cational Opportunity Scholarship Act of 1997 is
received), and
‘‘(B) a hearing on the record involving offi-
cials of the State or local government involved
(or both, if applicable),
revoke the designation of an area if the Secretary of
Housing and Urban Development determines that
the local government or State in which the area is
located is not complying substantially with the State
or local commitments, respectively, described in sub-
section (d).
‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if the area meets the requirements of para-
graphs (2) and (3) of this subsection.
‘‘(2) AREA REQUIREMENTS.—A nominated area
meets the requirements of this paragraph if—
‘‘(A) the area is within the jurisdiction of
a local government,
‘‘(B) the boundary of the area is continu-
ous, and
‘‘(C) the area—
‘‘(i) has a population, as determined
by the most recent census data available,
of at least—
‘‘(I) 4,000 if any portion of such
area (other than a rural area de-
scribed in subsection (a)(2)(B)(i)) is
located within a metropolitan statis-
tical area (within the meaning of sec-
tion 143(k)(2)(B)) which has a popu-
lation of 50,000 or greater, or
‘‘(II) 1,000 in any other case, or
‘‘(ii) is entirely within an Indian res-
ervation (as determined by the Secretary of
the Interior).
‘‘(3) ELIGIBILITY
REQUIREMENTS.—A nomi-
nated area meets the requirements of this paragraph
if the State and the local governments in which it
is located certify (and the Secretary of Housing and
Urban Development, after such review of supporting
data as he deems appropriate, accepts such certifi-
cation) that—
‘‘(A) the area is one of pervasive poverty,
unemployment, and general distress,
‘‘(B) the unemployment rate in the area,
as determined by the appropriate available
data, was at least 11⁄2 times the national unem-
ployment rate for the period to which such data
relate,
‘‘(C) the poverty rate (as determined by
the most recent census data available) for each
population census tract (or where not tracted,
the equivalent county division as defined by the
Bureau of the Census for the purpose of defin-
ing poverty areas) within the area was at least
20 percent for the period to which such data re-
late, and
‘‘(D) at least 70 percent of the households
living in the area have incomes below 80 per-
cent of the median income of households within
the jurisdiction of the local government (deter-
mined in the same manner as under section
119(b)(2) of the Housing and Community De-
velopment Act of 1974).
‘‘(4) CONSIDERATION OF HIGH INCIDENCE OF
CRIME.—The Secretary of Housing and Urban De-
velopment shall take into account, in selecting nomi-
nated areas for designation as renewal communities
under this section, the extent to which such areas
have a high incidence of crime.
‘‘(d) REQUIRED
STATE
AND
LOCAL
COMMIT-
MENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if—
‘‘(A) the local government and the State in
which the area is located agree in writing that,
during any period during which the area is a
renewal community, such governments will—
‘‘(i) follow a specified course of action
which meets the requirements of para-
graph (2) and is designed to reduce the
various burdens borne by employers or em-
ployees in such area, and
‘‘(ii) comply with the requirements of
the Low-Income Educational Opportunity
Scholarship Act of 1997, and
‘‘(B) the economic growth promotion re-
quirements of paragraph (3) are met.
‘‘(2) COURSE OF ACTION.—
‘‘(A) IN
GENERAL.—A course of action
meets the requirements of this paragraph if
such course of action is a written document,
signed by a State (or local government) and
neighborhood organizations, which evidences a
partnership between such State or government
and community-based organizations and which
commits each signatory to specific and measur-
able goals, actions, and timetables. Such course
of action shall include at least five of the follow-
ing:
‘‘(i) A reduction of tax rates or fees
applying within the renewal community.
‘‘(ii) An increase in the level of effi-
ciency of local services within the renewal
community.
‘‘(iii) Crime reduction strategies, such
as crime prevention (including the provi-
sion of such services by nongovernmental
entities).
‘‘(iv) Actions to reduce, remove, sim-
plify, or streamline governmental require-
ments applying within the renewal commu-
nity.
‘‘(v) Involvement in the program by
private entities, organizations, neighbor-
hood 
organizations, 
and 
community
groups, particularly those in the renewal
community, including a commitment from
such private entities to provide jobs and
job training for, and technical, financial, or
other assistance to, employers, employees,
and residents from the renewal community.
‘‘(vi) State or local income tax bene-
fits for fees paid for services performed by
a nongovernmental entity which were for-
merly performed by a governmental entity.
‘‘(vii) The gift (or sale at below fair
market value) of surplus realty (such as
land, homes, and commercial or industrial
structures) in the renewal community to
neighborhood organizations, community de-
velopment corporations, or private compa-
nies.
‘‘(B) RECOGNITION OF PAST EFFORTS.—
For purposes of this section, in evaluating the
course of action agreed to by any State or local
government, the Secretary of Housing and
Urban Development shall take into account the
past efforts of such State or local government
in reducing the various burdens borne by em-
ployers and employees in the area involved.
