I
103D CONGRESS
1ST SESSION
H. R. 1950
To provide assistance to families, enhance economic growth and opportunity,
and advance education reform.
IN THE HOUSE OF REPRESENTATIVES
APRIL 29, 1993
Mr. WOLF (for himself, Mr. ALLARD, Mr. ARMEY, Mr. KINGSTON, and Mr.
LEVY) introduced the following bill; which was referred jointly to the
Committees on Ways and Means, Education and Labor, and the Judici-
ary
AUGUST 2, 1993
Additional sponsors: Mr. HUTCHINSON, Mr. BARTLETT of Maryland, Mr.
HYDE, Mr. KING, Mr. PAXON, Mr. TAYLOR of North Carolina, Mr. DOR-
NAN, Mr. LIGHTFOOT, Mr. CRAPO, Mr. GALLEGLY, Mr. DUNCAN, Mr.
GINGRICH, Mr. PACKARD, Mr. LIPINSKI, Mr. GREENWOOD, Mr. HUNTER,
Mr. BAKER of California, Mr. BURTON of Indiana, Mr. POMBO, Mr. DOO-
LITTLE, Mr. SENSENBRENNER, Mr. ISTOOK, and Mr. INHOFE
A BILL
To provide assistance to families, enhance economic growth
and opportunity, and advance education reform.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as ‘‘The
Family and Economic Recovery 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.
TITLE I—TAX RELIEF FOR
FAMILIES
SEC. 101. TAX CREDIT FOR CHILDREN.
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to foreign tax credit, etc.)
is amended by adding at the end thereof the following new
section:
‘‘SEC. 30A. CREDIT FOR CHILDREN.
‘‘(a) GENERAL RULE.—In the case of an eligible indi-
vidual, there shall be allowed as a credit against the tax
imposed by this chapter and chapter 21 for the taxable
year an amount equal to $600 multiplied by the number
of qualifying children of the taxpayer who have not at-
tained the age of 19 as of the close of the calendar year
in which the taxable year of the taxpayer begins.
‘‘(b) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed by subsection (a) for a taxable year shall
not exceed the excess (if any) of—
‘‘(1) the sum of the regular tax (reduced by the
sum of the credits allowable under subpart A and
section 32) and the tax imposed by chapter 21, over
‘‘(2) the tentative minimum tax,
for the taxable year.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ has the meaning given to such term by
section 32(c)(1) (determined without regard to sub-
paragraph (B) thereof).
‘‘(2) QUALIFYING CHILD.—The term ‘qualifying
child’ has the meaning given to such term by section
32(c)(3) (determined without regard to subpara-
graphs (C) and (E) thereof).
‘‘(3) CERTAIN
OTHER
RULES
APPLY.—Sub-
sections (d) and (e) of section 32 shall apply.’’
(b) DENIAL OF DOUBLE BENEFIT.—Subparagraph
(A) of section 21(b)(1) (defining qualifying individual) is
amended by inserting ‘‘(other than an individual described
in section 30A(a))’’ after ‘‘taxpayer’’.
(c) CONFORMING AMENDMENT.—The table of sec-
tions for such subpart B is amended by adding at the end
thereof the following new item:
‘‘Sec. 30A. Credit for children.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 102. REFUNDABLE CREDIT FOR ADOPTION EXPENSES.
(a) CREDIT FOR ADOPTION EXPENSES.—
(1) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 (relating to refundable cred-
its) is amended by redesignating section 35 as sec-
tion 36 and by inserting after section 34 the follow-
ing new section:
‘‘SEC. 35. ADOPTION EXPENSES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax
imposed by this subtitle for the taxable year the amount
of the qualified adoption expenses paid or incurred by the
taxpayer during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR
LIMITATION.—The aggregate
amount of qualified adoption expenses which may be
taken into account under subsection (a) with respect
to the adoption of a child shall not exceed $5,000.
‘‘(2) INCOME LIMITATION.—The amount allow-
able as a credit under subsection (a) for any taxable
year shall be reduced (but not below zero) by an
amount which bears the same ratio to the amount
so allowable (determined without regard to this
paragraph but with regard to paragraph (1)) as—
‘‘(A) the amount (if any) by which the tax-
payer’s adjusted gross income exceeds $60,000,
bears to
‘‘(B) $40,000.
For purposes of this paragraph, adjusted gross in-
come shall be determined without regard to section
136.
‘‘(3) DENIAL OF DOUBLE BENEFIT.—
‘‘(A) IN GENERAL.—No credit shall be al-
lowed under subsection (a) for any expense for
which a deduction or credit is allowable under
any other provision of this chapter.
‘‘(B) GRANTS.—No credit shall be allowed
under subsection (a) for any expenses paid from
any funds received under any Federal, State, or
local program.
‘‘(c) QUALIFIED ADOPTION EXPENSES.—For pur-
poses of this section, the term ‘qualified adoption ex-
penses’ means reasonable and necessary adoption fees,
court costs, attorney fees, and other expenses which are
directly related to the legal adoption of a child by the tax-
payer and which are not incurred in violation of State or
Federal law or in carrying out any surrogate parenting
arrangement. The term ‘qualified adoption expenses’ shall
not include any expenses in connection with the adoption
by an individual of a child who is the child of such individ-
ual’s spouse.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for such subpart C is amended by striking the
last item and inserting the following:
‘‘Sec. 35. Adoption expenses.
‘‘Sec. 36. Overpayments of tax.’’
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to taxable years beginning after
December 31, 1993.
TITLE II—FAMILY SAVINGS
INCENTIVES
Subtitle 
A—Increase 
in 
Income
Limitations for Deductible IRA
Contributions; Increase in IRA
Contribution 
Limits; 
Penalty-
Free 
Withdrawals 
for 
Home
Ownership, 
Education, 
and
Medical Expenses
SEC. 201. INCREASE IN INCOME LIMITATIONS.
(a) IN GENERAL.—Subparagraph (B) of section
219(g)(3) is amended—
(1) by striking ‘‘$40,000’’ in clause (i) and in-
serting ‘‘$100,000’’, and
(2) by striking ‘‘$25,000’’ in clause (ii) and in-
serting ‘‘$75,000’’.
(b) 
COST-OF-LIVING
ADJUSTMENT.—Section
219(g)(3) is amended by adding at the end the following
new subparagraph:
‘‘(C) COST-OF-LIVING
ADJUSTMENT.—In
the case of taxable years beginning after 1994,
the applicable dollar amounts under subpara-
graph (B) shall be adjusted in the same manner
as under subsection (h), except that such sub-
section shall be applied—
‘‘(i) by substituting ‘$20,000’ for
‘$500’ each place it appears in paragraph
(1), and
‘‘(ii) by substituting the appropriate
dollar amounts for the amounts contained
in paragraph (2).’’
(c) IRA ALLOWED FOR SPOUSES WHO ARE NOT AC-
TIVE PLAN PARTICIPANTS.—Section 219(g)(1) is amend-
ed by striking ‘‘or the individual’s spouse’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
SEC. 202. INFLATION ADJUSTMENT FOR DEDUCTIBLE
AMOUNT.
(a) IN GENERAL.—Section 219 is amended by redes-
ignating subsection (h) as subsection (i) and by inserting
after subsection (g) the following new subsection:
‘‘(h) COST-OF-LIVING ADJUSTMENTS.—
‘‘(1) IN GENERAL.—If the cost-of-living amount
for any calendar year is equal to or greater than
$500, then each applicable dollar amount (as pre-
viously adjusted under this subsection) for any tax-
able year beginning in any subsequent calendar year
shall be increased by $500.
‘‘(2) COST-OF-LIVING
AMOUNT.—The cost-of-
living amount for any calendar year is the excess (if
any) of—
‘‘(A) $2,000, increased by the cost-of-living
adjustment for such calendar year, over
‘‘(B) the applicable dollar amount in effect
under subsection (b)(1)(A) for taxable years be-
ginning in such calendar year.
‘‘(3) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The cost-of-living ad-
justment for any calendar year is the percent-
age (if any) by which—
‘‘(i) the CPI for such calendar year,
exceeds
‘‘(ii) the CPI for 1992.
‘‘(B) CPI FOR ANY CALENDAR YEAR.—The
CPI for any calendar year shall be determined
in the same manner as under section 1(f)(4).
‘‘(4) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of this subsection, the term ‘applicable dollar
amount’ means the dollar amount in effect under
any of the following provisions:
‘‘(A) Subsection (b)(1)(A).
‘‘(B) Subsection (c)(2)(A)(i).
‘‘(C) The last sentence of subsection
(c)(2).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking
‘‘in excess of $2,000 on behalf of any individual’’
and inserting ‘‘on behalf of any individual in excess
of the amount in effect for such taxable year under
section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by strik-
ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in
effect under section 219(b)(1)(A)’’.
(3) Section 408(j) is amended by striking
‘‘$2,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 203. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE
USED 
WITHOUT 
PENALTY 
TO 
PURCHASE
FIRST HOMES, TO PAY HIGHER EDUCATION,
OR FINANCIALLY DEVASTATING MEDICAL EX-
PENSES, OR BY THE LONG-TERM UNEM-
PLOYED.
(a) IN GENERAL.—Paragraph (2) of section 72(t)
(relating to exceptions to 10-percent additional tax on
early distributions from qualified retirement plans) is
amended by adding at the end thereof the following new
subparagraph:
‘‘(D) 
DISTRIBUTIONS
FROM
CERTAIN
PLANS FOR FIRST HOME PURCHASES OR EDU-
CATIONAL EXPENSES.—Distributions to an in-
dividual from an individual retirement plan, or
from amounts attributable to employer con-
tributions made pursuant to elective deferrals
described in subparagraph (A) or (C) of section
402(g)(3) or section 501(c)(18)(D)(iii)—
‘‘(i) which are qualified first-time
homebuyer distributions (as defined in
paragraph (6)); or
‘‘(ii) to the extent such distributions
do not exceed the qualified higher edu-
cation expenses (as defined in paragraph
(7)) of the taxpayer for the taxable year.’’
(b) FINANCIALLY
DEVASTATING
MEDICAL
EX-
PENSES.—
(1) 
IN
GENERAL.—Section 
72(t)(3)(A) 
is
amended by striking ‘‘(B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND AN-
CESTORS
TREATED
AS
DEPENDENTS.—Subpara-
graph (B) of section 72(t)(2) is amended by striking
‘‘medical care’’ and all that follows and inserting
‘‘medical care determined—
‘‘(i) without regard to whether the
employee itemizes deductions for such tax-
able year, and
‘‘(ii) by treating such employee’s de-
pendents as including—
‘‘(I) all children and grand-
children of the employee or such em-
ployee’s spouse, and
‘‘(II) all ancestors of the em-
ployee or such employee’s spouse.’’
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(C)’’ and inserting ‘‘, (C) or (D)’’.
(c) DEFINITIONS.—Section 72(t) is amended by add-
ing at the end thereof the following new paragraphs:
‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For 
purposes 
of 
paragraph
(2)(D)(i)—
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ means any
payment or distribution received by an individ-
ual to the extent such payment or distribution
is used by the individual before the close of the
60th day after the day on which such payment
or distribution is received to pay qualified ac-
quisition costs with respect to a principal resi-
dence of a first-time homebuyer who is such in-
dividual or the spouse, child, or grandchild of
such individual.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
For purposes of this paragraph, the term
‘qualified acquisition costs’ means the costs of
acquiring, constructing, or reconstructing a res-
idence. Such term includes any usual or reason-
able settlement, financing, or other closing
costs.
‘‘(C) FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For purposes of this para-
graph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if—
‘‘(I) such individual (and if mar-
ried, such individual’s spouse) had no
present ownership interest in a prin-
cipal residence during the 3-year pe-
riod ending on the date of acquisition
of the principal residence to which
this paragraph applies, and
‘‘(II) subsection (a)(6), (h), or
(k) of section 1034 did not suspend
the running of any period of time
specified in section 1034 with respect
to such individual on the day before
the date the distribution is applied
pursuant to subparagraph (A)(ii).
In the case of an individual described in
section 143(i)(1)(C) for any year, an own-
ership interest shall not include any inter-
est under a contract of deed described in
such section.
‘‘(ii) 
PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(iii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date—
‘‘(I) on which a binding contract
to acquire the principal residence to
which subparagraph (A) applies is en-
tered into, or
‘‘(II) on which construction or re-
construction of such a principal resi-
dence is commenced.
