‘‘(A) to provide qualified economic develop-
ment facilities or land which is functionally re-
lated and subordinate to such facilities, or
‘‘(B) to provide working capital required in
connection with the establishment of a qualified
business in a distressed community or the ex-
pansion of such a business in such a commu-
nity.
‘‘(3) QUALIFIED ECONOMIC DEVELOPMENT FA-
CILITIES.—For purposes of this subsection, the term
‘qualified economic development facilities’ means any
property to which section 168 applies (or would
apply but for section 179) if—
‘‘(A) such property was acquired by pur-
chase (as defined in section 179(d)(2)) after the
date on which the designation of the distressed
community took effect,
‘‘(B) the original use of which in the dis-
tressed community commences with the person
to whom the financing is provided under the
issue, and
‘‘(C) substantially all the use of which is in
a distressed community and in the active con-
duct of a qualified business.
For purposes of the preceding sentence, rules similar
to the rules of subsections (a)(2) and (b) of section
1397C shall apply.
‘‘(4) QUALIFIED BUSINESS.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘qualified
business’ means any trade or business.
‘‘(B) RENTAL OF REAL PROPERTY.—The
rental of any building or structure located in a
distressed community shall be treated as a
qualified business if and only if—
‘‘(i) the property is not residential
rental property (as defined in section
168(e)(2), and
‘‘(ii) at least 50 percent of the gross
rental income from the building or struc-
ture is from other qualified businesses in
such community.
‘‘(C) RENTAL
OF
TANGIBLE
PERSONAL
PROPERTY.—The rental of tangible personal
property shall be treated as a qualified business
if and only if substantially all of the rental of
such property is by qualified businesses in the
distressed community or by individual residents
of the distressed community.
‘‘(D) TREATMENT OF BUSINESS HOLDING
INTANGIBLES.—The term ‘qualified business’
shall not include any trade or business consist-
ing predominantly of the development or hold-
ing of intangibles for sale or license.
‘‘(E) CERTAIN BUSINESSES EXCLUDED.—
The term ‘qualified business’ shall not include
any trade or business consisting of—
‘‘(i) the operation of any facility de-
scribed in subsection (c)(6)(B), or
‘‘(ii) operating a trade or business the
principal activity of which is farming
(within the meaning of subparagraph (A)
or (B) of section 2032A(e)(5)), but only if,
as of the close of the preceding taxable
year, the sum of the following exceeds
$500,000—
‘‘(I) the aggregate unadjusted
bases (or, if greater, the fair market
value) of the assets owned by the tax-
payer and used in such trade or busi-
ness, and
‘‘(II) the aggregate value of the
assets leased by the taxpayer and
used in such trade or business.
For purposes of subclause (II), rules simi-
lar to the rules of section 1397(b) shall
apply.
‘‘(5) DISTRESSED COMMUNITY.—For purposes
of this subsection, the term ‘distressed community’
means, with respect to periods in any calendar year,
any area—
‘‘(A) which is the area over which a gen-
eral purpose local governmental unit has juris-
diction and which is designated for purposes of
this subsection by the governing body of such
unit, and
‘‘(B) which (as of the beginning of such
year) meets the requirements of clause (i), (ii),
or (iii) of this subparagraph:
‘‘(i) CHRONIC ECONOMIC DISTRESS.—
An area meets the requirements of this
clause if—
‘‘(I) the area has experienced
population loss (as determined by the
1990 or subsequent census data) of
not less than 5 percent, or
‘‘(II) the area has experienced an
average unemployment rate over the
last 5 years (as determined by the
Bureau of Labor Statistics) of not
less than 8 percent.
‘‘(ii) SLOW
JOB
GROWTH.—An area
meets the requirements of this clause if,
over the last 5 years—
‘‘(I) the area has experienced job
growth in the retail and manufactur-
ing sectors of less than 3 percent, or
‘‘(II) if data are available only
for the manufacturing sector, the
community has experienced no job
growth in such sector, or if data are
available only for the retail sector, the
area has experienced job growth in
such sector of less than 8.5 percent.
‘‘(iii) MAJOR
BASE
CLOSING.—An
area meets the requirements of this clause
if—
‘‘(I) there has been a military
base closing within its boundaries or
adjacent thereto within the last 2
‘‘(i) the establishment of the new
branch, affiliate, or subsidiary will not re-
sult in a decrease in employment in the
area of original location or in any other
area where the existing business entity
conducts business operations, and
‘‘(ii) there is no reason to believe that
the new branch, affiliate, or subsidiary is
being established with the intention of clos-
ing down the operations of the existing
business entity in the area of its original
location or in any other area where the ex-
isting business entity conducts business op-
erations.’’
