I 
110TH CONGRESS 
1ST SESSION H. R. 1340 
To amend the Internal Revenue Code of 1986 to promote freedom, fairness, 
and economic opportunity by establishing National Enterprise Zones to 
promote prosperity in economically depressed areas. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 6, 2007 
Mr. FORTUN˜O 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 promote 
freedom, fairness, and economic opportunity by estab-
lishing National Enterprise Zones to promote prosperity 
in economically depressed areas. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘National Enterprise Zone Act of 2007’’. 
(b) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title; table of contents. 
Sec. 2. Findings. 
Sec. 3. National Enterprise Zones. 
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Sec. 4. Study. 
Sec. 5. Effective date. 
SEC. 2. FINDINGS. 
The Congress finds that the establishment of a Na-
tional Enterprise Zone program that offers a substantial 
tax incentive to corporations, including controlled foreign 
corporations in a possession of the United States, partner-
ships, and sole proprietorships conducting an active busi-
ness within such zones and electing to participate will 
achieve— 
(1) a higher level of private sector economic ac-
tivity necessary to alleviate poverty and unemploy-
ment in economically depressed regions of the 
United States, including the possessions of the 
United States; 
(2) the removal of tax disincentives to do busi-
ness in economically depressed areas and thus pro-
mote economic growth, development, employment, a 
higher standard of living and a higher quality of life 
in economically depressed areas; 
(3) improved taxation of business investment in 
plant, equipment and inventories in economically de-
pressed areas, encouraging businesses to operate in 
those areas; and 
(4) comparable tax treatment of businesses in 
economically depressed areas in all parts of the 
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United States and its possessions, thereby promoting 
universal economic prosperity. 
SEC. 3. NATIONAL ENTERPRISE ZONES. 
(a) IN GENERAL.—Subchapter Y of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at 
the end the following new part: 
‘‘PART III—NATIONAL ENTERPRISE ZONES 
‘‘Sec. 1400U. National Enterprise Zone designation procedure. 
‘‘Sec. 1400U–1. National Enterprise Zone eligibility criteria. 
‘‘Sec. 1400U–2. Effect of National Enterprise Zone designation on individuals, 
estates and trusts conducting an active trade or business with-
in a national enterprise zone. 
‘‘Sec. 1400U–3. National Enterprise Zone individual taxable income. 
‘‘Sec. 1400U–4. Effect of National Enterprise Zone designation on corpora-
tions. 
‘‘Sec. 1400U–5. National Enterprise Zone corporate taxable income. 
‘‘Sec. 1400U–6. Conduct of an active trade or business within a National En-
terprise Zone by corporations, partnerships, and sole propri-
etors. 
‘‘Sec. 1400U–7. Definitions and special rules. 
‘‘SEC. 1400U. NATIONAL ENTERPRISE ZONE DESIGNATION 
PROCEDURE. 
‘‘(a) DESIGNATED ZONE.—The Secretary shall des-
ignate the areas in the United States and possessions of 
the United States that meet the requirements of section 
1400U–1 and publish a list of such designated zones. 
‘‘(b) EFFECTIVE DATE OF ZONE DESIGNATION.— 
The effective date of the designation of any zone as a Na-
tional Enterprise Zone pursuant to this section shall be 
January 1 of the year following its designation. 
‘‘(c) ELIGIBILITY REVIEW.—Between January 1 and 
April 30 of the year after the release of the decennial cen-
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sus, the Secretary shall undertake a review of each Na-
tional Enterprise Zone designation whereby the Secretary 
shall determine whether the zone continues to meet the 
National Enterprise Zone Eligibility Criteria established 
by section 1400U–1. If this review determines that a Na-
tional Enterprise Zone no longer meets the National En-
terprise Zone Eligibility Criteria established by section 
1400U–1, then the Secretary shall revoke the designation 
effective at the end of the calendar year. Not later than 
June 30 after said determination, the Secretary shall issue 
a notice to all taxpayers making National Enterprise Zone 
elections with respect to said zone in the taxpayer’s pre-
vious taxable year that the designation will be revoked at 
the end of the calendar year for said National Enterprise 
Zone. The Secretary shall publish the decennial eligibility 
review results for all National Enterprise Zones no later 
than June 30. 
‘‘(d) EFFECT OF REVOCATION OF DESIGNATION.— 
An electing taxpayer with respect to a National Enterprise 
Zone whose designation is revoked continues to qualify for 
the Individual or Corporate Alternative National Enter-
prise Zone tax under sections 1400U–2 and 1400U–4 
until the end of the taxpayer’s 12th taxable year following 
the year of zone designation revocation. 