‘‘(D) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—If any distribution from any indi-
vidual retirement plan fails to meet the require-
ments of subparagraph (A) solely by reason of
a delay or cancellation of the purchase or con-
struction of the residence, the amount of the
distribution may be contributed to an individual
retirement 
plan 
as 
provided 
in 
section
408(d)(3)(A)(i) (determined by substituting
‘120 days’ for ‘60 days’ in such section), except
that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
‘‘(ii) such amount shall not be taken
into account in determining whether sec-
tion 408(d)(3)(A)(i) applies to any other
amount.
‘‘(7) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of paragraph (2)(D)(ii)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) the taxpayer’s child (as defined
in section 151(c)(3)) or grandchild,
at an eligible educational institution (as defined
in section 135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified higher
education expenses for any taxable year shall be
reduced by any amount excludable from gross
income under section 135.’’.
(d) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN
UNEMPLOYED INDIVIDUALS.—Paragraph (2) of section
72(t) is amended by adding at the end thereof the follow-
ing new subparagraph:
‘‘(E) DISTRIBUTIONS
TO
UNEMPLOYED
INDI-
VIDUALS.—A distribution from an individual retire-
ment plan (other than a plan referred to in
subclause (I) or (II) of paragraph (6)(A)(iii)) to an
individual after separation from employment, if—
‘‘(i) such individual has received unemploy-
ment compensation for 12 consecutive weeks
under any Federal or State unemployment com-
pensation law by reason of such separation, and
‘‘(ii) such distributions are made during
any taxable year during which such unemploy-
ment compensation is paid or the succeeding
taxable year.’’.
(e) SPECIAL RULE FOR CERTAIN DISASTER VIC-
TIMS.—For purposes of section 72(t)(6) of the Internal
Revenue Code of 1986, an individual whose principal resi-
dence was destroyed or substantially damaged by Hurri-
cane Andrew, Hurricane Iniki, or Typhoon Omar shall be
treated as a first-time homebuyer with respect to such res-
idence if the individual rebuilds it or with respect to any
other principal residence acquired to replace such resi-
dence.
(f) CONFORMING AMENDMENTS.—
(1) Section 401(k)(2)(B)(i) is amended by
striking ‘‘or’’ at the end of subclause (III), by strik-
ing ‘‘and’’ at the end of subclause (IV) and inserting
‘‘or’’, and by inserting after subclause (IV) the fol-
lowing new subclause:
‘‘(V) the date on which qualified
first-time homebuyer distributions (as
defined in section 72(t)(6)) or dis-
tributions for qualified higher edu-
cation expenses (as defined in section
72(t)(7)) are made, and’’.
(2) Section 403(b)(11) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting
‘‘, or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) for qualified first-time homebuyer dis-
tributions (as defined in section 72(t)(6)) or for
the payment of qualified higher education ex-
penses (as defined in section 72(t)(7)).’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions after
December 31, 1993.
Subtitle 
B—Exclusion 
for 
Em-
ployer-Provided Educational As-
sistance To Include Educational
Assistance for Spouse and De-
pendents of Employee
SEC. 211. EXPANSION OF EXCLUSION FOR EMPLOYER-PRO-
VIDED EDUCATIONAL ASSISTANCE.
(a) IN GENERAL.—Paragraph (1) of section 127(b)
(relating to educational assistance program) is amended
by inserting ‘‘or their spouses and dependents (as defined
in section 152)’’ after ‘‘employees’’ the second place it ap-
pears.
(b) EXCLUSION MADE PERMANENT.—
(1) Section 127 is amended by striking sub-
section (d) and by redesignating subsection (e) as
subsection (d).
(2) Subsection (a) of section 103 of the Tax
Extension Act of 1991 is amended by striking para-
graph (2).
(c) CONFORMING AMENDMENT.—Paragraph (1) of
section 127(c) is amended—
(1) by striking ‘‘education of the employee’’ in
subparagraph (A) and inserting ‘‘education of a
qualified individual’’,
(2) by striking ‘‘retained by the employee’’ and
inserting ‘‘retained by the qualified individual’’, and
(3) by adding at the end thereof the following
new sentence: ‘‘For purposes of this paragraph, the
term ‘qualified individual’ means the employee and
the spouse and any dependent (as defined in section
152) of the employee.’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years beginning after Decem-
ber 31, 1993.
(2) 
EXCLUSION
MADE
PERMANENT.—The
amendments made by subsection (b) shall apply to
taxable years beginning after December 31, 1991.
TITLE III—MEDICAL CARE SAV-
INGS 
ACCOUNTS; 
HEALTH
CARE COST CONTROLS; DE-
DUCTION FOR HEALTH IN-
SURANCE COSTS OF SELF-EM-
PLOYED INDIVIDUALS
SEC. 301. MEDICAL CARE SAVINGS BENEFITS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 is amended by inserting after section 125 the follow-
ing new section:
‘‘SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.
‘‘(a) IN GENERAL.—A medical care savings benefit
is a qualified benefit which consists of a Health Plan meet-
ing the requirements of this section that includes, as part
thereof, a Medical Care Savings Account, as set forth in
section 408A.
‘‘(b) ESTABLISHMENT OF MEDICAL CARE SAVINGS
BENEFIT.—A medical care savings benefit shall be estab-
lished as a Health Plan which provides that all or part
of the premium differential realized by instituting a Quali-
fied Higher Deductible Health Plan is credited to a par-
ticipating employee during a plan year to pay for medical
care described in section 213(d) and, to the extent that
any amount remains credited to that participant at the
end of each plan year, such amount is deposited to a sec-
tion 408(A) medical care savings account for that partici-
pant.
‘‘(c) PAYMENTS FROM ACCOUNT BALANCE.—If the
plan provides for level installment payments, the plan may
also provide that the maximum amount of reimbursement
at a particular time during the period of coverage may
be limited to the amount of actual contributions to the
arrangement. A participant may be advanced, interest
free, such amounts necessary to cover incurred medical ex-
penses which exceed the amount then credited to the par-
ticipant’s account, upon the participant’s agreement to
repay such advancement from future installments or upon
ceasing to be a participant.
‘‘(d) REPORTING.—Employers shall cause to be is-
sued to participating employees, not less frequently than
quarterly, a statement setting forth amounts remaining in
their accounts.
‘‘(e) LIMITS ON AMOUNTS CONTRIBUTED TO MEDI-
CAL CARE SAVINGS ACCOUNT.—The maximum amount
that may be contributed annually to a Medical Care Sav-
ings Account shall not exceed the premium differential set
forth in subsection (b). For purposes of determining the
maximum premium differential in those years when only
the Qualified Higher Deductible Plan is offered, the dif-
ferential shall be the difference between the premiums for
the Qualified Higher Deductible Plan and the plan pre-
viously offered, based on bona fide quotes for a Health
Plan offering similar benefits for similar employees in the
same geographic area. Additionally, this method for cal-
culating said premium differential shall also be used by
an employer that has not previously sponsored a Health
Plan but desires to institute a medical care savings bene-
fit.
‘‘(f) HEALTH PLAN.—The term ‘Health Plan’ means
an employee welfare benefit plan providing medical care
(as defined in section 213(d) of the Internal Revenue Code
of 1954) to participants or beneficiaries directly or
through insurance, reimbursement, or otherwise.
‘‘(g) QUALIFIED HIGHER DEDUCTIBLE PLAN.—The
term ‘Qualified Higher Deductible Plan’ is a Health Plan
which provides for payment of covered benefits in excess
of the higher deductible, which higher deductible shall not
exceed $3,000 in 1992 and, adjusted annually thereafter
for increases in the cost of living in accordance with regu-
lations prescribed by the Secretary.
‘‘(h) PREVENTATIVE HEALTH CARE.—By allowing
medical expenses payable from a medical care savings ben-
efit to be those permitted under section 213(d) of the In-
ternal Revenue Code, participating employees are encour-
aged to use this benefit to promote good health, to use
preventative medical and health procedures, and to seek
appropriate consultive and second opinions.
‘‘(i) PREEMPTION.—Insurance policies issued as a
part of a medical care savings benefit shall not be required
to duplicate expenses that may be proper expenses covered
by the medical care savings benefit. Additionally, the high-
er deductible insurance plan may provide that the deduct-
ible specified in the policy may be increased by the amount
of any benefits payable by any other health benefits pro-
gram or plan.’’.
(b) MEDICAL CARE SAVINGS ACCOUNTS.—Subpart A
of part I of subchapter D of chapter 1 is amended by in-
serting after section 408 the following new section:
‘‘SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.
‘‘(a) MEDICAL CARE SAVINGS ACCOUNTS.—For pur-
poses of this section, the term ‘medical care savings ac-
count’ means a trust created or organized in the United
States for the exclusive benefit of an individual, his de-
pendents (as defined in section 152) or beneficiaries, but
only if the written instrument creating the trust meets the
following requirements:
‘‘(1) No contributions will be accepted unless it
is in cash.
‘‘(2) The trustee is a bank (as defined in sub-
section (d)), insurance company (as defined in sec-
tion 816), 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 of the 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.
‘‘(b) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION
FROM
TAX.—Any medical
care savings account is exempt from taxation under
this subtitle unless such account has ceased to be a
medical care savings account by reason of paragraph
(2) or (3). Notwithstanding the preceding sentence,
any such account is subject to the taxes imposed by
section 511 (relating to imposition of tax on unre-
lated business income of charitable, etc. organiza-
tions).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
EMPLOYEE
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit any
medical care savings account is established,
that individual, dependent, or his beneficiary
engages in any transaction prohibited by section
4975 with respect to such account, such ac-
count ceases to be a medical care savings ac-
count as of the first day of such taxable year.
For purposes of this paragraph the individual
for whose benefit any account was established is
treated as the creator of such account.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) as of the first day
of any taxable year, section 511 shall apply as
if there were a distribution on such first day in
an amount equal to the fair market value (on
such first day) of all assets in the account (on
such first day).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year of the individual
for whose benefit a medical care savings account is
established, that individual uses the account or any
portion thereof as security for a loan, the portion so
used is treated as distributed to that individual.
‘‘(4) COMMINGLING MEDICAL CARE SAVINGS AC-
COUNT
AMOUNTS
IN
CERTAIN
COMMON
TRUST
FUNDS
AND
COMMON
INVESTMENT
FUNDS.—Any
common trust fund or common investment fund of
individual medical care savings account assets which
is exempt from taxation under this subtitle does not
cease to be exempt on account of the participation
or inclusion of assets of a trust exempt from tax-
ation under section 501(a) which is described in sec-
tion 401(a).
‘‘(c) TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of a medical savings account shall be in-
cluded in gross income by the distributee.
‘‘(2) 
DISTRIBUTIONS
FOR
MEDICAL
EX-
PENSES.—Distributions from a medical care savings
medical savings account if at any time during
the one-year period ending on the day of such
receipt such individual received any other
amount described in that subparagraph from a
medical care savings account which was not in-
cludible in his gross income because of the ap-
plication of this paragraph.
‘‘(C) DENIAL OF ROLLOVER TREATMENT
FOR INHERITED ACCOUNTS, ETC.—
‘‘(i) IN GENERAL.—In the case of an
inherited medical savings account—
‘‘(I) this paragraph shall not
apply to any amount received by an
individual from such an account (and
no amount transferred from such ac-
count to another medical care savings
account shall be excluded from gross
income by reason of such transfer),
and
‘‘(II) such inherited account shall
not be treated as a medical care sav-
ings account for purposes of determin-
ing whether any other amount is a
rollover contribution.
‘‘(ii) INHERITED MEDICAL CARE SAV-
INGS ACCOUNT.—
‘‘(I) the individual for whose ben-
efit the account is maintained ac-
quired such account by reason of the
death of another individual, and
‘‘(II) such individual was not the
surviving spouse of such other individ-
ual.
‘‘(d) BANK.—For purposes of subsection (a)(2), the
term ‘bank’ means—
‘‘(1) a bank (as defined in section 581),
‘‘(2) an insured credit union (within the mean-
ing of section 101(6) of the Federal Credit Union
Act), and
‘‘(3) a corporation which, under the laws of the
State of its incorporation, is subject to supervision
and examination by the Commissioner of Banking or
other officer of such State in charge of the adminis-
tration of the banking laws of such state.’’.
