I
107TH CONGRESS
2D SESSION
H. R. 5273
To reward the hard work and risk of individuals who choose to live in
and help preserve America’s small, rural towns, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JULY 26, 2002
Mr. CARSON of Oklahoma (for himself and Mr. POMEROY) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means,
and in addition to the Committees on Education and the Workforce, and
Agriculture, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned
A BILL
To reward the hard work and risk of individuals who choose
to live in and help preserve America’s small, rural towns,
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; ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘New Homestead Economic Opportunity Act’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; etc.
TITLE I—NEW HOMESTEAD OPPORTUNITIES
Sec. 101. Loans for leadership initiative.
Sec. 102. Credit for certain rural homebuyers.
Sec. 103. Capital loss deduction allowed with respect to sale or exchange of
principal residence in certain rural areas.
Sec. 104. Individual homestead accounts.
TITLE II—INCENTIVES FOR MAIN STREET BUSINESSES
Sec. 201. Rural investment tax credit.
Sec. 202. Accelerated depreciation for rural investment property.
TITLE III—NEW HOMESTEAD VENTURE CAPITAL FUND
Sec. 301. New homestead venture capital fund.
TITLE I—NEW HOMESTEAD
OPPORTUNITIES
SEC. 101. LOANS FOR LEADERSHIP INITIATIVE.
(a) DEFINITIONS.—In this section:
(1) DEGREE.—The term ‘‘degree’’ means an as-
sociate’s or bachelor’s degree awarded by an institu-
tion of higher education.
(2) INSTITUTION OF HIGHER EDUCATION.—The
term ‘‘institution of higher education’’ has the
meaning given the term in section 101 of the Higher
Education Act of 1965 (20 U.S.C. 1001).
(3) QUALIFYING
COUNTY.—The term ‘quali-
fying county’ means any county which—
(A) is outside a metropolitan statistical
area (defined as such by the Office of Manage-
ment and Budget), and
(B) during the 20-year period ending with
the calendar year preceding the date of enact-
ment of this Act, has a net out-migration of in-
habitants from the county of at least 10 percent
of the population of the county at the beginning
of such period.
(4) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Education.
(b) PROGRAM.—
(1) IN
GENERAL.—The Secretary shall carry
out a program of assuming the obligation to repay,
pursuant to subsection (c), a loan made, insured, or
guaranteed under part B, D, or E of title IV of the
Higher Education Act of 1965 (20 U.S.C. 1071 et
seq., 20 U.S.C. 1087a et seq., and 20 U.S.C.
1087aa et seq.), excluding loans made under section
428B of such Act or comparable loans made under
part D of such Act, for any borrower who—
(A) completes a degree;
(B) resides in a qualifying county; and
(C) is employed in a qualifying county.
(2) REGULATIONS.—The Secretary is author-
ized to prescribe such regulations as may be nec-
essary to carry out the provisions of this section.
(c) LOAN REPAYMENT.—
(1) IN GENERAL.—The Secretary shall assume
the obligation to repay, after each of the first 5
years of the residency and employment described in
subparagraphs (B) and (C) of subsection (b)(1) that
occur after the date of enactment of this section, the
percentage described in paragraph (2) of the total
amount of all loans made to a student under the
provisions of the Higher Education Act of 1965 as
described in subsection (b)(1), up to a maximum
amount of $3,000 each year.
(2) PERCENTAGES.—The percentage of repay-
ment under paragraph (1) shall be—
(A) 7.5 percent of the total amount for
each of the first and second years;
(B) 10 percent of the total amount for
each of the third and fourth years; and
(C) 15 percent of the total amount for the
fifth year.
(3) CONSTRUCTION.—Nothing in this section
shall be construed to authorize the refunding of any
repayment of a loan made under part B, D, or E
of title IV of the Higher Education Act of 1965.
(4) INTEREST.—If a portion of a loan is repaid
by the Secretary under this section for any year, the
proportionate amount of interest on such loan which
accrues for such year shall be repaid by the Sec-
retary so long as the total amount repaid by the
Secretary in any 1 year does not exceed $3,000.
(d) REPAYMENT TO ELIGIBLE LENDERS.—The Sec-
retary shall pay to each eligible lender or holder for each
fiscal year an amount equal to the aggregate amount of
loans which are subject to repayment pursuant to this sec-
tion for such year.
(e) APPLICATION FOR REPAYMENT.—
(1) IN GENERAL.—An eligible borrower desiring
loan repayment under this section shall submit a
complete and accurate application to the Secretary
at such time, in such manner, and containing such
information as the Secretary may require.
(2) CONDITIONS.—An eligible borrower may
apply for loan repayment under this section after
completing each year of qualifying residency and em-
ployment. The eligible borrower shall receive forbear-
ance while engaged in qualifying residency and em-
ployment unless the borrower is in deferment while
so engaged.
(f) DEFINITION OF ELIGIBLE BORROWER.—In this
section the term ‘‘eligible borrower’’ means any borrower
who is not in default on any of the borrower’s student
loans under part B, D, or E of title IV of the Higher
Education Act of 1965.
(g) AUTHORIZATION OF APPROPRIATIONS.—
(1) LOAN REPAYMENT.—There are authorized
to be appropriated to carry out this section such
sums as may be necessary for fiscal year 2002 and
each of the 5 succeeding fiscal years.
(2) PERKINS LOAN FUNDS.—There are author-
ized to be appropriated such sums as may be nec-
essary for fiscal year 2002 and each of the 5 suc-
ceeding fiscal years for Federal capital contributions
to student loan funds established under part E of
title IV of the Higher Education Act of 1965.
(h) REPAYMENT
EXCLUDED
FROM
GROSS
IN-
COME.—Section 108(f)(1) (relating to student loans) is
amended by inserting ‘‘or pursuant to section 101 of the
New Homestead Economic Opportunity Act’’ after ‘‘em-
ployers’’.
SEC. 102. CREDIT FOR CERTAIN RURAL HOMEBUYERS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting before section 26 the fol-
lowing:
‘‘SEC. 25C. PURCHASE OF RESIDENCES BY CERTAIN RURAL
HOMEBUYERS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual who purchases a qualified residence in a quali-
fying county during any taxable year, there shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the lesser of—
‘‘(1) 10 percent of the purchase price of the
residence, or
‘‘(2) $5,000.
‘‘(b) LIMITATIONS.—
‘‘(1) LIMITATION
BASED
ON
AMOUNT
OF
TAX.—The credit allowed under subsection (a) for
any taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under this subpart (other than this section and
section 23) and section 27 for the taxable year.
