‘‘(b) QUALIFIED AREA WAGES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified area wages’ means any
wages paid or incurred by an employer for services
performed by an employee while such employee is a
qualified area employee.
‘‘(2) ONLY FIRST $15,000 OF WAGES PER YEAR
TAKEN INTO ACCOUNT.—With respect to each quali-
fied area employee, the amount of qualified area
wages which may be taken into account for a cal-
endar year shall not exceed $15,000.
‘‘(3) COORDINATION
WITH
TARGETED
JOBS
CREDIT
AND
EMPOWERMENT
ZONE
EMPLOYMENT
CREDIT.—
‘‘(A) IN
GENERAL.—The term ‘qualified
area wages’ shall not include wages taken into
account in determining the credit under section
51 or 1396.
‘‘(B) COORDINATION
WITH
PARAGRAPH
(2).—The $15,000 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 or 1396.
‘‘(c) QUALIFIED AREA EMPLOYEE.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified area 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 eco-
nomic recovery area in a trade or business of
the employer, and
‘‘(B) the prior employment of such em-
ployee was by an employer in such area from
which—
‘‘(i) such employee was involuntarily
separated from service (other than in a
separation determined under the applicable
State unemployment compensation law to
be due to the misconduct of such em-
ployee), or
‘‘(ii) such employee retired.
‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—
Rules similar to the rules of paragraphs (2) and (3)
of section 1396(d) shall apply for purposes of para-
graph (1).
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) WAGES.—The term ‘wages’ has the same
meaning as when used in section 51.
‘‘(2) CONTROLLED
GROUPS.—All employers
treated as a single employer under subsection (a) or
(b) of section 52 shall be treated as a single em-
ployer for purposes of this section, and the credit (if
any) determined under this section with respect to
each such employer shall be its proportionate share
of the wages giving rise to such credit.
‘‘(3) CERTAIN OTHER RULES MADE APPLICA-
BLE.—For purposes of this section, rules similar to
the rules of section 51(k) and subsections (c), (d),
and (e) of section 52 shall apply.
‘‘SEC. 1399E. REDUCTION IN CAPITAL GAINS TAX ON EQ-
UITY INVESTMENTS IN AREA BUSINESSES.
‘‘(a) TAXPAYERS OTHER THAN CORPORATIONS.—
‘‘For 10 percent maximum rate of tax on qualified
area investments, see section 1(h).
‘‘(b) CORPORATIONS.—
‘‘For 17 percent maximum rate of tax on qualified
area investments, see section 1201.
‘‘(c) QUALIFIED AREA INVESTMENTS.—For purposes
of sections 1 and 1201—
‘‘(1) IN GENERAL.—The term ‘qualified area
investment’ means—
‘‘(A) any qualified area stock,
‘‘(B) any qualified area business property,
and
‘‘(C) any qualified area partnership inter-
est,
held for more than 5 years as of the date of the sale
or exchange to which section 1 or 1201 applies.
‘‘(2) QUALIFIED AREA STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified area
stock’ means any stock in a domestic corpora-
tion 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 qualified area
business (or, in the case of a new corpora-
tion, such corporation was being organized
for purposes of being a qualified area busi-
ness), and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a qualified
area business.
‘‘(B) REDEMPTIONS.—The term ‘qualified
area stock’ shall not include any stock acquired
from a corporation which made a substantial
stock redemption or distribution (without a
bona fide business purpose therefor) in an at-
tempt to avoid the purposes of this section.
‘‘(3) QUALIFIED AREA BUSINESS PROPERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
area 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 economic recovery
area took effect,
‘‘(ii) the original use of such property
in such an area commences with the tax-
payer, 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 an economic recovery area
and in a qualified area business of the tax-
payer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—The requirements of clauses (i)
and (ii) of subparagraph (A) shall be treated as
satisfied with respect to—
‘‘(i) property which is substantially
improved by the taxpayer, and
‘‘(ii) any land on which such property
is located.
For purposes of the preceding sentence, prop-
erty shall be treated as substantially improved
by the taxpayer if, during any 24-month period
beginning after the date on which the designa-
tion of the economic recovery area 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 adjusted 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 area business property’ shall not in-
clude land which is not an integral part of a
qualified area business.
‘‘(4) QUALIFIED
AREA
PARTNERSHIP
INTER-
EST.—The term ‘qualified area partnership 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 qualified area
business (or, in the case of a new partnership,
such partnership was being organized for pur-
poses of being a qualified area business), and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a qualified area busi-
ness.
A rule similar to the rule of paragraph (2)(B) shall
apply for purposes of this paragraph.
