‘‘(5) NOMINATED AREA.—The term ‘nominated
area’ means an area which is nominated by 1 or
more local governments and the State in which it is
located for designation as a tax enterprise zone
under this subchapter.
‘‘(6) RURAL
AREA.—The term ‘rural area’
means any area which is—
‘‘(A) outside of a metropolitan statistical
area 
(within 
the 
meaning 
of 
section
143(k)(2)(B)), or
‘‘(B) determined by the Secretary of Agri-
culture, after consultation with the Secretary of
Commerce, to be a rural area.
‘‘(7) APPROPRIATE SECRETARY.—The term ‘ap-
propriate Secretary’ means—
‘‘(A) the Secretary of Housing and Urban
Development in the case of urban tax enterprise
zones, and
‘‘(B) the Secretary of Agriculture in the
case of rural development investment zones.
‘‘(8) STATE-CHARTERED
DEVELOPMENT
COR-
PORATIONS.—An area shall be treated as nominated
by a State and a local government if it is nominated
by—
‘‘(A) an economic development corporation
chartered by the State, or
‘‘(B) a community development corpora-
tion—
‘‘(i) which is described in section
501(c)(3) and exempt from tax under sec-
tion 501(a), and
‘‘(ii) the principal purposes of which
include promoting employment of, and
business opportunities for, low-income indi-
viduals who are residents of its operational
area.
‘‘PART II—INCENTIVES FOR TAX ENTERPRISE
ZONES
‘‘SUBPART A. Enterprise zone employment credit.
‘‘SUBPART B. Investment incentives.
‘‘SUBPART C. Regulations.
‘‘Subpart A—Enterprise Zone Employment Credit
‘‘Sec. 1394. Enterprise zone employment credit.
‘‘Sec. 1394A. Credit to qualified zone employees of tax-exempt or-
ganizations.
‘‘Sec. 1395. Other definitions and special rules.
‘‘SEC. 1394. ENTERPRISE ZONE EMPLOYMENT CREDIT.
‘‘(a) AMOUNT OF CREDIT.—For purposes of section
38, the amount of the enterprise zone employment credit
determined under this section with respect to any em-
ployer for any taxable year is 15 percent of the qualified
zone wages paid or incurred during such taxable year.
‘‘(b) QUALIFIED ZONE WAGES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified zone wages’ means any
wages paid or incurred by an employer for services
performed by an employee while such employee is a
qualified zone employee.
‘‘(2) ONLY FIRST $20,000 OF WAGES PER YEAR
TAKEN INTO ACCOUNT.—With respect to each quali-
fied zone employee, the amount of qualified zone
wages which may be taken into account for the tax-
able year shall not exceed $20,000.
‘‘(3) COORDINATION
WITH
TARGETED
JOBS
CREDIT.—The term ‘qualified zone wages’ shall not
include wages attributable to service rendered during
the 1-year period beginning with the day the individ-
ual begins work for the employer if any portion of
such wages is taken into account in determining the
credit under section 51.
‘‘(c) QUALIFIED ZONE EMPLOYEE.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified zone em-
ployee’ means, with respect to any period, any em-
ployee of an employer if—
‘‘(A) substantially all of the services per-
formed during such period by such employee for
such employer are performed within a tax en-
terprise zone in a trade or business of the em-
ployer, and
‘‘(B) the principal place of abode of such
employee while performing such services is
within such tax enterprise zone.
‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—
The term ‘qualified zone employee’ shall not in-
clude—
‘‘(A) any individual described in subpara-
graph (A), (B), or (C) of section 51(i)(1),
‘‘(B) any 5-percent owner (as defined in
section 416(i)(1)(B)),
‘‘(C) any individual employed by the em-
ployer at any facility described in section
144(c)(6)(B), and
‘‘(D) any individual employed by the em-
ployer in a trade or business the principal activ-
ity of which is farming (within the meaning of
subparagraphs 
(A) 
or 
(B) 
of 
section
2032A(e)(5)), but only if, as of the close of the
taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the employer which
are used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the employer which are used in
such a trade or business (as determined
under regulations prescribed by the Sec-
retary),
exceeds $500,000.
‘‘(d) EARLY TERMINATION OF EMPLOYMENT BY EM-
PLOYER.—
‘‘(1) IN GENERAL.—If the employment of any
employee is terminated by the taxpayer before the
day 1 year after the day on which such employee
began work for the employer—
‘‘(A) no wages with respect to such em-
ployee shall be taken into account under sub-
section (a) for the taxable year in which such
employment is terminated, and
‘‘(B) the tax under this chapter for the
taxable year in which such employment is ter-
minated shall be increased by the aggregate
credits (if any) allowed under section 38(a) for
prior taxable years by reason of wages taken
into account with respect to such employee.
‘‘(2) 
CARRYBACKS
AND
CARRYOVERS
AD-
JUSTED.—In the case of any termination of employ-
ment to which paragraph (1) applies, the carrybacks
and carryovers under section 39 shall be properly
adjusted.
‘‘(3) SUBSECTION NOT TO APPLY IN CERTAIN
CASES.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to—
‘‘(i) a termination of employment of
an employee who voluntarily leaves the em-
ployment of the taxpayer,
‘‘(ii) a termination of employment of
an individual who before the close of the
period referred to in paragraph (1) be-
comes disabled to perform the services of
such employment unless such disability is
removed before the close of such period
and the taxpayer fails to offer reemploy-
ment to such individual, or
‘‘(iii) a termination of employment of
an individual if it is determined under the
applicable State unemployment compensa-
tion law that the termination was due to
the misconduct of such individual.
‘‘(B) CHANGES IN FORM OF BUSINESS.—
For purposes of paragraph (1), the employment
relationship between the taxpayer and an em-
ployee shall not be treated as terminated—
‘‘(i) by a transaction to which section
381(a) applies if the employee continues to
be employed by the acquiring corporation,
or
‘‘(ii) by reason of a mere change in
the form of conducting the trade or busi-
ness of the taxpayer if the employee con-
tinues to be employed in such trade or
business and the taxpayer retains a sub-
stantial interest in such trade or business.
‘‘(4) SPECIAL
RULE.—Any increase in tax
under paragraph (1) shall not be treated as a tax
imposed by this chapter for purposes of—
‘‘(A) determining the amount of any credit
allowable under this chapter, and
‘‘(B) determining the amount of the tax
imposed by section 55.
‘‘SEC. 1394A. CREDIT TO QUALIFIED ZONE EMPLOYEES OF
TAX-EXEMPT ORGANIZATIONS.
‘‘(a) ALLOWANCE
OF CREDIT.—In the case of a
qualified zone employee who received qualified zone wages
during the taxable year from any tax-exempt employer,
there shall be allowed as a credit against the tax imposed
by this chapter for such taxable year an amount equal to
15 percent of the qualified zone wages received by such
employee from such employer during such taxable year.
‘‘(b) ONLY FIRST $20,000 OF WAGES PER YEAR
TAKEN INTO ACCOUNT.—With respect to each qualified
zone employee, the amount of qualified zone wages which
may be taken into account for the taxable year shall not
exceed $20,000.
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—For
purposes of this title, the credit allowed under this section
shall be treated as allowed under subpart A of part IV
of subchapter A of this chapter (relating to nonrefundable
personal credits).
‘‘(d) TAX-EXEMPT EMPLOYER.—For purposes of this
section, the term ‘tax-exempt employer’ means any em-
ployer who is exempt from tax under this subtitle. Such
term shall not include the Federal Government, any State
or local government or political subdivision thereof, or any
agency or instrumentality of any of the foregoing.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—