I
103D CONGRESS
1ST SESSION
H. R. 3643
To amend the Internal Revenue Code of 1986 to provide tax incentives
to encourage corporations to provide financing and management support
services to enable welfare recipients to leave welfare and operate small
business concerns.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 22, 1993
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 enable wel-
fare recipients to leave welfare and operate small busi-
ness concerns.
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 ‘‘Welfare Opportunities
and Pay Back Act’’.
SEC. 2. TAX INCENTIVES FOR WELFARE 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 Welfare Financing
Subsidiaries
‘‘Sec. 251. Deduction for equity contributions to welfare oppor-
tunity financing subsidiaries.
‘‘Sec. 252. Overall limitation on deductions.
‘‘Sec. 253. Definitions and special rules.
‘‘SEC. 251. DEDUCTION FOR EQUITY CONTRIBUTIONS TO
WELFARE OPPORTUNITY FINANCING SUB-
SIDIARIES.
‘‘(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 a welfare opportunity financing 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 business loans.
‘‘(b) LIMITATION.—The amount allowed as a deduc-
tion under subsection (a) to any qualified contributing cor-
poration for any taxable year shall not exceed the lesser
of—
‘‘(1) $10,000,000, or
‘‘(2) the portion of the program limitation allo-
cated to such corporation under section 252 to the
extent the amount so allocated was not used in a
prior taxable year.
‘‘(c) EQUITY CONTRIBUTION.—For purposes of this
section, the term ‘equity contribution’ means—
‘‘(1) any amount paid in cash for stock in a
welfare opportunity financing subsidiary of the cor-
poration if such stock is acquired at its original issu-
ance, and
‘‘(2) any contribution in cash to the capital of
a welfare opportunity financing subsidiary of the
corporation.
‘‘(d) RECAPTURE PROVISIONS.—
‘‘(1) BASIS ADJUSTMENT.—The adjusted basis
of any stock held by a corporation in a welfare op-
portunity financing subsidiary of such corporation
shall be reduced by the amount allowed as a deduc-
tion under subsection (a) in connection with the ac-
quisition of such stock. No increase in the basis of
any such stock shall be made on account of any con-
tribution to the capital of such subsidiary for which
a deduction is allowed under subsection (a).
‘‘(2) ORDINARY
INCOME
RECAPTURE.—Any
gain recognized on the sale or other disposition by
a corporation of stock in a welfare opportunity fi-
nancing subsidiary of such corporation shall be
treated as ordinary income.
‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI-
TIONS.—If any welfare opportunity financing sub-
sidiary of a corporation ceases to qualify as a wel-
fare 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 Health and
Human Services shall allocate the program limitation
among the qualified contributing corporations submitting
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 Health and Human Services shall prescribe regu-
lations setting forth the procedures for making allocations
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) WELFARE OPPORTUNITY FINANCING SUBSIDI-
ARY.—For purposes of this subpart, the term ‘welfare fi-
nancing subsidiary’ 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 business loans,
‘‘(B) providing management, administra-
tive, consulting, and other support services to
qualified small business concerns to which such
corporation has made qualified business loans,
and
‘‘(C) making temporary investments (for a
period not exceeding 6 months) of amounts
being held for purposes of making qualified
business loans.
‘‘(c) QUALIFIED BUSINESS LOANS.—For purposes of
this subpart, the term ‘qualified business loan’ means any
loan made by a welfare 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,
‘‘(3) the welfare opportunity financing subsidi-
ary provides (without charge) substantial qualified
services to the qualified small business concern in
connection with such loan, except that such small
business concern may waive the requirements 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) such person is wholly owned by 1 qualified
individual.