‘‘(3) ECONOMIC GROWTH PROMOTION REQUIRE-
MENTS.—The economic growth promotion require-
ments of this paragraph are met with respect to a
nominated area if the local government and the
State in which such area is located certify in writing
that such government and State, respectively, have
repealed or otherwise will not enforce within the
area, if such area is designated as a renewal commu-
nity—
‘‘(A) licensing requirements for occupa-
tions that do not ordinarily require a profes-
sional degree,
‘‘(B) zoning restrictions on home-based
businesses which do not create a public nui-
sance,
‘‘(C) permit requirements for street ven-
dors who do not create a public nuisance,
‘‘(D) zoning or other restrictions that im-
pede the formation of schools or child care cen-
ters, and
‘‘(E) franchises or other restrictions on
competition for businesses providing public
services, including but not limited to taxicabs,
jitneys, cable television, or trash hauling,
except to the extent that such regulation of busi-
nesses and occupations is necessary for and well-tai-
lored to the protection of health and safety.
‘‘(e) 
COORDINATION
WITH
TREATMENT
OF
EMPOWERMENT
ZONES
AND
ENTERPRISE
COMMU-
NITIES.—For purposes of this title, if there are in effect
with respect to the same area both—
‘‘(1) a designation as a renewal community, and
‘‘(2) a designation as an empowerment zone or
enterprise community,
both of such designations shall be given full effect with
respect to such area.
‘‘(f) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as a renewal com-
munity, any reference to, or requirement of, this sec-
tion shall apply to all such governments.
‘‘(2) STATE.—The term ‘State’ includes Puerto
Rico, the Virgin Islands of the United States, Guam,
American Samoa, the Northern Mariana Islands,
and any other possession of the United States.
‘‘(3) LOCAL
GOVERNMENT.—The term ‘local
government’ means—
‘‘(A) any county, city, town, township, par-
ish, village, or other general purpose political
subdivision of a State,
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the Secretary of Housing and Urban Devel-
opment, and
‘‘(C) the District of Columbia.’’
SEC. 104. EVALUATION AND REPORTING REQUIREMENTS.
Not later than the close of the fourth calendar year
after the year in which the Secretary of Housing and
Urban Development first designates an area as a renewal
community under section 1400 of the Internal Revenue
Code of 1986, and at the close of each fourth calendar
year thereafter, such Secretary shall prepare and submit
to the Congress a report on the effects of such designa-
tions in accomplishing the purposes of this Act.
SEC. 105. INTERACTION WITH OTHER FEDERAL PROGRAMS.
(a) TAX REDUCTIONS.—Any reduction of taxes, with
respect to any renewal community designated under sec-
tion 1400 of the Internal Revenue Code of 1986 (as added
by this title), under any plan of action under section
1400(d) of such Code shall be disregarded in determining
the eligibility of a State or local government for, or the
amount or extent of, any assistance or benefits under any
law of the United States (other than subchapter W of
chapter 1 of such Code).
(b) COORDINATION
WITH
RELOCATION
ASSIST-
ANCE.—The designation of a renewal community under
section 1400 of such Code (as added by this title) shall
not—
(1) constitute approval of a Federal or Feder-
ally assisted program or project (within the meaning
of the Uniform Relocation Assistance and Real
Property Acquisition Policies Act of 1970 (42
U.S.C. 4601 et seq.)), or
(2) entitle any person displaced from real prop-
erty located in such community to any rights or any
benefits under such Act.
(c) RENEWAL COMMUNITIES TREATED AS LABOR
SURPLUS AREAS.—Any area which is designated as a re-
newal community under section 1400 of such Code (as
added by this title) shall be treated for all purposes under
Federal law as a labor surplus area.
TITLE II—TAX PROVISIONS
Subtitle A—Tax Incentives for
Renewal Communities
SEC. 201. TAX TREATMENT OF RENEWAL COMMUNITIES.
(a) IN GENERAL.—Subchapter W of chapter I of the
Internal Revenue Code of 1986 (as added by title I) is
amended by adding at the end the following new parts:
‘‘PART II—RENEWAL COMMUNITY CAPITAL GAIN
‘‘Sec. 1400A. Renewal community capital gain.
‘‘Sec. 1400B. Renewal community business defined.
‘‘SEC. 1400A. RENEWAL COMMUNITY CAPITAL GAIN.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude any qualified capital gain recognized on the sale or
exchange of a qualified community asset held for more
than 5 years.
‘‘(b) QUALIFIED COMMUNITY ASSET.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified com-
munity asset’ means—
‘‘(A) any qualified community stock,
‘‘(B) any qualified community business
property, and
‘‘(C) any qualified community partnership
interest.
‘‘(2) QUALIFIED COMMUNITY STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified commu-
nity stock’ means any stock in a domestic cor-
poration if—
‘‘(i) such stock is acquired by the tax-
payer on original issue from the corpora-
tion solely in exchange for cash,
‘‘(ii) as of the time such stock was is-
sued, such corporation was a renewal com-
munity business (or, in the case of a new
corporation, such corporation was being or-
ganized for purposes of being a renewal
community business), and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a renewal
community business.