‘‘(2) MARRIED INDIVIDUALS FILING JOINTLY.—
In the case of a husband and wife who file a joint
return, the credit under this section is allowable only
if the residence is a qualified residence with respect
to both the husband and wife, and the amount speci-
fied under subsection (a)(2) shall apply to the joint
return.
‘‘(3) MARRIED
INDIVIDUALS
FILING
SEPA-
RATELY.—In the case of a married individual filing
a separate return, subsection (a)(2) shall be applied
by substituting ‘$2,500’ for ‘$5,000’.
‘‘(4) OTHER TAXPAYERS.—If 2 or more individ-
uals who are not married purchase a qualified resi-
dence, the amount of the credit allowed under sub-
section (a) shall be allocated among such individuals
in such manner as the Secretary may prescribe, ex-
cept that the total amount of the credits allowed to
all such individuals shall not exceed $5,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED RESIDENCE.—The term ‘quali-
fied residence’ has the same meaning as when used
in section 163(h).
‘‘(2) QUALIFYING COUNTY.—The term ‘quali-
fying county’ means any county which—
‘‘(A) is outside a metropolitan statistical
area (defined as such by the Office of Manage-
ment and Budget), and
‘‘(B) during the 20-year period ending
with the calendar year preceding the date of the
enactment of this section, has a net out-migra-
tion of inhabitants from the county of at least
10 percent of the population of the county at
the beginning of such period.
‘‘(3) PURCHASE AND PURCHASE PRICE.—The
terms ‘purchase’ and ‘purchase price’ have the
meanings provided by section 1400C(e).
‘‘(d) CARRYFORWARD OF UNUSED CREDIT.—If the
credit allowable under subsection (a) for any taxable year
exceeds the limitation imposed by subsection (b)(1) for
such taxable year reduced by the sum of the credits allow-
able under this subpart (other than this section and sec-
tion 23), such excess shall be carried to the succeeding
taxable year and added to the credit allowable under sub-
section (a) for such taxable year.
‘‘(e) REPORTING.—If the Secretary requires informa-
tion reporting under section 6045 by a person described
in subsection (e)(2) thereof to verify the eligibility of tax-
payers for the credit allowable by this section, the excep-
tion provided by section 6045(e)(5) shall not apply.
‘‘(f) RECAPTURE OF CREDIT IN CASE OF CERTAIN
SALES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (5), if the taxpayer disposes of a qualified res-
idence with respect to the purchase of which a credit
was allowed under subsection (a) at any time within
5 years after the date the taxpayer acquired the
property, then the tax imposed under this chapter
for the taxable year in which the disposition occurs
is increased by the credit recapture amount.
‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur-
poses of paragraph (1), the credit recapture amount
is an amount equal to the sum of—
‘‘(A) the applicable recapture percentage of
the amount of the credit allowed to the tax-
payer under this section, plus
‘‘(B) interest at the overpayment rate es-
tablished under section 6621 on the amount de-
termined under subparagraph (A) for each
prior taxable year for the period beginning on
the due date for filing the return for the prior
taxable year involved.
No deduction shall be allowed under this chapter for
interest described in subparagraph (B).
‘‘(3) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
The applicable
recapture
‘‘If the sale occurs in:
percentage is:
Year 1 ........................................................................
100
Year 2 ........................................................................
Year 3 ........................................................................
Year 4 ........................................................................
Year 5 ........................................................................
Years 6 and thereafter ..............................................
0.
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the first day
of the taxable year in which the purchase of the
qualified residence described in subsection (a)
occurs.
‘‘(4) NO CREDITS AGAINST TAX.—Any increase
in tax under this subsection shall not be treated as
a tax imposed by this chapter for purposes of deter-
mining the amount of any credit under this chapter
or for purposes of section 55.
‘‘(5) DEATH OF OWNER; CASUALTY LOSS; IN-
VOLUNTARY CONVERSION; ETC.—The provisions of
paragraph (1) do not apply to—
‘‘(A) a disposition of a qualified residence
made on account of the death of any individual
having a legal or equitable interest therein oc-
curring during the 5-year period to which ref-
erence is made under paragraph (1),
‘‘(B) a disposition of the old qualified resi-
dence if it is substantially or completely de-
stroyed by a casualty described in section
165(c)(3) or compulsorily or involuntarily con-
verted (within the meaning of section 1033(a)),
or
‘‘(C) a disposition pursuant to a settlement
in a divorce or legal separation proceeding
where the qualified residence is sold or the
other spouse retains such residence.
‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section with respect
to the purchase of any residence, the basis of such resi-
dence shall be reduced by the amount of the credit so al-
lowed.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 (relating to
general rule for adjustments to basis) is amended by
striking ‘‘and’’ at the end of paragraph (26), by
striking the period at the end of paragraph (27) and
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(28) in the case of a residence with respect to
which a credit was allowed under section 25C, to the
extent provided in section 25C(g).’’.
(2) Subsection (a) of section 1016 (relating to
general rule for adjustments to basis), as amended
by the Economic Growth and Tax Relief Reconcili-
ation Act of 2001, is amended by striking ‘‘and’’ at
the end of paragraph (27), by striking the period at
the end of paragraph (28) and inserting ‘‘, and’’,
and by adding at the end the following:
‘‘(29) in the case of a residence with respect to
which a credit was allowed under section 25C, to the
extent provided in section 25C(g).’’.
(3) Section 24(b)(3)(B), as added and amended
by the Economic Growth and Tax Relief Reconcili-
ation Act of 2001, is amended by striking ‘‘23 and
25B’’ and inserting ‘‘23, 25B, and 25C’’.
(4) Section 25(e)(1)(C) is amended by striking
‘‘23 and 1400C’’ and by inserting ‘‘23, 25C, and
1400C’’.
(5) Section 25(e)(1)(C), as amended by the
Economic Growth and Tax Relief Reconciliation Act
of 2001, is amended by inserting ‘‘25C,’’ after
‘‘25B,’’.
(6) Section 25B, as added by the Economic
Growth and Tax Relief Reconciliation Act of 2001,
is amended by striking ‘‘section 23’’ and inserting
‘‘sections 23 and 25C’’.
(7) Section 26(a)(1), as amended by the Eco-
nomic Growth and Tax Relief Reconciliation Act of
2001, is amended by striking ‘‘and 25B’’ and insert-
ing ‘‘25B, and 25C’’.
(8) Section 1400C(d) is amended by inserting
‘‘and section 25C’’ after ‘‘this section’’.
(9) Section 1400C(d), as amended by the Eco-
nomic Growth and Tax Relief Reconciliation Act of
2001, is amended by striking ‘‘and 25B’’ and insert-
ing ‘‘25B, and 25C’’.