(c) CLERICAL AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 is amended by inserting after
the item relating to section 125 the following new
item:
‘‘Sec. 125A. Medical care savings benefits.’’
(2) The table of sections for subpart A of part
I of subchapter D of chapter 1 is amended by insert-
ing after the item relating to section 408 the follow-
ing new item:
‘‘Sec. 408A. Medical care savings accounts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 302. DEDUCTION FOR HEALTH INSURANCE COSTS OF
SELF-EMPLOYED INCREASED AND MADE PER-
MANENT.
(a) PERMANENT EXTENSION OF DEDUCTION.—
(1) IN GENERAL.—Subsection (l) of section 162
(relating to special rules for health insurance costs
of self-employed individuals) is amended by striking
paragraph (6).
(2) CONFORMING AMENDMENT.—Paragraph (2)
of section 110(a) of the Tax Extension Act of 1991
is hereby repealed.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1991.
(b) INCREASE IN AMOUNT OF DEDUCTION.—
(1) IN
GENERAL.—Paragraph (1) of section
162(l) is amended by striking ‘‘25 percent of’’ and
inserting ‘‘100 percent (50 percent in the case of
taxable years beginning in 1995 or 1996) of’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1994.
SEC. 303. PREEMPTION FROM INSURANCE MANDATES FOR
QUALIFIED SMALL EMPLOYER PURCHASING
GROUPS.
(a) QUALIFIED
SMALL
EMPLOYER
PURCHASING
GROUP DEFINED.—For purposes of this section, an asso-
ciation is a qualified small employer purchasing group if—
(1) the association submits an application to
the Secretary of Health and Human Services at such
time and in such form as the Secretary may require;
and
(2) on the basis of information contained in the
application and any other information the Secretary
may require, the Secretary determines that—
(A) the association is administered solely
under the authority and control of its member
employers,
(B) the association’s membership consists
solely of employers with not more than 100 em-
ployees (except that an employer member of the
group may retain its membership in the group
if, after the Secretary determines that the asso-
ciation meets the requirements of this para-
graph, the number of employees of the employer
member increases to more than 100),
(C) with respect to each State in which its
members are located, the association consists of
not fewer than 100 employers, and
(D) at the time the association submits its
application, the health benefit plans with re-
spect to the employer members of the associa-
tion are in compliance with applicable State
laws relating to health benefit plans.
(b) PREEMPTION FROM INSURANCE MANDATES.—
(1) FINDING.—Congress finds that employer
purchasing groups organized for the purpose of ob-
taining health insurance for employer members af-
fect interstate commerce.
(2) PREEMPTION OF STATE MANDATES.—In the
case of a qualified small employer purchasing group
described in subsection (a), no provision of State law
shall apply that requires the offering, as part of the
health benefit plan with respect to an employer
member of such a group, of any services, category
of care, or services of any class or type of provider.
(3) PREEMPTION OF PROVISIONS PROHIBITING
EMPLOYER GROUPS FROM PURCHASING HEALTH IN-
SURANCE.—In the case of a qualified small employer
purchasing group described in subsection (a), no
provision of State or local law shall apply that pro-
hibits a group of employers from purchasing health
insurance with respect to member employers of the
group or their employees.
(c) EFFECTIVE DATE.—This section shall take effect
60 days after the date of the enactment of this Act.
TITLE IV—EDUCATIONAL
CHOICE PROGRAMS
SECTION 401. SHORT TITLE.
This title may be cited as the ‘‘Educational Choice
Programs Act’’.
SEC. 402. PURPOSES.
The purposes of this title are—
(1) to assist and encourage States and localities
to—
(A) give children from middle- and low-in-
come families more of the same choices of all el-
ementary and secondary schools and other aca-
demic programs that children from wealthier
families already have;
(B) improve schools and other academic
programs by giving middle- and low-income par-
ents increased consumer power to choose the
schools and programs that they determine best
fit the needs of their children;
(C) more fully engage middle- and low-in-
come parents in their children’s schooling; and
(D) through families, provide new funds at
the school site that teachers and principals can
use to help all children achieve the high edu-
cational standards called for by the National
Education Goals;
(2) to encourage the creation and use of supple-
mentary academic programs during and after regu-
lar school hours, on weekends, and during school va-
cation periods for children of middle- and low-in-
come families; and
(3) to demonstrate, through a competitive dis-
cretionary grant program, the effects of State and
local programs that give middle- and low-income
families more of the same choices of all schools, pub-
lic, private or religious, that wealthier families have.
SEC. 403. AUTHORIZATION OF APPROPRIATIONS.
(a) AUTHORIZATION.—For the purpose of carrying
out this title, there are authorized to be appropriated
$1,000,000,000 for fiscal year 1993 and such sums as
may be necessary for each of the fiscal years 1994 through
2000.
(b) NATIONAL EVALUATION.—From the sums appro-
priated for any fiscal year for carrying out this title, the
Secretary may reserve up to $2,000,000 to carry out the
national evaluation described in section 412.
(c) REMAINDER OF FUNDS.—The Secretary shall use
any funds remaining after such reservation to make com-
petitive grants to States and to localities to carry out eligi-
ble programs under this title.
SEC. 404. ELIGIBILITY.
A State or locality is eligible for a grant under this
title if—
(1) it has taken significant steps to provide a
choice of schools to families with school children re-
siding in the program area described in the applica-
tion submitted under section 407, including families
who are not eligible for scholarships under this title;
(2) during the year for which assistance is
sought, assurances are made that if awarded a grant
under this title, such State or locality will provide
scholarships to parents of eligible children that may
be redeemed for elementary or secondary education
for their children at a broad variety of public and
private elementary and secondary schools, including
religious schools, if any, serving the area; and
(3) it allows lawfully operating public and pri-
vate elementary and secondary schools, including re-
ligious schools, if any, serving the area to participate
in its program.
SEC. 405. SCHOLARSHIPS.
(a) SCHOLARSHIP AWARDS.—With funds awarded
under this title, each grantee under this title shall provide
scholarships to the parents of eligible children, in accord-
ance with section 406.
(b) SCHOLARSHIP VALUE.—The value of each schol-
arship shall be the sum of—
(1) $2,000 from funds provided under this title;
and
(2) an additional amount, if any, of State, local,
and nongovernmental funds.
(c) TAX EXEMPTION.—Scholarships shall not be
deemed income of the parents for Federal income tax pur-
poses or for determining eligibility for any other Federal
program.
SEC. 406. ELIGIBLE CHILDREN.
(a) ELIGIBILITY.—With funds awarded under this
title, each grantee shall provide a scholarship—
(1) to the parents of children who—
(A) reside in the program area described in
the application submitted under section 407;
(B) will attend a public or private elemen-
tary or secondary school that is participating in
the program; and
(C) are from a middle- or low-income fam-
ily, as determined by the grantee in accordance
with regulations of the Secretary, except that
the maximum family income for eligibility may
not exceed the State or national median family
income (adjusted for family size), whichever is
higher, as determined by the Secretary, in con-
sultation with the Bureau of the Census, on the
basis of the most recent satisfactory data avail-
able; and
(2) in each year of its program to each child
who received a scholarship during the previous year
of the program, unless—
(A) the child no longer resides in the pro-
gram area;
(B) the child no longer attends school; or
(C) the child’s family income exceeds, by
20 percent or more, the maximum family in-
come of families who received scholarship in the
preceding year.
(b) PRIORITY.—If the amount of the grant under this
title is not sufficient to provide a scholarship to each child
up to the income level for which the grantee applied as
described in subsection (a)(1)(C), the grantee shall pro-
vide scholarships to the lowest income families.
SEC. 407. APPLICATIONS.
(a) APPLICATION.—Each State or locality that wishes
to receive a grant under this title shall submit an applica-
tion to the Secretary at such time and in such manner
as the Secretary may reasonably require.
(b) CONTENTS.—Each such application shall con-
tain—
(1) a description of the program area;
(2) an economic profile of children residing in
the program area, in terms of family income and
poverty status;
(3) the family income range of children who will
be eligible to participate in the proposed program,
consistent with section 406(a)(1)(C), and a descrip-
tion of the applicant’s method for identifying chil-
dren who fall within that range;
(4) an estimate of the number of children, with-
in the income range specified in paragraph (3), who
would be eligible to receive scholarships under the
program;
(5) information demonstrating that the appli-
cant’s proposed program complies with the eligibility
requirements of section 404 and with the other re-
quirements of this title;
(6) a description of the procedures the appli-
cant has used, including timely and meaningful con-
sultation with private school officials, to encourage
public and private elementary and secondary schools
to participate in the programs and to ensure maxi-
mum educational choices for the parents of eligible
children and for other children residing in the pro-
gram area;
(7) an identification of the public, private, and
religious elementary and secondary schools that are
eligible and have chosen to participate in the pro-
gram;
(8) a description of how the applicant will in-
form children and their parents of the program and
of the choices available to them under the program,
including the availability of supplementary academic
services under section 410(2);
(9) a description of the procedures to be used
to provide scholarships to parents and to enable par-
ents to use such scholarships, such as the issuance
of checks payable to both parents and schools;
(10) a description of—
(A) the procedures by which a school will
make a pro rata refund to the grantee of a
scholarship for any participating child who, be-
fore completing 50 percent of the school attend-
ance period for which the scholarship was is-
sued—
(i) is released or expelled from the
school; or
(ii) withdraws for any reason; or
(B) another refund policy that addresses
special circumstances an applicant can reason-
ably anticipate and that the applicant dem-
onstrates, to the Secretary’s satisfaction, ade-
quate protection of participating children, in
light of the purposes of this title;
(11) a description of procedures the applicant
will use to—
(A) determine a child’s continuing eligi-
bility to participate in the program; and
(B) bring new children into the program;
(12) an assurance that the applicant will co-
operate in carrying out the national evaluation de-
scribed in section 412;
(13) an assurance that the applicant will main-
tain such records relating to the program as the
Secretary may require and will comply with the Sec-
retary’s reasonable requests for information about
the program;
(14) a description of State and local funds (in-
cluding tax benefits) and nongovernmental funds, if
any, that will be available under section 405(b)(2) to
supplement scholarship funds provided under this
title; and
(15) such other assurance and information as
the Secretary may require.
(c) REVISIONS.—Each such application shall be up-
dated annually as may be needed to reflect revised condi-
tions.
SEC. 408. APPROVAL OF PROJECTS.
(a) SELECTION.—From applications received each
year, the Secretary shall select programs on the basis of—
(1) the number and variety of educational
choices that are available under the program to fam-
ilies of eligible children;
(2) the extent to which educational choices
among public, private, and religious schools are
available to all families in the program area, includ-
ing families that are not eligible for scholarships
under this title;
(3) the proportion of children who will partici-
pate in the program who are from low-income fami-
lies;
(4) the applicant’s financial support of the pro-
gram, including the amount of State, local, and non-
governmental funds that will be provided to supple-
ment Federal funds, including not only direct ex-
penditures for scholarships, but also other economic
incentives provided to families participating in the
program, such as a tax relief program. In consider-
ing this factor, the Secretary may take differences in
local conditions into account; and
(5) other criteria established by the Secretary.
(b) GEOGRAPHIC
DISTRIBUTION.—The Secretary
shall ensure that, to the extent feasible, grants are award-
ed for programs in urban and rural areas and in a variety
of geographic areas throughout the Nation.
SEC. 409. AMOUNTS AND LENGTH OF GRANTS.
(a) AWARDS.—The Secretary shall award annual
grants taking into account the availability of appropria-
tions, the number and quality of applications, and other
factors related to the purposes of this title that the Sec-
retary determines are appropriate.
(b) RENEWAL.—Each grant under this title may be
for a period of up to 4 years, and may be renewed for
an additional 4-year period.
SEC. 410. USES OF FUNDS.
The Federal portion of any scholarship awarded
under this title shall be used for the following purposes:
(1) first, for—
(A) the payment of tuition and fees at the
school selected by the parents of the child for
whom the scholarship was provided; and
(B) the reasonable costs of the child’s
transportation to the school, if—
(i) the school is not the school to
which the child would be assigned in the
absence of a program under this title; and
(ii) the parents of an eligible child
choose to use scholarship funds for that
purpose;
(2) second, if the parents so choose, to obtain
supplementary academic services for the child, at a
cost of not more than $500, from any provider cho-
sen by the parents that the grantee, in accordance
with regulations of the Secretary, determines is ca-
pable of providing such services and has an appro-
priate refund policy; and
(3) finally, any remaining funds shall be used—
(A) for educational programs that help
students achieve high levels of academic excel-
lence in the school attended by the child for
whom a scholarship was issued, if the child at-
tends a public school; or
(B) by the grantee for additional scholar-
ships in the year or the succeeding year of its
program, in accordance with this title, if the
child attends a private school.