‘‘(B) REDEMPTIONS.—The term ‘qualified
community stock’ shall not include any stock
acquired from a corporation which made a sub-
stantial stock redemption or distribution (with-
out a bona fide business purpose therefor) in an
attempt to avoid the purposes of this section.
‘‘(3) QUALIFIED COMMUNITY BUSINESS PROP-
ERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
community business property’ means tangible
property if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after the date on which
the designation of the renewal community
took effect,
‘‘(ii) the original use of such property
in the renewal community commences with
the taxpayer, and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such prop-
erty, substantially all of the use of such
property was in a renewal community busi-
ness of the taxpayer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—
‘‘(i) IN GENERAL.—The requirements
of clauses (i) and (ii) of subparagraph (A)
shall be treated as satisfied with respect
to—
‘‘(I) property which is substan-
tially improved by the taxpayer, and
‘‘(II) any land on which such
property is located.
‘‘(ii) SUBSTANTIAL IMPROVEMENT.—
For purposes of clause (i), property shall
be treated as substantially improved by the
taxpayer only if, during any 24-month pe-
riod beginning after the date on which the
designation of the renewal community took
effect, additions to basis with respect to
such property in the hands of the taxpayer
exceed the greater of—
‘‘(I) an amount equal to the ad-
justed basis at the beginning of such
24-month period in the hands of the
taxpayer, or
‘‘(II) $5,000.
‘‘(C) LIMITATION
ON
LAND.—The term
‘qualified community business property’ shall
not include land which is not an integral part
of a renewal community business.
‘‘(4) QUALIFIED COMMUNITY PARTNERSHIP IN-
TEREST.—The term ‘qualified community partner-
ship interest’ means any interest in a partnership
if—
‘‘(A) such interest is acquired by the tax-
payer from the partnership solely in exchange
for cash,
‘‘(B) as of the time such interest was ac-
quired, such partnership was a renewal commu-
nity business (or, in the case of a new partner-
ship, such partnership was being organized for
purposes of being a renewal community busi-
ness), and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a renewal community
business.
A rule similar to the rule of paragraph (2)(C) shall
apply for purposes of this paragraph.
‘‘(5) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified community asset’ in-
cludes any property which would be a qualified com-
munity asset but for paragraph (2)(A)(i), (3)(A)(ii),
or (4)(A) in the hands of the taxpayer if such prop-
erty was a qualified community asset in the hands
of all prior holders.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified community asset by reason
of paragraph (2)(A)(iii), (3)(A)(iii), or (4)(C) after
the 10-year period beginning on the date the tax-
payer acquired such property, such property shall
continue to be treated as meeting the requirements
of such paragraph; except that the amount of gain
to which subsection (a) applies on any sale or ex-
change of such property shall not exceed the amount
which would be qualified capital gain had such prop-
erty been sold on the date of such cessation.
‘‘(7) TREATMENT OF COMMUNITY DESIGNATION
TERMINATIONS.—The termination of any designa-
tion of an area as a renewal community shall be dis-
regarded for purposes of determining whether any
property is a qualified community asset.
‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) QUALIFIED
CAPITAL
GAIN.—Except as
otherwise provided in this subsection, the term
‘qualified capital gain’ means any long-term capital
gain recognized on the sale or exchange of a quali-
fied community asset held for more than 5 years
(determined without regard to any period before the
designation of the renewal community).
‘‘(2) CERTAIN GAIN ON REAL PROPERTY NOT
QUALIFIED.—The term ‘qualified capital gain’ shall
not include any gain which would be treated as ordi-
nary income under section 1250 if section 1250 ap-
plied to all depreciation rather than the additional
depreciation.
‘‘(3) GAIN ATTRIBUTABLE TO PERIODS AFTER
TERMINATION
OF
COMMUNITY
DESIGNATION
NOT
QUALIFIED.—The term ‘qualified capital gain’ shall
not include any gain attributable to periods after the
termination of any designation of an area as a re-
newal community.
‘‘(4) RELATED
PARTY
TRANSACTIONS.—The
term ‘qualified capital gain’ shall not include any
gain attributable, directly or indirectly, in whole or
in part, to a transaction with a related person. For
purposes of this paragraph, persons are related to
each other if such persons are described in section
267(b) or 707(b)(1).
‘‘(d) TREATMENT OF PASS-THRU ENTITIES.—
‘‘(1) SALES
AND
EXCHANGES.—Gain on the
sale or exchange of an interest in a pass-thru entity
held by the taxpayer (other than an interest in an
entity which was a renewal community business dur-
ing substantially all of the period the taxpayer held
such interest) for more than 5 years shall be treated
as gain described in subsection (a) to the extent
such gain is attributable to amounts which would be
qualified capital gain on qualified community assets
(determined as if such assets had been sold on the
date of the sale or exchange) held by such entity for
more than 5 years (determined without regard to
any period before the date of the designation of the
renewal community) and throughout the period the
taxpayer held such interest. A rule similar to the
rule of paragraph (2)(C) shall apply for purposes of
the preceding sentence.