(10) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting before the item relating to section 26 the fol-
lowing:
‘‘Sec. 25C. Purchase of residences by certain rural homebuyers.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
subsections (a) and (b)(10) shall apply to purchases
after the date of the enactment of this Act, in tax-
able years ending after such date.
(2) TEMPORARY CONFORMING AMENDMENTS.—
The amendments made by paragraphs (1), (4), and
(8) of subsection (b) shall apply to taxable years
ending before January 1, 2002.
(3) PERMANENT CONFORMING AMENDMENTS.—
The amendments made by paragraphs (2), (3), (5),
(6), (7), and (9) of subsection (b) shall apply to tax-
able years beginning after December 31, 2001.
SEC. 103. CAPITAL LOSS DEDUCTION ALLOWED WITH RE-
SPECT TO SALE OR EXCHANGE OF PRINCIPAL
RESIDENCE IN CERTAIN RURAL AREAS.
(a) IN GENERAL.—Subsection (c) of section 165 (re-
lating to limitation on losses of individuals) is amended—
(1) by striking ‘‘and’’ at the end of paragraph
(2),
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; and’’, and
(3) by adding at the end the following:
‘‘(4) losses arising from the sale or exchange of
the principal residence (within the meaning of sec-
tion 121) of the taxpayer located in a qualifying
county (as defined in section 223(b)(2)), but only if
the principal residence was acquired by the taxpayer
after the date of enactment of this paragraph.’’.
(b) CONFORMING AMENDMENT.—Section 67(b)(3) is
amended by striking ‘‘paragraph (2) or (3)’’ and inserting
‘‘paragraph (2), (3), or (4)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales and exchanges after the
date of the enactment of this Act, in taxable years ending
after such date.
SEC. 104. INDIVIDUAL HOMESTEAD ACCOUNTS.
(a) IN GENERAL.—Subchapter F of chapter 1 (relat-
ing to exempt organizations) is amended by adding at the
end the following:
‘‘PART IX—INDIVIDUAL HOMESTEAD ACCOUNTS
‘‘Sec. 530A. Individual homestead accounts.
‘‘SEC. 530A. INDIVIDUAL HOMESTEAD ACCOUNTS.
‘‘(a) GENERAL RULE.—An individual homestead ac-
count shall be exempt from taxation under this subtitle.
Notwithstanding the preceding sentence, any individual
homestead account shall be subject to the taxes imposed
by section 511 (relating to imposition of tax on unrelated
business income of charitable, etc., organizations).
‘‘(b) INDIVIDUAL HOMESTEAD ACCOUNT.—For pur-
poses of this title, the term ‘individual homestead 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 (f)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash;
‘‘(B) contributions will not be accepted for
the taxable year in excess of $2,500 (deter
mined without regard to any contribution made
under subsection (d)); and
‘‘(C) contributions will not be accepted for
any taxable year following the fifth taxable year
in which the qualified individual has contributed
to any individual homestead account.
‘‘(2) The requirements of paragraphs (2)
through (6) of section 408(a) are met.
‘‘(c) QUALIFIED INDIVIDUAL; QUALIFYING COUN-
TY.—For purposes of this section—
‘‘(1) QUALIFIED INDIVIDUAL.—The term ‘quali-
fied individual’ means, for any taxable year, an indi-
vidual who is a bona fide resident of a qualifying
county.
‘‘(2) QUALIFYING COUNTY.—The term ‘quali-
fying county’ means any county which—
‘‘(A) is outside a metropolitan statistical
area (defined as such by the Office of Manage-
ment and Budget), and
‘‘(B) during the 20-year period ending
with the calendar year preceding the date of the
enactment of this section, has a net out-migra-
tion of inhabitants from the county of at least
10 percent of the population of the county at
the beginning of such period.
‘‘(d) MATCHING CONTRIBUTIONS
TO INDIVIDUAL
HOMESTEAD ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into an indi-
vidual Homestead account of each qualified indi-
vidual an amount equal to the applicable percentage
of the sum of the amounts deposited into all of the
individual homestead accounts of such individual
during such taxable year (determined without regard
to any amount contributed under this subsection).
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of this subsection, the applicable percentage with re-
spect to any qualified individual for any taxable year
shall be determined in accordance with the following
tables:
‘‘If modified adjusted gross
income is:
The applicable percentage is:
$30,000 or less .........................................................................
100
Over $30,000 but not over $60,000 ........................................
Over $60,000 but not over $100,000 ......................................
Over $100,000 .........................................................................
zero.
‘‘(ii) In the case of a head of house-
hold (as defined in section 2(b)):
‘‘If modified adjusted gross
income is:
The applicable percentage is:
$22,500 or less .........................................................................
100
Over $22,500 but not over $45,000 ........................................
Over $45,000 but not over $75,000 ........................................
Over $75,000 ...........................................................................
zero.
‘‘(iii) In the case of any other indi-
vidual:
‘‘If modified adjusted gross
income is:
The applicable percentage is:
$15,000 or less .........................................................................
100
Over $15,000 but not over $30,000 ........................................
Over $30,000 but not over $50,000 ........................................
Over $50,000 ...........................................................................
zero.
For purposes of this paragraph, the term ‘modified
adjusted gross income’ has the meaning given such
term by section 86(b)(2).
‘‘(3) EXCLUSION
FROM
INCOME.—Except as
otherwise provided in this section, gross income shall
not include any amount deposited into an individual
homestead account under paragraph (1).
‘‘(4) FORFEITURE
OF
MATCHING
CONTRIBU-
TIONS IN THE CASE OF CERTAIN DISTRIBUTIONS.—
In the event of a distribution from an individual
homestead account before the date described in sub-
section (f)(1)(A) (other than a distribution described
in subsection (e)(2)(A)), the account holder shall
forfeit the corresponding matching contributions and
interest earned on the matching contributions, un-
less such distribution is recontributed to such ac-
count within 6 months of such distribution.
‘‘(e) 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 an in-
dividual homestead account shall be includible in the
gross income of the payee or distributee, as the case
may be, in the manner as provided in section 72.
For purposes of the preceding sentence, distributions
which are includable in gross income shall be treated
as first attributable to amounts contributed under
subsection (d) to the extent thereof.
‘‘(2) EXCLUSION OF CATASTROPHIC MEDICAL
EXPENSE DISTRIBUTIONS IN FIRST FIVE YEARS AND
QUALIFIED INDIVIDUAL HOMESTEAD DISTRIBUTIONS
THEREAFTER.—Paragraph (1) shall not apply to—
‘‘(A) any distribution described in section
72(t)(2)(B) before the date described in sub-
section (f)(1)(A), but only to the extent such
distribution does not exceed the balance in the
account as of the date of such distribution, re-
duced by any matching contribution under sub-
section (d), and
‘‘(B) any qualified individual homestead
distribution.
