‘‘(iii) such portion is to be occupied
exclusively by the lessee (or any sublessee)
of such portion,
‘‘(iv) such improvement is placed in
service—
‘‘(I) after September 10, 2001,
and more than 3 years after the date
the building was first placed in serv-
ice, and
‘‘(II) before January 1, 2007,
and
‘‘(v) no written binding contract for
such improvement was in effect before Sep-
tember 11, 2001.
‘‘(B) CERTAIN
IMPROVEMENTS
NOT
IN-
CLUDED.—Such term shall not include any im-
provement for which the expenditure is attrib-
utable to—
‘‘(i) the enlargement of the building,
‘‘(ii) any elevator or escalator,
‘‘(iii) any structural component bene-
fiting a common area, and
‘‘(iv) the internal structural frame-
work of the building.
‘‘(C) DEFINITIONS AND SPECIAL RULES.—
For purposes of this paragraph—
‘‘(i) COMMITMENT TO LEASE TREAT-
ED
AS
LEASE.—A commitment to enter
into a lease shall be treated as a lease, and
the parties to such commitment shall be
treated as lessor and lessee, respectively.
‘‘(ii) RELATED PERSONS.—A lease be-
tween related persons shall not be consid-
ered a lease. For purposes of the preceding
sentence, 
the 
term 
‘related 
persons’
means—
‘‘(I) members of an affiliated
group (as defined in section 1504),
and
‘‘(II) persons having a relation-
ship described in subsection (b) of
section 267; except that, for purposes
of this clause, the phrase ‘80 percent
or more’ shall be substituted for the
phrase ‘more than 50 percent’ each
place it appears in such subsection.
‘‘(D) IMPROVEMENTS MADE BY LESSOR.—
‘‘(i) IN GENERAL.—In the case of an
improvement made by the person who was
the lessor of such improvement when such
improvement was placed in service, such
improvement shall be qualified leasehold
improvement property (if at all) only so
long as such improvement is held by such
person.
‘‘(ii) EXCEPTION
FOR
CHANGES
IN
FORM
OF
BUSINESS.—Property shall not
cease to be qualified leasehold improve-
ment property under clause (i) by reason
of—
‘‘(I) death,
‘‘(II) a transaction to which sec-
tion 381(a) applies, or
‘‘(III) a mere change in the form
of conducting the trade or business so
long as the property is retained in
such trade or business as qualified
leasehold improvement property and
the taxpayer retains a substantial in-
terest in such trade or business.
‘‘(3) REQUIREMENT
TO
USE
STRAIGHT
LINE
METHOD.—The 
applicable 
depreciation 
method
under section 168 shall be the straight line method
in the case of qualified leasehold improvement prop-
erty.
‘‘(4) 9-YEAR RECOVERY PERIOD UNDER ALTER-
NATIVE SYSTEM.—For purposes of section 168(g),
the class life of qualified leasehold improvement
property shall be 9 years.
‘‘(c) INCREASE
IN EXPENSING UNDER SECTION
179.—
‘‘(1) IN
GENERAL.—For purposes of section
179—
‘‘(A) the limitation under section 179(b)(1)
shall be increased by the lesser of—
‘‘(i) $35,000, or
‘‘(ii) the cost of section 179 property
which is qualified New York Liberty Zone
property placed in service during the tax-
able year, and
‘‘(B) the amount taken into account under
section 179(b)(2) with respect to any section
179 property which is qualified New York Lib-
erty Zone property shall be 50 percent of the
cost thereof.
‘‘(2) RECAPTURE.—Rules similar to the rules
under section 179(d)(10) shall apply with respect to
any qualified New York Liberty Zone property which
ceases to be used in the New York Liberty Zone.
‘‘(d) TAX-EXEMPT BOND FINANCING.—
‘‘(1) IN GENERAL.—For purposes of this title,
any qualified New York Liberty Bond shall be treat-
ed as an exempt facility bond.
‘‘(2) QUALIFIED NEW YORK LIBERTY BOND.—
For purposes of this subsection, the term ‘qualified
New York Liberty Bond’ means any bond issued as
part of an issue if—
‘‘(A) 95 percent or more of the net pro-
ceeds (as defined in section 150(a)(3)) of such
issue are to be used for qualified project costs,
‘‘(B) such bond is issued by the State of
New York or any political subdivision thereof,
‘‘(C) the Governor of New York designates
such bond for purposes of this section, and
‘‘(D) such bond is issued during calendar
year 2002, 2003, or 2004.