‘‘(2) INCOME INCLUSIONS.—
‘‘(A) IN GENERAL.—Any amount included
in income by reason of holding an interest in a
pass-thru entity (other than an entity which
was a renewal community business during sub-
stantially all of the period the taxpayer held the
interest to which such inclusion relates) shall be
treated as gain described in subsection (a) if
such amount meets the requirements of sub-
paragraph (B).
‘‘(B) REQUIREMENTS.—An amount meets
the requirements of this subparagraph if—
‘‘(i) such amount is attributable to
qualified capital gain recognized on the
sale or exchange by the pass-thru entity of
property which is a qualified community
asset in the hands of such entity and
which was held by such entity for the pe-
riod required under subsection (a), and
‘‘(ii) such amount is includible in the
gross income of the taxpayer by reason of
the holding of an interest in such entity
which was held by the taxpayer on the date
on which such pass-thru entity acquired
such asset and at all times thereafter be-
fore the disposition of such asset by such
pass-thru entity.
‘‘(C) LIMITATION
BASED
ON
INTEREST
ORIGINALLY
HELD
BY
TAXPAYER.—Subpara-
graph (A) shall not apply to any amount to the
extent such amount exceeds the amount to
which subparagraph (A) would have applied if
such amount were determined by reference to
the interest the taxpayer held in the pass-thru
entity on the date the qualified community
asset was acquired.
‘‘(3) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(e) SALES
AND EXCHANGES
OF INTERESTS
IN
PARTNERSHIPS
AND
S CORPORATIONS
WHICH
ARE
QUALIFIED COMMUNITY BUSINESSES.—In the case of the
sale or exchange of an interest in a partnership, or of
stock in an S corporation, which was a renewal community
business during substantially all of the period the taxpayer
held such interest or stock, the amount of qualified capital
gain shall be determined without regard to—
‘‘(1) any intangible, and any land, which is not
an integral part of any qualified business entity (as
defined in section 1400B(b)), and
‘‘(2) gain attributable to periods before the des-
ignation of an area as a renewal community.
‘‘(f) CERTAIN TAX-FREE AND OTHER TRANSFERS.—
For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer of
a qualified community asset to which this subsection
applies, the transferee shall be treated as—
‘‘(A) having acquired such asset in the
same manner as the transferor, and
‘‘(B) having held such asset during any
continuous period immediately preceding the
transfer during which it was held (or treated as
held under this subsection) by the transferor.
‘‘(2) TRANSFERS TO WHICH SUBSECTION AP-
PLIES.—This subsection shall apply to any trans-
fer—
‘‘(A) by gift,
‘‘(B) at death, or
‘‘(C) from a partnership to a partner
thereof, of a qualified community asset with re-
spect to which the requirements of subsection
(d)(2) are met at the time of the transfer (with-
out regard to the 5-year holding requirement).
‘‘(3) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1244(d)(2) shall
apply for purposes of this section.
‘‘SEC. 1400B. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘renewal community business’ means—
‘‘(1) any qualified business entity, and
‘‘(2) any qualified proprietorship.
Such term shall include any trades or businesses which
would qualify as a renewal community business if such
trades or businesses were separately incorporated. Such
term shall not include any trade or business of producing
property of a character subject to the allowance for deple-
tion under section 611.
‘‘(b) QUALIFIED BUSINESS ENTITY.— For purposes
of this section, the term ‘qualified business entity’ means,
with respect to any taxable year, any corporation or part-
nership if for such year—
‘‘(1) every trade or business of such entity is
the active conduct of a qualified business within a
renewal community,
‘‘(2) at least 80 percent of the total gross in-
come of such entity is derived from the active con-
duct of such business,
‘‘(3) substantially all of the use of the tangible
property of such entity (whether owned or leased) is
within a renewal community,
‘‘(4) substantially all of the intangible property
of such entity is used in, and exclusively related to,
the active conduct of any such business,
‘‘(5) substantially all of the services performed
for such entity by its employees are performed in a
renewal community,
‘‘(6) at least 35 percent of its employees are
residents of a renewal community,
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to collectibles (as defined in
section 408(m)(2)) other than collectibles that are
held primarily for sale to customers in the ordinary
course of such business, and
‘‘(8) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to nonqualified financial prop-
erty.
‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of
this section, the term ‘qualified proprietorship’ means,
with respect to any taxable year, any qualified business
carried on by an individual as a proprietorship if for such
year—
‘‘(1) at least 80 percent of the total gross in-
come of such individual from such business is de-
rived from the active conduct of such business in a
renewal community,
‘‘(2) substantially all of the use of the tangible
property of such individual in such business (wheth-
er owned or leased) is within a renewal community,
‘‘(3) substantially all of the intangible property
of such business is used in, and exclusively related
to, the active conduct of such business,
‘‘(4) substantially all of the services performed
for such individual in such business by employees of
such business are performed in a renewal commu-
nity,
‘‘(5) at least 35 percent of such employees are
residents of a renewal community,
‘‘(6) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable 
to 
collectibles 
(as 
defined 
in 
section
408(m)(2)) other than collectibles that are held pri-
marily for sale to customers in the ordinary course
of such business, and
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable to nonqualified financial property.