‘‘(f) QUALIFIED INDIVIDUAL HOMESTEAD DISTRIBU-
TION.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified indi-
vidual homestead distribution’ means any amount
paid or distributed out of an individual homestead
account which would otherwise be includible in gross
income, to the extent that such payment or
distribution—
‘‘(A) is paid or distributed after the 5-tax-
able year period beginning with the first taxable
year in which the qualified individual made a
contribution to the individual homestead ac-
count (including any predecesser account), and
‘‘(B) is used exclusively to pay qualified in-
dividual homestead expenses for the qualified
individual or the spouse or dependent (as de-
fined in section 152) of such individual.
‘‘(2) QUALIFIED INDIVIDUAL HOMESTEAD EX-
PENSES.—The term ‘qualified individual homestead
expenses’ means any of the following:
‘‘(A) Qualified higher education expenses.
‘‘(B) Qualified first-time homebuyer costs.
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ has the meaning
given such term by section 72(t)(7), determined
by treating postsecondary vocational edu-
cational schools as eligible educational institu-
tions.
‘‘(B) POSTSECONDARY VOCATIONAL EDU-
CATION SCHOOL.—The term ‘postsecondary vo-
cational educational school’ means an area vo-
cational education school (as defined in sub-
paragraph (C) or (D) of section 521(4) of the
Carl D. Perkins Vocational and Applied Tech-
nology 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 enactment of this sec-
tion.
‘‘(C) COORDINATION WITH OTHER BENE-
FITS.—The amount of qualified higher edu-
cation expenses for any taxable year shall be re-
duced as provided in section 25A(g)(2).
‘‘(4) 
QUALIFIED
FIRST-TIME
HOMEBUYER
COSTS.—The term ‘qualified first-time homebuyer
costs’ means qualified acquisition costs (as defined
in section 72(t)(8) without regard to subparagraph
(B) thereof) with respect to a principal residence
(within the meaning of section 121) located in a
qualifying county for a qualified first-time home-
buyer (as defined in section 72(t)(8)).
‘‘(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 trade or business
located in a qualifying county other than any
trade or business—
‘‘(i) which consists of the operation of
any 
facility 
described 
in 
section
144(c)(6)(B), or
‘‘(ii) which contravenes any law.
Rules similar to the rules under subsection (b)
or (c) of section 1397C shall apply to any quali-
fied business under this section.
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which meets
such requirements as the Secretary may specify.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
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 an indi-
vidual homestead 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.
‘‘(g) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) 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.
‘‘(2) OTHER RULES TO APPLY.—Rules similar
to the rules of paragraphs (4), (5), and (6) of sec-
tion 408(d) shall apply for purposes of this section.
‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) ALL
ACCOUNTS
TREATED
AS
ONE
AC-
COUNT.—All individual homestead accounts of a
qualified individual shall be treated as 1 account.
‘‘(2) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution to an individual homestead account on
the last day of the preceding taxable year if the con-
tribution is made on account of such taxable year
and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
‘‘(3) CUSTODIAL ACCOUNTS.—Rules similar to
the rules of section 408(h) shall apply.
‘‘(4) REPORTS.—The trustee of an individual
homestead account shall make such reports regard-
ing such account to the Secretary and to the indi-
vidual for whom the account is maintained with re-
spect to contributions (and the years to which they
relate), distributions, and such other matters as the
Secretary may require under regulations. The re-
ports required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations; and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate; and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(5) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply.
‘‘(i) DESIGNATION OF EARNED INCOME TAX CREDIT
PAYMENTS FOR DEPOSIT TO INDIVIDUAL HOMESTEAD
ACCOUNT.—
‘‘(1) IN GENERAL.—With respect to the return
of any qualified individual 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 an individual
homestead account of such individual. The Secretary
shall so deposit such portion designated under this
subsection.
‘‘(2) MANNER AND TIME OF DESIGNATION.—A
designation under paragraph (1) may be made with
respect to any taxable year—
‘‘(A) at the time of filing the return of the
tax imposed by this chapter for such taxable
year, or
‘‘(B) at any other time (after the time of
filing the return of the tax imposed by this
chapter for such taxable year) specified in regu-
lations prescribed by the Secretary.
Such designation shall be made in such manner as
the Secretary prescribes by regulations.
‘‘(3) PORTION ATTRIBUTABLE TO EARNED IN-
COME
TAX
CREDIT.—For purposes of this sub-
section, an overpayment for any taxable year shall
be treated as attributable to the earned income tax
credit to the extent that such overpayment does not
exceed the credit allowed to the taxpayer under sec-
tion 32 for such taxable year.
‘‘(4) 
OVERPAYMENTS
TREATED
AS
RE-
FUNDED.—For purposes of this title, any portion of
an overpayment of tax designated under paragraph
(1) shall be treated as being refunded to the tax-
payer as of the last date prescribed for filing the re-
turn of tax imposed by this chapter (determined
without regard to extensions) or, if later, the date
the return is filed.
‘‘(j) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED INDIVIDUAL HOMESTEAD EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from an individual homestead account and is
not used exclusively to pay qualified individual
homestead expenses for the holder of the account or
the spouse or dependent (as defined in section 152)
of such holder, the tax imposed by this chapter for
the taxable year of such distribution shall be in-
creased by 10 percent of such amount which is in-
cludible in gross income. For purposes of the pre-
ceding sentence, distributions which are includable
in gross income shall be treated as first attributable
to amounts contributed under subsection (d) to the
extent thereof.
‘‘(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 to a beneficiary (or the estate
of the account holder) on or after the death of
the account holder,
‘‘(C) attributable to the account holder’s
being disabled within the meaning of section
72(m)(7), or
‘‘(D) described in subsection (e)(2)(A).
‘‘(k) APPLICATION OF SECTION.—This section shall
apply to amounts paid to an individual homestead account
for any taxable year beginning after December 31, 2001.’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) TAX IMPOSED.—Subsection (a) of section
4973 is amended by striking ‘‘or’’ at the end of
paragraph (3), adding ‘‘or’’ at the end of paragraph
(4), and inserting after paragraph (4) the following:
‘‘(5) an individual homestead account (within
the meaning of section 530A(b)),’’.
