I
104TH CONGRESS
1ST SESSION
H. R. 1072
To amend the Internal Revenue Code of 1986 to provide tax incentives
to encourage corporations to provide financing and management support
services to small business concerns operating in urban areas designated
as enterprise zones.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 28, 1995
Mr. FRANKS of Connecticut introduced the following bill; which was referred
to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax incentives to encourage corporations to provide fi-
nancing and management support services to small busi-
ness concerns operating in urban areas designated as
enterprise zones.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Urban Entrepreneurial
Opportunities Act’’.
SEC. 2. TAX INCENTIVES FOR URBAN ENTREPRENEURIAL
OPPORTUNITY FINANCING SUBSIDIARIES.
(a) GENERAL RULE.—Part VIII of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 (relating
to special deductions for corporations) is amended by add-
ing at the end thereof the following new subpart:
‘‘Subpart B—Tax Incentives for Urban
Entrepreneurial Opportunity Financing Subsidiaries
‘‘Sec. 251. Deduction for equity contributions to urban entre-
preneurial opportunity financing subsidiaries.
‘‘Sec. 252. Overall limitation on deductions.
‘‘Sec. 253. Definitions and special rules.
‘‘SEC. 251. DEDUCTION FOR EQUITY CONTRIBUTIONS TO
URBAN 
ENTREPRENEURIAL 
OPPORTUNITY
FINANCING SUBSIDIARIES.
‘‘(a) GENERAL RULE.—In the case of a qualified con-
tributing corporation, there shall be allowed as a deduction
an amount equal to the equity contributions made by such
corporation to an urban entrepreneurial opportunity fi-
nancing subsidiary of such corporation. Such deduction
shall be allowed for the taxable year of the contributing
corporation in which the equity contribution is used by the
subsidiary in making qualified enterprise zone business
loans.
‘‘(b) LIMITATION.—The amount allowed as a deduc-
tion under subsection (a) to any qualified contributing cor-
sidiary for which a deduction is allowed under sub-
section (a).
‘‘(2) ORDINARY
INCOME
RECAPTURE.—Any
gain recognized on the sale or other disposition by
a corporation of stock in an urban entrepreneurial
opportunity financing subsidiary of such corporation
shall be treated as ordinary income.
‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI-
TIONS.—If any urban entrepreneurial opportunity fi-
nancing subsidiary of a corporation ceases to qualify
as an urban entrepreneurial opportunity financing
subsidiary with respect to such corporation, such
corporation shall recognize gain as if it sold its stock
in such subsidiary for an amount equal to its fair
market value immediately before such cessation.
‘‘SEC. 252. OVERALL LIMITATION ON DEDUCTIONS.
‘‘(a) GENERAL RULE.—The Secretary of Housing
and Urban Development shall allocate the program limita-
tion among the qualified contributing corporations submit-
ting applications to such Secretary for allocations under
this section.
‘‘(b) PROGRAM LIMITATION.—The program limita-
tion is $250,000,000.
‘‘(c) METHOD OF MAKING ALLOCATIONS.—The Sec-
retary of Housing and Urban Development shall prescribe
regulations setting forth the procedures for making alloca-
tions under this section. Such procedures shall—
‘‘(1) include the criteria used in selecting the
corporations to which the allocations are made, and
‘‘(2) be designed to ensure a reasonable avail-
ability, on a geographical basis, of the benefits of
this subpart.
‘‘SEC. 253. DEFINITIONS AND SPECIAL RULES.
‘‘(a) QUALIFIED CONTRIBUTING CORPORATION.—
For purposes of this subpart, the term ‘qualified contrib-
uting corporation’ means any domestic corporation which
is not a small business concern; except that such term
shall not include any corporation predominantly engaged
in a banking, insurance, finance, or similar business.
‘‘(b) URBAN ENTREPRENEURIAL OPPORTUNITY FI-
NANCING SUBSIDIARY.—For purposes of this subpart, the
term ‘urban entrepreneurial opportunity financing subsidi-
ary’ means any domestic corporation—
‘‘(1) all the stock of which (exclusive of direc-
tors’ qualifying shares) is held directly by one quali-
fied contributing corporation, and
‘‘(2) all the activities of which consist of—
‘‘(A) making qualified enterprise zone busi-
ness loans,
‘‘(B) providing management, administra-
tive, consulting, and other support services to
qualified small business concerns to which such
corporation has made qualified enterprise zone
business loans, and
‘‘(C) making temporary investments (for a
period not exceeding 6 months) of amounts
being held for purposes of making qualified en-
terprise zone business loans.