SEC. 411. EFFECT OF PROGRAMS.
(a) CHAPTER 1.—Notwithstanding any other provi-
sion of law, a local educational agency that, in the absence
of an educational choice program that is funded under this
title, would provide services to a participating child under
part A of chapter 1 of title I of the Elementary and Sec-
ondary Education Act of 1965, shall provide such services
to such child.
(b) INDIVIDUALS WITH DISABILITIES.—Nothing in
this title shall be read to affect the applicability or require-
ments of part B of the Individuals With Disabilities Edu-
cation Act.
(c) AID.—(1) Scholarships under this title are to aid
families, not institutions. A parent’s expenditure of schol-
arship funds at a school or for supplementary academic
services shall not constitute Federal financial aid or assist-
ance to that school or to the provider of supplementary
academic services.
(2) Notwithstanding paragraph (1), a school or pro-
vider of supplementary academic services that receives
scholarship funds under this title shall, as a condition of
participation under this title, comply with the anti dis-
crimination provisions of section 601 of title VI of the
Civil Rights Act of 1964 (42 U.S.C. 1681) and section
504 of the Rehabilitation Act of 1973 (27 U.S.C. 794).
(3) The Secretary shall promulgate new regulations
to implement the provisions of paragraph (2), taking into
account the purposes of this title and the nature, variety,
and missions of schools and providers that may participate
in providing services to children under this title.
(d) OTHER FEDERAL FUNDS.—No Federal, State, or
local agency may, in any year, take into account Federal
funds provided to a grantee or to the parents of any child
under this title in determining whether to provide any
other funds from Federal, State, or local resources, or in
determining the amount of such assistance, to such grant-
ee or to a school attended by such child.
(e) EXISTING PROVISIONS OF LAW.—Nothing in this
title shall be construed to supersede or modify any provi-
sion of a State constitution or State law that prohibits
the expenditure of public funds in or by religious or other
private institutions, except that no provision of a State
constitution or State law shall be construed or applied to
prohibit any grantee from paying the administrative costs
of a program under this title or providing any Federal
funds received under this title to parents for use at reli-
gious or other private institutions.
(f) NO DISCRETION.—Nothing in this title shall be
construed to authorize the Secretary to exercise any direc-
tion, supervision, or control over the curriculum, program
of instruction, administration, or personnel of any edu-
cational institution or school participating in a program
under this title.
(g) DISCRIMINATION.—No person shall, on the
ground of race, color, or national origin, be excluded from
participation in, be denied the benefits of, or be subjected
to discrimination under any program or activity under this
title.
SEC. 412. NATIONAL EVALUATION.
With funds reserved under section 403(b), the Sec-
retary shall conduct a national evaluation of the program
authorized by this title. Such evaluation shall, at a mini-
mum—
(1) assess the implementation of assisted pro-
grams and their effect on participants, schools, and
communities in the program area, including parental
involvement in, and satisfaction with, the program
and their children’s education;
(2) compare educational achievement of partici-
pating children with the achievement of similar non-
participating children before, during, and after the
program; and
(3) compare—
(A) educational achievement of children
who use scholarships to attend schools other
than the ones they would attend in the absence
of the program; with
(B) educational achievement of children
who attend the schools they would attend in the
absence of the program.
SEC. 413. ENFORCEMENT.
(a) REGULATIONS.—The Secretary shall promulgate
regulations to enforce the provisions of this title.
(b) PRIVATE CAUSE.—No provision or requirement
of this title shall be enforced through a private cause of
action.
SEC. 414. DEFINITIONS.
For the purpose of this title—
(1) the terms ‘‘elementary school’’, ‘‘local edu-
cational agency’’, ‘‘parent’’, ‘‘secondary school’’, and
‘‘State educational agency’’ have the same meanings
given such terms in section 1471 of the Elementary
and Secondary Education Act of 1965;
(2) the term ‘‘locality’’ means—
(A) a unit of general purpose local govern-
ment, such as a city, township, or village; or
(B) a local educational agency;
(3) the term ‘‘Secretary’’ means the Secretary
of Education; and
(4) the term ‘‘State’’ means each of the 50
States, the District of Columbia, and the Common-
wealth of Puerto Rico.
TITLE V—GRANTS TO ENCOUR-
AGE EMPLOYERS TO ADOPT
FLEXIBLE WORK AND FAMILY
POLICIES
SEC. 501. PURPOSES.
The purpose of this title is to provide grants as start
up funds for employers to—
(1) explore, initiate, or expand flexible work
policies (including for example, flexitime, part-time
work, job sharing, telecommuting, flexiplace, or com-
pressed work weeks) in an effort to ease the work
and family demands on employees;
(2) efficiently adapt to the Family and Medical
Leave Act of 1993 in a comprehensive manner while
strategically planning for changes in work force de-
mographics;
(3) assess the needs of employees and deter-
mine various work and family policies and human
resource policies that best fit with a particular work
force or workplace;
(4) design work and family programs in such a
way that improves recruitment, retention and pro-
ductivity in the context of a changing work force;
and
(5) share and communicate successful work and
family policies with the outside business community.
SEC. 502. APPLICATIONS.
(a) IN GENERAL.—To receive a grant under this title,
an employer must submit an application to the Secretary
of Labor at such time and in such manner as such Sec-
retary may prescribe.
(b) CONTENTS OF APPLICATION.—Each application
shall contain—
(1) a description of the employer’s business, in-
cluding the number of employees and their demo-
graphic makeup;
(2) an economic and work profile of the families
of employees of such employer, including the work
and family situations of the employees who would
benefit from a program and their family income
range;
(3) a description of the work and family pro-
gram the employer plans to implement, including a
description of—
(A) the methods to be used to assess the
needs of employees,
(B) the methods to be used to determine
which work and family policies best fit the
needs of both the employer and the employees,
(C) how the new policies will be piloted or
implemented, and
(D) which work policies will be focused
upon, and how support for such policies will be
developed and integrated into the management
structure;
(4) a profile of surrounding businesses that
might benefit from the type of program proposed
and how information on that program will be shared
with those businesses; and
(5) how, and the extent to which, the efforts of
the applicant will be communicated back to the De-
partment of Labor.
SEC. 503. APPROVAL OF APPLICATIONS.
(a) IN GENERAL.—The Secretary of Labor shall ap-
prove applications on the basis of—
(1) the comprehensiveness of the approach of
the applicant’s work and family programs, the ef-
forts made to survey and assess the work and family
needs of employees, and the number of families im-
pacted and the economic demands on the families af-
fected;
(2) the applicant’s ability and commitment to
developing an ongoing and comprehensive approach
to flexible work and family policies; and
(3) the efforts by the applicant to share infor-
mation of its work and family policies with the sur-
rounding business community as well as their ability
to provide information to the Department of Labor
on the development and implementation of their poli-
cies.
(b) DIVERSITY OF APPROVED APPLICATIONS.—The
Secretary of Labor shall ensure that, to the extent fea-
sible, grants are awarded to a variety of businesses with
varying work populations and economic means as well as
variety in both urban and rural areas and in different geo-
graphic areas throughout the Nation.
SEC. 504. LIMIT ON AMOUNT OF GRANTS; AUTHORIZATION
OF APPROPRIATIONS.
(a) LIMIT ON AMOUNT OF GRANTS.—The maximum
grant that may be awarded under this title to a business
for any year shall not exceed $50,000.
(b) AUTHORIZATION.—There are authorized to be ap-
propriated to carry out this title $10,000,000 for fiscal
year 1993, to remain available until expended or the close
of fiscal year 1994.
(c) FUNDS NOT USED FOR GRANTS.—If funds ap-
propriated pursuant to subsection (b) remain available as
of the close of fiscal year 1994, the Secretary of Labor
shall conduct a national evaluation of the various pro-
grams funded by grants under this title. Notwithstanding
subsection (b), such funds may be used during fiscal year
1995 for such purpose.
TITLE VI—REDUCING THE COST
OF CAPITAL BY REDUCING
CAPITAL GAINS TAX RATES,
INDEXING THE BASIS OF CER-
TAIN ASSETS, AND EXCLUD-
ING GAIN FROM SALES OF
PRINCIPAL RESIDENCES
SEC. 601. REDUCTION IN INDIVIDUAL CAPITAL GAINS
RATE.
(a) GENERAL RULE.—Subsection (h) of section 1 (re-
lating to maximum capital gains rate) is amended to read
as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—If a taxpayer
has a net capital gain for any taxable year, then the tax
imposed by this section shall not exceed the sum of—
‘‘(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the taxable income reduced by
the net capital gain, plus
‘‘(B) a tax equal to 15 percent of the net
capital gain in excess of—
‘‘(i) the maximum amount of taxable
income to which the 15-percent rate ap-
plies under the table applicable to the tax-
payer, reduced by
‘‘(ii) the taxable income to which sub-
paragraph (A) applies.
(b) PHASEOUT OF PERSONAL EXEMPTIONS AND LIM-
ITATION ON DEDUCTION OF ITEMIZED DEDUCTIONS NOT
TO RESULT FROM NET CAPITAL GAIN.—
(1)(A) Subparagraphs (A) and (B) of section
151(d)(3) (relating to phaseout of exemption
amount) are each amended by inserting ‘‘modified’’
before ‘‘adjusted gross income’’.
(B) Paragraph (3) of section 151(d) of such
Code is amended by redesignating subparagraphs
(D) and (E) as subparagraphs (E) and (F), respec-
tively, and by inserting after subparagraph (C) the
following new subparagraph:
‘‘(D) MODIFIED
ADJUSTED
GROSS
IN-
COME.—For purposes of this paragraph, the
term ‘modified adjusted gross income’ means
adjusted gross income reduced by net capital
gain.’’
(2) Subsection (a) of section 68 (relating to
overall limitation on itemized deductions) is amend-
ed by inserting ‘‘(reduced by net capital gain (deter-
mined in accordance with the last sentence of section
151(d)(3)(D)))’’ after ‘‘adjusted gross income’’.
(c) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 170(e) is amended
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘13/28
(19/34 in the case of a corporation) of the amount
of gain’’.
(2)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) is amended by striking ‘‘28 percent
(34 percent in the case of a corporation)’’ and in-
serting ‘‘15 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936, is
amended by striking ‘‘28 percent (34 percent in the
case of a corporation)’’ and inserting ‘‘15 percent’’.
SEC. 602. REDUCTION IN CORPORATE CAPITAL GAINS
RATE.
(a) GENERAL RULE.—Section 1201 (relating to al-
ternative tax for corporations) is amended by redesignat-
ing subsection (b) as subsection (c), and by striking sub-
section (a) and inserting the following:
‘‘(a) GENERAL RULE.—If for any taxable year a cor-
poration has a net capital gain, then, in lieu of the tax
imposed by sections 11, 511, or 831(a) (whichever ap-
plies), there is hereby imposed a tax (if such tax is less
than the tax imposed by such section) which shall consist
of the sum of—
‘‘(1) a tax computed on the taxable income re-
duced by the net capital gain, at the same rates and
in the same manner as if this subsection had not
been enacted, plus
‘‘(2) a tax of 15 percent of the net capital gain.
‘‘(b) TRANSITIONAL RULE.—In the case of a taxable
year which includes December 31, 1992, the amount of
the net capital gain for purposes of subsection (a) shall
not exceed the net capital gain determined by only taking
into account gains and losses properly taken into account
for the portion of the taxable year on or after such date.’’
(b) TECHNICAL AMENDMENTS.—
(1) Clause (iii) of section 852(b)(3)(D) is
amended by striking ‘‘66 percent’’ and inserting ‘‘85
percent’’.
(2) Paragraphs (1) and (2) of section 1445(e)
are each amended by striking ‘‘34 percent’’ and in-
serting ‘‘15 percent’’.
SEC. 603. REDUCTION OF MINIMUM TAX RATE ON CAPITAL
GAINS.