(2) EXCESS CONTRIBUTIONS.—Section 4973 is
amended by adding at the end the following:
‘‘(g) INDIVIDUAL HOMESTEAD ACCOUNTS.—For pur-
poses of this section, in the case of individual homestead
accounts, 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 accounts (other than a quali-
fied rollover, as defined in section 530A(f)(7),
or a contribution under section 530A(d)), over
‘‘(B) the amount allowable under section
530A for such contributions; and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year reduced by the
sum of—
‘‘(A) the distributions out of the accounts
for the taxable year which were included in the
gross income of the payee under section
530A(e)(1);
‘‘(B) the distributions out of the accounts
for the taxable year to which rules similar to
the rules of section 408(d)(5) apply by reason
of section 530A(g)(2); and
‘‘(C) the excess (if any) of the maximum
amount allowable as a contribution under sec-
tion 530A for the taxable year over the amount
contributed to the account for the taxable year
(other than a contribution under section
530A(d)).
For purposes of this subsection, any contribution which
is distributed from the individual homestead account in
a distribution to which rules similar to the rules of section
408(d)(4) apply by reason of section 530A(g)(2) shall be
treated as an amount not contributed.’’.
(c) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 is amended—
(1) by adding at the end of subsection (c) the
following:
‘‘(6) SPECIAL
RULE
FOR
INDIVIDUAL
HOME-
STEAD ACCOUNTS.—An individual for whose benefit
an individual homestead 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 respect to such transaction, the account ceases
to be an individual homestead account by reason of
the application of section 530A(g)(1) to such ac-
count.’’; and
(2) in subsection (e)(1), by striking ‘‘or’’ at the
end of subparagraph (E), by redesignating subpara-
graph (F) as subparagraph (G), and by inserting
after subparagraph (E) the following:
‘‘(F) an individual homestead account de-
scribed in section 530A(b), or’’.
(d) INFORMATION RELATING TO CERTAIN TRUSTS
AND ANNUITY PLANS.—Subsection (c) of section 6047 is
amended—
(1) by inserting ‘‘or section 530A’’ after ‘‘sec-
tion 219’’; and
(2) by inserting ‘‘, of any individual homestead
account described in section 530A(b),’’, after ‘‘sec-
tion 408(a)’’.
(e) INSPECTION OF APPLICATIONS FOR TAX EXEMP-
TION.—Clause (i) of section 6104(a)(1)(B) is amended by
inserting ‘‘an individual homestead account described in
section 530A(b),’’ after ‘‘section 408(a),’’.
(f) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL
HOMESTEAD
ACCOUNTS.—Paragraph (2) of section
6693(a) is amended by striking ‘‘and’’ at the end of sub-
paragraph (C), by striking the period and inserting ‘‘,
and’’ at the end of subparagraph (D), and by adding at
the end the following:
‘‘(E) section 530A(h)(4) (relating to indi-
vidual homestead accounts).’’.
(g) CLERICAL AMENDMENT.—The table of parts for
subchapter F of chapter 1 is amended by adding at the
end the following:
‘‘Part IX. Individual homestead accounts.’’.
TITLE II—INCENTIVES FOR MAIN
STREET BUSINESSES
SEC. 201. RURAL INVESTMENT TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by adding at the end the following:
‘‘SEC. 42A. RURAL INVESTMENT CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the rural investment credit determined under
this section for any taxable year in the credit period shall
be an amount equal to the applicable percentage of the
eligible basis of each qualified rural investment building.
‘‘(b) APPLICABLE
PERCENTAGE: 
PERCENT
PRESENT VALUE CREDIT FOR NEW BUILDINGS; 30 PER-
CENT PRESENT VALUE CREDIT FOR EXISTING BUILD-
INGS.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘applicable per-
centage’ means the appropriate percentage pre-
scribed by the Secretary for the earlier of—
‘‘(A) the first month of the credit period
with respect to a rural investment building, or
‘‘(B) at the election of the taxpayer, the
month in which the taxpayer and the rural in-
vestment credit agency enter into an agreement
with respect to such building (which is binding
on such agency, the taxpayer, and all successors
in interest) as to the rural investment credit
dollar amount to be allocated to such building.
A month may be elected under subparagraph (B)
only if the election is made not later than the 5th
day after the close of such month. Such an election,
once made, shall be irrevocable.
‘‘(2) METHOD
OF
PRESCRIBING
PERCENT-
AGES.—The percentages prescribed by the Secretary
for any month shall be percentages which will yield
over a 10-year period amounts of credit under sub-
section (a) which have a present value equal to—
‘‘(A) 70 percent of the eligible basis of a
new building, and
‘‘(B) 30 percent of the eligible basis of an
existing building.
‘‘(3) METHOD OF DISCOUNTING.—The present
value under paragraph (2) shall be determined—
‘‘(A) as of the last day of the 1st year of
the 10-year period referred to in paragraph (2),
‘‘(B) by using a discount rate equal to 72
percent of the average of the annual Federal
mid-term rate and the annual Federal long-
term rate applicable under section 1274(d)(1)
to the month applicable under subparagraph
(A) or (B) of paragraph (1) and compounded
annually, and
‘‘(C) by assuming that the credit allowable
under this section for any year is received on
the last day of such year.
‘‘(c) ELIGIBLE BASIS; QUALIFIED RURAL INVEST-
MENT BUILDING.—For purposes of this section—
‘‘(1) ELIGIBLE BASIS.—
‘‘(A) IN GENERAL.—The eligible basis of
any qualified rural investment building for any
taxable year shall be determined under rules
similar to the rules under section 42(d), except
that—
‘‘(i) the determination of the adjusted
basis of any building shall be made as of
the beginning of the credit period, and
‘‘(ii) such basis shall include develop-
ment costs properly attributable to such
building.
‘‘(B) DEVELOPMENT
COSTS.—For pur-
poses of subparagraph (A)(ii), the term ‘devel-
opment costs’ includes—
‘‘(i) site preparation costs,
‘‘(ii) State and local impact fees,
‘‘(iii) reasonable development costs,
‘‘(iv) professional fees related to basis
items,
‘‘(v) construction financing costs re-
lated to basis items other than land, and
‘‘(vi) on-site and adjacent improve-
ments required by State and local govern-
ments.
‘‘(2) QUALIFIED
RURAL
INVESTMENT
BUILD-
ING.—The term ‘qualified rural investment building’
means any building which is part of a qualified rural
investment project at all times during the period—
‘‘(A) beginning on the 1st day in the com-
pliance period on which such building is part of
such an investment project, and
‘‘(B) ending on the last day of the compli-
ance period with respect to such building.
‘‘(d) REHABILITATION EXPENDITURES TREATED AS
SEPARATE NEW BUILDING.—Rehabilitation expenditures
paid or incurred by the taxpayer with respect to any build-
ing shall be treated for purposes of this section as a sepa-
rate new building under the rules of section 42(e).
