjusted basis shall be determined as of 
the completion of the repair or reconstruction or, if later, 
the date on which the mortgagor acquires the residence. 
‘‘(C) TERMINATION.—This paragraph shall apply only 
to owner-financing provided after the date of the enactment 
of this paragraph and before January 1, 2011.’’.
H. R. 2206—85
SEC. 8224. GAO STUDY OF PRACTICES EMPLOYED BY STATE AND 
LOCAL GOVERNMENTS IN ALLOCATING AND UTILIZING 
TAX INCENTIVES PROVIDED PURSUANT TO THE GULF 
OPPORTUNITY ZONE ACT OF 2005. 
(a) IN GENERAL.—The Comptroller General of the United States 
shall conduct a study of the practices employed by State and local 
governments, and subdivisions thereof, in allocating and utilizing 
tax incentives provided pursuant to the Gulf Opportunity Zone 
Act of 2005 and this Act. 
(b) SUBMISSION
OF REPORT.—Not later than one year after 
the date of the enactment of this Act, the Comptroller General 
shall submit a report on the findings of the study conducted under 
subsection (a) and shall include therein recommendations (if any) 
relating to such findings. The report shall be submitted to the 
Committee on Ways and Means of the House of Representatives 
and the Committee on Finance of the Senate. 
(c) CONGRESSIONAL HEARINGS.—In the case that the report 
submitted under this section includes findings of significant fraud, 
waste or abuse, each Committee specified in subsection (b) shall, 
within 60 days after the date the report is submitted under sub-
section (b), hold a public hearing to review such findings. 
Subpart C—Subchapter S Provisions 
SEC. 8231. CAPITAL GAIN OF S CORPORATION NOT TREATED AS PAS-
SIVE INVESTMENT INCOME. 
(a) IN GENERAL.—Section 1362(d)(3) is amended by striking 
subparagraphs (B), (C), (D), (E), and (F) and inserting the following 
new subparagraphs: 
‘‘(B) GROSS
RECEIPTS
FROM
THE
SALES
OF
CERTAIN 
ASSETS.—For purposes of this paragraph—
‘‘(i) in the case of dispositions of capital assets 
(other than stock and securities), gross receipts from 
such dispositions shall be taken into account only to 
the extent of the capital gain net income therefrom, 
and 
‘‘(ii) in the case of sales or exchanges of stock 
or securities, gross receipts shall be taken into account 
only to the extent of the gains therefrom. 
‘‘(C) PASSIVE INVESTMENT INCOME DEFINED.—
‘‘(i) IN
GENERAL.—Except as otherwise provided 
in this subparagraph, the term ‘passive investment 
income’ means gross receipts derived from royalties, 
rents, dividends, interest, and annuities. 
‘‘(ii) EXCEPTION
FOR
INTEREST
ON
NOTES
FROM 
SALES OF INVENTORY.—The term ‘passive investment 
income’ shall not include interest on any obligation 
acquired in the ordinary course of the corporation’s 
trade or business from its sale of property described 
in section 1221(a)(1). 
‘‘(iii) TREATMENT OF CERTAIN LENDING OR FINANCE 
COMPANIES.—If the S corporation meets the require-
ments of section 542(c)(6) for the taxable year, the 
term ‘passive investment income’ shall not include 
gross receipts for the taxable year which are derived 
directly from the active and regular conduct of a
H. R. 2206—86
lending or finance business (as defined in section 
542(d)(1)). 
‘‘(iv) TREATMENT OF CERTAIN DIVIDENDS.—If an S 
corporation holds stock in a C corporation meeting 
the requirements of section 1504(a)(2), the term ‘pas-
sive investment income’ shall not include dividends 
from such C corporation to the extent such dividends 
are attributable to the earnings and profits of such 
C corporation derived from the active conduct of a 
trade or business. 
‘‘(v) EXCEPTION FOR BANKS, ETC.—In the case of 
a bank (as defined in section 581) or a depository 
institution holding company (as defined in section 
3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(w)(1)), the term ‘passive investment income’ shall 
not include—
‘‘(I) interest income earned by such bank or 
company, or 
‘‘(II) dividends on assets required to be held 
by such bank or company, including stock in the 
Federal Reserve Bank, the Federal Home Loan 
Bank, or the Federal Agricultural Mortgage Bank 
or participation certificates issued by a Federal 
Intermediate Credit Bank.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after the date of the enact-
ment of this Act. 
SEC. 8232. TREATMENT OF BANK DIRECTOR SHARES. 
(a) IN GENERAL.—Section 1361 (defining S corporation) is 
amended by adding at the end the following new subsection: 
‘‘(f) RESTRICTED BANK DIRECTOR STOCK.—
‘‘(1) IN GENERAL.—Restricted bank director stock shall not 
be taken into account as outstanding stock of the S corporation 
in applying this subchapter (other than section 1368(f)). 
‘‘(2) RESTRICTED BANK DIRECTOR STOCK.—For purposes of 
this subsection, the term ‘restricted bank director stock’ means 
stock in a bank (as defined in section 581) or a depository 
institution holding company (as defined in section 3(w)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1)), if 
such stock—
‘‘(A) is required to be held by an individual under 
applicable Federal or State law in order to permit such 
individual to serve as a director, and 
‘‘(B) is subject to an agreement with such bank or 
company (or a corporation which controls (within the 
meaning of section 368(c)) such bank or company) pursuant 
to which the holder is required to sell back such stock 
(at the same price as the individual acquired such stock) 
upon ceasing to hold the office of director. 
‘‘(3) CROSS REFERENCE.—
‘‘For treatment of certain distributions with respect to restricted bank director stock, 
see section 1368(f).’’.
(b) DISTRIBUTIONS.—Section 1368 (relating to distributions) is 
amended by adding at the end the following new subsection: 
‘‘(f) RESTRICTED BANK DIRECTOR STOCK.—If a director receives 
a distribution (not in part or full payment in exchange for stock)