1430
‘‘(D) identifies the funding requested
under any Federal program in support of the
proposed economic, human, community, and
physical development and related activities,
‘‘(E) identifies baselines, methods, and
benchmarks for measuring the success of carry-
ing out the strategic plan, including the extent
to which poor persons and families will be em-
powered to become economically self-sufficient,
and
‘‘(F) does not include any action to assist
any establishment in relocating from one area
outside the nominated area to the nominated
area, except that assistance for the expansion of
an existing business entity through the estab-
lishment of a new branch, affiliate, or subsidi-
ary is permitted if—
‘‘(i) the establishment of the new
branch, affiliate, or subsidiary will not re-
sult in a decrease in employment in the
area of original location or in any other
area where the existing business entity
conducts business operations, and
‘‘(ii) there is no reason to believe that
the new branch, affiliate, or subsidiary is
1431
being established with the intention of clos-
ing down the operations of the existing
business entity in the area of its original
location or in any other area where the ex-
isting business entity conducts business op-
eration, and
‘‘(3) include such other information as may be
required by the appropriate Secretary or the Enter-
prise Board.
‘‘SEC. 1392. ELIGIBILITY CRITERIA.
‘‘(a) IN GENERAL.—A nominated area shall be eligi-
ble for designation under section 1391 only if it meets the
following criteria:
‘‘(1) P OPULATION.—The nominated area has a
maximum population of—
‘‘(A) in the case of an urban area, the
lesser of—
‘‘(i) 200,000, or
‘‘(ii) the greater of 50,000 or 10 per-
cent of the population of the most popu-
lous city located within the nominated
area, and
‘‘(B) in the case of a rural area, 30,000.
1432
‘‘(2) D ISTRESS.—The nominated area is one of
pervasive poverty, unemployment, and general dis-
tress.
‘‘(3) SIZE.—The nominated area—
‘‘(A) does not exceed 20 square miles if an
urban area or 1,000 square miles if a rural
area or an Indian reservation,
‘‘(B) has a boundary which is continuous,
or, except in the case of a rural area located in
more than 1 State, consists of not more than
3 noncontiguous parcels,
‘‘(C)(i) in the case of an urban area, is lo-
cated entirely within no more than 2 contiguous
States, and
‘‘(ii) in the case of a rural area, is located
entirely within no more than 3 contiguous
States, and
‘‘(D) does not include any portion of a
central business district (as such term is used
for purposes of the most recent Census of Re-
tail Trade) unless the poverty rate for each
population census tract in such district is not
less than 35 percent (30 percent in the case of
an enterprise community).
‘‘(4) POVERTY RATE.—The poverty rate—
1433
‘‘(A) for each population census tract with-
in the nominated area is not less than 20 per-
cent,
‘‘(B) for at least 90 percent of the popu-
lation census tracts within the nominated area
is not less than 25 percent, and
‘‘(C) for at least 50 percent of the popu-
lation census tracts within the nominated area
is not less than 35 percent.
‘‘(b) SPECIAL RULES RELATING TO DETERMINATION
OF POVERTY RATE.—For purposes of subsection (a)(4)—
‘‘(1) TREATMENT
OF
CENSUS
TRACTS
WITH
SMALL POPULATIONS.—
‘‘(A) TRACTS WITH NO POPULATION.—In
the case of a population census tract with no
population—
‘‘(i) such tract shall be treated as hav-
ing a poverty rate which meets the require-
ments of subparagraphs (A) and (B) of
subsection (a)(4), but
‘‘(ii) such tract shall be treated as
having a zero poverty rate for purposes of
applying subparagraph (C) thereof.
‘‘(B) TRACTS WITH POPULATIONS OF LESS
THAN 2,000.—A population census tract with a
1434
population of less than 2,000 shall be treated as
having a poverty rate which meets the require-
ments of subparagraphs (A) and (B) of sub-
section (a)(4) if more than 75 percent of such
tract is zoned for commercial or industrial use.
‘‘(2) 
DISCRETION
TO
ADJUST
REQUIRE-
MENTS.—Where necessary to carry out the purposes
of this subchapter, the appropriate Secretary may
reduce by 5 percentage points one of the following
thresholds for not more than 10 percent of the popu-
lation census tracts (or, if fewer, 5 population cen-
sus tracts) in the nominated area:
‘‘(A) The 20 percent threshold in sub-
section (a)(4)(A).
‘‘(B) The 25 percent threshold in sub-
section (a)(4)(B).
‘‘(C) The 35 percent threshold in sub-
section (a)(4)(C).