‘‘(e) DEFINITION AND SPECIAL RULES RELATING TO
CREDIT PERIOD.—
‘‘(1) CREDIT PERIOD DEFINED.—For purposes
of this section, the term ‘credit period’ means, with
respect to any building, the period of 10 taxable
years beginning with the taxable year in which the
building is first placed in service.
‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT
PERIOD.—
‘‘(A) IN GENERAL.—The credit allowable
under subsection (a) with respect to any build-
ing for the 1st taxable year of the credit period
shall be determined by multiplying such credit
by the fraction—
‘‘(i) the numerator of which is the
number of full months of such year during
which such building was in service, and
‘‘(ii) the denominator of which is 12.
‘‘(B) DISALLOWED 1ST YEAR CREDIT AL-
LOWED IN 11TH YEAR.—Any reduction by rea-
son of subparagraph (A) in the credit allowable
(without regard to subparagraph (A)) for the
1st taxable year of the credit period shall be al-
lowable under subsection (a) for the 1st taxable
year following the credit period.
‘‘(3) CREDIT PERIOD FOR EXISTING BUILDINGS
NOT
TO
BEGIN
BEFORE
REHABILITATION
CREDIT
ALLOWED.—The credit period for an existing build-
ing shall not begin before the 1st taxable year of the
credit period for rehabilitation expenditures with re-
spect to the building.
‘‘(f) QUALIFIED
RURAL
INVESTMENT
PROJECT;
QUALIFYING COUNTY.—For purposes of this section—
‘‘(1) 
QUALIFIED
RURAL
INVESTMENT
PROJECT.—The term ‘qualified rural investment
project’ means any investment project of 1 or more
qualified rural investment buildings located in a
qualifying county (and, if necessary to the project,
any contiguous county) and selected by the State ac-
cording to its qualified rural investment plan.
‘‘(2) QUALIFYING COUNTY.—The term ‘quali-
fying county’ means any county which—
‘‘(A) is outside a metropolitan statistical
area (defined as such by the Office of Manage-
ment and Budget), and
‘‘(B) during the 20-year period ending
with the calendar year preceding the date of the
enactment of this section, has a net out-migra-
tion of inhabitants from the county of at least
10 percent of the population of the county at
the beginning of such period.
‘‘(g) LIMITATION ON AGGREGATE CREDIT ALLOW-
ABLE WITH RESPECT TO INVESTMENT PROJECTS LO-
CATED IN A STATE.—
‘‘(1) CREDIT
MAY
NOT
EXCEED
CREDIT
AMOUNT ALLOCATED TO BUILDING.—The amount of
the credit determined under this section for any tax-
able year with respect to any building shall not ex-
ceed the rural investment credit dollar amount allo-
cated to such building under rules similar to the
rules of section 42(h)(1).
‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY
TO ALL TAXABLE YEARS ENDING DURING OR AFTER
CREDIT ALLOCATION YEAR.—Any rural investment
credit dollar amount allocated to any building for
any calendar year—
‘‘(A) shall apply to such building for all
taxable years in the credit period ending during
or after such calendar year, and
‘‘(B) shall reduce the aggregate rural in-
vestment credit dollar amount of the allocating
agency only for such calendar year.
‘‘(3) RURAL
INVESTMENT
CREDIT
DOLLAR
AMOUNT FOR AGENCIES.—
‘‘(A) IN GENERAL.—The aggregate rural
investment credit dollar amount which a rural
investment credit agency may allocate for any
calendar year is the portion of the State rural
investment credit ceiling allocated under this
paragraph for such calendar year to such agen-
cy.
‘‘(B) STATE
CEILING
INITIALLY
ALLO-
CATED TO STATE RURAL INVESTMENT CREDIT
AGENCIES.—Except as provided in subpara-
graphs (D) and (E), the State rural investment
credit ceiling for each calendar year shall be al-
located to the rural investment credit agency of
such State. If there is more than 1 rural invest-
ment credit agency of a State, all such agencies
shall be treated as a single agency.
‘‘(C) STATE RURAL INVESTMENT CREDIT
CEILING.—The State rural investment credit
ceiling applicable to any State and any calendar
year shall be an amount equal to the sum of—
‘‘(i) the unused State rural investment
credit ceiling (if any) of such State for the
preceding calendar year,
‘‘(ii) $1,000,000 for each qualifying
county in the State,
‘‘(iii) the amount of State rural in-
vestment credit ceiling returned in the cal-
endar year, plus
‘‘(iv) the amount (if any) allocated
under subparagraph (D) to such State by
the Secretary.
For purposes of clause (i), the unused State
rural investment credit ceiling for any calendar
year is the excess (if any) of the sum of the
amounts described in clauses (ii) through (iv)
over the aggregate rural investment credit dol-
lar amount allocated for such year. For pur-
poses of clause (iii), the amount of State rural
investment credit ceiling returned in the cal-
endar year equals the rural investment credit
dollar amount previously allocated within the
State to any investment project which fails to
meet the 10 percent test under section
42(h)(1)(E)(ii) on a date after the close of the
calendar year in which the allocation was made
or which does not become a qualified rural in-
vestment project within the period required by
this section or the terms of the allocation or to
any investment project with respect to which an
allocation is canceled by mutual consent of the
rural investment credit agency and the alloca-
tion recipient.
‘‘(D) UNUSED RURAL INVESTMENT CREDIT
CARRYOVERS
ALLOCATED
AMONG
CERTAIN
STATES.—
‘‘(i) IN GENERAL.—The unused rural
investment credit carryover of a State for
any calendar year shall be assigned to the
Secretary for allocation among qualified
States for the succeeding calendar year.
‘‘(ii) UNUSED
RURAL
INVESTMENT
CREDIT CARRYOVER.—For purposes of this
subparagraph, the unused rural investment
credit carryover of a State for any calendar
year is the excess (if any) of the unused
State rural investment credit ceiling for
such year (as defined in subparagraph
(C)(i)) over the excess (if any) of —
‘‘(I) the unused State rural in-
vestment credit ceiling for the year
preceding such year, over
‘‘(II) the aggregate rural invest-
ment credit dollar amount allocated
for such year.
‘‘(iii) FORMULA FOR ALLOCATION OF
UNUSED
RURAL
INVESTMENT
CREDIT
CARRYOVERS
AMONG
QUALIFIED
STATES.—The amount allocated under this
subparagraph to a qualified State for any
calendar year shall be the amount deter-
mined by the Secretary to bear the same
ratio to the aggregate unused rural invest-
ment credit carryovers of all States for the
preceding calendar year as such State’s
population for the calendar year bears to
the population of all qualified States for
the calendar year. For purposes of the pre-
ceding sentence, population shall be deter-
mined in accordance with section 146(j).
