communications business, whether or not rep-
resenting control of such corporation or partnership, 
shall be treated as property similar or related in 
service or use to the property sold in the qualified 
telecommunications sale. 
‘‘(2) ELECTION
TO
REDUCE
BASIS
RATHER 
THAN RECOGNIZE REMAINDER OF GAIN.—If— 
‘‘(A) a taxpayer elects the treatment under 
subsection (a) with respect to any qualified tele-
communications sale, and 
‘‘(B) an amount of gain would (but for 
this paragraph) be recognized on such sale 
under section 1033(a)(2)(A) in excess of the 
amount required to be recognized by reason of 
subsection (b), 
then the amount of gain described in this subpara-
graph shall not be recognized to the extent that the 
taxpayer elects to reduce the basis of depreciable 
property (within the meaning of section 1017(b)(3)) 
held by the taxpayer immediately after the sale or 
acquired in the same taxable year. The manner and 
amount of such reduction shall be determined under 
regulations prescribed by the Secretary. 
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‘‘(3) BASIS.—For basis of property acquired on 
a sale or exchange treated as an involuntary conver-
sion under subsection (a), see section 1033(b). 
‘‘(e) RECAPTURE
OF
TAX
BENEFIT
IF
TELE-
COMMUNICATIONS BUSINESS RESOLD WITHIN 3 YEARS, 
ETC.— 
‘‘(1) IN GENERAL.—If, within 3 years after the 
date of any qualified telecommunications sale, there 
is a recapture event with respect to the property in-
volved in such sale, then the purchaser’s tax imposed 
by this chapter for the taxable year in which such 
event occurs shall be increased by an amount equal 
to the product of— 
‘‘(A) the highest marginal rate of income 
tax imposed on corporations under section 11, 
and 
‘‘(B) the lesser of— 
‘‘(i) the consideration furnished by the 
purchaser in such sale, or 
‘‘(ii) the dollar amount specified in 
subsection (b)(1)(A). 
‘‘(2) EXCEPTION FOR REINVESTED AMOUNTS.— 
Paragraph (1) shall not apply to any recapture event 
which is a sale if— 
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‘‘(A) the sale is a qualified telecommuni-
cations sale, or 
‘‘(B) during the 60-day period beginning 
on the date of such sale, the taxpayer is the 
purchaser in another qualified telecommuni-
cations sale in which the consideration fur-
nished by the taxpayer is not less than the 
amount realized on the recapture event sale. 
‘‘(3) RECAPTURE EVENT.—For purposes of this 
subsection, the term ‘recapture event’ means, with 
respect to any qualified telecommunications sale— 
‘‘(A) any sale or other disposition of the 
assets, stock, or partnership interest referred to 
in subsection (c) which were acquired by the 
taxpayer in such sale, and 
‘‘(B) in the case of a qualified tele-
communications sale described in paragraph (2) 
or (3) of subsection (c)— 
‘‘(i) any sale or other disposition of a 
telecommunications business by the cor-
poration or partnership referred to in such 
subsection, or 
‘‘(ii) any other transaction which re-
sults in the eligible purchaser ceasing to be 
an eligible purchaser, or ceasing to have 
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control (as defined in subsection (c)(2)(A)) 
of such corporation or ownership of an in-
terest in such partnership sufficient to sat-
isfy 
the 
requirements 
of 
subsection 
(c)(3)(A). 
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) ELIGIBLE PURCHASER.—The term ‘eligible 
purchaser’ means— 
‘‘(A) any economically and socially dis-
advantaged business, or 
‘‘(B) any corporation or partnership if im-
mediately following the purchase— 
‘‘(i) substantially all the assets of 
such corporation or partnership are assets 
of 1 or more telecommunications busi-
nesses, and 
‘‘(ii) the Telecommunications Develop-
ment Fund established under section 714 
of the Communications Act of 1934 (47 
U.S.C. 614) or any wholly-owned affiliate 
of such Fund owns at least 5 percent of— 
‘‘(I) the stock in such corpora-
tion, 
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‘‘(II) the partnership interest in 
such partnership, or 
‘‘(III) the indebtedness convert-
ible into such stock or partnership in-
terest. 
‘‘(2) ECONOMICALLY AND SOCIALLY DISADVAN-
TAGED BUSINESS.—The term ‘economically and so-
cially disadvantaged business’ means a person which 
is designated by the Secretary as an economically 
and socially disadvantaged business based on a de-
termination that such person— 
‘‘(A) meets the control requirements of 
paragraph (6), 
‘‘(B) will be a telecommunications business 
after the purchase for which the eligibility de-
termination is sought, and 
‘‘(C) before the purchase for which the eli-
gibility determination is sought does not have— 
‘‘(i) attributable ownership interest in 
television broadcast stations having an ag-
gregate national audience reach of more 
than 5 percent as defined by the Federal 
Communications Commission under section 
73.3555(e)(2)(i) of title 47 of the Code of 
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Federal Regulations as in effect on Janu-
ary 1, 2001, 
‘‘(ii) attributable ownership interest 
in— 
‘‘(I) more than 50 radio stations 
nationally, and 
‘‘(II) radio stations with a com-
bined market share exceeding 10 per-
cent of radio advertising revenues in 
the relevant market as defined by the 
Federal Communications Commission, 
or 
‘‘(iii) attributable ownership interest 
in any other telecommunications business 
having more than 5 percent of national 
subscribers of their respective service. 