Subparagraph (A) of section 55(b)(1) (relating to
tentative minimum tax) is amended to read as follows:
‘‘(A) the sum of—
‘‘(i) 15 percent of the lesser of—
‘‘(I) the net capital gain (deter-
mined with the adjustments provided
in this part and (to the extent appli-
cable) the limitations of sections
1(h)(2) and 1201(b)), or
‘‘(II) so much of the alternative
minimum taxable income for the tax-
able year as exceeds the exemption
amount, plus
‘‘(ii) 20 percent (24 percent in the
case of a taxpayer other than a corpora-
tion) of the amount (if any) by which the
excess referred to in clause (i)(II) exceeds
the net capital gain (as so determined), re-
duced by’’.
SEC. 604. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 (relating to basis rules of general application) is
amended by inserting after section 1021 the following new
section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Except as provided in paragraph
(2), if an indexed asset which has been held for
more than 1 year is sold or otherwise disposed of,
for purposes of this title the indexed basis of the
asset shall be substituted for its adjusted basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deduction for depreciation, depletion, and amor-
tization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) stock in a corporation, and
‘‘(B) tangible property (or any interest
therein), which is a capital asset of property
used in the trade or business (as defined in sec-
tion 1231(b)).
‘‘(2) CERTAIN
PROPERTY
EXCLUDED.—For
purposes of this section, the term ‘indexed asset’
does not include—
‘‘(A) CREDITOR’S INTEREST.—Any interest
in property which is in the nature of a credi-
tor’s interest.
‘‘(B) OPTIONS.—Any option or other right
to acquire an interest in property.
‘‘(C) NET LEASE PROPERTY.—In the case
of a lessor, net lease property (within the mean-
ing of subsection (h)(1)).
‘‘(D) CERTAIN PREFERRED STOCK.—Stock
which is fixed and preferred as to dividends and
does not participate in corporate growth to any
significant extent.
‘‘(E) STOCK IN CERTAIN CORPORATIONS.—
Stock in—
‘‘(i) an S corporation (within the
meaning of section 1361),
‘‘(ii) a personal holding company (as
defined in section 542), and
‘‘(iii) a foreign corporation.
‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR-
PORATION WHICH IS REGULARLY TRADED ON NA-
TIONAL OR REGIONAL EXCHANGE.—Clause (iii) of
paragraph (2)(E) shall not apply to stock in a for-
eign corporation the stock of which is listed on the
New York Stock Exchange, the American Stock Ex-
change, or any domestic regional exchange for which
quotations are published on a regular basis other
than—
‘‘(A) stock of a foreign investment com-
pany (within the meaning of section 1246(b)),
and
‘‘(B) stock in a foreign corporation held by
a United States person who meets the require-
ments of section 1248(a)(2).
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion—
‘‘(1) INDEXED BASIS.—The indexed basis for
any asset is—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the applicable inflation ratio.
‘‘(2) APPLICABLE INFLATION RATIO.—The ap-
plicable inflation ratio for any asset is the percent-
age arrived at by dividing—
‘‘(A) the gross national product deflator
for the calendar quarter in which the disposi-
tion takes place, by
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending December 31, 1992).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-tenth of 1 percent.
‘‘(3) 
GROSS
NATIONAL
PRODUCT
DEFLATOR.—The 
gross 
national 
product
deflator for any calendar quarter is the implicit
price deflator for the gross national product for
such quarter (as shown in the first revision
thereof).
‘‘(4) SECRETARY TO PUBLISH TABLES.—
The Secretary shall publish tables specifying
the applicable inflation ratios for each calendar
quarter.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) a substantial improvement to prop-
erty,
‘‘(B) in the case of stock of a corporation,
a substantial contribution to capital, and
‘‘(C) any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—
‘‘(A) IN GENERAL.—The applicable infla-
tion ratio shall be appropriately reduced for cal-
endar months at any time during which the
asset was not an indexed asset.
‘‘(B) CERTAIN
SHORT
SALES.—For pur-
poses of applying subparagraph (A), an asset
shall be treated as not an indexed asset for any
short sale period during which the taxpayer or
the taxpayer’s spouse sells short property sub-
stantially identical to the asset. For purposes of
the preceding sentence, the short sale period be-
gins on the day after the substantially identical
property is sold and ends on the closing date
for the sale.
‘‘(3) TREATMENT
OF
CERTAIN
DISTRIBU-
TIONS.—A distribution with respect to stock in a
corporation which is not a dividend shall be treated
as a disposition.
‘‘(4) SECTION
CANNOT
INCREASE
ORDINARY
LOSS.—To the extent that (but for this paragraph)
this section would create or increase a net ordinary
loss to which section 1231(a)(2) applies or an ordi-
nary loss to which any other provision of this title
applies, such provision shall not apply. The taxpayer
shall be treated as having a long-term capital loss in
an amount equal to the amount of the ordinary loss
to which the preceding sentence applies.
‘‘(5) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR
APPLICATION
OF
SUBSECTION
(a)(1)
WITH RESPECT TO THE TAXPAYER.—If there has
been a prior application of subsection (a)(1) to an
asset while such asset was held by the taxpayer, the
date of acquisition of such asset by the taxpayer
shall be treated as not earlier than the date of the
most recent such prior application.
‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli-
cation of section 341(a) (relating to collapsible cor-
porations) shall be determined without regard to this
section.
‘‘(e) CERTAIN CONDUIT ENTITIES.—
‘‘(1) REGULATED
INVESTMENT
COMPANIES;
REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST
FUNDS.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for the sub-
paragraph) be 90 percent or more, such ratio
for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(E) QUALIFIED INVESTMENT ENTITY.—
For purposes of this paragraph, the term
‘qualified investment entity’ means—
‘‘(i) a regulated investment company
(within the meaning of section 851),
‘‘(ii) a real estate investment trust
(within the meaning of section 856), and
‘‘(iii) a common trust fund (within the
meaning of section 584).
‘‘(2) PARTNERSHIPS.—In the case of a partner-
ship, the adjustment made under subsection (a) at
the partnership level shall be passed through to the
partners.
‘‘(3) SUBCHAPTER
S
CORPORATIONS.—In the
case of an electing small business corporation, the
adjustment under subsection (a) at the corporate
level shall be passed through to the shareholders.
‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT OR DEPRECIATION ALLOWANCE.—If any person
transfers cash, debt, or any other property to another per-
son and the principal purpose of such transfer is—
‘‘(1) to secure or increase an adjustment under
subsection (a), or
‘‘(2) to increase (by reason of an adjustment
under subsection (a)) a deduction for depreciation,
depletion, or amortization,
the Secretary may disallow part or all of such adjustment
or increase.
‘‘(h) DEFINITIONS.—For purposes of this section—
‘‘(1) NET
LEASE
PROPERTY
DEFINED.—The
term ‘net lease property’ means leased real property
where—
‘‘(A) the term of the lease (taking into ac-
count options to renew) was 50 percent or more
of the useful life of the property, and
‘‘(B) for the period of the lease, the sum
of the deductions with respect to such property
which are allowable to the lessor solely by rea-
son of section 162 (other than rents and reim-
bursed amounts with respect to such property)
is 15 percent or less of the rental income pro-
duced by such property.
‘‘(2) STOCK INCLUDES INTEREST IN COMMON
TRUST FUND.—The term ‘stock in a corporation’ in-
cludes any interest in a common fund (as defined in
section 584(a)).
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—This table of sections
for part II of subchapter O of such chapter 1 is amended
by inserting after the item relating to section 1021 the
following new item:
‘‘Sec. 1022. Indexing of certain assets for purposes of determining
gain or loss.’’
(c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE-
TERMINING EARNINGS AND PROFITS.—Subsection (f) of
section 312 (relating to effect on earnings and profits of
gain or loss and of receipt of tax-free distributions) is
amended by adding at the end thereof the following new
paragraph:
‘‘(3) EFFECT ON EARNINGS AND PROFITS OF
INDEXED BASIS.—For substitution of indexed basis
for adjusted basis in the case of the disposition of
certain assets after December 31, 1992, see section
1022(a)(1).’’
SEC. 605. INDEXING OF LIMITATION ON CAPITAL LOSSES
OF INDIVIDUALS.
Section 1211 (relating to limitation on capital losses)
is amended by adding at the end thereof the following new
subsection:
‘‘(c) 
INDEXATION
OF
LIMITATION
ON
NONCORPORATE TAXPAYERS.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1993, the
$3,000 and $1,500 amounts under subsection (b)(1)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the applicable inflation adjustment
for the calendar year in which the taxable year
begins.
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—
For purposes of paragraph (1), the applicable infla-
tion adjustment for any calendar year is the percent-
age (if any) by which—
‘‘(A) the gross national product deflator
for the last calendar quarter of the preceding
calendar year, exceeds
‘‘(B) the gross national product deflator
for the last calendar quarter of 1990.
For purposes of this paragraph, the term ‘gross na-
tional product deflator’ has the meaning given such
term by section 1022(c)(3).’’
SEC. 606. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE.
(a) IN GENERAL.—Section 121 (relating to one-time
exclusion of gain from sale of principal residence by indi-
vidual who has attained age 55) is amended to read as
follows:
‘‘SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude gain from the sale or exchange of property if such
property has been owned and used by the taxpayer as the
taxpayer’s principal residence.
‘‘(b) SPECIAL RULES.—
‘‘(1) TENANT-STOCKHOLDER IN COOPERATIVE
HOUSING CORPORATION.—For purposes of this sec-
tion, if the taxpayer holds stock as a tenant-stock-
holder (as defined in section 216) in a cooperative
housing corporation (as defined in such section),
then the use requirements of subsection (a) shall be
applied to the house or apartment which the tax-
payer was entitled to occupy as such stockholder.
‘‘(2) INVOLUNTARY
CONVERSIONS.—For pur-
poses of this section, the destruction, theft, seizure,
requisition, or condemnation of property shall be
treated as the sale of such property.
‘‘(3) PROPERTY USED IN PART AS PRINCIPAL
RESIDENCE.—In the case of property only a portion
of which has been owned and used by the taxpayer
as the taxpayer’s principal residence, this section
shall apply with respect to so much of the gain from
sale or exchange of such property as is determined,
under regulations prescribed by the Secretary, to be
attributable to the portion of the property so owned
and used by the taxpayer.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 1033(h) is amend-
ed to read as follows:
‘‘(3) For exclusion from gross income of gain
from involuntary conversion of principal residence,
see section 121.’’
(2) Subsection (l) of section 1034 is amended
to read as follows:
‘‘(l) TERMINATION.—This section shall not apply to
any sale or exchange occurring after December 31, 1992,
in taxable years ending after such date.’’
(3) Section 1038 is amended by striking sub-
section (e) and redesignating subsections (f) and (g)
as subsections (e) and (f), respectively.
(4) Paragraph (7) of section 1250(d) is amend-
ed to read as follows:
‘‘(7) DISPOSITION OF PRINCIPAL RESIDENCE.—
Subsection (a) shall not apply to a disposition of
property to the extent used by the taxpayer as the
taxpayer’s principal residence (within the meaning of
section 121).’’
(5) Subsection (c) of section 6012 is amended
by striking ‘‘one-time exclusion of gain from sale of
principal residence by individual who has attained
age 55’’ and inserting ‘‘exclusion of gain from sale
of principal residence’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 is amended by
striking the item relating to section 121 and inserting the
following new item:
‘‘Sec. 121. Exclusion of gain from sale of principal residence.’’
SEC. 607. EFFECTIVE DATES.
(a) IN GENERAL.—Except as provided in subsection
(b), the amendments made by this subtitle shall apply to
sales or exchanges occurring after December 31, 1992, in
taxable years ending after such date.
(b) INDEXING OF LOSS LIMITATION.—The amend-
ments made by section 605 shall apply to taxable years
beginning after December 31, 1992.
TITLE VII—ENTERPRISE ZONES
SEC. 700. PURPOSE.
It is the purpose of this title to provide for the estab-
lishment of enterprise zones in order to stimulate entre-
preneurship, particularly by zone residents, the creation
of new jobs, particularly for disadvantaged workers and
long-term unemployed individuals, and to promote revital-
ization of economically distressed areas primarily by pro-
viding 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 enterprise zone residents in
their own community and its development, particu-
larly through the increased involvement of private,
local, and neighborhood organizations.
Subtitle A—Designation of
Enterprise Zones
SEC. 701. DESIGNATION OF ZONES.