For purposes of this subsection, the term ‘employee’ in-
cludes the proprietor.
‘‘(d) QUALIFIED BUSINESS.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified business’
means any trade or business.
‘‘(2) RENTAL OF REAL PROPERTY.—The rental
to others of real property located in a renewal com-
munity shall be treated as a qualified business if and
only if—
‘‘(A) the property is not residential rental
property (as defined in section 168(e)(2)), and
‘‘(B) at least 50 percent of the gross rental
income from the real property is from renewal
community businesses.
‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP-
ERTY.—The rental to others of tangible personal
property shall be treated as a qualified business if
and only if substantially all of the rental of such
property is by renewal community businesses or by
residents of a renewal community.
‘‘(4) TREATMENT OF BUSINESS HOLDING IN-
TANGIBLES.—The term ‘qualified business’ shall not
include any trade or business consisting predomi-
nantly of the development or holding of intangibles
for sale or license.
‘‘(5) CERTAIN
BUSINESSES
EXCLUDED.—The
term ‘qualified business’ shall not include—
‘‘(A) any trade or business consisting of
the operation of any facility described in section
144(c)(6)(B), and
‘‘(B) any trade or business the principal
activity of which is farming (within the meaning
of subparagraph (A) or (B) of section
2032A(e)(5)), but only if, as of the close of the
preceding taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the taxpayer which are
used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the taxpayer which are used in
such a trade or business,
exceeds $500,000.
‘‘(6) CONTROLLED GROUPS.—For purposes of
paragraph (5)(B), all persons treated as a single em-
ployer under subsection (a) or (b) of section 52 shall
be treated as a single taxpayer.
‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For
purposes of this section, the term ‘nonqualified financial
property’ means debt, stock, partnership interests, op-
tions, futures contracts, forward contracts, warrants, no-
tional principal contracts, annuities, and other similar
property specified in regulations; except that such term
shall not include—
‘‘(1) reasonable amounts of working capital
held in cash, cash equivalents, or debt instruments
with a term of 18 months or less, or
‘‘(2) debt instruments described in section
1221(4).
‘‘PART III—FAMILY DEVELOPMENT ACCOUNTS
‘‘Sec. 1400C. Family development accounts.
‘‘Sec. 1400D. Demonstration program to provide matching con-
tributions to family development accounts in certain
renewal communities.
‘‘Sec. 1400E. Designation of earned income tax credit payments
for deposit to family development account.
‘‘SEC. 1400C. FAMILY DEVELOPMENT ACCOUNTS FOR RE-
NEWAL COMMUNITY EITC RECIPIENTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction—
‘‘(A) in the case of a qualified individual,
the amount paid in cash for the taxable year by
such individual to any family development ac-
count for such individual’s benefit, and
‘‘(B) in the case of any person other than
a qualified individual, the amount paid in cash
for the taxable year by such person to any fam-
ily development account for the benefit of a
qualified individual.
No deduction shall be allowed under this paragraph
for any amount deposited in a family development
account under section 1400D (relating to dem-
onstration program to provide matching amounts in
renewal communities).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowable
as a deduction to any individual for any taxable
year by reason of paragraph (1)(A) shall not
exceed the lesser of—
‘‘(i) $2,000, or
‘‘(ii) an amount equal to the com-
pensation includible in the individual’s
gross income for such taxable year.
‘‘(B) PERSONS DONATING TO FAMILY DE-
VELOPMENT
ACCOUNTS
OF
OTHERS.—The
amount allowable as a deduction to any person
for any taxable year by reason of paragraph
(1)(B) shall not exceed $1,000 with respect to
any qualified individual.
‘‘(3) SPECIAL RULES FOR CERTAIN MARRIED
INDIVIDUALS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual to whom this subparagraph applies for
the taxable year, the limitation of subparagraph
(A) of paragraph (2) shall be equal to the lesser
of—
‘‘(i) the dollar amount in effect under
paragraph (2)(A)(i) for the taxable year,
or
‘‘(ii) the sum of—
‘‘(I) the compensation includible
in such individual’s gross income for
the taxable year, plus—
‘‘(II) the compensation includible
in the gross income of such individ-
ual’s spouse for the taxable year re-
duced by the amount allowed as a de-
duction under paragraph (1) to such
spouse for such taxable year.
‘‘(B) INDIVIDUALS
TO
WHOM
SUBPARA-
GRAPH (A) APPLIES.—Subparagraph (A) shall
apply to any individual if—
‘‘(i) such individual files a joint return
for the taxable year, and
‘‘(ii) the amount of compensation (if
any) includible in such individual’s gross
income for the taxable year is less than the
compensation includible in the gross in-
come of such individual’s spouse for the
taxable year.
‘‘(4) ROLLOVERS.—No deduction shall be al-
lowed under this section with respect to any rollover
contribution.
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of a
family development account shall be included in
gross income by the payee or distributee, as the case
may be.