‘‘(3) RELEVANT MARKET.—The term ‘relevant 
market’ means the local radio market served by the 
radio station or stations being purchased. 
‘‘(4) TELECOMMUNICATIONS
BUSINESS.—The 
term ‘telecommunications business’ means a busi-
ness which, as its primary purpose, engages in elec-
tronic communications and is regulated by the Fed-
eral Communications Commission pursuant to the 
Communications Act of 1934, including a cable sys-
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cent of each item of the partnership’s 
income, gain, loss, deduction, or cred-
it, more than 50 percent of the total 
combined voting power of all classes 
of partnership interests entitled to 
vote, and control over the manage-
ment of the partnership, and 
‘‘(II) no other person owns more 
than 25 percent of the capital inter-
ests and profits interests in the part-
nership or a distributive share of more 
than 25 percent of any item of the 
partnership’s income, gain, loss, de-
duction, or credit. 
‘‘(E) 
PUBLICLY-TRADED
CORPORATION 
TEST.—The requirements of this subparagraph 
are satisfied if, with respect to a corporation 
the securities of which are traded on an estab-
lished securities market, individuals who meet 
the requirements of paragraph (7) collectively 
own more than 50 percent of the total combined 
voting power of all classes of stock entitled to 
vote of the corporation. 
‘‘(F) RESTRICTIONS ON AGREEMENTS CON-
CERNING VOTING OF STOCK OR PARTNERSHIP 
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INTERESTS.—For purposes of satisfying the re-
quirements of subparagraph (C), (D), or (E), 
the stock or partnership interest relied upon to 
establish compliance shall not be subject to any 
agreement, 
arrangement, 
or 
understanding 
which provides for, or relates to, the voting of 
the stock or partnership interest in any manner 
by, or at the direction of, any person other than 
an eligible individual who meets the require-
ments of paragraph (7), or the right of any per-
son other than 1 of those individuals to acquire 
the voting power through purchase of shares, 
partnership interests, or otherwise. 
‘‘(G) CONSTRUCTIVE OWNERSHIP.—In ap-
plying subparagraphs (C), (D), (E), and (F), 
the constructive ownership rules of section 318 
shall apply, but only if the interests for which 
constructive ownership is claimed are not 
owned, directly or indirectly, by individuals who 
do not meet the requirements of paragraph (7). 
‘‘(7) INDIVIDUALS.—An individual meets the 
requirements of this paragraph if such individual 
is— 
‘‘(A) a United States citizen, and 
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‘‘(B) a member of an economically or so-
cially disadvantaged class determined by the 
Secretary to be underrepresented in the owner-
ship of the relevant telecommunications busi-
ness.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Sections 1245(b)(5) and 1250(d)(5) of the 
Internal Revenue Code of 1986 are each amended— 
(A) by inserting ‘‘section 1071 (relating to 
certain sales of telecommunications businesses) 
or’’ before section 1081’’, and 
(B) by inserting ‘‘1071 and’’ before 
‘‘1081’’ in the heading thereof. 
(2) The table of parts for subchapter O of 
chapter 1 of such Code is amended by inserting 
after the item relating to part IV the following new 
item: 
‘‘PART V. CERTAIN SALES OF TELECOMMUNICATIONS BUSINESSES.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to elections made with respect to 
any sale on or after the date of the enactment of this Act. 
SEC. 4. TELECOMMUNICATIONS BUSINESS CREDIT. 
(a) IN GENERAL.—Subpart E of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to rules for computing investment credit) 
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is amended by inserting after section 48B the following 
new section: 
‘‘SEC. 48C. TELECOMMUNICATIONS BUSINESS CREDIT. 
‘‘For purposes of section 46, there is allowed as a 
credit against the tax imposed by this chapter for any tax-
able year an amount equal to 10 percent of the taxable 
income of any taxpayer which at all times during such tax-
able year— 
‘‘(1) is a local exchange carrier (as defined in 
section 3(26) of the Communications Act of 1934 
(47 U.S.C. 153(26))), 
‘‘(2) is not a Bell operating company (as de-
fined in section 3(4) of such Act (47 U.S.C. 
153(4))), and 
‘‘(3) is headquartered in an area designated as 
an empowerment zone by the Secretary of Housing 
and Urban Development.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 46 of the Internal Revenue Code of 
1986 (relating to amount of credit) is amended by 
striking ‘‘and’’ at the end of paragraph (3), by strik-
ing the period at the end of paragraph (4) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(5) the telecommunications business credit.’’. 
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(2) The table of sections for subpart E of part 
IV of subchapter A of chapter 1 of such Code is 
amended by inserting after the item relating to sec-
tion 48 the following new item: 
‘‘Sec. 48C. Telecommunications business credit.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after the 
date of the enactment of this Act. 