If the appropriate Secretary elects to reduce the
threshold under subparagraph (C) for an enterprise
community, such Secretary may (in lieu of applying
the preceding sentence) reduce by 10 percentage
points the threshold under subparagraph (C) for 3
population census tracts.
1435
‘‘(3) EACH NONCONTIGUOUS AREA MUST SAT-
ISFY POVERTY RATE RULE.—A nominated area may
not include a noncontiguous parcel unless such par-
cel separately meets (subject to paragraphs (1) and
(2)) the criteria set forth in subsection (a)(4).
‘‘(4) A REAS NOT WITHIN CENSUS TRACTS.—In
the case of an area which is not tracted for popu-
lation census tracts, the equivalent county divisions
(as defined by the Bureau of the Census for pur-
poses of defining poverty areas) shall be used for
purposes of determining poverty rates.
‘‘(c) FACTORS TO CONSIDER.—From among the
nominated areas eligible for designation under section
1391 by the appropriate Secretary, such appropriate Sec-
retary shall make designations of empowerment zones and
enterprise communities on the basis of—
‘‘(1) the effectiveness of the strategic plan sub-
mitted pursuant to section 1391(f)(2) and the assur-
ances made pursuant to section 1391(e)(3), and
‘‘(2) criteria specified by the Enterprise Board.
‘‘SEC. 1393. DEFINITIONS AND SPECIAL RULES.
‘‘(a) IN
GENERAL.—For purposes of this sub-
chapter—
‘‘(1) APPROPRIATE SECRETARY.—The term ‘ap-
propriate Secretary’ means—
1436
‘‘(A) the Secretary of Housing and Urban
Development in the case of any nominated area
which is located in an urban area,
‘‘(B) the Secretary of Agriculture in the
case of any nominated area which is located in
a rural area, and
‘‘(C) the Secretary of the Interior in the
case of any nominated area which is located in
an Indian reservation.
‘‘(2) ENTERPRISE BOARD.—The term ‘Enter-
prise Board’ means any board hereafter established
and designated for purposes of this subchapter as
the ‘Enterprise Board’.
‘‘(3) RURAL
AREA.—The term ‘rural area’
means any area which is—
‘‘(A) outside of a metropolitan statistical
area 
(within 
the 
meaning 
of 
section
143(k)(2)(B)), or
‘‘(B) determined by the Secretary of Agri-
culture, after consultation with the Secretary of
Commerce, to be a rural area.
‘‘(4) URBAN
AREA.—The term ‘urban area’
means an area which is not a rural area.
‘‘(5) INDIAN RESERVATION.—
1437
‘‘(A) I N GENERAL.—The term ‘Indian res-
ervation’ means a reservation as defined in—
‘‘(i) section 3(d) of the Indian Financ-
ing Act of 1974 (25 U.S.C. 1452(d)), or
‘‘(ii) section 4(10) of the Indian Child
Welfare 
Act 
of 
1978 
(25 
U.S.C.
1903(10)).
‘‘(B) GOVERNMENTS.—In the case of an
area in 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 governments with respect to
such area.
‘‘(6) 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, and
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the appropriate Secretary.
‘‘(7) N OMINATED AREA.—The term ‘nominated
area’ means an area which is nominated by 1 or
more local governments and the State or States in
1438
which it is located for designation under section
1391.
‘‘(8) G OVERNMENTS.—If more than 1 State or
local government seeks to nominate an area as a tax
enterprise zone, any reference to, or requirement of,
this subchapter shall apply to all such governments.
‘‘(9) S PECIAL RULE.—An area shall be treated
as nominated by a State and a local government if
it is nominated by such other entity as may be speci-
fied by the Enterprise Board.
‘‘(10) U SE OF CENSUS DATA.—Population and
poverty rate shall be determined by the most recent
decennial census data available.
‘‘(b) EMPOWERMENT ZONE; E NTERPRISE COMMU-
NITY.—For purposes of this title, the terms ‘empowerment
zone’ and ‘enterprise community’ mean areas designated
as such under section 1391.
‘‘PART II—INCENTIVES FOR EMPOWERMENT
ZONES AND ENTERPRISE COMMUNITIES
‘‘Sec. 1394. Incentives.
‘‘SEC. 1394. INCENTIVES.
‘‘(a) INCREASE IN LOW INCOME HOUSING CREDIT.—
For purposes of section 42(d)(5)(C), a building shall be
treated as located in a qualified census tract if—
1439
‘‘(1) such building is located in a census tract
having a poverty rate of at least 30 percent (deter-
mined in accordance with section 1393(a)(10)), and
‘‘(2) 
such 
building 
is 
located 
in 
an
empowerment zone or an enterprise community.
