the local government (determined in the same
manner as under section 119(b)(2) of the
Housing and Community Development Act of
1974).
‘‘(4) CONSIDERATION OF HIGH INCIDENCE OF
CRIME.—The Secretary of Housing and Urban De-
velopment shall take into account, in selecting nomi-
nated areas for designation as renewal communities
under this section, the extent to which such areas
have a high incidence of crime.
‘‘(5) CONSIDERATION OF COMMUNITIES IDENTI-
FIED
IN
GAO
STUDY.—The Secretary of Housing
and Urban Development shall take into account, in
selecting nominated areas for designation as renewal
communities under this section, if the area has cen-
sus tracts identified in the May 12, 1998, report of
the Government Accounting Office regarding the
identification of economically distressed areas.
‘‘(d) REQUIRED
STATE
AND
LOCAL
COMMIT-
MENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if—
‘‘(A) the local government and the State in
which the area is located agree in writing that,
during any period during which the area is a
renewal community, such governments will fol-
low a specified course of action which meets the
requirements of paragraph (2) and is designed
to reduce the various burdens borne by employ-
ers or employees in such area; and
‘‘(B) the economic growth promotion re-
quirements of paragraph (3) are met.
‘‘(2) COURSE OF ACTION.—
‘‘(A) IN
GENERAL.—A course of action
meets the requirements of this paragraph if
such course of action is a written document,
signed by a State (or local government) and
neighborhood organizations, which evidences a
partnership between such State or government
and community-based organizations and which
commits each signatory to specific and measur-
able goals, actions, and timetables. Such course
of action shall include at least five of the follow-
ing:
‘‘(i) A reduction of tax rates or fees
applying within the renewal community.
‘‘(ii) An increase in the level of effi-
ciency of local services within the renewal
community.
‘‘(iii) Crime reduction strategies, such
as crime prevention (including the provi-
sion of such services by nongovernmental
entities).
‘‘(iv) Actions to reduce, remove, sim-
plify, or streamline governmental require-
ments applying within the renewal commu-
nity.
‘‘(v) Involvement in the program by
private entities, organizations, neighbor-
hood 
organizations, 
and 
community
groups, particularly those in the renewal
community, including a commitment from
such private entities to provide jobs and
job training for, and technical, financial, or
other assistance to, employers, employees,
and residents from the renewal community.
‘‘(vi) State or local income tax bene-
fits for fees paid for services performed by
a nongovernmental entity which were for-
merly performed by a governmental entity.
‘‘(vii) The gift (or sale at below fair
market value) of surplus real property
(such as land, homes, and commercial or
industrial structures) in the renewal com-
munity to neighborhood organizations,
community development corporations, or
private companies.
‘‘(B) RECOGNITION OF PAST EFFORTS.—
For purposes of this section, in evaluating the
course of action agreed to by any State or local
government, the Secretary of Housing and
Urban Development shall take into account the
past efforts of such State or local government
in reducing the various burdens borne by em-
ployers and employees in the area involved.
‘‘(3) ECONOMIC GROWTH PROMOTION REQUIRE-
MENTS.—The economic growth promotion require-
ments of this paragraph are met with respect to a
nominated area if the local government and the
State in which such area is located certify in writing
that such government and State, respectively, have
repealed or otherwise will not enforce within the
area, if such area is designated as a renewal commu-
nity—
‘‘(A) licensing requirements for occupa-
tions that do not ordinarily require a profes-
sional degree;
‘‘(B) zoning restrictions on home-based
businesses which do not create a public nui-
sance;
‘‘(C) permit requirements for street ven-
dors who do not create a public nuisance;
‘‘(D) zoning or other restrictions that im-
pede the formation of schools or child care cen-
ters; and
‘‘(E) franchises or other restrictions on
competition for businesses providing public
services, including but not limited to taxicabs,
jitneys, cable television, or trash hauling,
except to the extent that such regulation of busi-
nesses and occupations is necessary for and well-tai-
lored to the protection of health and safety.
‘‘(e) COORDINATION WITH TREATMENT
OF EM-
POWERMENT ZONES AND ENTERPRISE COMMUNITIES.—
For purposes of this title, if there are in effect with respect
to the same area both—
‘‘(1) a designation as a renewal community; and
‘‘(2) a designation as an empowerment zone or
enterprise community,
both of such designations shall be given full effect with
respect to such area.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this subchapter—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as a renewal com-
munity, any reference to, or requirement of, this sec-
tion shall apply to all such governments.
‘‘(2) STATE.—The term ‘State’ includes Puerto
Rico, the Virgin Islands of the United States, Guam,
American Samoa, the Northern Mariana Islands,
and any other possession of the United States.
‘‘(3) 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;
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the Secretary of Housing and Urban Devel-
opment; and
‘‘(C) the District of Columbia.