(a) GENERAL RULE.—Chapter 80 (relating to gen-
eral rules) is amended by adding at the end thereof the
following new subchapter:
‘‘Subchapter D—Designation of Enterprise
Zones
‘‘Sec. 7880. Designation.
‘‘SEC. 7880. DESIGNATION.
‘‘(a) DESIGNATION OF ZONES.—
‘‘(1) DEFINITION.—For purposes of this title,
the term ‘enterprise zone’ 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 an enter-
prise zone (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 an enterprise zone.
‘‘(2) AUTHORITY
TO
DESIGNATE.—The Sec-
retary of Housing and Urban Development is au-
thorized to designate enterprise zones in accordance
with the provisions of this section.
‘‘(3) LIMITATIONS ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
Before designating any area as an enterprise
zone and not later than 4 months following the
date of the enactment of this section, the Sec-
retary of Housing and Urban Development
shall prescribe by regulation, after consultation
with the officials described in paragraph
(1)(B)—
‘‘(i) the procedures for nominating an
area, and
‘‘(ii) the procedures for designation as
an enterprise zone, including a method for
comparing courses of action under sub-
section (d) proposed for nominated areas,
and the other factors specified in sub-
section (e).
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development shall des-
ignate nominated areas as enterprise zones only
during the 48-month period beginning on the
later of—
‘‘(i) the first day of the first month
following the month in which the effective
date of the regulations described in sub-
paragraph (A) occurs, or
‘‘(ii) June 30, 1992.
‘‘(C) NUMBER OF DESIGNATIONS.—
‘‘(i) IN GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate—
‘‘(I) not more than 50 nominated
areas as enterprise zones under this
section, and
‘‘(II) not more than 15 nomi-
nated areas as enterprise zones during
the first 12-month period beginning
on the date determined under sub-
paragraph (B), not more than 30 by
the end of the second 12-month pe-
riod, not more than 45 by the end of
the third 12-month period, and not
more than 50 by the end of the fourth
12-month period.
‘‘(ii) 
MINIMUM
DESIGNATION
IN
RURAL AREAS.—Of the areas designated as
enterprise zones, at least one-third must be
areas that are—
‘‘(I) within a local government
jurisdiction or jurisdictions with a
population of less than 50,000 (as de-
termined using the most recent census
data available);
‘‘(II) outside of a metropolitan
statistical area (within the meaning of
section 143(k)(2)(B)); or
‘‘(III) determined by the Sec-
retary of Housing and Urban Devel-
opment, after consultation with the
Secretary of Commerce, to be rural
areas.
‘‘(D) PROCEDURAL
RULES.—The Sec-
retary of Housing and Urban Development
shall not make any designations under this sec-
tion unless—
‘‘(i) the local government and the
State in which the nominated area is lo-
cated have the authority to—
‘‘(I) nominate such area for des-
ignation as an enterprise zone,
‘‘(II) make the State and local
commitments under subsection (d),
and
‘‘(III) provide assurances satis-
factory to the Secretary of Housing
and Urban Development that such
commitments will be fulfilled, and
‘‘(ii) a nomination therefor is submit-
ted by such State and local governments in
such a manner and in such form, and con-
tains such information, as the Secretary of
Housing and Urban Development shall
prescribe by regulation.
‘‘(4) NOMINATION PROCESS FOR INDIAN RES-
ERVATIONS.—In the case of a nominated area on an
Indian reservation, the reservation governing body
(as determined by the Secretary of the Interior)
shall be deemed to be both the State and local gov-
ernments with respect to such area.
‘‘(b) TIME PERIOD FOR WHICH DESIGNATION IS IN
EFFECT.—
‘‘(1) IN GENERAL.—Any designation of an area
as an enterprise zone shall remain in effect during
the period beginning on the date of the designation
and ending on the earliest of—
‘‘(A) December 31 of the 24th calendar
year following the calendar year in which such
date occurs,
‘‘(B) the termination date specified by the
State and local governments as provided in the
nomination submitted in accordance with sub-
section (a)(3)(D)(ii),
‘‘(C) such other date as the Secretary of
Housing and Urban Development shall specify
as a condition of designation, or
‘‘(D) the date upon which the Secretary of
Housing and Urban Development revokes such
designation.
‘‘(2) REVOCATION OF DESIGNATION.—The Sec-
retary of Housing and Urban Development, after
consultation with the officials described in subsection
(a)(1)(B), may revoke the designation of an area if
the Secretary of Housing and Urban Development
determines that the State or a local government in
which the area is located is not complying substan-
tially with the agreed course of action for the area.
‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate a nominated
area as an enterprise zone only if it meets the re-
quirements of paragraphs (2) and (3).
‘‘(2) AREA REQUIREMENTS.—A nominated area
meets the requirements of this paragraph if—
‘‘(A) the area is within the jurisdiction of
the 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 not less than—
‘‘(I) 4,000 if any portion of such
area (other than a rural area de-
scribed in subsection (a)(3)(C)(ii)) is
located within a metropolitan statis-
tical area (as designated by the Direc-
tor of the Office of Management and
Budget) with a population of 50,000
or more; 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.—For pur-
poses of paragraph (1), a nominated area meets the
requirements of this paragraph if the State or local
governments in which the nominated area is located
certifies, and the Secretary of Housing and Urban
Development accepts such certification, that—
‘‘(A) the area is one of pervasive poverty,
unemployment and general distress;
‘‘(B) the unemployment rate for the area,
as determined by the appropriate available
data, was not less than 1.5 times the national
unemployment rate for the period;
‘‘(C) the poverty rate (as determined by
the most recent census data available) for each
populous census tract (or where not tracted, the
equivalent county division as defined by the Bu-
reau of the Census for the purpose of defining
poverty areas) within the area was not less than
1.5 times the national poverty rate for the pe-
riod to which such data relate; and
‘‘(D) the area meets at least one of the fol-
lowing criteria:
‘‘(i) Not less than 70 percent of the
households living in the area have incomes
below 80 percent of the median income of
households of the local government (deter-
mined in the same manner as under sec-
tion 119(b)(2) of the Housing and Com-
munity Development Act of 1974).
‘‘(ii) The population of the area de-
creased by 20 percent or more between
1970 and 1980 (as determined from the
most recent census available).
‘‘(4) ELIGIBILITY REQUIREMENTS FOR RURAL
AREAS.—For purposes of paragraph (1), a nomi-
nated area that is a rural area described in sub-
section (a)(3)(C)(ii) meets the requirements of para-
graph (3) if the State and local governments in
which it is located certify and the Secretary, after
such review of supporting data as he deems appro-
priate, accepts such certification, that the area
meets—
‘‘(A) the criteria set forth in subpara-
graphs (A) and (B) of paragraph (3); and
‘‘(B) not less than one of the criteria set
forth in the other subparagraphs of paragraph
(3).
‘‘(d) REQUIRED
STATE
AND
LOCAL
COMMIT-
MENTS.—
‘‘(1) IN GENERAL.—No nominated area shall be
designated as an enterprise zone unless the State
and the local government or governments of the ju-
risdictions in which the nominated area is located
agree in writing that, during any period during
which the nominated area is an enterprise zone, such
governments will follow a specified course of action
designed to reduce the various burdens borne by em-
ployers or employees in such area.
‘‘(2) COURSE OF ACTION.—The course of action
under paragraph (1) may include, but is not limited
to—
‘‘(A) the reduction or elimination of tax
rates or fees applying within the enterprise
zone,
‘‘(B) actions to reduce, remove, simplify,
or streamline governmental requirements apply-
ing within the enterprise zone,
‘‘(C) an increase in the level or efficiency
of local services within the enterprise zone, for
example, crime prevention, and drug enforce-
ment prevention and treatment,
‘‘(D) involvement in the program by pri-
vate entities, organizations, neighborhood asso-
ciations, and community groups, particularly
those within the nominated area, including a
commitment from such private entities to pro-
vide jobs and job training for, and technical, fi-
nancial or other assistance to, employers, em-
ployees, and residents of the nominated area,
‘‘(E) mechanisms to increase equity owner-
ship by residents and employees within the en-
terprise zone,
‘‘(F) donation (or sale below market value)
of land and buildings to benefit low and mod-
erate income people,
‘‘(G) linkages to—
‘‘(i) job training,
‘‘(ii) transportation,
‘‘(iii) education,
‘‘(iv) day care,
‘‘(v) health care, and
‘‘(vi) other social service support,
‘‘(H) provision of supporting public facili-
ties, and infrastructure improvements,
‘‘(I) encouragement of local entrepreneur-
ship; and
‘‘(J) other factors determined essential to
support enterprise zone activities and encourage
livability or quality of life.
‘‘(3) LATER MODIFICATION OF A COURSE OF
ACTION.—The Secretary of Housing and Urban De-
velopment may by regulation prescribe procedures to
permit or require a course of action to be updated
or modified during the time that a designation is in
effect.
‘‘(e) PRIORITY OF DESIGNATION.—In choosing nomi-
nated areas for designation, the Secretary of Housing and
Urban Development shall give preference to the nominated
areas—
‘‘(1) with respect to which the strongest and
highest quality contributions have been promised as
part of the course of action, taking into consider-
ation the fiscal ability of the nominating State and
local governments to provide tax relief,
‘‘(2) with respect to which the nominating State
and local governments have provided the most effec-
tive and enforceable guarantees that the proposed
course of action will actually be carried out during
the period of the enterprise zone designation,
‘‘(3) with respect to which private entities have
made the most substantial commitments in addi-
tional resources and contributions, including the cre-
ation of new or expanded business activities, and
‘‘(4) which best exhibit such other factors deter-
mined by the Secretary of Housing and Urban De-
velopment, including relative distress, as are consist-
ent with the intent of the enterprise zone program
and have the greatest likelihood of success.
‘‘(f) GEOGRAPHIC DISTRIBUTION.—In making des-
ignations, the Secretary of Housing and Urban Develop-
ment will take into consideration a reasonable geographic
distribution of enterprise zones.
‘‘(g) DEFINITIONS.—For the purposes of this title—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as an enterprise
zone, any reference to, or requirement of, this sec-
tion shall apply to all such governments.
‘‘(2) STATE.—The term ‘State’ shall also in-
clude the Commonwealth of Puerto Rico, the Virgin
Islands, Guam, American Samoa, the Common-
wealth of 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.
‘‘(h) CROSS REFERENCES FOR—
‘‘(1) definitions, see section 1391,
‘‘(2) treatment of employees in enterprise zones,
see section 1392, and
‘‘(3) treatment of investments in enterprise zones,
see sections 1393 and 1394.’’.
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 80 is amended by adding at the end
thereof the following new item:
‘‘SUBCHAPTER D. Designation of enterprise zones.’’.
SEC. 702. REPORTING REQUIREMENTS.
Not later than the close of the second calendar year
after the calendar year in which the Secretary of Housing
and Urban Development first designates areas as enter-
prise zones, and at the close of each second calendar year
thereafter, the Secretary of Housing and Urban Develop-
ment shall submit to the Congress a report on the effects
of such designation in accomplishing the purposes of this
title.
SEC. 703. INTERACTION WITH OTHER FEDERAL PROGRAMS.
(a) COORDINATION
WITH
RELOCATION
ASSIST-
ANCE.—The designation of an enterprise zone under sec-
tion 7880 of the Internal Revenue Code of 1986 (as added
by this title) shall not—
(1) constitute approval of a Federal or federally
assisted program or project (within the meaning of
the Uniform Relocation Assistance and Real Prop-
erty Acquisition Policies Act of 1970 (42 U.S.C.
4601)); or
(2) entitle any person displaced from real prop-
erty located in such zone to any rights or any bene-
fits under such title.
(b) COORDINATION WITH ENVIRONMENTAL POL-
ICY.—Designation of an enterprise zone under section
7880 of the Internal Revenue Code of 1986 shall not con-
stitute a Federal action for purposes of applying the pro-
cedural requirements of the National Environmental Pol-
icy Act of 1969 (42 U.S.C. 4341) or other provisions of
Federal law relating to the protection of the environment.
Subtitle B—Federal Income Tax
Incentives
SEC. 711. DEFINITIONS AND REGULATIONS; EMPLOYEE
CREDIT; CAPITAL GAIN EXCLUSION; STOCK
EXPENSING.