‘‘(5) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified area investment’ in-
cludes any property which would be a qualified area
investment but for paragraph (2)(A)(i), (3)(A)(ii), or
(4)(A) in the hands of the taxpayer if such property
was a qualified area investment in the hands of any
prior holder.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified area investment 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 subsections (a) and (b) apply on any sale
or exchange of such property shall not exceed the
amount which would be long-term capital gain had
such property been sold on the date of such ces-
sation.
‘‘(7) TREATMENT OF AREA TERMINATIONS.—
The termination of any designation of an area as an
economic recovery area shall be disregarded for pur-
poses of determining whether any property is a
qualified area investment.
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) QUALIFIED
AREA
BUSINESS.—The term
‘qualified area business’ means any business which
would be an enterprise zone business as defined in
section 1397B if ‘economic recovery area’ were sub-
stituted for ‘empowerment zone’ each place it ap-
pears.
‘‘(2) QUALIFIED BUSINESS.—The term ‘quali-
fied business’ has the meaning given such term by
section 1397B(d), determined by substituting ‘eco-
nomic recovery area’ for ‘empowerment zone’ each
place it appears.
‘‘(3) GAIN ATTRIBUTABLE TO PERIODS AFTER
TERMINATION OF AREA DESIGNATION NOT QUALI-
FIED.—The amount of gain to which subsections (a)
and (b) apply on any sale or exchange of property
shall not include any gain attributable to periods
after the termination of any designation of an area
as an economic recovery area.
‘‘(e) 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 qualified area business during
substantially all of the period the taxpayer held such
interest) for more than 5 years shall be treated as
gain on a qualified area investment to the extent
such gain is attributable to amounts which would be
long-term capital gain on qualified area investments
(determined as if such investments had been sold on
the date of the sale or exchange) held by such entity
for more than 5 years 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 qualified area business during substan-
tially all of the period the taxpayer held the in-
terest to which such inclusion relates) shall be
treated as gain on a qualified area investment
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
long-term capital gain recognized on the
sale or exchange by the pass-thru entity of
property which is a qualified area invest-
ment asset in the hands of such entity and
which was held by such entity for more
than 5 years, 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 area 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.
‘‘(f) SALES
AND EXCHANGES
OF INTERESTS
IN
PARTNERSHIPS
AND
S CORPORATIONS
WHICH
ARE
QUALIFIED AREA 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 qualified area business
during substantially all of the period the taxpayer held
such interest or stock, the amount of long-term capital
gain shall be determined without regard to—
‘‘(1) any intangible, and any land, which is not
an integral part of any qualified business, and
‘‘(2) gain attributable to periods before the des-
ignation of an area as an economic recovery area.
‘‘(g) CERTAIN
TAX-FREE
AND
OTHER
TRANS-
FERS.—For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer of
a qualified area investment to which this subsection
applies, the transferee shall be treated as—
‘‘(A) having acquired such investment in
the same manner as the transferor, and
‘‘(B) having held such investment during
any continuous period immediately preceding
the transfer during which it was held (or treat-
ed as held under this subsection) by the trans-
feror.
‘‘(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 area investment with re-
spect to which the requirements of subsection
(e)(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. 1399F. OTHER INCENTIVES.
‘‘(a) EXPENSING OF EQUIPMENT AND LEASEHOLD
IMPROVEMENTS.—
‘‘(1) IN GENERAL.—In the case of a qualified
area business (as defined in section 1399E(d)), for
purposes of section 179—
‘‘(A) the limitations of paragraphs (1) and
(2) of section 179(b) shall not apply to section
179 property which is qualified area property
placed in service during the taxable year, and
‘‘(B) leasehold improvements placed in
service by the lessor in an economic recovery
area shall be treated as section 179 property
for purposes of subparagraph (A) and section
179.
‘‘(2) RECAPTURE.—Rules similar to the rules
under section 179(d)(10) shall apply with respect to
any qualified area property which ceases to be used
in an economic recovery area by a qualified area
business.
‘‘(3) QUALIFIED
AREA
PROPERTY.—For pur-
poses of this subsection, the term ‘qualified area
property’ means any property which would be quali-
fied zone property as defined in section 1397C, if
‘economic recovery area’ were substituted for
‘empowerment zone’ each place it appears.
‘‘(b) PASSIVE LOSS RULES NOT TO APPLY TO REHA-
BILITATION
OF HISTORIC STRUCTURES.—Section 469
shall not apply to so much of the rehabilitation credit de-
termined under section 47 as is attributable to certified
historic structures (as defined in section 47(c)(3)) located
in an economic recovery area.