‘‘(iv) QUALIFIED
STATE.—For pur-
poses of this subparagraph, the term
‘qualified State’ means, with respect to a
calendar year, any State—
‘‘(I) which allocated its entire
State rural investment credit ceiling
for the preceding calendar year, and
‘‘(II) for which a request is made
(not later than May 1 of the calendar
year) to receive an allocation under
clause (iii).
‘‘(E) STATE
MAY
PROVIDE
FOR
DIF-
FERENT
ALLOCATION.—Rules similar to the
rules of section 146(e) (other than paragraph
(2)(B) thereof) shall apply for purposes of this
paragraph.
‘‘(F) POPULATION.—For purposes of this
paragraph, population shall be determined in
accordance with section 146(j).
‘‘(G) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of a
calendar year after 2002, the $1,000,000
amount in subparagraph (C) shall be in-
creased by an amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjust-
ment 
determined 
under 
section
1(f )(3) for such calendar year by sub-
stituting ‘calendar year 2001’ for ‘cal-
endar year 1992’ in subparagraph (B)
thereof.
‘‘(ii) ROUNDING.—Any increase under
clause (i) which is not a multiple of $5,000
shall be rounded to the next lowest mul-
tiple of $5,000.
‘‘(4) PORTION
OF
STATE
CEILING
SET-ASIDE
FOR
CERTAIN
INVESTMENT
PROJECTS
INVOLVING
QUALIFIED NONPROFIT ORGANIZATIONS.—
‘‘(A) IN GENERAL.—At least 10 percent of
the State rural investment credit ceiling for any
State for any calendar year shall be allocated to
qualified rural investment projects described in
subparagraph (B).
‘‘(B) INVESTMENT
PROJECTS
INVOLVING
QUALIFIED
NONPROFIT
ORGANIZATIONS.—For
purposes of subparagraph (A), a qualified rural
investment project is described in this subpara-
graph if a qualified nonprofit organization is to
materially participate (within the meaning of
section 469(h)) in the development and oper-
ation of the investment project throughout the
compliance period.
‘‘(C) QUALIFIED
NONPROFIT
ORGANIZA-
TION.—For purposes of this paragraph, the
term ‘qualified nonprofit organization’ means
any organization if—
‘‘(i) such organization is described in
any paragraph of section 501(c) and is ex-
empt from tax under section 501(a),
‘‘(ii) such organization is determined
by the State rural investment credit agency
not to be affiliated with or controlled by a
for-profit organization; and
‘‘(iii) 1 of the exempt purposes of
such organization includes the fostering of
rural investment.
‘‘(D) TREATMENT
OF
CERTAIN
SUBSIDI-
ARIES.—
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, a qualified nonprofit orga-
nization shall be treated as satisfying the
ownership and material participation test
of subparagraph (B) if any qualified cor-
poration in which such organization holds
stock satisfies such test.
‘‘(ii) QUALIFIED CORPORATION.—For
purposes of clause (i), the term ‘qualified
corporation’ means any corporation if 100
percent of the stock of such corporation is
held by 1 or more qualified nonprofit orga-
nizations at all times during the period
such corporation is in existence.
‘‘(E) STATE
MAY
NOT
OVERRIDE
SET-
ASIDE.—Nothing in subparagraph (F) of para-
graph (3) shall be construed to permit a State
not to comply with subparagraph (A) of this
paragraph.
‘‘(F) CREDITS FOR QUALIFIED NONPROFIT
ORGANIZATIONS.—
‘‘(A) ALLOWANCE OF CREDIT.—Any credit
which would be allowable under subsection (a)
with respect to a qualified rural investment
building of a qualified nonprofit organization if
such organization were not exempt from tax
under this chapter shall be treated as a credit
allowable under subpart C to such organization.
‘‘(B) USE OF CREDIT.—A qualified non-
profit organization may assign, trade, sell, or
otherwise transfer any credit allowable to such
organization under subparagraph (A) to any
taxpayer.
‘‘(C) CREDIT
NOT
INCOME.—A transfer
under subparagraph (B) of any credit allowable
under subparagraph (A) shall not result in in-
come for purposes of section 511.
‘‘(5) SPECIAL RULES.—
‘‘(A) BUILDING MUST BE LOCATED WITH-
IN JURISDICTION OF CREDIT AGENCY.—A rural
investment credit agency may allocate its aggre-
gate rural investment credit dollar amount only
to buildings located in the jurisdiction of the
governmental unit of which such agency is a
part.
‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF
LIMIT.—If the aggregate rural investment cred-
it dollar amounts allocated by a rural invest-
ment credit agency for any calendar year exceed
the portion of the State rural investment credit
ceiling allocated to such agency for such cal-
endar year, the rural investment credit dollar
amounts so allocated shall be reduced (to the
extent of such excess) for buildings in the re-
verse of the order in which the allocations of
such amounts were made.
‘‘(C) CREDIT
REDUCED
IF
ALLOCATED
CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT
WHICH WOULD BE ALLOWABLE WITHOUT RE-
GARD TO SALES CONVENTION, ETC.—
‘‘(i) IN
GENERAL.—The amount of
the credit determined under this section
with respect to any building shall not ex-
ceed the clause (ii) percentage of the
amount of the credit which would (but for
this subparagraph) be determined under
this section with respect to such building.
‘‘(ii) DETERMINATION
OF
PERCENT-
AGE.—For purposes of clause (i), the
clause (ii) percentage with respect to any
building is the percentage which—
‘‘(I) the rural investment credit
dollar amount allocated to such build-
ing bears to
‘‘(II) the credit amount deter-
mined in accordance with clause (iii).
‘‘(iii) DETERMINATION
OF
CREDIT
AMOUNT.—The credit amount determined
in accordance with this clause is the
amount of the credit which would (but for
this subparagraph) be determined under
this section with respect to the building if
this section were applied without regard to
paragraph (2)(A) of subsection (e).
‘‘(D) RURAL INVESTMENT CREDIT AGENCY
TO
SPECIFY
APPLICABLE
PERCENTAGE
AND
MAXIMUM
ELIGIBLE
BASIS.—In allocating a
rural investment credit dollar amount to any
building, the rural investment credit agency
shall specify the applicable percentage and the
maximum eligible basis which may be taken
into account under this section with respect to
such building. The applicable percentage and
maximum eligible basis so specified shall not ex-
ceed the applicable percentage and eligible basis
determined under this section without regard to
this subsection.
‘‘(6) OTHER
DEFINITIONS.—For purposes of
this subsection—
‘‘(A) RURAL INVESTMENT CREDIT AGEN-
CY.—The term ‘rural investment credit agency’
means any agency authorized to carry out this
subsection.