(2) CLERICAL AMENDMENTS.—
(A) The section heading for section 144 is
amended by striking ‘‘QUALIFIED REDEVEL-
OPMENT BOND.’’ and inserting ‘‘ETC.’’.
(B) The table of sections for subpart A of
part IV of subchapter B of chapter 1 is amend-
ed by striking ‘‘qualified redevelopment bond.’’
in the item relating to section 144 and inserting
‘‘etc.’’.
(c) CERTAIN RULES NOT TO APPLY.—
(1) Subsection (h) of section 147 of such Code
(relating to certain rules which do not apply) is
amended by adding at the end thereof the following
new paragraph:
‘‘(3) BONDS FOR DISTRESSED COMMUNITY ECO-
NOMIC
DEVELOPMENT
FACILITIES.—Subsection
(c)(1)(A) shall be applied by substituting ‘50 per-
cent’ for ‘25 percent’ and subsection (d) shall not
apply to any bond issued as part of an issue de-
scribed in section 144(d)(1).’’
(2) The subsection heading for subsection (h) of
section 147 of such Code is amended to read as fol-
lows:
‘‘(h) SPECIAL RULES FOR CERTAIN BONDS.—’’.
(d) VOLUME CAP ONLY CHARGED WITH 50 PER-
CENT OF DISTRESSED COMMUNITY ECONOMIC DEVELOP-
MENT BONDS.—Subsection (g) of section 146 of such
Code (relating to an exception for certain bonds from vol-
ume cap) is amended by striking ‘‘and’’ at the end of para-
graph (3), by striking the period at the end of paragraph
(4) and inserting ‘‘, and’’, and by inserting after para-
graph (4) the following new paragraph:
‘‘(5) 50 percent of any bond issued as part of
an issue described in section 144(d)(1) (relating to
distressed community economic development facili-
ties).’’
(e) PENALTIES FOR LOANS MADE TO BUSINESSES
THAT CEASE TO BE DISTRESSED COMMUNITY ECONOMIC
DEVELOPMENT BUSINESSES, ETC.—Subsection (b) of
section 150 of such Code (relating to change in use) is
amended by adding at the end thereof the following new
paragraph:
‘‘(7) DISTRESSED COMMUNITY ECONOMIC DE-
VELOPMENT BONDS.—In the case of any qualified
economic development facility with respect to which
financing was provided by an issue described in sec-
tion 144(d)(1):
‘‘(A) NO DEDUCTION ALLOWED.—No de-
duction shall be allowed under this chapter for
interest on such financing which accrues during
the period beginning on the first day of the cal-
endar year which includes the date on which—
‘‘(i) the trade or business to which the
financing was provided ceases to be a
qualified business, or
‘‘(ii) substantially all of the use of
such facility with respect to which the fi-
nancing was provided ceases to be in a dis-
tressed community.
For purposes of this subparagraph, the term
‘distressed community’ means any area which
qualifies as a distressed community under sec-
tion 144(d)(5) as of the time the financing was
provided without regard to any subsequent rev-
ocation or termination.
‘‘(B) PENALTY IMPOSED ON DISTRESSED
COMMUNITY
ECONOMIC
DEVELOPMENT
BUSI-
NESS.—If at any time while such financing is
outstanding—
‘‘(i) such facility ceases to be in use in
a qualified business, or
‘‘(ii) substantially all of the use of
such facility ceases to be in a distressed
community (as so defined),
there is hereby imposed on such business to
which such financing was provided a penalty
equal to 1.25 percent of the portion of such fi-
nancing which is outstanding immediately be-
fore such cessation. Such penalty shall be as-
sessed and collected by the Secretary.
‘‘(C) EXCEPTION
FOR
BANKRUPTCY.—
Subparagraphs (A) and (B) shall not apply to
any cessation resulting from bankruptcy.’’
(f) BANK INTEREST DEDUCTION.—
(1) IN
GENERAL.—Clause (ii) of section
265(b)(3)(B) of such Code (relating to exception for
certain tax-exempt obligations) is amended—
(A) by striking ‘‘or’’ at the end of sub-
clause (I),
(B) by redesignating subclause (II) as sub-
clause (III), and
(C) by inserting after subclause (I) the fol-
lowing new subclause:
‘‘(II) any bond issued as part of
an 
issue 
described 
in 
section
144(d)(1), or’’.
(2) CONFORMING AGREEMENT.—Subclause (I)
of section 265(b)(3)(B)(i) of such Code (defining
qualified tax-exempt obligation) is amended by in-
serting ‘‘or is an obligation issued as part of an
issue described in section 144(d)(1)’’ after ‘‘issuer’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to bonds issued after the date of
the enactment of this Act.
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