school modernization bonds with a specified maturity 
or redemption date without discount and without in-
terest cost to the qualified issuer. The applicable 
credit rate with respect to any qualified public school 
modernization bond shall be determined as of the 
first day on which there is a binding, written con-
tract for the sale or exchange of the bond. 
‘‘(4) SPECIAL RULE FOR ISSUANCE AND RE-
DEMPTION.—In the case of a bond which is issued 
during the 3-month period ending on a credit allow-
ance date, the amount of the credit determined 
under this subsection with respect to such credit al-
lowance date shall be a ratable portion of the credit 
otherwise determined based on the portion of the 3- 
month period during which the bond is outstanding. 
A similar rule shall apply when the bond is redeemed 
or matures. 
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.— 
‘‘(1) IN GENERAL.—The credit allowed under 
subsection (a) for any taxable year shall not exceed 
the excess of— 
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
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‘‘(B) the sum of the credits allowable 
under this part (other than subpart C and this 
subpart). 
‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the 
credit allowable under subsection (a) exceeds the 
limitation imposed by paragraph (1) for such taxable 
year, such excess shall be carried to the succeeding 
taxable year and added to the credit allowable under 
subsection (a) for such taxable year. 
‘‘(d) QUALIFIED PUBLIC SCHOOL MODERNIZATION 
BOND.—For purposes of this section— 
‘‘(1) QUALIFIED PUBLIC SCHOOL MODERNIZA-
TION BOND.—The term ‘qualified public school mod-
ernization bond’ means— 
‘‘(A) a qualified school construction bond, 
and 
‘‘(B) a qualified zone academy bond, 
which is part of an issue that meets requirements of 
paragraphs (2), (3), (4), and (5). 
‘‘(2) SPECIAL RULES RELATING TO EXPENDI-
TURES.— 
‘‘(A) IN
GENERAL.—An issue shall be 
treated as meeting the requirements of this 
paragraph if, as of the date of issuance, the 
issuer reasonably expects— 
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‘‘(i) at least 95 percent of the gross 
proceeds are to be spent for 1 or more 
qualified purposes within the 3-year period 
beginning on such date of issuance, 
‘‘(ii) a binding commitment with a 
third party to spend at least 10 percent of 
such gross proceeds will be incurred within 
the 6-month period beginning on such date 
of issuance, and 
‘‘(iii) such purposes will be completed 
with due diligence and such gross proceeds 
from the sale of the issue will be spent 
with due diligence. 
‘‘(B) EXTENSION OF PERIOD.—Upon sub-
mission of a request prior to the expiration of 
the period described in subparagraph (A)(i), the 
Secretary may extend such period if the issuer 
establishes that the failure to satisfy the 3-year 
requirement is due to reasonable cause and the 
related purposes will continue to proceed with 
due diligence. 
‘‘(C) 
FAILURE
TO
SPEND
REQUIRED 
AMOUNT
OF
BOND
PROCEEDS
WITHIN
YEARS.—To the extent that less than 95 per-
cent of the gross proceeds of the issue are ex-
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pended by the close of the 3-year period begin-
ning on the date of issuance (or if an extension 
has been obtained under subparagraph (B), by 
the close of the extended period), the issuer 
shall redeem all of the nonqualified bonds with-
in 90 days after the end of such period. For 
purposes of this paragraph, the amount of the 
nonqualified bonds required to be redeemed 
shall be determined in the same manner as 
under section 142. 
‘‘(D) QUALIFIED PURPOSE.—For purposes 
of this paragraph, the term ‘qualified purpose’ 
means— 
‘‘(i) in the case of a qualified school 
construction bond, a purpose specified in 
section 54B(a)(1), and 
‘‘(ii) in the case of a qualified zone 
academy bond, a purpose specified in sec-
tion 54C(a)(4). 
‘‘(3) REPORTING.—An issue shall be treated as 
meeting the requirements of this paragraph if the 
issuer of qualified public school modernization bonds 
submits reports similar to the reports required under 
section 149(e). 
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