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‘‘SEC. 1400U–1. NATIONAL ENTERPRISE ZONE ELIGIBILITY 
CRITERIA. 
‘‘(a) NATIONAL ENTERPRISE ZONE ELIGIBILITY 
CRITERIA.—A National Enterprise Zone must— 
‘‘(1) have greater than 50,000 residents; 
‘‘(2) have a poverty rate two times the national 
poverty rate; and 
‘‘(3) have an unemployment rate 2 times the 
national average unemployment rate. 
‘‘(b) NO OVERLAP WITH EXISTING ZONES OF DIF-
FERENT TYPE.—No part of a National Enterprise Zone 
may also be a part of an Empowerment Zone, Enterprise 
Community (Subchapter U zones), or District of Columbia 
Enterprise Zone (Subchapter W zones). 
‘‘SEC. 1400U–2. EFFECT OF NATIONAL ENTERPRISE ZONE 
DESIGNATION 
ON 
INDIVIDUALS, 
ESTATES 
AND TRUSTS CONDUCTING AN ACTIVE TRADE 
OR BUSINESS WITHIN A NATIONAL ENTER-
PRISE ZONE. 
‘‘(a) INDIVIDUAL ALTERNATIVE NATIONAL ENTER-
PRISE ZONE TAX.—In the case of a taxpayer other than 
a corporation, if, for any taxable year, the taxpayer has 
National Enterprise Zone individual taxable income, then, 
in lieu of any tax imposed by section 1 or section 55, the 
taxpayer may elect to pay a tax which shall consist of the 
sum of— 
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‘‘(1) a tax computed on the taxpayer’s taxable 
income reduced by the amount of National Enter-
prise Zone tentative individual taxable income (if 
greater than zero), at the rates and in the manner 
as if this subsection had not been enacted, plus 
‘‘(2) a tax of 12 percent of the National Enter-
prise Zone individual taxable income. 
‘‘(b) YEARS FOR WHICH ELECTION IS EFFECTIVE.— 
An election under subsection (a) shall be effective for the 
three taxable years of the electing taxpayer following the 
year in which the election is made and for all succeeding 
taxable years of such taxpayer, unless— 
‘‘(1) the taxpayer ceases to have National En-
terprise Zone taxable income, 
‘‘(2) the taxpayer revokes the election (after the 
initial three-year period), or 
‘‘(3) the period described in section 1400U(d) 
has expired. 
‘‘(c) EFFECT OF CESSATION OF BUSINESS OPER-
ATIONS
IN ZONE DURING INITIAL THREE-YEAR PE-
RIOD.—If a taxpayer has made an election under this sec-
tion and if such election has been terminated or revoked 
under subsection (b)(1) due to cessation of business in the 
zone during any of the three years immediately after the 
year in which the election is made, such taxpayer shall 
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be treated as having been subject to tax under chapter 
1 at the otherwise applicable rate for individuals for the 
years the alternative National Enterprise Zone tax was ap-
plicable. 
‘‘(d) NEW ELECTION FOLLOWING TERMINATION.— 
If a taxpayer has made an election under this section and 
if such election has been terminated or revoked under sub-
section (b), such taxpayer shall not be eligible to make 
an election under this section for any taxable year before 
the 3rd taxable year which begins after the 1st taxable 
year for which such termination is effective, unless the 
Secretary consents to such election. 
‘‘SEC. 1400U–3. NATIONAL ENTERPRISE ZONE INDIVIDUAL 
TAXABLE INCOME. 
‘‘(a) NATIONAL
ENTERPRISE
ZONE
INDIVIDUAL 
TENTATIVE
TAXABLE
INCOME.—National Enterprise 
Zone tentative individual taxable income shall be equal to 
taxable income (as defined by section 63 without regard 
to section 179(e)) arising from the conduct of an active 
trade or business (as defined in section 1400U–6) within 
one or more National Enterprise Zones. 
‘‘(b) NATIONAL
ENTERPRISE
ZONE
INDIVIDUAL 
TAXABLE INCOME ADJUSTMENTS.—National Enterprise 
Zone individual taxable income shall be equal to National 
Enterprise Zone individual tentative taxable income less— 
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‘‘(1) expenditures made to acquire inventory 
property held in a National Enterprise Zone, and 
‘‘(2) the amount, if any, the taxpayer elects to 
deduct pursuant to section 179(e) that exceeds the 
limitations in section 179(b). 
‘‘SEC. 1400U–4. EFFECT OF NATIONAL ENTERPRISE ZONE 
DESIGNATION ON CORPORATIONS. 