‘‘(b) TAX EXEMPT ENTERPRISE ZONE FACILITY
BONDS.—
‘‘(1) I N GENERAL.—For purposes of part IV of
subchapter B of chapter 1 (relating to tax exemption
requirements for State and local bonds), the term
‘exempt facility bond’ includes any bond issued as
part of an issue 95 percent or more of the net pro-
ceeds (as defined in section 150(a)(3)) of which are
to be used to provide any enterprise zone facility.
‘‘(2) ENTERPRISE ZONE FACILITY.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘enterprise
zone facility’ means any qualified zone property
the principal user of which is an enterprise zone
business (as defined in section 1397D), and any
land which is functionally related and subordi-
nate to such property.
‘‘(B) QUALIFIED
ZONE
PROPERTY.—The
term ‘qualified zone property’ has the meaning
1440
given such term by section 1397B(c); except
that—
‘‘(i) section 1397B(c)(3) shall not
apply, and
‘‘(ii) the references to empowerment
zones shall be treated as including ref-
erences to enterprise communities.
‘‘(3) LIMITATION ON AMOUNT OF BONDS.—
‘‘(A) IN GENERAL.—Paragraph (1) shall
not apply to any issue if the aggregate amount
of outstanding enterprise zone facility bonds al-
locable to any enterprise zone business (taking
into account such issue) exceeds—
‘‘(i) $3,000,000 with respect to any 1
empowerment zone or enterprise commu-
nity, or
‘‘(ii) $20,000,000 with respect to all
empowerment zones and enterprise com-
munities.
‘‘(B) AGGREGATE ENTERPRISE ZONE FA-
CILITY BOND BENEFIT.—For purposes of sub-
paragraph (A), the aggregate amount of out-
standing enterprise zone facility bonds allocable
to any business shall be determined under rules
similar to the rules of section 144(a)(10), tak-
1441
ing into account only bonds to which paragraph
(1) applies.
‘‘(4) ACQUISITION
OF
LAND
AND
EXISTING
PROPERTY PERMITTED.—The requirements of sec-
tions 147(c)(1)(A) and 147(d) shall not apply to any
bond described in paragraph (1).
‘‘(5) PARTIAL
EXEMPTION
FROM
VOLUME
CAP.—Only for purposes of section 146, the term
‘private activity bond’ shall not include 50 percent of
any bond issued as part of an issue described in
paragraph (1).
‘‘(6) PENALTY
FOR
CEASING
TO
MEET
RE-
QUIREMENTS.—
‘‘(A) FAILURES
CORRECTED.—An issue
which fails to meet 1 or more of the require-
ments of paragraphs (1) and (2) shall be
treated as meeting such requirements if—
‘‘(i) the issuer and any principal user
in good faith attempted to meet such re-
quirements, and
‘‘(ii) any failure to meet such require-
ments is corrected within a reasonable pe-
riod after such failure is first discovered.
‘‘(B) LOSS OF DEDUCTIONS WHERE FACIL-
ITY CEASES TO BE QUALIFIED.—No deduction
1442
shall be allowed under this chapter for interest
on any financing provided from any bond to
which paragraph (1) applies with respect to any
facility to the extent such interest accrues dur-
ing the period beginning on the first day of the
calendar year which includes the date on
which—
‘‘(i) substantially all of the facility
with respect to which the financing was
provided 
ceases 
to 
be 
used 
in 
an
empowerment zone or enterprise commu-
nity, or
‘‘(ii) the principal user of such facility
ceases to be an enterprise zone business
(as defined in section 1397D, but treating
references to empowerment zones as in-
cluding references to enterprise commu-
nities).
‘‘(C) E XCEPTION IF ZONE CEASES.—Sub-
paragraphs (A) and (B) shall not apply solely
by reason of the termination or revocation of a
designation as an empowerment zone or an en-
terprise community.
1443
‘‘(D) EXCEPTION
FOR
BANKRUPTCY.—
Subparagraphs (A) and (B) shall not apply to
any cessation resulting from bankruptcy.
‘‘(c) ENTERPRISE ZONE FACILITY BONDS NOT SUB-
JECT TO INTEREST DEDUCTION LIMITATIONS ON FINAN-
CIAL INSTITUTIONS.—Any tax-exempt bond described in
subsection (b)(1)—
‘‘(1) shall be treated as acquired before August
8, 1986, for purposes of sections 265(b) and
291(e)(1)(B), and
‘‘(2) shall not be taken into account in deter-
mining whether any issuer is a qualified small issuer
for purposes of section 265(b).