(a) GENERAL RULE.—Chapter 1 (relating to normal
tax and surtax rules) is amended by inserting after sub-
chapter T the following new subchapter:
‘‘Subchapter U—Enterprise Zones
‘‘Sec. 1391. Definitions and regulatory authority.
‘‘Sec. 1392. Credit for enterprise zone employees.
‘‘Sec. 1393. Enterprise zone capital gain.
‘‘Sec. 1394. Enterprise zone stock.
‘‘SEC. 1391. DEFINITIONS AND REGULATORY AUTHORITY.
‘‘(a) ENTERPRISE ZONE.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, the term ‘enterprise zone’ means any area
which the Secretary of Housing and Urban Develop-
ment designates pursuant to section 7880(a) as a
Federal enterprise zone for purposes of this title.
‘‘(2) TERMINATION OF ENTERPRISE ZONE.—An
area will cease to constitute an enterprise zone once
its designation as such terminates or is revoked
under section 7880(b).
‘‘(b) ENTERPRISE ZONE BUSINESS.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, the term ‘enterprise zone business’ means
sons related to the taxpayer shall be treated as one
activity for purposes of paragraph (1).
‘‘(3) SPECIAL RULES.—
‘‘(A) RENTAL REAL PROPERTY.—For pur-
poses of paragraph (1), real property located
within an enterprise zone and held for use by
customers other than related persons shall be
treated as the active conduct of a trade or busi-
ness for purposes of paragraph (1)(A) and as
not subject to paragraph (1)(B).
‘‘(B) TERMINATION OF ENTERPRISE ZONE
BUSINESS.—An activity shall cease to be an en-
terprise zone business if—
‘‘(i) the designation of the enterprise
zone in which the activity is conducted ter-
minates or is revoked pursuant to section
7880(b);
‘‘(ii) more than 50 percent (by value)
of the activity’s property or services are
obtained from related persons other than
enterprise zone businesses; or
‘‘(iii) more than 50 percent of the ac-
tivity’s gross income is attributable to
property or services provided to related
persons other than enterprise zone busi-
nesses.
‘‘(c) ENTERPRISE ZONE PROPERTY.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, the term ‘enterprise zone property’ means
any property used in the active conduct of an enter-
prise zone business.
‘‘(2) TERMINATION
OF
ENTERPRISE
ZONE.—
The treatment of property as enterprise zone prop-
erty under subparagraph (A) shall not terminate
upon the termination or revocation of the designa-
tion of the enterprise zone in which the property is
located, but instead shall terminate immediately
after the first sale or exchange of such property oc-
curring after the expiration or revocation.
‘‘(d) RELATED PERSONS.—For purposes of this sub-
chapter, a person shall be treated as related to another
person if—
‘‘(1) the relationship of such persons is de-
scribed in section 267(b) or 707(b)(1), or
‘‘(2) such persons are engaged in trades or
businesses under common control (within the mean-
ing of subsections (a) and (b) of section 52).
For purposes of paragraph (1), in applying section 267(b)
or 707(b)(1), ‘33 percent’ shall be substituted for ‘50 per-
cent’.
‘‘(e) REGULATORY AUTHORITY.—The Secretary shall
prescribe such regulations as may be necessary or appro-
priate to carry out the purposes of title VI of the Family
and Economic Recovery Act, including—
‘‘(1) providing that Federal tax relief is un-
available to an activity that does not stimulate em-
ployment in, or revitalization of, enterprise zones,
‘‘(2) providing for appropriate coordination with
other Federal programs that, in combination, might
enable activity within enterprise zones to be more
than 100 percent subsidized by the Federal govern-
ment, and
‘‘(3) preventing the avoidance of the rules in
this subchapter.
‘‘SEC. 1392. CREDIT FOR ENTERPRISE ZONE EMPLOYEES.
‘‘(a) GENERAL RULE.—In the case of a taxpayer who
is an enterprise zone employee, there shall be allowed as
a credit against the tax imposed by this subtitle for the
taxable year an amount equal to 5 percent of so much
of the qualified wages of the taxpayer for the taxable year
as does not exceed $10,500.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) ENTERPRISE ZONE EMPLOYEE.—The term
‘enterprise zone employee’ means an individual—
‘‘(A) performing services during the tax-
able year that are directly related to the con-
duct of an enterprise zone business,
‘‘(B) substantially all of the services de-
scribed in paragraph (1)(A) are performed
within an enterprise zone, and
‘‘(C) the employer for whom the services
described in paragraph (1)(A) are performed is
not the Federal government, any State govern-
ment or subdivision thereof, or any local gov-
ernment.
‘‘(2) WAGES.—The term ‘wages’ has the mean-
ing given to such term by subsection (b) of section
3306 (determined without regard to any dollar limi-
tation contained in such subsection).
‘‘(3) QUALIFIED WAGES.—The term ‘qualified
wages’ means all wages of the taxpayer, to the ex-
tent attributable to services described in paragraph
(1).
‘‘(c) LIMITATIONS.—
‘‘(1) PHASE-OUT OF CREDIT.—The amount of
the credit allowable to a taxpayer under subsection
(a) for any taxable year shall not exceed the excess
(if any) of—
‘‘(A) $525, over
‘‘(B) 10.5 percent of so much of the tax-
payer’s total wages (whether or not constituting
qualified wages) as exceeds $20,000.
‘‘(2) PARTIAL TAXABLE YEAR.—If designation
of an area as an enterprise zone occurs, expires, or
is revoked pursuant to section 7880 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 subsection (c)(1) shall be ad-
justed on a pro rata basis (based upon the number
of days).
‘‘(d) REDUCTION OF CREDIT TO TAXPAYERS SUB-
JECT TO ALTERNATIVE MINIMUM TAX.—The credit al-
lowed under this section for the taxable year shall be re-
duced by the amount (if any) of tax imposed by section
55 (relating to the alternative minimum tax) with respect
to such taxpayer for such year.
‘‘(e) CREDIT TREATED AS SUBPART C CREDIT.—For
purposes of this title, the credit allowed under subsection
(a) shall be treated as a credit allowed under subpart C
of part IV of subchapter A of this chapter.
‘‘(c) BASIS.—Amounts excluded from gross income
pursuant to subsection (a) shall not be applied in reduc-
tion to the basis of any property held by the taxpayer.
‘‘SEC. 1394. ENTERPRISE ZONE 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 enterprise zone stock
on the original issue of such stock by a qualified issuer
shall be allowed as a deduction.
‘‘(b) LIMITATIONS.—
‘‘(1) CEILING.—The maximum amount allowed
as a deduction under subsection (a) to a taxpayer
shall not exceed $100,000 for any taxable year, nor
$500,000 during the taxpayer’s lifetime.
‘‘(A) EXCESS
AMOUNTS.—If the amount
otherwise deductible by any person under sub-
section (a) exceeds the limitation under this
paragraph (1)—
‘‘(i) the amount of such excess shall
be treated as an amount paid in the next
taxable year, and
‘‘(ii) the deduction allowed for any
taxable year shall be allocated among the
enterprise zone stock purchased by such
person in accordance with the purchase
price per share.
‘‘(2) RELATED PERSON.—
‘‘(A) IN GENERAL.—The taxpayer and all
individuals related to the taxpayer shall be
treated as one person for purposes of the limi-
tations described in subsection (b)(1).
‘‘(B) EXCESS AMOUNTS.—The limitations
described in subsection (b)(1) shall be allocated
among the taxpayer and related persons in ac-
cordance with their respective purchases of en-
terprise zone stock.
‘‘(3) PARTIAL TAXABLE YEAR.—If designation
of an area as an enterprise zone occurs, expires, or
is revoked pursuant to section 7880 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 subsection (b)(1) shall be ad-
justed on a pro rata basis (based upon the number
of days).
‘‘(c) DISPOSITIONS OF STOCK.—
‘‘(1) GAIN TREATED AS ORDINARY INCOME.—
Except as otherwise provided in regulations, if a tax-
payer disposes of any enterprise zone stock with re-
spect to which a deduction was allowed under sub-
section (a), the amount realized upon such disposi-
tion shall be treated as ordinary income and recog-
nized notwithstanding any other provision of this
subtitle.
‘‘(2) INTEREST
CHARGED
IF
DISPOSITION
WITHIN 5 YEARS OF PURCHASE.—
‘‘(A) IN GENERAL.—If a taxpayer disposes
of any enterprise zone stock before the end of
the 5-year period beginning on the date such
stock was purchased by the taxpayer, 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) ADDITIONAL AMOUNT.—For purposes
of subparagraph (A), the additional amount
shall be equal to the amount of interest (deter-
mined 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 such
stock was disposed of by the taxpayer,
‘‘(ii) on an amount equal to the aggre-
gate decrease in tax of the taxpayer result-
ing from the deduction allowed under this
subsection (a) with respect to the stock so
disposed of.
‘‘(d) DISQUALIFICATION.—
‘‘(1) ISSUER OR STOCK CEASES TO QUALIFY.—
If a taxpayer elects the deduction under subsection
(a) with respect to enterprise zone stock, and ei-
ther—
‘‘(A) the issuer with respect to which the
election was made ceases to be a qualified is-
suer, or
‘‘(B) the proceeds from the issuance of the
taxpayer’s enterprise zone stock fail or other-
wise cease to be invested by the issuer in enter-
prise zone property, then, notwithstanding any
provision of this subtitle other than paragraph
(2) to the contrary, the taxpayer shall recognize
as ordinary income the amount of the deduction
allowed under subsection (a) with respect to the
issuer’s enterprise zone stock.
‘‘(2) SPECIAL RULES.—
‘‘(A) 
LIQUIDATION.—Where 
enterprise
zone property acquired with proceeds from the
issuance of enterprise zone stock is sold or ex-
changed pursuant to a plan of complete liquida-
100
tion, the treatment described in paragraph (1)
shall be inapplicable.
‘‘(B) 
TERMINATION
OF
ENTERPRISE
ZONE.—The treatment of an activity as an en-
terprise zone business shall not cease for pur-
poses of paragraph (1) solely by reason of the
termination or revocation of the designation of
the enterprise zone with respect to the activity.
‘‘(C) PARTIAL DISQUALIFICATION.—Where
some, but not all, of the property acquired by
the issuer with the proceeds of enterprise zone
stock ceases to constitute enterprise zone prop-
erty, the treatment described in paragraph (1)
shall be modified as follows—
‘‘(i) the total amount recognized as
ordinary income by all shareholders of the
issuer shall be limited to an amount of de-
duction allowed up to the unadjusted basis
of property ceasing to constitute enterprise
zone property,
‘‘(ii) the amount recognized shall be
allocated among enterprise zone stock with
respect to which the election in subsection
(a) was made in the reverse order in which
such stock was issued, and
101
‘‘(iii) the amount recognized shall be
apportioned among taxpayers having made
the election in subsection (a) in the ratios
in which the stock described in paragraph
(2)(C)(ii) was purchased.
‘‘(3) ADDITIONAL AMOUNT.—If income is rec-
ognized pursuant to paragraph (1) at any time be-
fore the close of the 5th calendar year ending after
the date the enterprise zone stock was purchased,
the tax imposed by this chapter with respect to such
income shall be increased by an amount equal to the
amount of interest (determined at the rate applica-
ble under section 6621(a)(2)) that would accrue—
‘‘(A) during the period beginning on the
date the stock was purchased by the taxpayer
and ending on the date of the disqualification
event described in paragraph (1),
‘‘(B) on an amount equal to the aggregate
decrease in tax of the taxpayer resulting from
the deduction allowed under this subsection (a)
with respect to the stock so disqualified.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) ENTERPRISE ZONE STOCK.—The term ‘en-
terprise zone stock’ means common stock issued by
a qualified issuer, but only to the extent that the
102
amount of proceeds of such issuance are used by
such issuer no later than twelve months followed is-
suance to acquire and maintain an equal amount of
newly acquired enterprise zone property.
‘‘(2) QUALIFIED ISSUER.—
‘‘(A) IN GENERAL.—The term ‘qualified is-
suer’ means any subchapter C corporation
which—
‘‘(i) does not have more than one
class of stock,
‘‘(ii) is engaged solely in the conduct
of one or more enterprise zone businesses,
‘‘(iii) does not own or lease more than
$50,000,000 of total property (including
money), as measured by the unadjusted
basis of the property, and
‘‘(iv) more than 20 percent of the
total voting power and 20 percent of the
total value of the stock of such corporation
is owned by individuals, partnerships, es-
tates or trusts.