‘‘(a) CORPORATE ALTERNATIVE NATIONAL ENTER-
PRISE ZONE TAX.—In the case of a corporation (other 
than an S corporation), if for any taxable year, the tax-
payer has National Enterprise Zone corporate taxable in-
come, then, in lieu of any tax imposed by section 11 or 
section 55, the taxpayer may elect to pay a tax which shall 
consist of the sum of— 
‘‘(1) a tax computed on taxable income reduced 
by the amount of National Enterprise Zone tentative 
corporate taxable income (if greater than zero) at 
the rates and in the manner as if this subsection 
had not been enacted, plus 
‘‘(2) a tax of 12 percent of the National Enter-
prise Zone corporate taxable income. 
‘‘(b) SPECIAL RULE FOR NON-DOMESTIC CORPORA-
TIONS.—In the case of an electing corporation organized 
under the laws of a possession of the United States doing 
business in a National Enterprise Zone, this section shall 
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apply as if such corporation were a domestic corporation 
subject to tax under this title. 
‘‘(c) YEARS FOR WHICH ELECTION IS EFFECTIVE.— 
An election under subsection (a) shall be effective for the 
three taxable years of the electing corporation following 
the year in which the election is made and for all suc-
ceeding taxable years of such corporation, unless— 
‘‘(1) the corporation ceases to have National 
Enterprise Zone taxable income, 
‘‘(2) the corporation revokes the election, or 
‘‘(3) the period described in section 1400U(d) 
has expired. 
‘‘(d) EFFECT OF CESSATION OF BUSINESS OPER-
ATIONS
IN ZONE DURING INITIAL THREE-YEAR PE-
RIOD.—If a taxpayer has made an election under this sec-
tion and if such election has been terminated or revoked 
under subsection (c)(1) due to cessation of business in the 
zone during any of the three years immediately after the 
year in which the election is made, such taxpayer shall 
be treated as having been subject to tax under chapter 
1 at the otherwise applicable rate for domestic corpora-
tions for the years the alternative National Enterprise 
Zone tax was applicable. 
‘‘(e) NEW ELECTION
BY NATIONAL ENTERPRISE 
ZONE CORPORATION FOLLOWING TERMINATION.—If an 
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electing corporation has made an election under this sec-
tion and if such election has been terminated or revoked 
under subsection (c), such corporation (and any successor 
corporation) shall not be eligible to make an election under 
this section for any taxable year before the 3rd taxable 
year which begins after the 1st taxable year for which such 
termination is effective, unless the Secretary consents to 
such election. 
‘‘SEC. 1400U–5. NATIONAL ENTERPRISE ZONE CORPORATE 
TAXABLE INCOME. 
‘‘(a) IN GENERAL.—National Enterprise Zone cor-
porate tentative corporate taxable income shall be taxable 
income (without regard to section 179(e)) arising from the 
conduct of an active trade or business within one or more 
National Enterprise Zones. 
‘‘(b) ADJUSTMENTS.—National Enterprise Zone cor-
porate taxable income shall be equal to National Enter-
prise Zone corporate tentative taxable income less— 
‘‘(1) expenditures made to acquire inventory 
property held in a National Enterprise Zone, and 
‘‘(2) the amount, if any, the taxpayer elects to 
deduct pursuant to 179(e) that exceeds the limita-
tions in section 179(b). 
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‘‘SEC. 1400U–6. CONDUCT OF AN ACTIVE TRADE OR BUSI-
NESS WITHIN A NATIONAL ENTERPRISE ZONE 
BY 
CORPORATIONS, 
PARTNERSHIPS, 
AND 
SOLE PROPRIETORS. 
‘‘(a) ACTIVE TRADE OR BUSINESS.—For purposes of 
this part, the conduct of active trade or business means 
the conduct of a trade or business that derives no more 
than 25 percent of its gross income from passive activities 
(as defined by section 469). 
‘‘(b) INCOME AND EXPENSES WITHIN A NATIONAL 
ENTERPRISE ZONE.—For purposes of this part— 
‘‘(1) GROSS INCOME.—Gross income from with-
in a National Enterprise Zone shall mean— 
‘‘(A) compensation for labor or services 
performed by the electing corporation, partner-
ship, or sole proprietor within a National En-
terprise Zone; 
‘‘(B) rentals or royalties from property lo-
cated in a National Enterprise Zone; 
‘‘(C) gains, profits, and income derived 
from the sale of inventory property held within 
a National Enterprise Zone; and 
‘‘(D) income from the sale of property that 
is produced, created, fabricated, manufactured, 
extracted, processed, cured, aged, grown or har-
vested within the National Enterprise Zone. 
