paragraph (H) and inserting ‘‘, or’’, and by adding at the 
end the following: 
‘‘(I) a qualified small business employee.’’. 
(b) QUALIFIED SMALL BUSINESS EMPLOYEE.—Sec-
tion 51(d) of the Internal Revenue Code of 1986 is amend-
ed by redesignating paragraphs (10) through (12) as para-
graphs (11) through (13), respectively, and by inserting 
after paragraph (9) the following: 
‘‘(10) 
QUALIFIED
SMALL
BUSINESS
EM-
PLOYEE.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
small business employee’ means any indi-
vidual— 
‘‘(i) hired by a qualified small busi-
ness located in a development zone, or 
‘‘(ii) hired by a qualified small busi-
ness and who is certified by the designated 
local agency as residing in such a develop-
ment zone. 
‘‘(B) QUALIFIED SMALL BUSINESS.—The 
term ‘qualified small business’ has the meaning 
given the term ‘small employer’ by section 
4980D(d)(2). 
‘‘(C) DEVELOPMENT ZONE.—For purposes 
of this section— 
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‘‘(i) IN GENERAL.—The term ‘devel-
opment zone’ means any area— 
‘‘(I) which is nominated under 
the procedures defined in sections 
1400E(a)(1)(A) and 1400E(a)(4) for 
renewal communities; 
‘‘(II) which the Secretary of 
Housing and Urban Development des-
ignates as a development zone, after 
consultation with the Secretary of 
Commerce; 
‘‘(III) which has a population of 
not less than 5,000 and not more 
than 150,000; 
‘‘(IV) which has a poverty rate 
not less than 20 percent (within the 
meaning of section 1400E(c)(3)(C)); 
‘‘(V) which has an average an-
nual rate of job growth of less than 2 
percent during any 3 years of the pre-
ceding 5-year period; and 
‘‘(VI) which, during the period 
beginning January 1, 1990 and end-
ing with the date of the enactment of 
this section, has a net out-migration 
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of inhabitants, or other population 
loss, from the area of at least 2 per-
cent of the population of the area dur-
ing such period. 
‘‘(ii) NUMBER
OF
DESIGNATIONS.— 
The Secretary of Housing and Urban De-
velopment may not designate more than 
100 development zones. 
‘‘(D) SPECIAL RULES FOR DETERMINING 
AMOUNT OF CREDIT.—For purposes of applying 
this subpart to wages paid or incurred to any 
qualified small business employee— 
‘‘(i) subsection (a) shall be applied by 
substituting ‘20 percent of the qualified 
first, second, third, fourth, or fifth year 
wages’ for ‘40 percent of the qualified first 
year wages’, and 
‘‘(ii) in lieu of paragraphs (2) and (3) 
of subsection (b), the following definitions 
and special rule shall apply: 
‘‘(I) 
QUALIFIED
FIRST-YEAR 
WAGES.—The term ‘qualified first- 
year wages’ means, with respect to 
any individual, qualified wages attrib-
utable to service rendered during the 
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1-year period beginning with the day 
the individual begins work for the em-
ployer. 
‘‘(II) QUALIFIED
SECOND-YEAR 
WAGES.—The term ‘qualified second- 
year wages’ means, with respect to 
any individual, qualified wages attrib-
utable to service rendered during the 
1-year period beginning on the day 
after the last day of the 1-year period 
with respect to such individual deter-
mined under subclause (I). 
‘‘(III) QUALIFIED
THIRD-YEAR 
WAGES.—The term ‘qualified third- 
year wages’ means, with respect to 
any individual, qualified wages attrib-
utable to service rendered during the 
1-year period beginning on the day 
after the last day of the 1-year period 
with respect to such individual deter-
mined under subclause (II). 
‘‘(IV) QUALIFIED FOURTH-YEAR 
WAGES.—The term ‘qualified fourth- 
year wages’ means, with respect to 
any individual, qualified wages attrib-
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