‘‘(e) QUALIFIED INDIVIDUAL.—For purposes of this
subpart, the term ‘qualified individual’ means an individ-
ual who—
‘‘(1) has become ineligible to receive aid to fam-
ilies with dependent children under a State plan ap-
proved under part A of title IV of the Social Secu-
rity Act, or supplemental security income benefits
under title XVI of such Act, by reason of the receipt
of a qualified business loan, and
‘‘(2) as a condition of receiving the loan, has
agreed to repay (in accordance with section 6306) to
the Federal Government an amount equal to the
total amount of benefits described in paragraph (1)
received by the individual during the most recent 24
months (whether or not consecutive) during which
such benefits were so received.
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) SUBSTANTIAL QUALIFIED SERVICES.—For
purposes of this subpart, the term ‘substantial quali-
fied services’ means, with respect to any loan made
by a welfare opportunity financing subsidiary, any
management, administrative, consulting, 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 outstand-
ing involve at least 1,000 man-hours for each
$100,000 principal amount of such loan.
‘‘(2) 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.
‘‘(3) TREATMENT OF CONTROLLED GROUPS.—
Any group of corporations treated as a single em-
ployer under section 51(a) or (b) shall be treated as
one corporation for purposes of this subpart.
‘‘(g) EMPLOYEES OF BORROWER MAY BE TAKEN
INTO ACCOUNT FOR CERTAIN PURPOSES.—If—
‘‘(1) a qualified contributing corporation has
provided financing through a welfare opportunity fi-
nancing 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 welfare opportunity financ-
ing 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 welfare opportunity financing sub-
sidiaries.
‘‘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.
SEC. 3. INDIVIDUALS RECEIVING LOANS FROM WELFARE
OPPORTUNITY FINANCING SUBSIDIARIES RE-
QUIRED TO REPAY CERTAIN WELFARE BENE-
FITS.
(a) IN GENERAL.—Subchapter A of chapter 64 of the
Internal Revenue Code of 1986 (relating to collection) is
amended by adding at the end thereof the following
new section:
‘‘SEC. 6306. COLLECTION OF CERTAIN WELFARE BENEFITS
FROM INDIVIDUALS RECEIVING QUALIFIED
BUSINESS LOANS.
‘‘(a) IN GENERAL.—Each borrower of a qualified
business loan shall make the payments required under this
section for each taxable year in the repayment period.
‘‘(b) REQUIRED PAYMENT.—
‘‘(1) IN GENERAL.—The amount required to be
paid under this section by any borrower for any tax-
able year in the repayment period shall be the sum
of—
‘‘(A) the amount determined by dividing
the repayable welfare benefits of such individual
which were not repaid under this section as of
the close of the preceding taxable year by the
number of taxable years remaining in the re-
payment period, plus
‘‘(B) interest on such amount determined
at the repayment interest rate.
‘‘(2) LIMITATION BASED ON ADJUSTED GROSS
INCOME.—The amount required to be paid under
this section for any taxable year shall not exceed 5
percent of the taxpayer’s adjusted gross income for
such taxable year (determined without regard to this
section).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) REPAYABLE
WELFARE
BENEFITS.—The
term ‘repayable welfare benefits’ means, with respect
to any qualified business loan giving rise to a pay-
ment obligation under this section, the aggregate
amount received by the borrower as aid to families
with dependent children under a State plan ap-
proved under part A of title IV of the Social Secu-
rity Act or as supplemental security income benefits
under title XVI of such Act during the most recent
24 months (whether or not consecutive) during
which such benefits were so received before the date
such loan was made.
‘‘(2) REPAYMENT PERIOD.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘repayment period’
means the period determined in accordance with
the following table:
‘‘If the aggregate repayable welfare
benefits is—
The repayment period
is—
At least
But less than
3,000
2 taxable years
3,001
7,500
5 taxable years
7,501
15,000
10 taxable years
‘‘(B) EXTENSION OF REPAYMENT PERIOD
IF ADJUSTED GROSS INCOME LIMITATION ON
REPAYMENT AMOUNT APPLIES.—The number of
taxable years in the repayment period shall be
increased by 1 taxable year for each taxable
year that the required payment under this sec-
tion is limited under subsection (b)(2).