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‘‘(2) EXPENSES.—Expenses shall be allocated 
and apportioned to the income producing activities 
to which they are related. Expenses which are not 
allocable or apportioned to any specific income pro-
ducing activities shall be allocated on the basis of 
gross income such that the ratio of the expense allo-
cated to the National Enterprise Zone is the same 
as the ratio of gross income within the National En-
terprise Zone to all gross income within the United 
States and a possession of the United States of the 
taxpayer or controlled group (in the case of a cor-
poration that is a member of a controlled group of 
corporations as defined in section 1563(a)). 
‘‘(c) ALTERNATIVE FORMULARY METHOD.— 
‘‘(1) IN
GENERAL.—A corporation (or con-
trolled group in the case of a corporation that is a 
member of a controlled group of corporations (as de-
fined in section 1563(a))), partnership, or sole pro-
prietor that so elects, in a form and manner pre-
scribed by the Secretary, may determine the share of 
its income, expense, and other items attributable to 
the conduct of an active trade or business within a 
National Enterprise Zone by multiplying its appor-
tionment ratio by the amount of the income, ex-
pense, and other items for purposes of determining 
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its National Enterprise Zone corporate taxable in-
come. 
‘‘(2) APPORTIONMENT RATIO.—The apportion-
ment ratio shall be the ratio of— 
‘‘(A) the sum of the remaining basis in de-
preciable property held in a National Enterprise 
Zone for the entire taxable year, of the inven-
tory property held in a National Enterprise 
Zone at the end of the taxable year, and of the 
compensation paid to National Enterprise Zone- 
based employees during the taxable year, and 
‘‘(B) the sum of the remaining basis in de-
preciable property held in the United States 
and its possessions for the entire taxable year, 
of the inventory property held in the United 
States and its possessions at the end of the tax-
able year, and of the compensation paid to em-
ployees within the United States and its posses-
sions during the taxable year. 
‘‘(3) MANDATORY USE OF ALTERNATIVE FOR-
MULARY METHOD.—If a taxpayer— 
‘‘(A) derives greater than 10 percent of its 
gross income from sales to related parties (as 
defined in section 1313(c)), or 
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‘‘(B) expenses attributable to purchases 
from related parties (as defined in section 
1313(c)) account for greater than 10 percent of 
its expenses, then said taxpayer shall use the al-
ternative formulary method. 
‘‘SEC. 1400U–7. DEFINITIONS AND SPECIAL RULES. 
‘‘For purposes of this part— 
‘‘(1) POSSESSION OF THE UNITED STATES.— 
The term ‘possession of the United States’ means 
the Virgin Islands, Guam, American Samoa, the 
Commonwealth of Puerto Rico, and the Common-
wealth of the Northern Mariana Islands. 
‘‘(2) INVENTORY.— 
‘‘(A) INVENTORY
PROPERTY.—The term 
‘inventory property’ means property described 
in section 1221(a)(1) and any expenditures that 
were capitalized pursuant to section 263A. 
‘‘(B) NO DOUBLE COUNTING.—The deduc-
tion afforded by section 1400U–3(b)(1) is in 
lieu of the deduction provided upon the sale of 
inventory property. 
‘‘(3) SPECIAL RULE.—For purposes of a cor-
poration making an election under this part, section 
7701(a)(4) shall include an electing corporation or-
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ganized under the laws of a possession of the United 
States and section 7701(a)(5) shall not apply.’’. 
(b) CONFORMING AMENDMENTS.—Section 179 of the 
Internal Revenue Code of 1986 is amended by inserting 
at the end the following new subsection: 
‘‘(e) NO LIMITATION ON AMOUNT IN NATIONAL EN-
TERPRISE ZONES.— 
‘‘(1) IN
GENERAL.—The limitations of sub-
section (b) shall not apply with respect to property 
placed in service in a National Enterprise Zone. 
‘‘(2) PROPERTY REMOVED FROM NATIONAL EN-
TERPRISE
ZONE.—Property expensed pursuant to 
this section that is removed from service within a 
National Enterprise Zone but not disposed of by the 
taxpayer shall be treated as if it had been, as of the 
date of the removal, disposed of by the taxpayer and 
repurchased by the taxpayer at a price equal to what 
its remaining basis would have been if the election 
under this section had not been exercised with re-
spect to the property.’’. 
(c) CLERICAL AMENDMENT.—The table of parts for 
subchapter Y of chapter 1 of such Code is amended by 
inserting after the item relating to part II the following 
new item: 
‘‘PART III. NATIONAL ENTERPRISE ZONES.’’. 
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