‘‘(d) ADDITIONAL LOW-INCOME HOUSING CREDIT
AMOUNT.—
‘‘(1) I N GENERAL.—Each State which includes
any empowerment zone or enterprise community
shall receive an additional State housing credit ceil-
ing amount for purposes of section 42 of $818,000
for each such zone or community.
‘‘(2) ADDITIONAL
AMOUNT
MUST
BE
ALLO-
CATED TO BUILDINGS IN DESIGNATED AREAS.—
‘‘(A) IN GENERAL.—The portion of the ad-
ditional amount received under paragraph (1)
by reason of any empowerment zone or enter-
1444
prise community which may be applied to in-
crease the State housing credit ceiling for any
calendar year shall not exceed the lesser of—
‘‘(i) the unused portion of such addi-
tional amount with respect to such zone or
community, or
‘‘(ii) the aggregate housing credit dol-
lar amount allocated from such ceiling for
such year to buildings located in such zone
or community.
‘‘(B) U NUSED PORTION.—For purposes of
subparagraph (A), the unused portion for any
calendar year of the additional amount received
under paragraph (1) is the amount equal to the
excess of—
‘‘(i) the additional amount received
under paragraph (1) by the State by rea-
son of the zone or community, over
‘‘(ii) the aggregate of the increases in
the State housing credit ceiling by reason
of such amount for all prior calendar
years.
‘‘(3) A VAILABILITY OF ADDITIONAL AMOUNT.—
None of the additional amount received under para-
graph (1) may be applied after 1996.
1447
‘‘(A) IN
GENERAL.—The term ‘qualified
zone wages’ shall not include wages taken into
account in determining the credit under section
51.
‘‘(B) COORDINATION
WITH
PARAGRAPH
(2).—The $20,000 amount in paragraph (2)
shall be reduced for any calendar year by the
amount of wages paid or incurred during such
year which are taken into account in determin-
ing the credit under section 51.
‘‘(d) QUALIFIED ZONE EMPLOYEE.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified zone em-
ployee’ means, with respect to any period, any em-
ployee of an employer if—
‘‘(A) substantially all of the services per-
formed during such period by such employee for
such 
employer 
are 
performed 
within 
an
empowerment zone in a trade or business of the
employer, and
‘‘(B) the principal place of abode of such
employee while performing such services is
within such empowerment zone.
1448
‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—
The term ‘qualified zone employee’ shall not in-
clude—
‘‘(A) any individual described in subpara-
graph (A), (B), or (C) of section 51(i)(1),
‘‘(B) any 5-percent owner (as defined in
section 416(i)(1)(B)),
‘‘(C) any individual employed by the em-
ployer for less than 90 days,
‘‘(D) any individual employed by the em-
ployer at any facility described in section
144(c)(6)(B), and
‘‘(E) any individual employed by the em-
ployer in a trade or business the principal activ-
ity of which is farming (within the meaning of
subparagraphs 
(A) 
or 
(B) 
of 
section
2032A(e)(5)), but only if, as of the close of the
taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the employer which
are used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the employer which are used in
such a trade or business (as determined
1449
under regulations prescribed by the Sec-
retary),
exceeds $500,000.
‘‘(3) SPECIAL
RULES
RELATED
TO
TERMI-
NATION OF EMPLOYMENT.—
‘‘(A) IN
GENERAL.—Paragraph (2)(C)
shall not apply to—
‘‘(i) a termination of employment of
an individual who before the close of the
period referred to in paragraph (2)(C) be-
comes disabled to perform the services of
such employment unless such disability is
removed before the close of such period
and the taxpayer fails to offer reemploy-
ment to such individual, or
‘‘(ii) a termination of employment of
an individual if it is determined under the
applicable State unemployment compensa-
tion law that the termination was due to
the misconduct of such individual.
‘‘(B) C HANGES IN FORM OF BUSINESS.—
For purposes of paragraph (2)(C), the employ-
ment relationship between the taxpayer and an
employee shall not be treated as terminated—
1450
‘‘(i) by a transaction to which section
381(a) applies if the employee continues to
be employed by the acquiring corporation,
or
‘‘(ii) by reason of a mere change in
the form of conducting the trade or busi-
ness of the taxpayer if the employee con-
tinues to be employed in such trade or
business and the taxpayer retains a sub-
stantial interest in such trade or business.
‘‘SEC. 1397. OTHER DEFINITIONS AND SPECIAL RULES.
‘‘(a) WAGES.—For purposes of this subpart—
‘‘(1) I N GENERAL.—The term ‘wages’ has the
same meaning as when used in section 51.