‘‘(2) EXCLUSION OF QUALIFIED FAMILY DEVEL-
OPMENT DISTRIBUTIONS.—Paragraph (1) shall not
apply to any qualified family development distribu-
tion.
‘‘(3) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (4) and (5) of section 408(d)
shall apply for purposes of this section.
‘‘(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBU-
TION.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified family
development distribution’ means any amount paid or
distributed out of a family development account
which would otherwise be includible in gross income,
to the extent that such payment or distribution is
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder.
‘‘(2) QUALIFIED
FAMILY
DEVELOPMENT
EX-
PENSES.—The term ‘qualified family development
expenses’ means any of the following:
‘‘(A) Qualified postsecondary educational
expenses.
‘‘(B) First-home purchase costs.
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) 
QUALIFIED
POSTSECONDARY
EDU-
CATIONAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
postsecondary 
educational 
expenses’ 
means
postsecondary educational expenses paid to an
eligible educational institution.
‘‘(B) POSTSECONDARY EDUCATIONAL EX-
PENSES.—The term ‘postsecondary educational
expenses’ means tuition, fees, room, board,
books, supplies, and equipment required for the
enrollment or attendance of a student at an eli-
gible educational institution.
‘‘(C) ELIGIBLE
EDUCATIONAL
INSTITU-
TION.—The term ‘eligible educational institu-
tion’ means the following:
‘‘(i) INSTITUTION
OF
HIGHER
EDU-
CATION.—An institution described in sec-
tion 481(a)(1) or 1201(a) of the Higher
Education 
Act 
of 
1965 
(20 
U.S.C.
1088(a)(1), 1141(a)), as such sections are
in effect on the date of the enactment of
this section.
‘‘(ii) POSTSECONDARY
VOCATIONAL
EDUCATION SCHOOL.—An area vocational
education school (as defined in subpara-
graph (C) or (D) of section 521(4) of the
Carl D. Perkins Vocational and Applied
Technology Education Act (20 U.S.C.
2471(4))) which is in any State (as defined
in section 521(33) of such Act), as such
sections are in effect on the date of the en-
actment of this section.
‘‘(D) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified post-
secondary educational expenses for any taxable
year shall be reduced by any amount excludable
from gross income under section 135.
‘‘(4) FIRST-HOME PURCHASE COSTS.—
‘‘(A) IN GENERAL.—The term ‘first-home
purchase costs’ means qualified acquisition
costs with respect to a qualified principal resi-
dence for a qualified first-time homebuyer.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
The term ‘qualified acquisition costs’ means the
costs of acquiring, constructing, or reconstruct-
ing a residence. Such term includes any usual
or reasonable settlement, financing, or other
closing costs.
‘‘(C) QUALIFIED PRINCIPAL RESIDENCE.—
The term ‘qualified principal residence’ means a
principal residence (within the meaning of sec-
tion 1034), the qualified acquisition costs of
which do not exceed 100 percent of the average
area purchase price applicable to such residence
(determined in accordance with paragraphs (2)
and (3) of section 143(e)).
‘‘(D) 
QUALIFIED
FIRST-TIME
HOME-
BUYER.—
‘‘(i) IN GENERAL.—The term ‘quali-
fied first-time homebuyer’ means an indi-
vidual if such individual (and, in the case
of a married individual, the individual’s
spouse) has no present ownership interest
in a principal residence during the 3-year
period ending on the date of acquisition of
the principal residence to which this sub-
section applies.
‘‘(ii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date
on which a binding contract to acquire,
construct, or reconstruct the principal resi-
dence to which this subsection applies is
entered into.
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business capitalization costs’ means qualified
expenditures for the capitalization of a qualified
business pursuant to a qualified plan.
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expendi-
tures included in a qualified plan, including
capital, plant, equipment, working capital, and
inventory expenses.
‘‘(C) QUALIFIED
BUSINESS.—The term
‘qualified business’ means any business that
does not contravene any law or public policy (as
determined by the Secretary).
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which—
‘‘(i) is approved by a financial institu-
tion, or by a nonprofit loan fund having
demonstrated fiduciary integrity,
‘‘(ii) includes a description of services
or goods to be sold, a marketing plan, and
projected financial statements, and
‘‘(iii) may require the eligible individ-
ual to obtain the assistance of an experi-
enced entrepreneurial advisor.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
insurance or otherwise, for medical care (as defined
in section 213(d)) of the taxpayer, his spouse, or his
dependent (as defined in section 152).
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a family
development account of a taxpayer into another such
account established for the benefit of—
‘‘(A) such taxpayer, or
‘‘(B) any qualified individual who is—
‘‘(i) the spouse of such taxpayer, or
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer.
Rules similar to the rules of section 408(d)(3) shall
apply for purposes of this paragraph.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Any family development ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be a family devel-
opment account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations).
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall
apply.
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For pur-
poses of this title, the term ‘family development account’
means a trust created or organized in the United States
for the exclusive benefit of a qualified individual or his
beneficiaries, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(1) Except in the case of a qualified rollover
(as defined in subsection (c)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash, and
‘‘(B) contributions will not be accepted for
the taxable year in excess of $2,000 (deter-
mined without regard to any contribution made
under section 1400D (relating to demonstration
program to provide matching amounts in re-
newal communities)).