‘‘(3) REPAYMENT INTEREST RATE.—The term
‘repayment interest rate’ means, with respect to any
taxable year ending during a calendar year, the aver-
age prime rate as of the close of each month during
the preceding calendar year plus 1.5 percentage
points.
‘‘(4) OTHER DEFINITIONS.—The terms ‘quali-
fied business loan’ and ‘prime rate’ have the mean-
ings given such terms by section 253.
‘‘(d) NOTICE TO BORROWER.—
‘‘(1) IN GENERAL.—If the records of the Sec-
retary indicate that a borrower of a qualified busi-
ness loan is required to make a payment under this
section for a taxable year ending with or within a
calendar year, the Secretary shall, during January
of such calendar year, furnish to such borrower no-
tice as to—
‘‘(A) the fact that the records of the Sec-
retary indicate that such borrower is required
to make a payment under this section for such
taxable year,
‘‘(B) the minimum required payment
under this section for such taxable year, and
‘‘(C) the total amount which, if paid by the
taxpayer on or before the last date described in
subsection (e)(1) for such taxable year, would
satisfy such taxpayer’s obligation to make fur-
ther payments of this section.
‘‘(2) FORM, ETC.—The notice under paragraph
(1) shall be in such form as the Secretary may by
regulations prescribe and shall be sent by mail to the
individual’s last known address or shall be left at the
dwelling or usual place of business of such individ-
ual.
‘‘(e) PAYMENT OF AMOUNT OWING.—Any amount to
be collected from an individual under this section shall be
paid—
‘‘(1) not later than the last date (determined
without regard to extensions) prescribed for filing
his return of tax imposed by chapter 1 for the tax-
able year ending with or within the calendar year
during which the notice under subsection (d) is sent,
and
‘‘(2)(A) if such return is filed not later than
such date, with such return, or
‘‘(B) in any case not described in subparagraph
(A), in such manner as the Secretary may by regula-
tions prescribe.
‘‘(f) FAILURE TO PAY AMOUNT OWING.—If an indi-
vidual fails to pay the full amount required to be paid on
or before the last date described in subsection (e)(1), the
Secretary shall assess and collect the unpaid amount in
the same manner, with the same powers, and subject to
the same limitations applicable to a tax imposed by sub-
title C the collection of which would be jeopardized by
delay.
‘‘(g) DECEASED
AND
PERMANENTLY
DISABLED
BORROWERS; DISCHARGE BY SECRETARY.—If an individ-
ual who is required to make payments under this section
dies or becomes permanently and totally disabled (as de-
termined in accordance with regulations of the Secretary),
then the Secretary shall discharge the borrower’s liability
for any payment under this section.
‘‘(h) 
CREDITING
OF
COLLECTIONS; 
SPECIAL
RULES.—
‘‘(1) CREDITING
OF
COLLECTIONS.—Amounts
collected under this section shall be credited to the
governments paying the repayable welfare benefits in
proportion to each such government’s share of the
aggregate welfare benefits required to be repaid
under this section.
‘‘(2) FINALITY OF ASSESSMENT AND COLLEC-
TION.—The first sentence of subsection (b) of sec-
tion 6305 shall apply to assessments and collections
under subsection (f) of this section.’’
(b) APPLICATION OF ESTIMATED TAX.—Subsection
(f) of section 6654 of such Code (relating to failure by
individual to pay estimated income tax) is amended by
striking ‘‘minus’’ at the end of paragraph (2) and insert-
ing ‘‘plus’’, by redesignating paragraph (3) as paragraph
(4), and by inserting after paragraph (2) the following new
paragraph:
‘‘(3) the amount required to be repaid under
section 6306 (relating to collection of certain welfare
benefits from individuals receiving qualified business
loans), minus.’’
(c) CLERICAL AMENDMENT.—The table of sections
for subchapter A of chapter 64 of such Code is amended
by adding at the end thereof the following new item:
‘‘Sec. 6306. Collection of certain welfare benefits from individuals
receiving qualified business loans.’’
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HR 3643 IH——2