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MINING
IF
BUILDINGS
ARE
FEDERALLY
SUB-
SIDIZED.—For
purpose
of
applying
section 
42(i)(2)(D) to any building which is placed in serv-
ice in the Gulf Opportunity Zone, the Rita GO Zone, 
or the Wilma GO Zone during the period beginning 
on January 1, 2006, and ending on December 31, 
2010, a loan shall not be treated as a below market 
Federal loan solely by reason of any assistance pro-
vided under section 106, 107, or 108 of the Housing 
and Community Development Act of 1974 by reason 
of section 122 of such Act or any provision of the 
Department of Defense Appropriations Act, 2006, or 
the Emergency Supplemental Appropriations Act for 
Defense, the Global War on Terror, and Hurricane 
Recovery, 2006.’’. 
SEC. 7223. SPECIAL TAX-EXEMPT BOND FINANCING RULE 
FOR
REPAIRS
AND
RECONSTRUCTIONS
OF 
RESIDENCES IN THE GO ZONES. 
Subsection (a) of section 1400N (relating to tax-ex-
empt bond financing) is amended by adding at the end 
the following new paragraph: 
‘‘(7) SPECIAL RULE FOR REPAIRS AND RECON-
STRUCTIONS.— 
‘‘(A) IN GENERAL.—For purposes of sec-
tion 143 and this subsection, any qualified GO 
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HR 2206 PP 
Zone repair or reconstruction shall be treated 
as a qualified rehabilitation. 
‘‘(B) QUALIFIED GO ZONE REPAIR OR RE-
CONSTRUCTION.—For
purposes
of
subpara-
graph (A), the term ‘qualified GO Zone repair 
or reconstruction’ means any repair of damage 
caused by Hurricane Katrina, Hurricane Rita, 
or Hurricane Wilma to a building located in the 
Gulf Opportunity Zone, the Rita GO Zone, or 
the Wilma GO Zone (or reconstruction of such 
building in the case of damage constituting de-
struction) if the expenditures for such repair or 
reconstruction are 25 percent or more of the 
mortgagor’s adjusted basis in the residence. 
For purposes of the preceding sentence, the 
mortgagor’s adjusted basis shall be determined 
as of the completion of the repair or reconstruc-
tion or, if later, the date on which the mort-
gagor acquires the residence. 
‘‘(C) TERMINATION.—This paragraph shall 
apply only to owner-financing provided after the 
date of the enactment of this paragraph and be-
fore January 1, 2011.’’. 
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181 
HR 2206 PP 
SEC. 7224. GAO STUDY OF PRACTICES EMPLOYED BY STATE 
AND LOCAL GOVERNMENTS IN ALLOCATING 
AND UTILIZING TAX INCENTIVES PROVIDED 
PURSUANT
TO
THE
GULF
OPPORTUNITY 
ZONE ACT OF 2005. 
(a) IN GENERAL.—The Comptroller General of the 
United States shall conduct a study of the practices em-
ployed by State and local governments, and subdivisions 
thereof, in allocating and utilizing tax incentives provided 
pursuant to the Gulf Opportunity Zone Act of 2005 and 
this division. 
(b) SUBMISSION OF REPORT.—Not later than one 
year after the date of the enactment of this division, the 
Comptroller General shall submit a report on the findings 
of the study conducted under subsection (a) and shall in-
clude therein recommendations (if any) relating to such 
findings. The report shall be submitted to the Committee 
on Ways and Means of the House of Representatives and 
the Committee on Finance of the Senate. 
(c) CONGRESSIONAL HEARINGS.—In the case that 
the report submitted under this section includes findings 
of significant fraud, waste or abuse, each Committee spec-
ified in subsection (b) shall, within 60 days after the date 
the report is submitted under subsection (b), hold a public 
hearing to review such findings. 
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Subpart C—Subchapter S Provisions 
SEC. 7231. CAPITAL GAIN OF S CORPORATION NOT TREAT-
ED AS PASSIVE INVESTMENT INCOME. 
(a) IN GENERAL.—Section 1362(d)(3) is amended by 
striking subparagraphs (B), (C), (D), (E), and (F) and 
inserting the following new subparagraphs: 
‘‘(B) GROSS RECEIPTS FROM THE SALES 
OF
CERTAIN
ASSETS.—For purposes of this 
paragraph— 
‘‘(i) in the case of dispositions of cap-
ital assets (other than stock and securi-
ties), gross receipts from such dispositions 
shall be taken into account only to the ex-
tent of the capital gain net income there-
from, and 
‘‘(ii) in the case of sales or exchanges 
of stock or securities, gross receipts shall 
be taken into account only to the extent of 
the gains therefrom. 
‘‘(C) PASSIVE
INVESTMENT
INCOME
DE-
FINED.— 
‘‘(i) IN GENERAL.—Except as other-
wise provided in this subparagraph, the 
term ‘passive investment income’ means 
gross receipts derived from royalties, rents, 
dividends, interest, and annuities. 
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HR 2206 PP 
‘‘(ii) EXCEPTION
FOR
INTEREST
ON 
NOTES FROM SALES OF INVENTORY.—The 
term ‘passive investment income’ shall not 
include interest on any obligation acquired 
in the ordinary course of the corporation’s 
trade or business from its sale of property 
described in section 1221(a)(1). 
‘‘(iii) TREATMENT OF CERTAIN LEND-
ING
OR
FINANCE
COMPANIES.—If the S 
corporation meets the requirements of sec-
tion 542(c)(6) for the taxable year, the 
term ‘passive investment income’ shall not 
include gross receipts for the taxable year 
which are derived directly from the active 
and regular conduct of a lending or finance 
business (as defined in section 542(d)(1)). 
‘‘(iv) TREATMENT OF CERTAIN DIVI-
DENDS.—If an S corporation holds stock 
in a C corporation meeting the require-
ments of section 1504(a)(2), the term ‘pas-
sive investment income’ shall not include 
dividends from such C corporation to the 
extent such dividends are attributable to 
the earnings and profits of such C corpora-
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