‘‘(4) APPLICATION
OF
RULES
RELATING
TO
CENSUS TRACTS AND CENSUS DATA.—The rules of
sections 1392(b)(4) and 1393(a)(9) shall apply.
‘‘PART II—RENEWAL COMMUNITY CAPITAL GAIN;
RENEWAL COMMUNITY BUSINESS
‘‘Sec. 1400F. Renewal community capital gain.
‘‘Sec. 1400G. Renewal community business defined.
‘‘SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude any qualified capital gain recognized on the sale or
exchange of a qualified community asset held for more
than 5 years.
‘‘(b) QUALIFIED COMMUNITY ASSET.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified com-
munity asset’ means—
‘‘(A) any qualified community stock;
‘‘(B) any qualified community partnership
interest; and
‘‘(C) any qualified community business
property.
‘‘(2) QUALIFIED COMMUNITY STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified commu-
nity stock’ means any stock in a domestic cor-
poration if—
‘‘(i) such stock is acquired by the tax-
payer after December 31, 1999, and before
January 1, 2007, at its original issue (di-
rectly or through an underwriter) from the
corporation solely in exchange for cash;
‘‘(ii) as of the time such stock was
issued, such corporation was a renewal
community business (or, in the case of a
new corporation, such corporation was
being organized for purposes of being a re-
newal community business); and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a renewal
community business.
‘‘(B) REDEMPTIONS.—A rule similar to
the rule of section 1202(c)(3) shall apply for
purposes of this paragraph.
‘‘(3) QUALIFIED COMMUNITY PARTNERSHIP IN-
TEREST.—The term ‘qualified community partner-
ship interest’ means any interest in a partnership
if—
‘‘(A) such interest is acquired by the tax-
payer after December 31, 1999, and before
January 1, 2007;
‘‘(B) as of the time such interest was ac-
quired, such partnership was a renewal commu-
nity business (or, in the case of a new partner-
ship, such partnership was being organized for
purposes of being a renewal community busi-
ness); and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a renewal community
business.
A rule similar to the rule of paragraph (2)(B) shall
apply for purposes of this paragraph.
‘‘(4) QUALIFIED COMMUNITY BUSINESS PROP-
ERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
community business property’ means tangible
property if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after December 31,
1999, and before January 1, 2007;
‘‘(ii) the original use of such property
in the renewal community commences with
the taxpayer; 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 a renewal community busi-
ness of the taxpayer.
‘‘(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 (within the meaning of section
1400B(b)(4)(B)(ii)) by the taxpayer before
January 1, 2007; and
‘‘(ii) any land on which such property
is located.
‘‘(c) CERTAIN RULES TO APPLY.—Rules similar to
the rules of paragraphs (5), (6), and (7) of subsection (b),
and subsections (e), (f), and (g), of section 1400B shall
apply for purposes of this section.
‘‘SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘For purposes of this part, the term ‘renewal commu-
nity business’ means any entity or proprietorship which
would be a qualified business entity or qualified propri-
etorship under section 1397B if—
‘‘(1) references to renewal communities were
substituted for references to empowerment zones in
such section; and
‘‘(2) ‘80 percent’ were substituted for ‘50 per-
cent’ in subsections (b)(2) and (c)(1) of such sec-
tion.
‘‘PART III—FAMILY DEVELOPMENT ACCOUNTS
‘‘Sec. 1400H. Family development accounts for renewal commu-
nity EITC recipients.
‘‘Sec. 1400I. Demonstration program to provide matching con-
tributions to family development accounts in certain
renewal communities.
‘‘Sec. 1400J. Designation of earned income tax credit payments
for deposit to family development account.
‘‘SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RE-
NEWAL COMMUNITY EITC RECIPIENTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction—
‘‘(A) in the case of a qualified individual,
the amount paid in cash for the taxable year by
such individual to any family development ac-
count for such individual’s benefit; and
‘‘(B) in the case of any person other than
a qualified individual, the amount paid in cash
for the taxable year by such person to any fam-
ily development account for the benefit of a
qualified individual but only if the amount so
paid is designated for purposes of this section
by such individual.
No deduction shall be allowed under this paragraph
for any amount deposited in a family development
101
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder.
‘‘(2) QUALIFIED
FAMILY
DEVELOPMENT
EX-
PENSES.—The term ‘qualified family development
expenses’ means any of the following:
‘‘(A) Qualified higher education expenses.
‘‘(B) Qualified first-time homebuyer costs.
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ has the meaning
given such term by section 72(t)(7), determined
by treating postsecondary vocational edu-
cational schools as eligible educational institu-
tions.
‘‘(B) POSTSECONDARY VOCATIONAL EDU-
CATION SCHOOL.—The term ‘postsecondary vo-
cational educational school’ means an area vo-
cational education school (as defined in sub-
paragraph (C) or (D) of section 521(4) of the
102
Carl D. Perkins Vocational and Applied Tech-
nology Education Act (20 U.S.C. 2471(4)))
which is in any State (as defined in section
521(33) of such Act), as such sections are in
effect on the date of the enactment of this sec-
tion.