‘‘(c) DOUBLE
DEDUCTION
FOR
SECURITY
DE-
VICES.—The amount of any deduction otherwise allowable
under section 162 for any security expenses shall be in-
creased by 100 percent of such amount.’’
(b) REDUCTION IN CAPITAL GAINS RATES.—
(1) 
TAXPAYERS
OTHER
THAN
CORPORA-
TIONS.—Subsection (h) of section 1 of such Code
(relating to maximum capital gains rate) is amended
to read as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—
‘‘(1) IN GENERAL.—If a taxpayer has a net
capital gain for any taxable year, then the tax im-
posed by this section shall not exceed the sum of—
‘‘(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the greater of—
‘‘(i) taxable income reduced by the
amount of the net capital gain, or
‘‘(ii) the amount of taxable income
taxed at a rate below 10 percent, plus
‘‘(B) a tax of 10 percent on the lesser of—
‘‘(i) the net capital gain determined
by only taking into account gain and loss
attributable to qualified area investments
(as defined in section 1399E(c)), or
‘‘(ii) the amount of taxable income in
excess of the amount on which tax is deter-
mined under subparagraph (A), plus
‘‘(C) a tax of 28 percent of taxable income
in excess of the sum of the amounts on which
tax was determined under subparagraphs (A)
and (B).
‘‘(2) COORDINATION
WITH
INVESTMENT
IN-
COME ELECTION.—For purposes of paragraph (1),
the net capital gain for any taxable year shall be re-
duced (but not below zero) by the amount which the
taxpayer elects to take into account as investment
income 
for 
the 
taxable 
year 
under 
section
163(d)(4)(B)(iii).’’
(2) CORPORATIONS.—Paragraph (2) of section
1201(a) of such Code is amended to read as follows:
‘‘(2)(A) a tax of 17 percent of the lesser of—
‘‘(i) the net capital gain determined by
only taking into account gain and loss attrib-
utable to qualified area investments (as defined
in section 1399E(c)), or
‘‘(ii) the net capital gain, plus
‘‘(B) a tax of 35 percent of the net capital gain
in excess of the amount on which tax was deter-
mined under subparagraph (A).’’
(c) TECHNICAL AMENDMENTS.—
(1) EMPLOYMENT CREDIT PART OF GENERAL
BUSINESS CREDIT.—
(A) Subsection (b) of section 38 of such
Code (relating to current year business credit)
is amended by striking ‘‘plus’’ at the end of
paragraph (10), by striking the period at the
end of paragraph (11) and inserting ‘‘, plus’’,
and by adding at the end the following new
paragraph:
‘‘(12) the economic recovery area employment
credit determined under section 1399D(a).’’
(B) Subsection (d) of section 39 of such
Code is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) ECONOMIC RECOVERY AREA EMPLOYMENT
CREDIT.—No portion of the unused business credit
which is attributable to the credit determined under
section 1399D (relating to economic recovery area
employment credit) may be carried to any taxable
year ending before January 1, 1995.’’
(2) DENIAL OF DEDUCTION FOR PORTION OF
WAGES EQUAL TO ECONOMIC RECOVERY AREA EM-
PLOYMENT CREDIT.—
(A) Subsection (a) of section 280C of such
Code (relating to rule for targeted jobs credit)
is amended by striking ‘‘and 1396(a)’’ and in-
serting ‘‘, 1396(a), and 1399D(a)’’.
(B) Subsection (c) of section 196 of such
Code (relating to deduction for certain unused
business credits) is amended by striking ‘‘and’’
at the end of paragraph (6), by striking the pe-
riod at the end of paragraph (7) and inserting
‘‘, and’’, and by adding at the end the following
new paragraph:
‘‘(8) the economic recovery area employment
credit determined under section 1399D(a).’’
(3) CARRYOVERS.—Subsection (c) of section
381 of such Code (relating to carryovers in certain
corporate acquisitions) is amended by adding at the
end the following new paragraph:
‘‘(27) ECONOMIC
RECOVERY
AREA
PROVI-
SIONS.—The acquiring corporation shall take into
account (to the extent proper to carry out the pur-
poses of this section and subchapter W, and under
such regulations as may be prescribed by the Sec-
retary) the items required to be taken into account
for purposes of subchapter W in respect of the dis-
tributor or transferor corporation.’’
(4) The table of subchapters for chapter 1 of
such Code is amended by inserting after the item re-
lating to subchapter V the following new item:
‘‘Subchapter W. Designation and treatment of economic recovery
areas.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
Æ
HR 2015 IH——2