‘‘(B) LIMITATION ON TOTAL ISSUANCES.—
A qualified issuer may issue no more than an
aggregate of $50,000,000 of enterprise zone
stock.
103
‘‘(C) AGGREGATION.—For purposes of ap-
plying the limitations under paragraph (2), the
issuer and all related persons shall be treated
as one person.
‘‘(3) AMOUNT
PAID.—For purposes of sub-
section (a), the amount ‘paid’ by a taxpayer for any
taxable year shall not include the issuance of evi-
dences of indebtedness of the taxpayer (whether or
not such indebtedness is guaranteed by another per-
son), nor amounts paid by the taxpayer after the
close of the taxable year.
‘‘(f) ISSUANCES IN EXCHANGE FOR PROPERTY.—If
enterprise zone stock is issued in exchange for property,
then notwithstanding any provision of subchapter C of this
chapter to the contrary—
‘‘(1) the issuance shall be treated for purposes
of this subtitle as the sale of the property at its then
fair market value to the corporation, and a contribu-
tion to the corporation of the proceeds immediately
thereafter in exchange for the enterprise zone stock,
and
‘‘(2) the issuer’s basis for the property shall be
equal to the fair market value of such property at
the time of issuance.
104
‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a taxpayer elects the deduction under subsection
(a), the taxpayer’s basis (without regard to this sub-
section) for the enterprise zone stock with respect to such
election shall be reduced by the deduction allowed or allow-
able.
‘‘(h) LIMITATIONS ON ASSESSMENT AND COLLEC-
TION.—If a taxpayer elects the deduction under subsection
(a) for any taxable year, then—
‘‘(1) the period for assessment and collection of
any deficiency attributable to any part of the deduc-
tion shall not expire before one year following expi-
ration of such period of the qualified issuer that in-
cludes the circumstances giving rise to the defi-
ciency, and
‘‘(2) such deficiency may be assessed before ex-
piration of the period described in paragraph (1)
notwithstanding any provisions of this subtitle to the
contrary.
‘‘(i) CROSS REFERENCE.—
‘‘For treatment of the deduction under subsection
(a) for purposes of the alternative minimum tax, see
section 56.’’.
(b) TECHNICAL AMENDMENT.—Subsection (a) of
section 1016 (relating to adjustments to basis) is amended
by striking out ‘‘and’’ at the end of paragraph (23); by
striking out the period at the end of paragraph (24) and
105
inserting in lieu thereof ‘‘; and’’; and by adding at the
end thereof the following new paragraph:
‘‘(25) to the extent provided in section 1394(g),
in the case of stock with respect to which a deduc-
tion was allowed or allowable under section
1394(a).’’.
(c) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 1 is amended by inserting after the
item relating to subchapter T the following new item:
‘‘SUBCHAPTER U. Enterprise zones.’’.
SEC. 712. CORPORATE ALTERNATIVE MINIMUM TAX.
Section 56(g)(4)(B) (relating to adjustments based
on adjusted current earnings of corporations) is amended
by adding the following new clause at the end thereof:
‘‘(iii) EXCLUSION
OF
ENTERPRISE
ZONE CAPITAL GAIN.—Clause (i) shall not
apply in the case of any enterprise zone
capital 
gain 
(as 
defined 
in 
section
1393(b)), and such gain shall not be in-
cluded in income for purposes of comput-
ing alternative minimum taxable income.’’
SEC. 713. ADJUSTED GROSS INCOME DEFINED.
Section 62(a) (relating to the definition of adjusted
gross income) is amended by inserting after paragraph
(13) the following new paragraph:
106
‘‘(14) ENTERPRISE ZONE STOCK.—The deduc-
tion allowed by section 1394.’’.
SEC. 714. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to
taxable years ending after December 31, 1993.
Subtitle C—Regulatory Flexibility
SEC. 721. DEFINITION OF SMALL ENTITIES IN ENTERPRISE
ZONE FOR PURPOSES OF ANALYSIS OF REGU-
LATORY FUNCTIONS.
Section 601 of title 5, United States Code, is amend-
ed by—
(1) striking out ‘‘and’’ at the end of paragraph
(5); and
(2) striking out paragraph (6) and inserting in
lieu thereof the following:
‘‘(6) the term ‘small entity’ means—
‘‘(A) a small business, small organization,
or small governmental jurisdiction defined in
paragraphs (3), (4), and (5) of this section, re-
spectively; and
‘‘(B) any qualified enterprise zone busi-
ness; any unit of government that nominated an
area which the Secretary of Housing and Urban
Development designates as an enterprise zone
(within the meaning of section 7880 of the In-
107
ternal Revenue Code of 1986) that has a rule
pertaining to the carrying out of any project,
activity, or undertaking within such zone; and
any not-for-profit enterprise carrying out a sig-
nificant portion of its activities within such a
zone; and
‘‘(7) the term ‘qualified enterprise zone busi-
ness’ means any person, corporation, or other en-
tity—
‘‘(A) which is engaged in the active con-
duct of a trade or business within an enterprise
zone (within the meaning of section 7880 of the
Internal Revenue Code of 1986); and
‘‘(B) for whom at least 50 percent of its
employees are qualified employees (within the
meaning of section 1392(b)(1) of such Code).’’
SEC. 722. WAIVER OR MODIFICATION OF AGENCY RULES IN
ENTERPRISE ZONES.
(a) Chapter 6 of title 5, United States Code, is
amended by redesignating sections 611 and 612 as sec-
tions 612 and 613, respectively, and inserting the follow-
ing new section immediately after section 610:
108
‘‘§ 611. Waiver or modification of agency rules in en-
terprise zones
‘‘(a) Upon the written request of any government
which nominated an area that the Secretary of Housing
and Urban Development has designated as an enterprise
zone under section 7880 of the Internal Revenue Code of
1986, an agency is authorized, in order to further the job
creation, community development, or economic revitaliza-
tion objectives with respect to such zone, to waive or mod-
ify all or part of any rule which it has authority to promul-
gate, as such rule pertains to the carrying out of projects,
activities, or undertakings within such zone.
‘‘(b) Nothing in this section shall authorize an agency
to waive or modify any rule adopted to carry out a statute
or Executive order which prohibits, or the purpose of
which is to protect persons against, discrimination on the
basis of race, color, religion, sex, familial status, national
origin, age, or handicap.
‘‘(c) A request under subsection (a) shall specify the
rule or rules to be waived or modified and the change pro-
posed, and shall briefly describe why the change would
promote the achievement of the job creation, community
development, or economic revitalization objectives of the
enterprise zone. If such a request is made to any agency
other than the Department of Housing and Urban Devel-
opment, the requesting government shall send a copy of
109
the request to the Secretary of Housing and Urban Devel-
opment at the time the request is made.
‘‘(d) In considering a request, the agency shall weigh
the extent to which the proposed change is likely to further
job creation, community development, or economic revital-
ization within the enterprise zone against the effect the
change is likely to have on the underlying purposes of ap-
plicable statutes in the geographic area which would be
affected by the change. The agency shall approve the re-
quest whenever it finds, in its discretion, that the public
interest which the proposed change would serve in further-
ing such job creation, community development, or eco-
nomic revitalization outweighs the public interest which
continuation of the rule unchanged would serve. The agen-
cy shall not approve any request to waive or modify a rule
if that waiver or modification would—
‘‘(1) violate a statutory requirement (including
any requirements of the Fair Labor Standards Act
of 1938 (52 Stat. 1060; 29 U.S.C. 201 et seq.)); or
‘‘(2) be likely to present a significant risk to the
public health, including environmental or occupa-
tional health or safety, or of environmental pollution.
‘‘(e) If a request is disapproved, the agency shall in-
form all the requesting governments, and the Department
of Housing and Urban Development, in writing of the rea-
110
sons therefor and shall, to the maximum extent possible,
work with such governments to develop an alternative,
consistent with the standards contained in subsection (d).
‘‘(f) Agencies shall discharge their responsibilities
under this section in an expeditious manner, and shall
make a determination on requests not later than 90 days
after their receipt.
‘‘(g) A waiver or modification of a rule under sub-
section (a) shall not be considered to be a rule, rule-
making, or regulation under chapter 5 of this title. To fa-
cilitate reaching its decision on any requested waiver or
modification, the agency may seek the views of interested
parties and, if the views are to be sought, determine how
they should be obtained and to what extent, if any, they
should be taken into account in considering the request.
The agency shall publish a notice in the Federal Register
stating any waiver or modification of a rule under this
section, the time such waiver or modification takes effect
and its duration, and the scope of applicability of such
waiver or modification.
‘‘(h) In the event that an agency proposes to amend
a rule for which a waiver or modification under this sec-
tion is in effect, the agency shall not change the waiver
or modification to impose additional requirements unless
it determines, consistent with standards contained in sub-
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section (d), that such action is necessary. Such determina-
tions shall be published with the proposal to amend such
rule.
‘‘(i) No waiver or modification of a rule under this
section shall remain in effect with respect to an enterprise
zone after the enterprise zone designation has expired or
has been revoked.
‘‘(j) For purposes of this section, the term ‘rule’
means (1) any rule as defined in section 551(4) of this
title or (2) any rulemaking conducted on the record after
opportunity for an agency hearing pursuant to sections
556 and 557 of this title.’’.
(b) The analysis for chapter 6 of title 5, United
States Code, is amended by redesignating the items relat-
ing to sections 611 and 612 as items relating to sections
612 and 613, respectively, and by inserting after the item
relating to section 610 the following new item:
‘‘611. Waiver or modification of agency rules in enterprise
zones.’’.
(c) Section 601(2) of such title 5 is amended by in-
serting ‘‘(except for purposes of section 611’’ immediately
before ‘‘means’’.
(d) Section 613 of such title 5, as redesignated by
subsection (a), is amended—
(1) in subsection (a) by inserting ‘‘(except sec-
tion 611)’’ immediately after ‘‘chapter’’; and
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(2) in subsection (b) by inserting ‘‘as defined in
section 601(2)’’ immediately before the period at the
end of the first sentence.
SEC. 723. FEDERAL AGENCY SUPPORT OF ENTERPRISE
ZONES.
In order to maximize all agencies’ support of enter-
prise zones, the Secretary of Housing and Urban Develop-
ment is authorized to convene regional and local coordinat-
ing councils of any appropriate agencies to assist State
and local governments to achieve the objectives agreed to
in the course of action under section 7880 of the Internal
Revenue Code of 1986.
Subtitle D—Establishment of For-
eign-Trade Zones in Enterprise
Zones
SEC. 731. FOREIGN-TRADE ZONE PREFERENCES.
(a) PREFERENCE IN ESTABLISHMENT OF FOREIGN-
TRADE ZONES IN REVITALIZATION AREAS.—In process-
ing applications for the establishment of foreign-trade
zones pursuant to an Act ‘‘To provide for the establish-
ment, operation, and maintenance of foreign-trade zones
in ports of entry of the United States, to expedite and
encourage foreign commerce, and for other purposes’’, ap-
proved June 18, 1934 (48 Stat. 998), the Foreign-Trade
Zone Board shall consider on a priority basis and expedite,
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to the maximum extent possible, the processing of any ap-
plication involving the establishment of a foreign-trade
zone within an enterprise zone designated pursuant to sec-
tion 7880 of the Internal Revenue Code of 1986.
(b) APPLICATION PROCEDURE.—In processing appli-
cations for the establishment of ports of entry pursuant
to ‘‘An Act making appropriations for sundry civil ex-
penses of the Government for the fiscal year ending June
thirtieth, nineteen hundred and fifteen, and for other pur-
poses’’, approved August 1, 1914 (38 Stat. 609), the Sec-
retary of the Treasury shall consider on a priority basis
and expedite, to the maximum extent possible, the process-
ing of any application involving the establishment of a port
of entry which is necessary to permit the establishment
of a foreign-trade zone within an enterprise zone so des-
ignated.
(c) APPLICATION EVALUATION.—In evaluating appli-
cations for the establishment of foreign-trade zones and
ports of entry in connection with enterprise zones so des-
ignated, the Foreign-Trade Zone Board and the Secretary
of the Treasury shall approve the applications, to the max-
imum extent practicable, consistent with their respective
statutory responsibilities.
Æ
HR 1950 SC——2