‘‘(c) QUALIFIED
ENTERPRISE
ZONE
BUSINESS
LOANS.—For purposes of this subpart, the term ‘qualified
enterprise zone business loan’ means any loan made by
an urban entrepreneurial opportunity financing subsidiary
if—
‘‘(1) such loan is made to a qualified small
business concern and such concern is not related
(within the meaning of section 267(b) or 707(b)) to
such subsidiary or the qualified contributing cor-
poration holding such subsidiary,
‘‘(2) the proceeds of such loan are used by such
qualified small business concern in the active con-
duct of a trade or business in an urban enterprise
zone,
‘‘(3) the urban entrepreneurial opportunity fi-
nancing subsidiary provides (without charge) sub-
stantial qualified services to the qualified small busi-
ness concern in connection with such loan, except
that such small business concern may waive the re-
quirements of this paragraph, and
‘‘(4) the interest on such loan does not ex-
ceed—
‘‘(A) in the case of a secured loan, the
prime rate plus 3 percentage points, or
‘‘(B) in the case of any other loan, the
prime rate plus 8 percentage points.
‘‘(d) QUALIFIED SMALL BUSINESS CONCERN.—For
purposes of this subpart, the term ‘qualified small busi-
ness concern’ means any person if—
‘‘(1) such person is a small business concern
within the meaning of section 3 of the Small Busi-
ness Act (15 U.S.C. 632), and
‘‘(2) substantially all of the activities of such
person are within an urban enterprise zone.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) URBAN ENTERPRISE ZONE.—For purposes
of this subpart, the term ‘urban enterprise zone’
means—
‘‘(A) any urban area designated as an en-
terprise zone under any State law program, and
‘‘(B) any urban area designated as an en-
terprise zone under Federal law.
‘‘(2) SUBSTANTIAL QUALIFIED SERVICES.—For
purposes of this subpart, the term ‘substantial quali-
fied services’ means, with respect to any loan made
by an urban entrepreneurial opportunity financing
subsidiary, any management, administrative, con-
sulting, or other support services provided to the
borrower under such loan, but only if the amount of
such services, to be provided during the first year
such loan is outstanding involve at least 1,000 man-
hours for each $100,000 principal amount of such
loan.
‘‘(3) PRIME RATE.—For purposes of this sub-
part—
‘‘(A) IN GENERAL.—The term ‘prime rate’
means the average predominant prime rate
quoted by commercial banks to large busi-
nesses, as determined by the Board of Gov-
ernors of the Federal Reserve System.
‘‘(B) WHEN DETERMINATION MADE.—
‘‘(i) Except as provided in clause (ii),
the determination of the prime rate shall
be made as of the time the loan is made.
‘‘(ii) If the loan is a variable rate
loan, the prime rate taken into account
with respect to any change in rate shall be
determined as of the time such change
takes effect.
‘‘(4) TREATMENT OF CONTROLLED GROUPS.—
Any group of corporations treated as a single em-
ployer under section 52 (a) or (b) shall be treated
as one corporation for purposes of this subpart.
‘‘(f) EMPLOYEES OF BORROWER MAY BE TAKEN
INTO ACCOUNT FOR CERTAIN PURPOSES.—If—
‘‘(1) a qualified contributing corporation has
provided financing through an urban entrepreneurial
opportunity financing subsidiary to any qualified
small business concern, and
‘‘(2) such qualified small business concern des-
ignates such subsidiary as its primary lender,
such qualified contributing corporation may treat the em-
ployees of such qualified small business concern as its own
employees for purposes of determining which such quali-
fied contributing corporation is in compliance with the re-
quirements of any Federal law. A qualified small business
concern may designate only 1 urban entrepreneurial op-
portunity financing subsidiary is its primary lender for
any period.’’
(b) CLERICAL AMENDMENT.—Part VIII of sub-
chapter B of chapter 1 of such Code is amended by insert-
ing after the part heading the following:
‘‘Subpart A—General provisions.
‘‘Subpart B—Tax incentives for urban entrepreneurial oppor-
tunity financing subsidiaries.
‘‘Subpart A—General Provisions’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
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