‘‘(C) COORDINATION WITH OTHER BENE-
FITS.—The amount of qualified higher edu-
cation expenses for any taxable year shall be re-
duced as provided in section 25A(g)(2).
‘‘(4) 
QUALIFIED
FIRST-TIME
HOMEBUYER
COSTS.—The term ‘qualified first-time homebuyer
costs’ means qualified acquisition costs (as defined
in section 72(t)(8) without regard to subparagraph
(B) thereof) with respect to a principal residence
(within the meaning of section 121) for a qualified
first-time homebuyer (as defined in such section).
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business capitalization costs’ means qualified
expenditures for the capitalization of a qualified
business pursuant to a qualified plan.
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expendi-
103
tures included in a qualified plan, including
capital, plant, equipment, working capital, and
inventory expenses.
‘‘(C) QUALIFIED
BUSINESS.—The term
‘qualified business’ means any business that
does not contravene any law.
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which meets
such requirements as the Secretary may specify.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
insurance or otherwise, for medical care (as defined
in section 213(d)) of the taxpayer, his spouse, or his
dependent (as defined in section 152).
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a family
development account of a taxpayer into another such
account established for the benefit of—
‘‘(A) such taxpayer, or
‘‘(B) any qualified individual who is—
‘‘(i) the spouse of such taxpayer, or
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer.
104
Rules similar to the rules of section 408(d)(3) shall
apply for purposes of this paragraph.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Any family development ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be a family devel-
opment account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations). Notwith-
standing any other provision of this title (including
chapters 11 and 12), the basis of any person in such
an account is zero.
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall
apply.
‘‘(3) OTHER RULES TO APPLY.—Rules similar
to the rules of paragraphs (4), (5), and (6) of sec-
tion 408(d) shall apply for purposes of this section.
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For pur-
poses of this title, the term ‘family development account’
means a trust created or organized in the United States
for the exclusive benefit of a qualified individual or his
105
beneficiaries, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(1) Except in the case of a qualified rollover
(as defined in subsection (c)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash; and
‘‘(B) contributions will not be accepted for
the taxable year in excess of $3,000 (deter-
mined without regard to any contribution made
under section 1400I (relating to demonstration
program to provide matching amounts in re-
newal communities)).
‘‘(2) The requirements of paragraphs (2)
through (6) of section 408(a) are met.
‘‘(f) QUALIFIED INDIVIDUAL.—For purposes of this
section, the term ‘qualified individual’ means, for any tax-
able year, an individual—
‘‘(1) who is a bona fide resident of a renewal
community throughout the taxable year; and
‘‘(2) to whom a credit was allowed under sec-
tion 32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
106
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to a
family development account on the last day of the
preceding taxable year if the contribution is made on
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER
PAYMENTS; CUSTODIAL
AC-
COUNTS.—Rules similar to the rules of sections
219(f)(5) and 408(h) shall apply for purposes of this
section.
‘‘(5) REPORTS.—The trustee of a family devel-
opment account shall make such reports regarding
such account to the Secretary and to the individual
for whom the account is maintained with respect to
contributions (and the years to which they relate),
distributions, and such other matters as the Sec-
107
retary may require under regulations. The reports
required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations; and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate; and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(6) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED FAMILY DEVELOPMENT EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from a family development account and is not
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder, the tax imposed by this chapter for the tax-
able year of such distribution shall be increased by
the sum of—
108
‘‘(A) 100 percent of the portion of such
amount which is includible in gross income and
is attributable to amounts contributed under
section 1400I (relating to demonstration pro-
gram to provide matching amounts in renewal
communities); and
‘‘(B) 10 percent of the portion of such
amount which is includible in gross income and
is not described in subparagraph (A).
For purposes of this subsection, distributions which
are includable in gross income shall be treated as at-
tributable to amounts contributed under section
1400I to the extent thereof. For purposes of the pre-
ceding sentence, all family development accounts of
an individual shall be treated as one account.
‘‘(2) EXCEPTION
FOR
CERTAIN
DISTRIBU-
TIONS.—Paragraph (1) shall not apply to distribu-
tions which are—
‘‘(A) made on or after the date on which
the account holder attains age 591⁄2,
‘‘(B) made to a beneficiary (or the estate
of the account holder) on or after the death of
the account holder, or
109
‘‘(C) attributable to the account holder’s
being disabled within the meaning of section
72(m)(7).
‘‘(i) TERMINATION.—No deduction shall be allowed
under this section for any amount paid to a family devel-
opment account for any taxable year beginning after De-
cember 31, 2006.
‘‘SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE
MATCHING CONTRIBUTIONS TO FAMILY DE-
VELOPMENT 
ACCOUNTS 
IN 
CERTAIN 
RE-
NEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this sec-
tion, the term ‘FDA matching demonstration area’
means any renewal community—
‘‘(A) which is nominated under this section
by each of the local governments and States
which nominated such community for designa-
tion as a renewal community under section
1400E(a)(1)(A); and
‘‘(B) which the Secretary of Housing and
Urban Development designates as an FDA
matching demonstration area after consultation
with—
110
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury, the
Director of the Office of Management and
Budget, and the Administrator of the
Small Business Administration; and
‘‘(ii) in the case of a community on an
Indian reservation, the Secretary of the In-
terior.
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 5 communities as FDA
matching demonstration areas.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under sub-
paragraph (A), at least 2 must be areas de-
scribed in section 1400E(a)(2)(B).
‘‘(3) LIMITATIONS ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
The Secretary of Housing and Urban Develop-
ment shall prescribe by regulation no later than
4 months after the date of the enactment of
this section, after consultation with the officials
described in paragraph (1)(B)—
111
‘‘(i) the procedures for nominating a
renewal 
community 
under 
paragraph
(1)(A) (including procedures for coordinat-
ing such nomination with the nomination
of an area for designation as a renewal
community under section 1400E); and
‘‘(ii) the manner in which nominated
renewal communities will be evaluated for
purposes of this section.
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate renewal communities as FDA matching
demonstration areas only during the 24-month
period beginning on the first day of the first
month following the month in which the regula-
tions described in subparagraph (A) are pre-
scribed.
‘‘(4) DESIGNATION BASED ON DEGREE OF POV-
ERTY, ETC.—The rules of section 1400E(a)(3) shall
apply for purposes of designations of FDA matching
demonstration areas under this section.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—Any designation of a renewal community as an
FDA matching demonstration area shall remain in effect
during the period beginning on the date of such designa-
112
tion and ending on the date on which such area ceases
to be a renewal community.
‘‘(c) MATCHING CONTRIBUTIONS TO FAMILY DEVEL-
OPMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into a family
development account of each qualified individual (as
defined in section 1400H(f))—
‘‘(A) who is a resident throughout the tax-
able year of an FDA matching demonstration
area; and
‘‘(B) who requests (in such form and man-
ner as the Secretary prescribes) such deposit
for the taxable year,
an amount equal to the sum of the amounts depos-
ited into all of the family development accounts of
such individual during such taxable year (determined
without regard to any amount contributed under this
section).
‘‘(2) LIMITATIONS.—
‘‘(A) ANNUAL LIMIT.—The Secretary shall
not deposit more than $1000 under paragraph
(1) with respect to any individual for any tax-
able year.
113
‘‘(B) AGGREGATE
LIMIT.—The Secretary
shall not deposit more than $2000 under para-
graph (1) with respect to any individual for all
taxable years.
‘‘(3) EXCLUSION
FROM
INCOME.—Except as
provided in section 1400H, gross income shall not
include any amount deposited into a family develop-
ment account under paragraph (1).
‘‘(d) NOTICE
OF PROGRAM.—The Secretary shall
provide appropriate notice to residents of FDA matching
demonstration areas of the availability of the benefits
under this section.
‘‘(e) TERMINATION.—No amount may be deposited
under this section for any taxable year beginning after De-
cember 31, 2006.
‘‘SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CRED-
IT PAYMENTS FOR DEPOSIT TO FAMILY DE-
VELOPMENT ACCOUNT.
‘‘(a) IN GENERAL.—With respect to the return of any
qualified individual (as defined in section 1400H(f)) for
the taxable year of the tax imposed by this chapter, such
individual may designate that a specified portion (not less
than $1) of any overpayment of tax for such taxable year
which is attributable to the earned income tax credit shall
be deposited by the Secretary into a family development
114
account of such individual. The Secretary shall so deposit
such portion designated under this subsection.
‘‘(b) MANNER AND TIME OF DESIGNATION.—A des-
ignation under subsection (a) may be made with respect
to any taxable year—
‘‘(1) at the time of filing the return of the tax
imposed by this chapter for such taxable year, or
‘‘(2) at any other time (after the time of filing
the return of the tax imposed by this chapter for
such taxable year) specified in regulations prescribed
by the Secretary.
Such designation shall be made in such manner as the
Secretary prescribes by regulations.
‘‘(c) PORTION ATTRIBUTABLE TO EARNED INCOME
TAX CREDIT.—For purposes of subsection (a), an over-
payment for any taxable year shall be treated as attrib-
utable to the earned income tax credit to the extent that
such overpayment does not exceed the credit allowed to
the taxpayer under section 32 for such taxable year.
‘‘(d) OVERPAYMENTS TREATED
AS REFUNDED.—
For purposes of this title, any portion of an overpayment
of tax designated under subsection (a) shall be treated as
being refunded to the taxpayer as of the last date pre-
scribed for filing the return of tax imposed by this chapter
115
(determined without regard to extensions) or, if later, the
date the return is filed.
‘‘(e) TERMINATION.—This section shall not apply to
any taxable year beginning after December 31, 2006.
‘‘PART IV—ADDITIONAL INCENTIVES
‘‘Sec. 1400K. Commercial revitalization credit.
‘‘Sec. 1400L. Increase in expensing under section 179.
‘‘SEC. 1400K. COMMERCIAL REVITALIZATION CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 46,
except as provided in subsection (e), the commercial revi-
talization credit for any taxable year is an amount equal
to the applicable percentage of the qualified revitalization
expenditures with respect to any qualified revitalization
building.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘applicable per-
centage’ means—
‘‘(A) 20 percent for the taxable year in
which a qualified revitalization building is
placed in service, or
‘‘(B) at the election of the taxpayer, 5 per-
cent for each taxable year in the credit period.
The election under subparagraph (B), once made,
shall be irrevocable.
‘‘(2) CREDIT PERIOD.—
116
‘‘(A) IN GENERAL.—The term ‘credit pe-
riod’ means, with respect to any building, the
period of 10 taxable years beginning with the
taxable year in which the building is placed in
service.
‘‘(B) APPLICABLE RULES.—Rules similar
to the rules under paragraphs (2) and (4) of
section 42(f) shall apply.
‘‘(c) QUALIFIED REVITALIZATION BUILDINGS AND
EXPENDITURES.—For purposes of this section—
‘‘(1) QUALIFIED REVITALIZATION BUILDING.—
The term ‘qualified revitalization building’ means
any building (and its structural components) if—
‘‘(A) such building is located in a renewal
community and is placed in service after De-
cember 31, 1999;
‘‘(B) a commercial revitalization credit
amount is allocated to the building under sub-
section (e); and
‘‘(C) depreciation (or amortization in lieu
of depreciation) is allowable with respect to the
building.
‘‘(2) QUALIFIED
REVITALIZATION
EXPENDI-
TURE.—
117
‘‘(A) IN
GENERAL.—The term ‘qualified
revitalization expenditure’ means any amount
properly chargeable to capital account—
‘‘(i) for property for which deprecia-
tion is allowable under section 168 and
which is—
‘‘(I) nonresidential real property;
or
‘‘(II) an addition or improvement
to property described in subclause (I);
and
‘‘(ii) in connection with the construc-
tion of any qualified revitalization building
which was not previously placed in service
or in connection with the substantial reha-
bilitation (within the meaning of section
47(c)(1)(C)) of a building which was
placed in service before the beginning of
such rehabilitation.
‘‘(B) DOLLAR
LIMITATION.—The aggre-
gate amount which may be treated as qualified
revitalization expenditures with respect to any
qualified revitalization building for any taxable
year shall not exceed the excess of—
‘‘(i) $10,000,000, reduced by
118
‘‘(ii) any such expenditures with re-
spect to the building taken into account by
the taxpayer or any predecessor in deter-
mining the amount of the credit under this
section for all preceding taxable years.
‘‘(C) CERTAIN
EXPENDITURES
NOT
IN-
CLUDED.—The term ‘qualified revitalization ex-
penditure’ does not include—
‘‘(i) STRAIGHT
LINE
DEPRECIATION
MUST BE USED.—Any expenditure (other
than with respect to land acquisitions) with
respect to which the taxpayer does not use
the straight line method over a recovery
period determined under subsection (c) or
(g) of section 168. The preceding sentence
shall not apply to any expenditure to the
extent the alternative depreciation system
of section 168(g) applies to such expendi-
ture by reason of subparagraph (B) or (C)
of section 168(g)(1).
‘‘(ii) ACQUISITION COSTS.—The costs
of acquiring any building or interest there-
in and any land in connection with such
building to the extent that such costs ex-
ceed 30 percent of the qualified revitaliza-
119
tion expenditures determined without re-
gard to this clause.
‘‘(iii) OTHER CREDITS.—Any expendi-
ture which the taxpayer may take into ac-
count in computing any other credit allow-
able under this title unless the taxpayer
elects to take the expenditure into account
only for purposes of this section.
‘‘(d) WHEN
EXPENDITURES
TAKEN
INTO
AC-
COUNT.—
‘‘(1) IN GENERAL.—Qualified revitalization ex-
penditures with respect to any qualified revitaliza-
tion building shall be taken into account for the tax-
able year in which the qualified revitalization build-
ing is placed in service. For purposes of the preced-
ing sentence, a substantial rehabilitation of a build-
ing shall be treated as a separate building.
‘‘(2) PROGRESS
EXPENDITURE
PAYMENTS.—
Rules similar to the rules of subsections (b)(2) and
(d) of section 47 shall apply for purposes of this sec-
tion.
‘‘(e) LIMITATION ON AGGREGATE CREDITS ALLOW-
ABLE WITH RESPECT
TO BUILDINGS LOCATED
IN
A
STATE.—
120
‘‘(1) IN GENERAL.—The amount of the credit
determined under this section for any taxable year
with respect to any building shall not exceed the
commercial revitalization credit amount (in the case
of 
an 
amount 
determined 
under 
subsection
(b)(1)(B), the present value of such amount as de-
termined under the rules of section 42(b)(2)(C)) al-
located to such building under this subsection by the
commercial revitalization credit agency. Such alloca-
tion shall be made at the same time and in the same
manner as under paragraphs (1) and (7) of section
42(h).
‘‘(2) COMMERCIAL
REVITALIZATION
CREDIT
AMOUNT FOR AGENCIES.—
‘‘(A) IN GENERAL.—The aggregate com-
mercial revitalization credit amount which a
commercial revitalization credit agency may al-
locate for any calendar year is the amount of
the State commercial revitalization credit ceil-
ing determined under this paragraph for such
calendar year for such agency.
‘‘(B) STATE COMMERCIAL REVITALIZATION
CREDIT CEILING.—The State commercial revi-
talization credit ceiling applicable to any
State—
121
‘‘(i) for each calendar year after 1999
and before 2007 is $2,000,000 for each re-
newal community in the State; and
‘‘(ii) zero for each calendar year
thereafter.
‘‘(C) COMMERCIAL REVITALIZATION CRED-
IT AGENCY.—For purposes of this section, the
term ‘commercial revitalization credit agency’
means any agency authorized by a State to
carry out this section.
‘‘(f) RESPONSIBILITIES OF COMMERCIAL REVITAL-
IZATION CREDIT AGENCIES.—
‘‘(1) PLANS FOR ALLOCATION.—Notwithstand-
ing any other provision of this section, the commer-
cial revitalization credit amount with respect to any
building shall be zero unless—
‘‘(A) such amount was allocated pursuant
to a qualified allocation plan of the commercial
revitalization credit agency which is approved
(in accordance with rules similar to the rules of
section 147(f)(2) (other than subparagraph
(B)(ii) thereof)) by the governmental unit of
which such agency is a part; and
‘‘(B) such agency notifies the chief execu-
tive officer (or its equivalent) of the local juris-
122
diction within which the building is located of
such allocation and provides such individual a
reasonable opportunity to comment on the allo-
cation.
‘‘(2) QUALIFIED ALLOCATION PLAN.—For pur-
poses of this subsection, the term ‘qualified alloca-
tion plan’ means any plan—
‘‘(A) which sets forth selection criteria to
be used to determine priorities of the commer-
cial revitalization credit agency which are ap-
propriate to local conditions;
‘‘(B) which considers—
‘‘(i) the degree to which a project con-
tributes to the implementation of a strate-
gic plan that is devised for a renewal com-
munity through a citizen participation
process;
‘‘(ii) the amount of any increase in
permanent, full-time employment by reason
of any project; and
‘‘(iii) the active involvement of resi-
dents and nonprofit groups within the re-
newal community; and
123
‘‘(C) which provides a procedure that the
agency (or its agent) will follow in monitoring
compliance with this section.
‘‘(g) TERMINATION.—This section shall not apply to
any building placed in service after December 31, 2006.
‘‘SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.
‘‘(a) GENERAL RULE.—In the case of a renewal com-
munity business (as defined in section 1400G), for pur-
poses of section 179—
‘‘(1) the limitation under section 179(b)(1)
shall be increased by the lesser of—
‘‘(A) $35,000; or
‘‘(B) the cost of section 179 property
which is qualified renewal property placed in
service during the taxable year; and
‘‘(2) the amount taken into account under sec-
tion 179(b)(2) with respect to any section 179 prop-
erty which is qualified renewal property shall be 50
percent of the cost thereof.
‘‘(b) RECAPTURE.—Rules similar to the rules under
section 179(d)(10) shall apply with respect to any quali-
fied renewal property which ceases to be used in a renewal
community by a renewal community business.
‘‘(c) QUALIFIED RENEWAL PROPERTY.—For pur-
poses of this section—
124
‘‘(1) IN GENERAL.—The term ‘qualified renewal
property’ means any property to which section 168
applies (or would apply but for section 179) if—
‘‘(A) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after December 31, 1999, and be-
fore January 1, 2007; and
‘‘(B) such property would be qualified zone
property (as defined in section 1397C) if ref-
erences to renewal communities were sub-
stituted for references to empowerment zones in
section 1397C.
‘‘(2) CERTAIN RULES TO APPLY.—The rules of
subsections (a)(2) and (b) of section 1397C shall
apply for purposes of this section.’’.
SEC. 603. EXTENSION OF EXPENSING OF ENVIRONMENTAL
REMEDIATION COSTS TO RENEWAL COMMU-
NITIES.
(a) EXTENSION.—Paragraph (2) of section 198(c)
(defining targeted area) is amended by redesignating sub-
paragraph (C) as subparagraph (D) and by inserting after
subparagraph (B) the following new subparagraph:
‘‘(C) 
RENEWAL
COMMUNITIES
IN-
CLUDED.—Except as provided in subparagraph
125
(B), such term shall include a renewal commu-
nity (as defined in section 1400E).’’.
(b) EXTENSION OF TERMINATION DATE FOR RE-
NEWAL COMMUNITIES.—Subsection (h) of section 198 is
amended by inserting before the period ‘‘(December 31,
2006, in the case of a renewal community, as defined in
section 1400E).’’.
SEC. 604. EXTENSION OF WORK OPPORTUNITY TAX CREDIT
FOR RENEWAL COMMUNITIES
(a) EXTENSION.—Subsection (c) of section 51 (relat-
ing to termination) is amended by adding at the end the
following new paragraph:
‘‘(5) EXTENSION
OF
CREDIT
FOR
RENEWAL
COMMUNITIES.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who begins work for the employer after
the date contained in paragraph (4)(B), for
purposes of section 38—
‘‘(i) in lieu of applying subsection (a),
the amount of the work opportunity credit
determined under this section for the tax-
able year shall be equal to—
‘‘(I) 15 percent of the qualified
first-year wages for such year; and
126
‘‘(II) 30 percent of the qualified
second-year wages for such year;
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$10,000’ for ‘$6,000’;
‘‘(iii) paragraph (4)(B) shall be ap-
plied by substituting for the date contained
therein the last day for which the designa-
tion under section 1400E of the renewal
community referred to in subparagraph
(B)(i) is in effect; and
‘‘(iv) rules similar to the rules of sec-
tion 51A(b)(5)(C) shall apply.
‘‘(B) QUALIFIED
FIRST- AND
SECOND-
YEAR WAGES.—For purposes of subparagraph
(A)—
‘‘(i) IN GENERAL.—The term ‘quali-
fied wages’ means, with respect to each 1-
year period referred to in clause (ii) or
(iii), as the case may be, the wages paid or
incurred by the employer during the tax-
able year to any individual but only if—
‘‘(I) the employer is engaged in a
trade or business in a renewal com-
munity throughout such 1-year period;
127
‘‘(II) the principal place of abode
of such individual is in such renewal
community throughout such 1-year
period; and
‘‘(III) substantially all of the
services which such individual per-
forms for the employer during such 1-
year period are performed in such re-
newal community.
‘‘(ii) 
QUALIFIED
FIRST-YEAR
WAGES.—The term ‘qualified first-year
wages’ means, with respect to any individ-
ual, qualified wages attributable to service
rendered during the 1-year period begin-
ning with the day the individual begins
work for the employer.
‘‘(iii) 
QUALIFIED
SECOND-YEAR
WAGES.—The term ‘qualified second-year
wages’ means, with respect to any individ-
ual, qualified wages attributable to service
rendered during the 1-year period begin-
ning on the day after the last day of the
1-year period with respect to such individ-
ual determined under clause (ii).’’.
128
(b) CONGRUENT TREATMENT OF RENEWAL COMMU-
NITIES
AND ENTERPRISE ZONES
FOR PURPOSES
OF
YOUTH RESIDENCE REQUIREMENTS.—
(1) HIGH-RISK YOUTH.—Subparagraphs (A)(ii)
and (B) of section 51(d)(5) are each amended by
striking ‘‘empowerment zone or enterprise commu-
nity’’ and inserting ‘‘empowerment zone, enterprise
community, or renewal community’’.
(2) QUALIFIED SUMMER YOUTH EMPLOYEE.—
Clause (iv) of section 51(d)(7)(A) is amended by
striking ‘‘empowerment zone or enterprise commu-
nity’’ and inserting ‘‘empowerment zone, enterprise
community, or renewal community’’.
(3) HEADINGS.—Paragraphs (5)(B) and (7)(C)
of section 51(d) are each amended by inserting ‘‘OR
COMMUNITY’’ in the heading after ‘‘ZONE’’.
SEC. 605. CONFORMING AND CLERICAL AMENDMENTS.
(a) DEDUCTION FOR CONTRIBUTIONS TO FAMILY
DEVELOPMENT ACCOUNTS ALLOWABLE WHETHER
OR
NOT TAXPAYER ITEMIZES.—Subsection (a) of section 62
(relating to adjusted gross income defined) is amended by
inserting after paragraph (17) the following new para-
graph:
‘‘(18) FAMILY DEVELOPMENT ACCOUNTS.—The
deduction allowed by section 1400H(a)(1)(A).’’.
129
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) TAX IMPOSED.—Subsection (a) of section
4973 is amended by striking ‘‘or’’ at the end of
paragraph (3), adding ‘‘or’’ at the end of paragraph
(4), and inserting after paragraph (4) the following
new paragraph:
‘‘(5) a family development account (within the
meaning of section 1400H(e)),’’.
(2) EXCESS CONTRIBUTIONS.—Section 4973 is
amended by adding at the end the following new
subsection:
‘‘(g) FAMILY DEVELOPMENT ACCOUNTS.—For pur-
poses of this section, in the case of a family development
account, the term ‘excess contributions’ means the sum
of—
‘‘(1) the excess (if any) of—
‘‘(A) the amount contributed for the tax-
able year to the account (other than a qualified
rollover, as defined in section 1400H(c)(7), or
a contribution under section 1400I), over
‘‘(B) the amount allowable as a deduction
under section 1400H for such contributions;
and
130
‘‘(2) the amount determined under this sub-
section for the preceding taxable year reduced by the
sum of—
‘‘(A) the distributions out of the account
for the taxable year which were included in the
gross income of the payee under section
1400H(b)(1);
‘‘(B) the distributions out of the account
for the taxable year to which rules similar to
the rules of section 408(d)(5) apply by reason
of section 1400H(d)(3); and
‘‘(C) the excess (if any) of the maximum
amount allowable as a deduction under section
1400H for the taxable year over the amount
contributed to the account for the taxable year
(other than a contribution under section
1400I).
For purposes of this subsection, any contribution which
is distributed from the family development account in a
distribution to which rules similar to the rules of section
408(d)(4) apply by reason of section 1400H(d)(3) shall
be treated as an amount not contributed.’’.
(c) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 is amended—
131
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(6) SPECIAL
RULE
FOR
FAMILY
DEVELOP-
MENT ACCOUNTS.—An individual for whose benefit a
family development account is established and any
contributor to such account shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if, with re-
spect to such transaction, the account ceases to be
a family development account by reason of the appli-
cation of section 1400H(d)(2) to such account.’’;
and
(2) in subsection (e)(1), by striking ‘‘or’’ at the
end of subparagraph (E), by redesignating subpara-
graph (F) as subparagraph (G), and by inserting
after subparagraph (E) the following new subpara-
graph:
‘‘(F) a family development account de-
scribed in section 1400H(e), or’’.
(d) INFORMATION RELATING TO CERTAIN TRUSTS
AND ANNUITY PLANS.—Subsection (c) of section 6047 is
amended—
(1) by inserting ‘‘or section 1400H’’ after ‘‘sec-
tion 219’’; and
132
(2) by inserting ‘‘, of any family development
account described in section 1400H(e),’’, after ‘‘sec-
tion 408(a)’’.
(e) INSPECTION OF APPLICATIONS FOR TAX EXEMP-
TION.—Clause (i) of section 6104(a)(1)(B) is amended by
inserting ‘‘a family development account described in sec-
tion 1400H(e),’’ after ‘‘section 408(a),’’.
(f) FAILURE TO PROVIDE REPORTS ON FAMILY DE-
VELOPMENT
ACCOUNTS.—Paragraph (2) of section
6693(a) is amended by striking ‘‘and’’ at the end of sub-
paragraph (C), by striking the period and inserting ‘‘,
and’’ at the end of subparagraph (D), and by adding at
the end the following new subparagraph:
‘‘(E) section 1400H(g)(6) (relating to fam-
ily development accounts).’’.
(g) CONFORMING AMENDMENTS REGARDING COM-
MERCIAL REVITALIZATION CREDIT.—
(1) Section 46 (relating to investment credit) is
amended by striking ‘‘and’’ at the end of paragraph
(2), by striking the period at the end of paragraph
(3) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(4) the commercial revitalization credit pro-
vided under section 1400K.’’.
133
(2) Section 39(d) is amended by adding at the
end the following new paragraph:
‘‘(9) NO CARRYBACK OF SECTION 1400K CREDIT
BEFORE DATE OF ENACTMENT.—No portion of the
unused business credit for any taxable year which is
attributable to any commercial revitalization credit
determined under section 1400K may be carried
back to a taxable year ending before the date of the
enactment of section 1400K.’’.
(3) Subparagraph (B) of section 48(a)(2) is
amended by inserting ‘‘or commercial revitalization’’
after ‘‘rehabilitation’’ each place it appears in the
text and heading.
(4) Subparagraph (C) of section 49(a)(1) is
amended by striking ‘‘and’’ at the end of clause (ii),
by striking the period at the end of clause (iii) and
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new clause:
‘‘(iv) the portion of the basis of any
qualified revitalization building attributable
to qualified revitalization expenditures.’’.
(5) Paragraph (2) of section 50(a) is amended
by inserting ‘‘or 1400K(d)(2)’’ after ‘‘section 47(d)’’
each place it appears.