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or such other person who demonstrates
to the satisfaction of the Secretary that the manner
in which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance in his account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(6) Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 401(a)(9)
and the incidental death benefit requirements of sec-
tion 401(a) shall apply to the distribution of the en-
tire interest of an individual for whose benefit the
trust is maintained.
‘‘(f) QUALIFIED INDIVIDUAL.—For purposes of this
section, the term ‘qualified individual’ means, for any tax-
able year, an individual—
‘‘(1) who is a bona fide resident of a renewal
community throughout the taxable year, and
‘‘(2) to whom a credit was allowed under sec-
tion 32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to a
family development account on the last day of the
preceding taxable year if the contribution is made on
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to a fam-
ily development account shall be treated as payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a deduction for such
payment is allowable under this section to the em-
ployee.
‘‘(5) ZERO BASIS.—The basis of an individual
in any family development account of such individual
shall be zero.
‘‘(6) CUSTODIAL ACCOUNTS.—For purposes of
this section, a custodial account shall be treated as
a trust if the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates, to the satisfaction of the Sec-
retary, that the manner in which such person will
administer the account will be consistent with the re-
quirements of this section, and if the custodial ac-
count would, except for the fact that it is not a
trust, constitute a family development account de-
scribed in this section. For purposes of this title, in
the case of a custodial account treated as a trust by
reason of the preceding sentence, the custodian of
such account shall be treated as the trustee thereof.
‘‘(7) REPORTS.—The trustee of a family devel-
opment account shall make such reports regarding
such account to the Secretary and to the individual
for whom the account is maintained with respect to
contributions (and the years to which they relate),
distributions, and such other matters as the Sec-
retary may require under regulations. The reports
required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(8) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED FAMILY DEVELOPMENT EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from a family development account and is not
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder, the tax imposed by this chapter for the tax-
able year of such distribution shall be increased by
the sum of—
‘‘(A) 100 percent of the portion of such
amount which is includible in gross income and
is attributable to amounts contributed under
section 1400D (relating to demonstration pro-
gram to provide matching amounts in renewal
communities), and
‘‘(B) 10 percent of the portion of such
amount which is includible in gross income and
is not described in paragraph (1).
For purposes of this subsection, the portion of a dis-
tributed amount which is attributable to amounts
contributed under section 1400D is the amount
which bears the same ratio to the distributed
amount as the aggregate amount contributed under
section 1400D to all family development accounts of
the individual bears to the aggregate amount con-
tributed to such accounts from all sources.
‘‘(2) EXCEPTION
FOR
CERTAIN
DISTRIBU-
TIONS.—Paragraph (1) shall not apply to distribu-
tions which are—
‘‘(A) made on or after the date on which
the account holder attains age 591⁄2,
‘‘(B) made pursuant to subsection (e)(6),
‘‘(C) made to a beneficiary (or the estate
of the account holder) on or after the death of
the account holder, or
‘‘(D) attributable to the account holder’s
being disabled within the meaning of section
72(m)(7).
‘‘SEC. 1400D. DEMONSTRATION PROGRAM TO PROVIDE
MATCHING CONTRIBUTIONS TO FAMILY DE-
VELOPMENT 
ACCOUNTS 
IN 
CERTAIN 
RE-
NEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this sec-
tion, the term ‘FDA matching demonstration area’
means any renewal community—
‘‘(A) which is nominated under this section
by each of the local governments and States
which nominated such community for designa-
tion as a renewal community under section
1400(a)(1)(A), and
‘‘(B) which the Secretary of Housing and
Urban Development, after consultation with—
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury, the
Director of the Office of Management and
Budget, and the Administrator of the
Small Business Administration, and
‘‘(ii) in the case of a community on an
Indian reservation, the Secretary of the In-
terior,
designates as an FDA matching demonstration
area.
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 25 renewal communities
as FDA matching demonstration areas.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under para-
graph (1), at least 2 must be areas described in
section 1400(a)(2)(B).
‘‘(3) LIMITATIONS ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
The Secretary of Housing and Urban Develop-
ment shall prescribe by regulation no later than
4 months after the date of the enactment of
this section, after consultation with the officials
described in paragraph (1)(B)—
‘‘(i) the procedures for nominating a
renewal 
community 
under 
paragraph
(1)(A) (including procedures for coordinat-
ing such nomination with the nomination
of an area for designation as a renewal
community under section 1400), and
‘‘(ii) the manner in which nominated
renewal communities will be evaluated for
purposes of this section.
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate renewal communities as FDA matching
demonstration areas only during the 24-month
period beginning on the first day of the first
month following the month in which the regula-
tions described in subparagraph (A) are pre-
scribed.
‘‘(4) DESIGNATION BASED ON DEGREE OF POV-
ERTY, ETC.—The rules of section 1400(a)(3) shall
apply for purposes of designations of FDA matching
demonstration areas under this section.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—Any designation of a renewal community as an
FDA matching demonstration area shall remain in effect
during the period beginning on the date of such designa-
tion and ending on the date on which such area ceases
to be a renewal community.