SEC. 5. EXCLUSION OF 50 PERCENT OF GAIN. 
(a) IN GENERAL.—Section 1202 of the Internal Rev-
enue Code of 1986 (relating to partial exclusion for gain 
from certain small business stock) is amended— 
(1) by adding at the end of subsection (a) the 
following new paragraph: 
‘‘(3) CERTAIN TELECOMMUNICATIONS INVEST-
MENTS BY CORPORATIONS AND INVESTMENT COMPA-
NIES.—Gross income shall not include 50 percent of 
any gain from the sale or exchange of stock in an 
eligible purchaser (as defined in section 1071(f)(1)), 
engaged in a telecommunications business (as de-
fined in section 1071(f)(4)) held for more than 5 
years.’’, 
(2) by striking subparagraphs (A) and (B) of 
subsection (b)(1) and inserting the following new 
subparagraphs: 
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‘‘(A) in the case of gain from the sale or 
exchange of qualified small business stock held 
for more than 5 years— 
‘‘(i) $10,000,000 reduced by the ag-
gregate amount of eligible gain taken into 
account by the taxpayer under subsection 
(a) for prior taxable years attributable to 
dispositions of stock issued by such cor-
poration, or 
‘‘(ii) 10 times the aggregate adjusted 
bases of qualified small business stock 
issued by such corporation and disposed of 
by the taxpayer during the taxable year, 
and 
‘‘(B) in the case of gain from the sale or 
exchange of stock in an eligible purchaser en-
gaged in a telecommunications business for 
more than 5 years— 
‘‘(i) $20,000,000 reduced by the ag-
gregate amount of eligible gain taken into 
account by the taxpayer under subsection 
(a) for prior taxable years attributable to 
dispositions of stock issued by an eligible 
purchaser engaged in a telecommunications 
business, or 
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‘‘(ii) 15 times the aggregate adjusted 
bases of stock of an eligible purchaser en-
gaged in a telecommunications business 
issued by such eligible purchaser and dis-
posed of by the taxpayer during the tax-
able year.’’, 
(3) by striking ‘‘subparagraph (B)’’ in the last 
sentence of subsection (b)(1) and inserting ‘‘sub-
paragraphs (A)(ii) and (B)(ii)’’, 
(4) by striking ‘‘years.’’ in subsection (b)(2) 
and inserting ‘‘years or any gain from the sale or ex-
change of stock in an eligible purchaser engaged in 
a telecommunications business held for more than 5 
years.’’, and 
(5) by striking the period at the end of sub-
section (b)(3)(A) and inserting ‘‘, and paragraph 
(1)(B) shall be applied by substituting ‘$10,000,000’ 
for ‘$20,000,000’.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales on or after the date of 
the enactment of this Act. 
SEC. 6. TECHNICAL AND CONFORMING AMENDMENTS; REG-
ULATIONS. 
(a) TECHNICAL AND CONFORMING AMENDMENTS.— 
The Secretary of the Treasury shall, not later than 150 
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days after the date of the enactment of this Act, submit 
to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the 
Senate, a draft of any technical and conforming amend-
ments of the Internal Revenue Code of 1986 which are 
necessary to reflect throughout such Code the amend-
ments made by this Act. 
(b) REGULATIONS.—The Secretary of the Treasury, 
in consultation with the Federal Communications Com-
mission, shall promulgate regulations to implement the 
amendments made by this Act not later than 90 days after 
the date of the enactment of this Act. The regulations 
shall provide for the determination by the Secretary of the 
Treasury as to whether an applicant is an ‘‘eligible pur-
chaser’’ as defined in section 1071(f) of the Internal Rev-
enue Code of 1986 (as added by section 3(a)). The regula-
tions shall further provide that such determinations of eli-
gibility shall be made not later than 45 calendar days after 
an application is filed with the Secretary of the Treasury. 
The regulations implementing section 1071(f)(7) of such 
Code (as added by section 3) shall be updated on an ongo-
ing basis not less frequently than every 5 years. 
SEC. 7. BIENNIAL PROGRAM AUDITS BY GAO. 
Not later than January 1, 2007, and not later than 
2 years thereafter, the Comptroller General of the United 
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States shall audit the administration of the sections of the 
Internal Revenue Code of 1986 added or amended by this 
Act, and issue a report on the results of that audit. The 
Comptroller General shall include in the report, notwith-
standing any provision of section 6103 of the Internal 
Revenue Code of 1986 to the contrary— 
(1) a list of eligible purchasers (as defined in 
section 1071(f)(1) of such Code) and any other tax-
payer receiving a benefit from the operation of sec-
tion 48C or 1202 of such Code as such section was 
added or amended by this Act, and 
(2) an assessment of the effect the amendments 
made by this Act have on increasing new entry and 
growth in the telecommunications industry by eco-
nomically and socially disadvantaged businesses, and 
the effect of this Act on enhancing the competitive-
ness of the telecommunications industry. 
Æ 
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