‘‘(B) 
POSSESSIONS
TREATED
AS
STATES.—The term ‘State’ includes a posses-
sion of the United States.
‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) COMPLIANCE PERIOD.—The term ‘compli-
ance period’ means, with respect to any building, the
period of 10 taxable years beginning with the 1st
taxable year of the credit period with respect there-
to.
‘‘(2) NEW BUILDING.—The term ‘new building’
means a building the original use of which begins
with the taxpayer.
‘‘(3) EXISTING BUILDING.—The term ‘existing
building’ means any building which is not a new
building.
‘‘(4) APPLICATION TO ESTATES AND TRUSTS.—
In the case of an estate or trust, the amount of the
credit determined under subsection (a) and any in-
crease in tax under subsection (i) shall be appor-
tioned between the estate or trust and the bene-
ficiaries on the basis of the income of the estate or
trust allocable to each.
‘‘(i) RECAPTURE OF CREDIT.—If—
‘‘(1) as of the close of any taxable year in the
compliance period, the amount of the eligible basis
of any building with respect to the taxpayer is less
than
‘‘(2) the amount of such basis as of the close
of the preceding taxable year,
then the taxpayer’s tax under this chapter for the
taxable year shall be increased by the credit recap-
ture amount determined under rules similar to the
rules of section 42(j).
‘‘(j) CERTIFICATIONS AND OTHER REPORTS TO SEC-
RETARY.—
‘‘(1) CERTIFICATION
WITH
RESPECT
TO
1ST
YEAR OF CREDIT PERIOD.—Following the close of
the 1st taxable year in the credit period with respect
to any qualified rural investment building, the tax-
payer shall certify to the Secretary (at such time
and in such form and in such manner as the Sec-
retary prescribes)—
‘‘(A) the taxable year, and calendar year,
in which such building was first placed in serv-
ice,
‘‘(B) the eligible basis of such building as
of the beginning of the credit period,
‘‘(C) the maximum applicable percentage
and eligible basis permitted to be taken into ac-
count by the appropriate rural investment cred-
it agency under subsection (g),
‘‘(D) the election made under subsection
(f) with respect to the qualified rural invest-
ment project of which such building is a part,
and
‘‘(3) ANNUAL REPORTS FROM RURAL INVEST-
MENT CREDIT AGENCIES.—Each agency which allo-
cates any rural investment credit amount to any
building for any calendar year shall submit to the
Secretary (at such time and in such manner as the
Secretary 
shall 
prescribe) 
an 
annual 
report
specifying—
‘‘(A) the amount of rural investment credit
amount allocated to each building for such year,
‘‘(B) sufficient information to identify each
such building and the taxpayer with respect
thereto, and
‘‘(C) such other information as the Sec-
retary may require.
The penalty under section 6652(j) shall apply to any
failure to submit the report required by the pre-
ceding sentence on the date prescribed therefor.
‘‘(k) RESPONSIBILITIES
OF RURAL INVESTMENT
CREDIT AGENCIES.—
‘‘(1) PLANS
FOR
ALLOCATION
OF
CREDIT
AMONG INVESTMENT PROJECTS.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of this section, the rural invest-
ment credit dollar amount with respect to any
building shall be zero unless—
‘‘(i) such amount was allocated pursu-
ant to a qualified rural investment plan of
the agency which is approved by the gov-
ernmental unit (in accordance with rules
similar to the rules of section 147(f)(2)
(other than subparagraph (B)(ii) thereof))
of which such agency is a part,
‘‘(ii) such agency notifies the chief ex-
ecutive officer (or the equivalent) of the
local jurisdiction within which the building
is located of such investment project and
provides such individual a reasonable op-
portunity to comment on the investment
project,
‘‘(iii) a comprehensive market study
of the development needs of individuals in
the qualifying county to be served by the
investment project is conducted before the
credit allocation is made and at the devel-
oper’s expense by a disinterested party who
is approved by such agency, and
‘‘(iv) a written explanation is available
to the general public for any allocation of
a rural investment credit dollar amount
which is not made in accordance with es-
tablished priorities and selection criteria of
the rural investment credit agency.
‘‘(B) 
QUALIFIED
RURAL
INVESTMENT
PLAN.—For purposes of this section, the term
‘qualified rural investment plan’ means any
plan—
‘‘(i) which sets forth selection criteria
to be used to determine priorities of the
rural investment credit agency which are
appropriate to qualifying counties,
‘‘(ii) which also gives preference in al-
locating rural investment credit dollar
amounts 
among 
selected 
investment
projects to—
‘‘(I) investment projects that tar-
get those small rural counties with
consistently high rates of net out-mi-
gration,
‘‘(II) investment projects that
link the economic development and job
creation efforts of 2 or more small
rural counties with high rates of net
out-migration, and
‘‘(III) investment projects that
link the economic development and job
creation efforts of 1 or more small
rural counties in the State with high
rates of net out-migration to related
efforts in regions of such State experi-
encing economic growth, and
‘‘(iii) which provides a procedure that
the agency (or an agent or other private
contractor of such agency) will follow in
monitoring for noncompliance with the
provisions of this section and in notifying
the Internal Revenue Service of such non-
compliance which such agency becomes
aware of and in monitoring for noncompli-
ance through regular site visits.
‘‘(C) CERTAIN SELECTION CRITERIA MUST
BE USED.—The selection criteria set forth in a
qualified rural investment plan must include—
‘‘(i) investment project location,
‘‘(ii) technology and transportation in-
frastructure needs, and
‘‘(vi) private development trends.
‘‘(2) CREDIT ALLOCATED TO BUILDING NOT TO
EXCEED AMOUNT NECESSARY TO ASSURE INVEST-
MENT PROJECT FEASIBILITY.—
‘‘(A) IN GENERAL.—The rural investment
credit dollar amount allocated to an investment
project shall not exceed the amount the rural
investment credit agency determines is nec-
essary for the financial feasibility of the invest-
ment project and its viability as a qualified
rural investment project throughout the compli-
ance period.
‘‘(B) AGENCY
EVALUATION.—In making
the determination under subparagraph (A), the
rural investment credit agency shall consider—
‘‘(i) the sources and uses of funds and
the total financing planned for the invest-
ment project,
‘‘(ii) any proceeds or receipts expected
to be generated by reason of tax benefits,
‘‘(iii) the percentage of the rural in-
vestment credit dollar amount used for in-
vestment project costs other than the cost
of intermediaries, and
‘‘(iv) the reasonableness of the devel-
opmental and operational costs of the in-
vestment project.