‘‘(3) LIMITATION ON AMOUNT OF BONDS DES-
IGNATED.—The maximum aggregate face amount of
bonds which may be designated under this sub-
section shall not exceed $15,000,000,000.
‘‘(4) QUALIFIED
PROJECT
COSTS.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
project costs’ means the cost of acquisition,
construction, reconstruction, and renovation
of—
‘‘(i) nonresidential real property and
residential rental property (including fixed
tenant improvements associated with such
property) located in the New York Liberty
Zone, and
‘‘(ii) public utility property located in
the New York Liberty Zone.
‘‘(B) COSTS FOR CERTAIN PROPERTY OUT-
SIDE ZONE INCLUDED.—Such term includes the
cost of acquisition, construction, reconstruction,
and renovation of nonresidential real property
(including fixed tenant improvements associated
with such property) located outside the New
York Liberty Zone but within the City of New
York, New York, if such property is part of a
project which consists of at least 100,000
square feet of usable office or other commercial
space located in a single building or multiple
adjacent buildings.
‘‘(C) LIMITATIONS.—Such term shall not
include—
‘‘(i) costs for property located outside
the New York Liberty Zone to the extent
such costs exceed $7,000,000,000,
‘‘(ii) costs with respect to residential
rental property to the extent such costs ex-
ceed $3,000,000,000, and
‘‘(iii) costs with respect to property
used for retail sales of tangible property to
the 
extent 
such 
costs 
exceed
$1,500,000,000.
‘‘(D) MOVABLE
FIXTURES
AND
EQUIP-
MENT.—Such term shall not include costs with
respect to movable fixtures and equipment.
‘‘(5) SPECIAL RULES.—In applying this title to
any qualified New York Liberty Bond, the following
modifications shall apply:
‘‘(A) Section 146 (relating to volume cap)
shall not apply.
‘‘(B) Section 147(c) (relating to limitation
on use for land acquisition) shall be determined
by reference to the aggregate authorized face
amount of all qualified New York Liberty
Bonds rather than the net proceeds of each
issue.
‘‘(C) Section 147(d) (relating to acquisi-
tion of existing property not permitted) shall be
applied by substituting ‘50 percent’ for ‘15 per-
cent’ each place it appears.
‘‘(D) Section 148(f)(4)(C) (relating to ex-
ception from rebate for certain proceeds to be
used to finance construction expenditures) shall
apply to construction proceeds of bonds issued
under this section.
‘‘(E) Financing provided by such a bond
shall not be taken into account under section
168(g)(5)(A) with respect to property substan-
tially all of the use of which is in the New York
Liberty Zone and is in the active conduct of a
trade or business by the taxpayer in such Zone.
‘‘(F) Repayments of principal on financing
provided by the issue—
‘‘(i) may not be used to provide fi-
nancing, and
‘‘(ii) are used not later than the close
of the 1st semiannual period beginning
after the date of the repayment to redeem
bonds which are part of such issue.
The requirement of clause (ii) shall be treated
as met with respect to amounts received within
10 years after the date of issuance of the issue
(or, in the case of refunding bond, the date of
issuance of the original bond) if such amounts
are used by the close of such 10 years to re-
deem bonds which are part of such issue.
‘‘(G) Section 57(a)(5) shall not apply.
‘‘(6) SEPARATE
ISSUE
TREATMENT
OF
POR-
TIONS
OF
AN
ISSUE.—This subsection shall not
apply to the portion of the proceeds of an issue
which (if issued as a separate issue) would be treat-
ed as a qualified bond or as a bond that is not a
private activity bond (determined without regard to
subsection (a)), if the issuer elects to so treat such
portion.
‘‘(e) EXTENSION
OF REPLACEMENT PERIOD
FOR
NONRECOGNITION
OF
GAIN.—Notwithstanding 
sub-
sections (g) and (h) of section 1033, clause (i) of section
1033(a)(2)(B) shall be applied by substituting ‘5 years’
for ‘2 years’ with respect to property which is compulsorily
or involuntarily converted as a result of the terrorist at-
tacks on September 11, 2001, in the New York Liberty
Zone but only if substantially all of the use of the replace-
ment property is in the City of New York, New York.
‘‘(f) NEW YORK LIBERTY ZONE.—For purposes of
this section, the term ‘New York Liberty Zone’ means the
area located on or south of Canal Street, East Broadway
(east of its intersection with Canal Street), or Grand
Street (east of its intersection with East Broadway) in the
Borough of Manhattan in the City of New York, New
York.’’
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 1 of such Code is amended by adding
at the end the following new item:
‘‘Subchapter Y. New York Liberty Zone Benefits.’’
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