‘‘(2) CERTAIN
TRAINING
AND
EDUCATIONAL
BENEFITS.—
‘‘(A) 
IN
GENERAL.—The 
following
amounts shall be treated as wages paid to an
employee:
‘‘(i) Any amount paid or incurred by
an employer which is excludable from the
gross income of an employee under section
127, but only to the extent paid or in-
curred to a person not related to the
employer.
1451
‘‘(ii) In the case of an employee who
has not attained the age of 19, any
amount paid or incurred by an employer
for any youth training program operated
by such employer in conjunction with local
education officials.
‘‘(B) R ELATED PERSON.—A person is re-
lated to any other person if the person bears a
relationship to such other person specified in
section 267(b) or 707(b)(1), or such person and
such other person are engaged in trades or
businesses under common control (within the
meaning of subsections (a) and (b) of section
52). For purposes of the preceding sentence, in
applying section 267(b) or 707(b)(1), ‘10 per-
cent’ shall be substituted for ‘50 percent’.
‘‘(b) CONTROLLED GROUPS.—For purposes of this
subpart—
‘‘(1) all employers treated as a single employer
under subsection (a) or (b) of section 52 shall be
treated as a single employer for purposes of this
subpart, and
‘‘(2) the credit (if any) determined under sec-
tion 1396 with respect to each such employer shall
1452
be its proportionate share of the wages giving rise
to such credit.
‘‘(c) CERTAIN OTHER RULES MADE APPLICABLE.—
For purposes of this subpart, rules similar to the rules
of section 51(k) and subsections (c), (d), and (e) of section
52 shall apply.
‘‘(d) N OTICE OF AVAILABILITY OF ADVANCE PAY-
MENT
OF EARNED INCOME CREDIT.—Each employer
shall take reasonable steps to notify all qualified zone em-
ployees of the availability to eligible individuals of receiv-
ing advanced payments of the credit under section 32 (re-
lating to the earned income credit).
‘‘Subpart B—Zone Resident Empowerment Savings
Credit
‘‘Sec. 1397A. Zone resident empowerment savings credit.
‘‘SEC. 1397A. ZONE RESIDENT EMPOWERMENT SAVINGS
CREDIT.
‘‘(a) G ENERAL RULE.—For purposes of section 38,
the amount of the zone resident empowerment savings
credit determined under this section with respect to any
employer for any taxable year is 50 percent of the quali-
fied savings contributions for the taxable year.
‘‘(b) QUALIFIED
SAVINGS
CONTRIBUTIONS.—For
purposes of this section—
1453
‘‘(1) IN GENERAL.—The term ‘qualified savings
contribution’ means any contribution by an employer
to a defined contribution plan—
‘‘(A) which is made on behalf of an em-
ployee in connection with services performed by
such employee while such employee is a quali-
fied zone employee, and
‘‘(B) with respect to which the employee
has a nonforfeitable right.
‘‘(2) L IMITATION BASED ON COMPENSATION.—
‘‘(A) I N GENERAL.—The qualified savings
contributions taken into account with respect to
any qualified zone employee for any taxable
year shall not exceed an amount equal to 2 per-
cent of so much of the employee’s compensation
(as defined in section 414(s)) as does not
exceed $35,000.
‘‘(B) Z ONE DESIGNATION IN EFFECT FOR
PARTIAL YEAR.—If a designation of an area as
an empowerment zone is in effect for less than
the entire taxable year, the $35,000 amount
under subparagraph (A) shall be ratably re-
duced to reflect the portion of the year such
designation is not in effect.
1454
‘‘(3) CERTAIN
CONTRIBUTIONS
EXCLUDED.—
The term ‘qualified savings contribution’ shall not
include any contribution—
‘‘(A) to a plan subject to the funding re-
quirements of section 412,
‘‘(B) to a tax credit employee stock owner-
ship plan (as defined in section 409(a)) or to an
employee stock ownership plan (as defined in
section 4975(e)(7)),
‘‘(C) to a stock bonus plan, or
‘‘(D) which is an elective deferral (within
the meaning of section 402(g)(3)).
‘‘(4) S IMPLIFIED EMPLOYEE PENSION.—A con-
tribution to an individual savings plan pursuant to
a simplified employee pension (as defined in section
408(k)) shall be treated as a contribution to a de-
fined contribution plan.
‘‘(c) EMPLOYER REQUIREMENTS.—This section shall
apply to an employer for any taxable year only if—
‘‘(1) the employer elects the application of this
section, and
‘‘(2) the plan pursuant to which any qualified
savings contribution is made provides that any con-
tribution to such plan (whether or not a qualified
savings contribution) may be withdrawn by a quali-