‘‘(c) MATCHING CONTRIBUTIONS TO FAMILY DEVEL-
OPMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into a family
development account of each qualified individual (as
defined in section 1400C(f)) who is a resident
throughout the taxable year of an FDA matching
demonstration area an amount equal to the sum of
the amounts deposited into all of the family develop-
ment accounts of such individual during such tax-
able year (determined without regard to any amount
contributed under this section).
‘‘(2) LIMITATIONS.—
‘‘(A) ANNUAL LIMIT.—The Secretary shall
not deposit more than $1000 under paragraph
(1) with respect to any individual for any tax-
able year.
‘‘(B) AGGREGATE
LIMIT.—The Secretary
shall not deposit more than $2000 under para-
graph (1) with respect to any individual.
‘‘(3) EXCLUSION
FROM
INCOME.—Except as
provided in section 1400C, gross income shall not in-
clude any amount deposited into a family develop-
ment account under paragraph (1).
‘‘SEC. 1400E. DESIGNATION OF EARNED INCOME TAX CRED-
IT PAYMENTS FOR DEPOSIT TO FAMILY DE-
VELOPMENT ACCOUNT.
‘‘(a) IN GENERAL.—With respect to the return of any
qualified individual (as defined in section 1400C(f)) for
the taxable year of the tax imposed by this chapter, such
individual may designate that a specified portion (not less
than $1) of any overpayment of tax for such taxable year
which is attributable to the earned income tax credit shall
be deposited by the Secretary into a family development
account of such individual. The Secretary shall so deposit
such portion designated under this subsection.
‘‘(b) MANNER AND TIME OF DESIGNATION.—A des-
ignation under subsection (a) may be made with respect
to any taxable year—
‘‘(1) at the time of filing the return of the tax
imposed by this chapter for such taxable year, or
‘‘(2) at any other time (after the time of filing
the return of the tax imposed by this chapter for
such taxable year) specified in regulations prescribed
by the Secretary.
Such designation shall be made in such manner as the
Secretary prescribes by regulations.
‘‘(c) PORTION ATTRIBUTABLE TO EARNED INCOME
TAX CREDIT.—For purposes of subsection (a), an over-
payment for any taxable year shall be treated as attrib-
utable to the earned income tax credit to the extent that
such overpayment does not exceed the credit allowed to
the taxpayer under section 32 for such taxable year.
‘‘(d) OVERPAYMENTS TREATED
AS REFUNDED.—
For purposes of this title, any portion of an overpayment
of tax designated under subsection (a) shall be treated as
being refunded to the taxpayer as of the last date pre-
scribed for filing the return of tax imposed by this chapter
(determined without regard to extensions) or, if later, the
date the return is filed.
‘‘PART IV—ADDITIONAL INCENTIVES
‘‘Sec. 1400F. Commercial revitalization credit.
‘‘Sec. 1400G. Increase in expensing under section 179.
‘‘Sec. 1400H. Expensing of renewal community environmental re-
mediation costs.
‘‘SEC. 1400F. COMMERCIAL REVITALIZATION TAX CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 46,
except as provided in subsection (e), the commercial revi-
talization credit for any taxable year is an amount equal
to the applicable percentage of the qualified revitalization
expenditures with respect to any qualified revitalization
building.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘applicable per-
centage’ means—
‘‘(A) 20 percent for the taxable year in
which a qualified revitalization building is
placed in service, or
‘‘(B) at the election of the taxpayer, 5 per-
cent for each taxable year in the credit period.
The election under subparagraph (B), once made,
shall be irrevocable.
‘‘(2) CREDIT PERIOD.—
‘‘(A) IN GENERAL.—The term ‘credit pe-
riod’ means, with respect to any building, the
period of 10 taxable years beginning with the
taxable year in which the building is placed in
service.
‘‘(B) APPLICABLE RULES.—Rules similar
to the rules under paragraphs (2) and (4) of
section 42(f) shall apply.
103
average per pupil expenditure per semester in the
local educational agency serving the public elemen-
tary or secondary school in the renewal community
to which the child would normally be assigned for
the preceding school year.
(4) DISABILITY.—If a child has a disability, the
average per pupil expenditure per semester in the
local educational agency serving the public elemen-
tary or secondary school in the renewal community
to which the child would normally be assigned for
the preceding school year shall be calculated using
the expenditures for such semester for children with
the same special needs or handicapped category as
the child.
(e) REDEMPTION OF SCHOLARSHIP CERTIFICATE.—
An eligible school that receives a scholarship certificate
from a parent pursuant to this title shall present such cer-
tificate to the renewal community for payment.
SEC. 308. ALLOCATION OF FUNDS AMONG RENEWAL COM-
MUNITIES.
(a) IN GENERAL.—The funds authorized to be appro-
priated under section 317 shall be allocated to each re-
newal community by the Secretary of the Treasury as fol-
lows: