‘‘(A) such subparagraph (A) shall be ap-
plied by substituting ‘$10,000’ for ‘$6,000’, and 
‘‘(B) such subparagraph (B) shall be ap-
plied by substituting ‘$833.33’ for ‘$500’.’’. 
(4) REPEAL OF SEPARATE WELFARE-TO-WORK 
CREDIT.—
(A) IN GENERAL.—Section 51A is hereby 
repealed. 
(B) CLERICAL AMENDMENT.—The table of 
sections for subpart F of part IV of subchapter 
A of chapter 1 is amended by striking the item 
relating to section 51A. 
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to individuals who begin work for the 
employer after December 31, 2005. 
(2) CONSOLIDATION.—The amendments made 
by subsections (b), (c), (d), and (e) shall apply to in-
dividuals who begin work for the employer after De-
cember 31, 2006.
SEC. 206. ELECTION TO INCLUDE COMBAT PAY AS EARNED 
INCOME FOR PURPOSES OF EARNED INCOME 
CREDIT. 
(a) IN GENERAL.—Section 32(c)(2)(B)(vi)(II) is 
amended by striking ‘‘2007’’ and inserting ‘‘2008’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 207. EXTENSION AND MODIFICATION OF QUALIFIED 
ZONE ACADEMY BONDS. 
(a) 
IN
GENERAL.—Paragraph 
(1) 
of 
section 
1397E(e) is amended by striking ‘‘and 2005’’ and insert-
ing ‘‘2005, 2006, and 2007’’. 
(b) SPECIAL RULES RELATING TO EXPENDITURES, 
ARBITRAGE, AND REPORTING.—
(1) IN
GENERAL.—Section 1397E is amend-
ed—
(A) in subsection (d)(1), by striking ‘‘and’’ 
at the end of subparagraph (C)(iii), by striking 
the period at the end of subparagraph (D) and 
inserting ‘‘, and’’, and by adding at the end the 
following new subparagraph: 
‘‘(E) the issue meets the requirements of 
subsections (f), (g), and (h).’’, and 
(B) by redesignating subsections (f), (g), 
(h), and (i) as subsection (i), (j), (k), and (l),
respectively, and by inserting after subsection 
(e) the following new subsections: 
‘‘(f) SPECIAL
RULES
RELATING
TO
EXPENDI-
TURES.—
‘‘(1) IN GENERAL.—An issue shall be treated as 
meeting the requirements of this subsection if, as of 
the date of issuance, the issuer reasonably expects—
‘‘(A) at least 95 percent of the proceeds 
from the sale of the issue are to be spent for 
1 or more qualified purposes with respect to 
qualified zone academies within the 5-year pe-
riod beginning on the date of issuance of the 
qualified zone academy bond, 
‘‘(B) a binding commitment with a third 
party to spend at least 10 percent of the pro-
ceeds from the sale of the issue will be incurred 
within the 6-month period beginning on the 
date of issuance of the qualified zone academy 
bond, and 
‘‘(C) such purposes will be completed with 
due diligence and the proceeds from the sale of 
the issue will be spent with due diligence. 
‘‘(2) EXTENSION
OF
PERIOD.—Upon submis-
sion of a request prior to the expiration of the period 
described in paragraph (1)(A), the Secretary may
extend such period if the issuer establishes that the 
failure to satisfy the 5-year requirement is due to 
reasonable cause and the related purposes will con-
tinue to proceed with due diligence. 
‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT 
OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex-
tent that less than 95 percent of the proceeds of 
such issue are expended by the close of the 5-year 
period beginning on the date of issuance (or if an 
extension has been obtained under paragraph (2), by 
the close of the extended period), the issuer shall re-
deem all of the nonqualified bonds within 90 days 
after the end of such period. For purposes of this 
paragraph, the amount of the nonqualified bonds re-
quired to be redeemed shall be determined in the 
same manner as under section 142. 
‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—
An issue shall be treated as meeting the requirements of 
this subsection if the issuer satisfies the arbitrage require-
ments of section 148 with respect to proceeds of the issue. 
‘‘(h) REPORTING.—Issuers of qualified academy zone 
bonds shall submit reports similar to the reports required 
under section 149(e).’’. 
(2) 
CONFORMING
AMENDMENTS.—Sections 
54(l)(3)(B) and 1400N(l)(7)(B)(ii) are each amend-